888 has faced significant challenges over the past year, but its financial results offer a reason for cautious optimism. The company took on £1.70bn in debt, including £1.19bn on a floating rate, when it acquired William Hill’s non-US operations. However, the tightening of global interest rates has made servicing this debt more burdensome. Despite this concern, 888 is committed to reducing its debt to EBITDA ratio from 5.6x to 3.5x by the end of 2025, with the intention to pay dividends only when the ratio falls below 3.0x. Additionally, the company has hedged its interest rate exposure to mitigate future risks.
888 also emphasizes the profit-driven aspect of its business, highlighting the complementary nature between its operations and William Hill’s. This synergy is expected to raise profitability from £100m to £150m. The company believes that by focusing on integration, market concentration, and reducing debt, it can achieve its 2025 targets and build a stronger and sustainable business for the future.
Analysts from Regulus Partners support 888’s strategy but express concerns about the company’s relative decline compared to competitors. They note that given the significant net debt of £1.73bn (5.6x of EBITDA), revenue growth should not be the primary focus. Regulus believes that 888 has been undermining its strategic position since around 2012, despite addressing the reasons for market share losses.
In January, 888 announced the resignation of CEO Itai Pazner due to the failures in its Middle Eastern VIP operations related to anti-money laundering. This led to the suspension of accounts in the region, impacting the company’s revenue and creating regulatory uncertainties. However, 888 has conducted an internal investigation and implemented new policies and procedures to mitigate the AML risk. The company has initiated the reopening of accounts and onboarding new customers, expecting to recover 40-50% of revenue from this cohort but resulting in a £25-30m revenue headwind for FY23.
In 2022, 888 achieved a significant increase in revenue and adjusted EBITDA, primarily driven by the acquisition of William Hill. However, considering organic revenue, the company experienced a 3% decline compared to the previous year. This decline was attributed to self-imposed safer gambling measures in the UK and the closure of Dutch operations. Despite these challenges, 888 maintains a strong cash position of £170m and access to £150m in loans. The company recorded a loss of £115.7m in 2022, reflecting efforts to improve player protection and the impact of compliance issues in the Middle East.
Following Pazner’s resignation, the search for a new CEO is ongoing. The chairman, Mendelsohn, is currently acting as the executive chair temporarily. 888 is focused on appointing a CEO who can lead the team to unlock the business’s potential and ensure a careful selection process rather than a rushed decision.
