888 Holdings plc

Hi, everyone. Good morning and welcome to our 2021 annual results. I'm happy to be here with Yarev Defnaou who is in our London office. And we'll start with the agenda on slide three. I'll walk you through some of the highlights of the year, and then I'll hand over to Yariv to go over the financials. And then I'll walk through some of the really, really exciting strategic process that we did over the course of 2021 and coming up. And then we'll open up for some questions. But before we go into the presentation, I just wanted to address something unpleasant that you all saw in the news last week that came from the UKGC and relates to the sanctions that we got as a company. This is something that I would say is something that we're not proud of as a company. I think it's not a happy moment for us in the history of 888. because we do see ourselves as a responsible operator that takes customer safety, adhering to regulations, and meeting the highest standards extremely seriously. And we completely recognize that there were some clear issues in our policies and our procedures at the time that didn't work properly, and we deeply regret those. It happened to us, but when we recognized it, we immediately took quite significant and severe actions to fix all of them as fast as we could. We also learned a lot as an organization of what went wrong. and we made a lot of effort to fixing the processes in our procedures. This, as we know, is something that's evolving, and we recognize that there's a change for an ongoing effort, and we simply can't keep our eyes off of this domain. I am personally committed to continue investing in this ongoing effort and doing whatever it takes to bring us back to the highest standards of the industry, which is a natural place for us and a place that we can be proud of again. Going back to the presentation and going into our full year results, which was a really positive picture of a business that's in a really good shape and a good position. So it's great to be able to report another set of record results for us as a group with revenues up in the year 15% to $980 million. in line with the mid-teens growth that we guided in the half-year results. Just to put this into context, it's 75% higher than what we managed to achieve in 2019. So over the course of the last two years, we have truly managed to transform the scale of our business. As well as a strong organic growth that we had in 2021, we were really busy on the strategic expansion and strategic front. In the U.S., we signed the landmark deal with Sports Illustrated and launched the first market there. In September, we announced a transformational acquisition of William Hill, a deal that we were all working on for a long period, and the company was very, very happy with to sign it in September. In December, we announced the sale of our Bingo business, which will enable us to focus and increase our investment in the fantastic growth opportunities that we have ahead of us. But I'll talk a lot about all of these developments and our refined long-term strategy. But first, I want to hand over to Yariv to walk us through the financials from 2021.

Thanks, Itay. Good morning, everyone, and thank you for joining us on this virtual presentation. I'm delighted to be presenting today another set of strong results. Starting with slide six, you can see the financial highlight for 2021. I will expand further on the driver behind the 2021 performance over the next few slides, but a few highlights here. Revenue was up 15% to $980 million, led by strong growth in our B2C business. Adjusted EBITDA increased by 6% to 165 million. The EBITDA margin was down slightly to 17% as we continue to increase investment in our U.S. B2C expansion. If we exclude the U.S. losses, the EBITDA margin is fairly stable versus last year. Cash generation was solid, and the balance sheet remained strong. Free cash flow was 103 million compared to adjusted EBITDA of 165 million despite more than 20 million of exceptional items that impacted the working capital. This basically leaves us with a net cash position of 175 million. This excludes player balances, but includes PSP balances, which are now included in the net cash to align with others in the industry. Last point, considering the plan to raise equity as part of the William Hill transaction, the board has decided not to declare a final dividend for 2021. beyond the interim dividend that was declared after our half year result. The dividend policy, however, remain unchanged. Let's move to slide seven. You can see our quarterly revenue built up over the last few years. Since 2019, we have transformed the scale of this business with a focus on achieving growth in key regulated market through differentiated product, AI-driven optimization, and increasing brand awareness. As you can see here, the growth trend accelerated during 2020, and we delivered another record year of revenue in 2021. The strong growth over the last years have been driven by a higher customer activity. Monthly active customer in 2021 were 36% higher than the level of 2018. And in recent months, we have been seeing encouraging trend at player activity. Slide eight. One of our key goals is to build 888 into one of the leading regulated online betting and gaming businesses. We made further progress in 2021 with 17% growth in our regulated and taxed revenue, taking the mix to 74% of total revenue in 2021. This process will continue this year, and with the new regulated market, such as Ontario and Netherlands, we expect already this year to cross the 80%. On the right-hand side, you can see how diversified the business is from a geographic perspective. The UK remains the biggest market with 40% of revenue, and Italy now makes up 12% of our revenue after growing 37% in 2021. The rest of EMEA was down from 38% to 34%, following regulatory changes in Germany and the Netherlands and weakness in the Nordics. But with this bucket, we also seen some strong performance from growth market such as Romania