888 Holdings plc

Good afternoon, everyone, and thanks for joining us today for 888's 2022 interim results presentation. I'm joined by Yariv Dafna, our CFO. He's in our London office. Starting with the agenda on slide three, I'll run through some highlights and then hand over to Yariv to discuss financials. I will then provide an overview of our strategic progress during the first half before concluding and opening up for some questions. Turning to slide four and getting into the highlights from the period. On a performer basis, as if we had been an enlarged business for both periods, revenues were broadly stable and in line with guidance we gave in June. And adjusted EBITDA was 142 million. Strong growth in retail revenues was offset by online revenues being down just over 20%. The decline in online revenues is mainly due to lower online revenues in the UK where we've implemented a series of safer gambling and affordability measures on players' accounts. While this causes some pain to our financials in the short term, it puts us in a much better position for any future change in regulations in the UK. For the reported financial results, we just reflect 888 on a standalone basis and include bingo. Revenue was 332 million and adjusted EBITDA of 50 million pounds. Looking at our strategic highlights, this has been an incredible period for the business, the most significant transformation in the 21 years that I have been in 88, with the main highlight being the acquisition of William Hill, which closed on July 1st. Alongside that, we continue to expand into further regulated markets with launches in Ontario and in Virginia, and we are just in the process of launching our first four African regulated markets with our strategic partners. I'll expand on these and our long-term growth strategy soon. But for now, I will hand over to Yoriv to walk through our financials.

Thanks, Itay. Good morning, everyone, and thank you for joining us today. Starting with slide six, you can see the financial highlights for the first half on a reported basis. For the first time, we are presenting result in pound sterling, and this is how we will be reporting our result going forward. Revenue were down 13% to $332 million. The main driver for the decline in revenue were the UK, which was 25% down, and the Netherlands closure, which was about 3% of revenue in H1 2021. The decline in the UK was in line with the market, which was down 23%, according to the latest UKGC data. The decline is also driven by the enhanced player protection implemented last year and in the period, while the framework includes significant expansion in the number of players with deposit limits as well as reducing the maximum stake for online slot games to £10. Looking at the reminder of the business, excluding the UK and the Netherlands, our revenue increased 2%, a pleasing performance against a strong period in 2021. Adjusted EBITDA was down 29%, with the EBITDA margin down to 15%. This margin decline largely reflects phasing of costs and an increase in costs from player safety measurers. Adjusted PBT was down 39% to $33 million, impacted by the reduction in EBITDA and an increase in non-cash FX losses. We had $16 million of exceptional items in the period, mainly related to our M&A activity, and therefore the reported PBT and profit after tax were significantly lower. Turning to slide seven, you can see the performer financial highlights. We completed the acquisition of William Hill on July 1st and the bingo sale on July 7th. This slide presents the enlarged group financial as if we were a combined business and excluding the 888 bingo result. Revenue was broadly stable at 943 million and adjusted EBITDA was up 26% to 142 million driven by the retail performance. Retail saw really strong growth as the shop were shut for the most of the period last year. In the last 12 months, the UK retail business has generated revenue of 513 million and adjusted EBITDA of 97 million, and we are really pleased with the recovery of the business. William Hill UK online revenue were down 28% with active fairly stable, but ARPU down 29%. as the team implemented additional strong player protection measure and reduced the slot stack limit to £10. William Hill International revenue were also down 28%, following the closure of certain markets like the Netherlands, as well as strategic changes to increase focus on selected core markets. The EBITDA was stable relative to last year. On a last 12 months basis, we saw 1.9 billion in revenue and 299 million of adjusted EBITDA reflecting an EBITDA margin of 15.8%. Moving to slide eight, in the last few years, one of our key goals was to build 888 into a leading regulated online betting and gaming business. We made further progress in the first half of 2022 with 85% of the performer revenue coming from regulated and taxed markets. During H1, we launched 888 in Ontario, SI Sportbook in Virginia, and WSOP in Michigan. Looking forward, we see a clear path to almost 90% of revenue to come from regulated and taxed markets with a long tail of offshore markets served by our scalable global platforms. Slide nine, you can see the diversity of the business from geographic and a product perspective. The UK remain our most important market with 38% of revenue from UK online and another 28% from the UK retail. Italy remains our number two market, making up 7% of the enlarged group revenue and the AT&T brand has continued to grow market share in the first half, even with retail