888 to focus on fewer markets, launch updated strategy in effort to cut buyout debt

Betting and gaming company 888 Holdings will seek to focus on fewer markets in an effort to cut debts, officials have announced. The 888 and Mr Green operator unveiled its updated strategy for sustainable value creation at Capital Markets Day, which sees a plan focused on delivering shareholder returns, driven by rapid deleveraging and improved profit margins. The firm is also considering tapping credit markets in the near future.

The new strategic framework is based on three phases: position, which looks at where the company is now in 2022; plan, which focuses on 2023-25; and potential, which looks to 2025. “Today we set out our approach to unlocking the significant benefits of the combination of 888 and William Hill and I am pleased to share a more detailed view of our strategic direction and priorities,” said Itai Pazner, CEO of 888.

The business will seek to support its new phase, which follows the completed acquisition of the non-US assets of William Hill in July, in accelerated and increased cost synergies. In connection with its new roadmap, the company also presented a series of new financial targets for 2025, which include revenue of above £2 billion ($2.4 billion).

In order to meet this goal, 888 Holdings is presenting a “refined strategic focus” on a smaller number of key markets, with targets to drive greater market share and build sustainable long-term leadership positions. The group will also seek to achieve Adjusted EBITDA margin above 23%, with a focus on building scalability into the enlarged company operating model, “using the benefits of unified proprietary technology and operations to drive higher profit.”

A target has also been set for Adjusted net debt / EBITDA of less than 3.5x, with an “extremely disciplined” approach to capital allocation, and a focus on leverage reduction to less than 3.5x by end of 2025. Additionally, 888 Holdings is targeting Adjusted EPS of “at least 35p,” with a strong focus on core equity growth drivers to deliver the benefits of the enlarged group.

Moreover, the group is announcing both “an acceleration and increase” in anticipated cost synergies, with a hike in the pre-tax cost synergy target to approximately £150 million ($180.3 million), of which approximately £34 million ($40.9 million) are expected to be capital expenditure related synergies.

The new strategic roadmap follows the William Hill acquisition, which 888 Holdings says provides “robust foundations” for the group’s next decade of growth. “The enlarged group is one of the world's leading online betting and gaming groups with significantly increased scale, greater revenue diversification and an increased proportion of regulated and taxed revenues,” the business said, noting “stronger positions” across the core markets of UK, Italy and Spain.

However, 888 Holdings’ leadership admitted “material external changes” that the group must now address, including a “more challenging” operating environment. “Global macroeconomic conditions are shifting and key countries in which we operate are facing increasingly high inflation, energy costs hikes, higher interest rates, and, in some cases such as the UK, potential further regulatory changes,” noted the company.

Additionally, the ultimate structure of the William Hill acquisition resulted in the group's net debt being higher than was anticipated when the purchase was initially announced. This has left the group more exposed to changes in interest rates (36% of gross debt is fixed and 64% has floating rates), which has in turn impacted its ability to reinvest excess cash flow in accelerating growth in the short term. 

“In the coming weeks and months, the group may look to access debt capital markets, using proceeds to repay up to £347 million ($417 million) (equivalent) of bank loans which were drawn to redeem the William Hill 2026 Notes,” said the firm.

“Our long-term potential remains exciting,” added Pazner. “Building our unified tech platform will present us with real future growth opportunities as we take advantage of our world class brands, product and content leadership, and customer excellence to set our business for the next decade of growth.”