and Ireland. The America including the US made up 13% of our revenue. Following the receipt of the license, we are excited about the launching on a locally regulated basis in Ontario in the coming weeks. Together with our plan to launch in three or four additional states in the US during the course of this year, we expect to see further growth of the America business. Turning to slide nine, I will walk you through how we convert our revenue into adjusted EBITDA. Our gross profit represent the revenue less variable costs such as gaming duty, royalty and rev share for third party, which is mainly contact provider and payment costs. We paid 184 million in gaming duties, reflecting our growth in regulated market but we were able to offset most of the increase with efficiency in our other direct costs. As a result, the gross margin was broadly stable at 66%. Marketing. Marketing is the biggest investment we make as a company. We invested in 2021 $307 million in marketing, using our big data and marketing expertise to drive efficient and effective customer acquisition across our brands and market. Our marketing ratio increased by a little over three percentage points, which partially reflected our increased investment in the U.S. with the launch of SI Sportbook in September. Our operating cost increased by only 3%, reflecting our embedded operating leverage and our scalable proprietary technology. This all ended up with adjusted EBITDA margin was a little under 17%, with scale benefit from our growth being offset by our increased investment in the U.S. and other strategic marketing to drive long-term growth. Slide 10, a few words about our cash generation. During the period, we converted about 75% of our adjusted EBITDA into free cash flow, excluding one off items. The net working capital movement of minus $25 million includes more than $20 million of one-off items, principally related to transaction costs and FX losses. CapEx was $31 million, and after reflecting tax payment, we generated free cash flow of $103 million. Now moving to slide 11 to discuss current trading and outlook. Firstly, I will touch on current trading. We have started 2022 with improved momentum. And as you can see from the chart, trend of active customer and revenue started to improve from October. Average daily revenue in January and February are up by mid single digits relative to Q4 2021. While this represented double digit decline year on year, this will be growing quarter after three declining quarters and it will be fully reflecting the impact of all regulatory and compliance headwinds that we have previously discussed and also in line with our expectation. 2022 has several growth drivers, such as Germany, the launch of Ontario that we plan for April, the additional states launch in the US, and the planned relaunch of the Netherlands. With these new launches, our continued product development and customer focus in our key markets we are confident that we are on track to achieve our 2022 target. In terms of any additional and more formal guidance for the year ahead, we will probably be able to update on this only when we release our Q1 trading update. I will now hand over to Itay to tell you a bit more about our strategic priority, key achievement and growth plans.

Thanks Yareev. And turning to slide 13, I thought it would be useful to start with providing you an outline of our refined growth strategy. As we have a clear framework to deliver sustainable long-term growth, build around these three areas. Firstly, our market focus. It means that we ensure our investment in our resources. We invest in the resources in the markets with the most attractive opportunities where we can deliver superior returns. Secondly, reinforcing our sustainable competitive advantages. These are the three core pillars that act as enablers. and really drive market share gains. All of this is underpinned by our continued investment in talented people in the group. Thirdly, we will be supporting our growth with further strategically and financially attractive M&A with targeted M&A that enables us to benefit from our scale's advantages. I'll now walk through each one of these in more detail and cover how in 2021 was a huge year for us in terms of the progress we're delivering against these elements of our strategy. So turning to slide 14. And these are what we call our market archetypes. So we have three core markets. We have the UK, Italy, and Spain. These make up 59% of our revenues, and we saw revenue growing in them by 18% in 2021. And as we continue to grow or hold share in those markets, This was despite marketing restrictions across both Italy and Spain. And this strong performance really shows the power of our brands, our product, and our customer experience and demonstrates the value of the continued investment in these areas. Next is what we call our growth markets. These are a well-defined group of regulated or regulating high-priority growth opportunities for us. where the market conditions are right for strong structural growth. And our capabilities in those markets give us strong confidence in our ability to out-compete the market in those areas. These markets represent 21% of our total revenues, but they grew by 26% in the year. Within this group, there's a sizable evolving opportunity around 3%. interesting markets, Germany, Netherlands, and Ontario, Canada. Independent analysts estimate these three markets offer a potential combined market size of over $10 billion. And during 2021, we launched 888 Sports in Germany on a local license powered by our in-house Sportsbook platform. I'm pleased also to announce that we received our license in Ontario earlier this month, and we are in the process of applying for a license in the Netherlands, and we aim to invest heavily in these markets in order to build 888 into a top-tier brand in all of them. I'll cover the U.S. developments in the next slide, but the last basically long-term opportunity, which includes further growth markets, emerging growth markets