fully open. The Americas made up 5% of our revenue, and spend represent another 4%. From a product perspective, you can see the strong benefit of the transaction with a better balanced product split with 20% betting, 51% gaming, and 27% retail, all on a performer basis. Moving to slide 10, I will provide overview of our net debt position and the long-term financing we have put in place as part of the acquisition of William Hill. In total, we have approximately 1.8 billion in external debt. And in the table below, you can see how this is split between the different instrument with maturity mainly being six years. Most of the debt is variable rate debt. And based on the current market condition and the forward curves, we expect cash interest costs to be approximately 65 million in H2 2022 and 130 to 140 million in 2023. This represents a blended interest rate of about 8%. In addition to the external debt, we have approximately 100 million of capitalized lease liability under IFRS 16 and cash of 178 million, excluding customer balances. This brings the current net debt to approximately 1.7 billion. On a last 12 months basis and including the plan 85 million of OPEC synergies, this would be 4.4X leverage. With our long-term debt structure in place, the strong progress with our integration plan, we are confident about our plan to achieve the midterm, in the midterm, and net leverage of 3X. Turning to slide 11, a few words about our outlook for the year. For the second half of the year, we expect revenue to be broadly similar to the first half, such that on a performer basis, we currently expect revenue of approximately $1.9 billion for the full year 2022, consistent with the last 12 months period. Within the business, we see real stability in retail, which has been running at approximately 500 million of annual revenue since the UK reopened. Within online, there have been many factors driving revenue, including significant changes in regulatory and compliance matter, but we believe that the last 12 months' run rate of approximately 1.4 billion is a good indication of our business run rate for the short term. As you can see from the actives over the last 12 months, we see continued strong consumer engagement, and this gives us confidence that our product and marketing investments are working. As for the synergy, we still expect a single digit million in 2022, increasing to at least 54 million in 2023. It is too early to talk about 2023 in details, but I can say that our priorities and focus are on integration, execution of our synergy plan, and on cash generation and deleverage. We remain confident that in our plans and outlook, including the midterm target of 3x leverage, And I expect to give you more details on this in the capital market day we plan for later this year. With that, I will now hand over to Itay to tell you a bit more about our strategic priorities, key achievement, and growth plans.

Thanks, Yariv. And turning to slide 13, I thought it would be useful to provide a reminder of our refined growth strategy pillars. We have a clear framework in place to deliver sustainable long-term growth built around three areas. Firstly, market focus. This means ensuring we invest our resources in the markets with the most attractive opportunities when we can deliver superior returns. Secondly, reinforcing our sustainable competitive advantages. These are the three pillars that act as enablers and really drive market share gains. All of this is underpinned by continued investment in our talented people. Thirdly, we will be supporting our growth with strategically and financially attractive M&A that enables us to benefit from scale advantages. I'll expand on progress against these elements. So on slide 14 and our market focus, we made really strong progress here with further regulated market launches. In the U.S., we launched SI Sportsbook in Virginia, and I'm delighted to say that we will be launching Sportsbook in Casino in Michigan in the coming months. By the end of the year, we should be live in four states on a B2C basis. Just north of the border, we launched 888 in a locally regulated basis in Ontario in April, and the initial results here have been really pleasing. Canada is one of our growth markets, and we see really strong potential there, with our strong brand and product and content leadership strategy really building us a strong position in the Canadian market. Within our long-term investment strategy and emerging markets, we are in the process of launching our first four regulated African countries, which I'll expand on shortly. Finally, the combination with William Hill is really complementary in terms of market focus, giving us top three position in the UK and Spain and top five position across several other markets. There are some additional markets where the William Hill and Mr. Green brands perform strongly that we could now consider growth markets for the group. And equally, there are certain markets where having all three brands won't make sense. And we are working through all of these now as part of the integration to decide where we can optimize our investment decisions and marketing approach. Turning to slide 15, and I'm delighted to tell you about the huge progress we made in 888 Africa. We set up 888 Africa in March. It is a joint venture with a team of founders with huge experience in the online betting and gaming and real passion for products and customer excellence. Right now, we are launching our first four