such as Latin America and Africa, which we aim to address through a combination of M&A or local partnerships and where we have strong active pipelines of opportunities. Finally, the global scalability of our platform in our business means that we can generate high incremental returns from a long tail of other markets, serving customers from over 100 jurisdictions on a remote basis. We call these our optimization markets. And the focus is on efficient cash generation there. Revenue from these markets was flat in 2021, reflecting our strategy to focus our investment in other markets where we see more growth opportunities. Moving to slide 15. So the USA... It's a really huge opportunity for our business and for the industry. Revenue in the year was up 6%, but we made great progress in creating a platform for profitable long-term growth in the market with most of the required assets are already now in place. So first of all is the technology. We launched the SI Sportsbook in Colorado over our in-house sportsbook platform, and we are pleased with the launch from a technical perspective. Owning all of our technology gives us a low unit cost of production as well as enabling us to differentiate our product and our experience in the market. Brand is the second one. So Sports Illustrated is a household name brand in the U.S. market, and its owners and our partners, the ABG Group, continue to make huge progress, such as growing the digital user footprint from 30 million just a year ago when we signed the deal with them to over 50 million by the end of 2021. And as SI built out its brand, we are working on deepening the integration between SI, so Sports Illustrated website, content website, and Sports Illustrated sports book. And we have some really exciting plans for 2022, including integration of the relevant content into our app. Operational expertise is the next one. We believe that combining this strong brand with our 25 years of experience in successfully operating a gaming and betting business can create a unique customer experience and enable us to carve out a sizable and loyal player base in the U.S. market for SI Sportsbook. This operational expertise means delivering the same product and content leadership, world-class marketing and customer excellence in the U.S. that has underpinned our 25 years of successful operations in the rest of the world. Growing market access deals. So we have secured further market access deals, and we're now planning to launch three to four additional B2C markets with SI this year, starting with Virginia almost imminently in Q2. In the medium term, we expect to be in around 12 to 15 states, attractive states for us in the U.S., We also launched poker B2B with WSOP in Pennsylvania in the middle of last year, and we're now ready to launch in Michigan subject to approval, which will bring us to be live in five out of the six states in the U.S. that offer online poker. Now, on the next few slides, I'll cover our three pillars of competitive advantages that will drive market share growth in all of our markets, including the U.S., So moving to slide 16. So the first of these three pillars is our product and content leadership plan. Our products are designed around the six product principles that we've mentioned in the past. Safety, usability, content rich, entertainment, innovation, and scalability. During the year, we made further strong progress on each one of these core pillars of our products. We migrated most of our sportsbook volumes onto our in-house platform and have just recently completed the Spain migration as well, giving us full control of the customer experience and allowing us to produce a really differentiated and innovative experience. These successful migrations give us confidence going into the future as tech integrations can be more dominant and might come with William Hill. On the casino side, we rolled out more quality content and further developed our AI-based recommendation engine. These smart algorithms ensure that customers are seeing these games that are most relevant for them out of our portfolio of 3,000 games. Think about Netflix or Spotify when you imagine the 888 Casino app and the games that it offers to its consumers. Our in-house studio, Section 8, is a really key asset for us. It makes up around 5% of our content by volume of the games. But in terms of the revenue, these are nearly 15%. In other words, these are disproportionately popular and profitable games in our portfolio. We rolled out lots of cool, successful new games here in 2021, including Mad Max Fury Road and Millionaire Genie Megaways. I'm really excited about the future, and I'm also happy to share with you that we have confirmed our plans to double our investment in the development of in-house games in the very near future. Turning to slide 17, the second of our core competitive advantages is our world-class marketing and brands. So 888 is a world-renowned gaming brand and the only true online casino brand, only true global online casino brand supported by our world-class marketing capabilities. Our performance marketing teams are experts in using real-time data to optimize activity across our marketing channels, enabling us to react in real-time to changing market conditions and deliver superior return on our marketing dollar investments. In order to build on our position as a leading global brand, I'm delighted to tell you about our new master brand strategy called Made to Play. This single 888 brand strategy is a new approach for us, and it will unify all of our sub-brands, 888 Casino, 888 Sports, 888 Sports, and 888 Poker under a single, consistent, and strong brand position. Having been one of the very first online casinos and coming up to our 25th anniversary, our brand awareness, trust, and credibility is really significant. We believe that our made-to-play plan really unites behind a strong brand message. But rather than just telling you about this, let's have a quick look at a teaser of our master brand campaign that's coming up soon.