countries in Tanzania, Zambia, Kenya, and Mozambique. The operations are under the brand 888 Bet, which is already scoring well in our target markets, leveraging the global brand awareness of the 888 brand. It is very early days, but we are really pleased with the rapid progress the team have made. As you can see from the slide here, we've got some great branding and offers as we roll out the 888 brand into all of the markets. Industry commentators expect the addressable market in Africa to grow rapidly over the medium term. So this is a really exciting opportunity for 888, and we think this could be a source of significant value in the coming years. Turning to slide 16, our growth strategy is underpinned by investing in our sources of sustainable competitive advantages. We made further progress with each of these in this period. Our product and content leadership plan means building best-in-class products and creating easy, quick, and seamless player experiences. During the first half, we launched a whole host of great new products, including a new bedslip for 888 Sports, with a tabbed layout, making it quicker and easier to use. An industry-first live slot experience using Safari riches, one of our really strong in-house game brands. And we rolled out a great free-to-play game in the US, which is called Perfect 10. Our second pillar is world-class brands and marketing. We rolled out our master brand plan for 888 in the period, uniting all of 888's sub-brands under the made-to-play banner, giving us a really consistent and strong brand positioning. Our third pillar is customer excellence and customer safety. It was great to see another improvement in our customer satisfaction score, which was really supported by the rollout of Amanda, a new virtual assistant to help customers get really quick answers and resolutions to any issues they have. This also helps us streamline our customer service, saving time and cost and freeing up time for our excellent team to help customers. Customer safety is one of the most critical focuses for us, and it was great to continue rolling out our control center into more countries as we strive to drive higher and higher standards in player safety. I'll now turn to the third part of our strategy, strategically and financially attractive M&A. Before talking about that transformational acquisition of William Hill, here's a short video about the combination. As you can see, this landmark combination bringing together two really strong businesses to create a powerful enlarged business. Turning to slide 18, the combination brings together some of the industry's strongest brands with 888, William Hill, and Mr. Green. On an enlarged basis, our brands serve almost 6 million customers. And in the last 12 months, we generated almost $2 billion of revenues, and over 380 million of EBITDA after reflecting the synergies that we expect to deliver. This acquisition fits perfectly with our strategy and really accelerates our plan to become a global leader. We are now a top three player in the UK and in Spain and have significantly enhanced market positions across a range of the most attractive markets, including key markets like Italy, Denmark, and Germany. We further boost our competitive advantages with the addition of unique brands and some really great products. And as we integrate and deliver synergies, we expect that acquisition to deliver really strong financial returns. So turning to slide 19, I'm pleased to report that we're making really good progress with our integration. We have a really structured integration plan that is driven by strong principles to drive quick wins with cost savings and maintaining and engaging customers. in our key talent. It's been great to getting to know more of the William Hill team and as we're getting into the integration, that's becoming even more clear to us how much upside potential there is in this combination. Turning to slide 20, a few words about our teams and plans. I was delighted to announce our new leadership team before completion. We have an excellent team built up from people across both businesses and also from outside of the business. A significant new appointment for us is our new Chief Risk Officer, Harinder Gill, who started with us just last week. Safer gambling is a critical focus for us as we further build and strengthen our approach to provide fun and entertainment to our players, but doing whatever we can to minimize risk that come from our products. Alongside the new team you see here, we have a huge depth of talent across both businesses together We are really focused on the huge long-term value creation potential from this combination. We are building a powerful proprietary technology platform that will deliver class-leading products and content globally, delivered from a portfolio of amazing brands, and always with focus on customer excellence. Turning to slide 21 and to conclude. The first half of 2022 was a truly transformational period for the group. Financial results were solid as we lapped a record period, with the UK performance more or less in line with the overall market. We continue to invest in new regulated markets. Our extensive M&A activity has given us a platform to create a world leader in online betting and gaming. We are making really good progress on executing of our integration plans. and look forward to telling you a lot more about this and our future at an Investor Day in November. With that, we'll be happy to take your questions.