888 Holdings plc

Good morning, everyone, and thanks for joining us today for 888's 2022 four-year results presentation. I'm John Mendelsohn. I have served on the board of 888 for two and a half years and for the last two years as non-executive chair. At the end of January, I became the executive chair, taking on the responsibilities of the day-to-day leadership of the company while the board is running a process to appoint a permanent chief executive officer. I will comment further on that process shortly. Now, slide two outlines the agenda for today's call. I will be providing an overview of key developments before handing over to our Chief Financial Officer and Chief Strategy Officer to take you through our financial and strategic progress in more detail. We will then take your questions. Now, slide four affirms our key priorities as a board, recruiting and retaining an outstanding management team, a clear focus on driving ESG considerations and sustainability throughout the business, and driving the execution of our plan articulated at our capital market stake. Now, we have a very strong operational management team in place, and the board priority is the appointment of a permanent chief executive officer. We have been pleased with the depth and calibre of the candidates that we are engaging with and are making good progress with our search. This is a business with the platform to become a top three global operator. We are committed to appointing a chief executive officer that will lead the team to deliver the potential of this business. The focus of the board is therefore making the right selection rather than just making a quick selection. and we intend to make an announcement of the new Chief Executive Officer in the coming months. The second priority is ESG and sustainability. Vaughan will provide a wider update on our progress during 2022, but I would like to address the critical area of player safety in light of recent announcements regarding the settlement with the United Kingdom Gambling Commission and our internal investigation in relation to the Middle East. On the 28th of March, the UK Gambling Commission announced a £19 million settlement agreement with William Hill in relation to historic player safety failings. The failings occurred before we owned William Hill, so we could have had no bearing on the areas that were being investigated. The team had already taken significant remedial action and we have further reinforced this following the acquisition. As a result, the business is now in a far stronger position from a compliance perspective, and with the improvement actions having already been taken, the announcement of the settlement has no further impact on our operations or revenue expectations in the UK. The settlement does not fall under any of the indemnity provisions we had with Caesars, so we will be paying the full amount. Having said that, the amount was in line with the range of expectations we had when we negotiated the £250 million reduction in consideration, and it was fully provided for. These historic failings are not acceptable to me or the board, and the entire group shares the commitment to improve compliance standards across the industry. We will continue to work collaboratively with the regulator and other stakeholders to achieve this. Finally, the board's third priority is execution. We outline clear plans to deliver shareholder value at our capital markets day, and in my capacity as executive chair and supported by the rest of the board, we continue to work with our wider executive management team to deliver the potential of this business. These elements have my and the team's relentless attention, and we remain on course with the plans we have outlined. Turning to slide five, I would like to address the recent action that the Board took to suspend all VIP accounts in the Middle East, as well as the swift actions we have taken to rectify this situation. We have invested significantly in our compliance team with the drive for higher standards headed by our new chief risk officer, Harinder Gill, who joined the group last summer. The compliance team has new personnel procedures and policies and are charged with the mission to drive higher standards across all areas of risk and safer gambling. And as a board and leadership team, we are fully committed to this. An internal team identified failures where our safer gambling policies were not being effectively applied. Further investigations identified similar accounts, which were later confirmed to be a broader issue within a specific cohort of players, namely our VIPs in the Middle East. The board, once fully briefed, took the prudent decision to suspend all of these accounts while the compliance team investigated the situation further. Whilst this was a very disappointing development, I am pleased with how the business responded and that we have been able to quickly remedy the failings. Furthermore, I am confident, highly confident, that our policies and procedures are robust and this failure was isolated to a very specific cohort of players. We have found no further issues and we do not anticipate any further actions here. The only open item is the ongoing reactivation and reopening of accounts where our team are ensuring we are fully satisfied that all policies and procedures are being correctly and effectively implemented. I'm pleased to say we have successfully started reopening accounts and revenues in the region are beginning to recover. As you would expect, when players are blocked and we need to gather significant financial information, some of these players have stopped playing with us or choose not to provide this information or don't do it in a timely fashion. While we are unlikely to recover all of the customers and revenue, we are on track to recover around 40 to 50% this year. The impact of this is fully reflected in our guidance. On the right-hand side of this slide, you can see our business mix following these changes in the Middle East. Based on our current run rates, overall regulated revenue is over 90% of the group, and within the small dot-com portion, we would class most markets as in process to regulation. No individual market within this bucket accounts for over 2% of revenue. Turning to slide six to expand on our integration process. A successful integration is a key board focus to create a higher margin, more efficient business, and I'm pleased to update on significant progress made here. Our new operating model is in place, meaning that we have a more streamlined business that is focused on delivering high quality and localized experiences to our customers. We have centralized customer support functions with the existing William Hill Center of Excellence now serving customers across all brands. The new streamlined operating model has enabled us to increase our 2023 synergies from 54 million to 111 million. And I'm pleased to confirm that we are well on target to deliver this. Our combined brand and marketing plan is supporting significant improvements on return on investment for marketing. Our localised approach to customer engagement is also driving better decision-making. We are already seeing revenue benefits from our combination. This includes sharing the best betting and gaming content across our brands. I'm pleased to say that we are also successfully recently launched Mr. Green in Germany on the 888 platform with a new local gaming license. Our technology plan based around growing our ability to scale and creating efficiencies is rolling out well. We will be migrating Mr. Green in Sweden onto the 888 platform as planned in the coming months, which will be the first major milestone for the technology integration program as we aim to deliver our platform of the future over the next few years. Now, finally, slide seven shows the relative scale and potential of our business. Around £1.8 billion in revenue that is predominantly generated from regulated and tax markets, and over £300 million in adjusted EBITDA. As you can see on the slide here, in terms of online revenues, we are now one of the largest operators globally. As well as scale, this is a business with huge capabilities. We have world class technology and products, a portfolio of iconic brands and very strong teams across the business who have a proven track record of delivering excellent customer experiences. At our Capital Markets Day event in November, we outlined our evolved strategic roadmap based on three phases, position, plan, potential. We have very clear priorities to deliver a leaner, higher margin, more efficient business that will drive rapid deleveraging and unlock the strong potential of our business. We remain on course with our plans for this year and our targets for 2025. And with that, I'm going to hand over to Yariv to walk us through the 2022 financial results.

Thanks, John. Good morning, everyone, and thank you for joining us today. Starting with slide nine, we show the main items in the bridge between 2021 actual to both the 2022 reported result in our financial statement and our performer result. In the appendix to this presentation, there are some more slides on the reported result, including details of the exceptional item being mainly the purchase price allocation amortization and transaction integration cost. On the left, you can see the revenue bridge starting from reported revenue in 2021 of 712 million. In July 2022, we completed the disposal of our bingo business, which contributed 27 million to the decline in 2022 revenues. On an organic basis, edited revenues dropped by 61 million, reflecting the regulatory and compliance headwinds that we have discussed extensively including the closure of the Netherlands and the impact of our proactive approach to safer gambling in the UK. The William Hill acquisition contributed $615 million to H2 revenue, reflecting consolidation from the closing date on July 1st, 2022. After reflecting this transaction, our reported revenue for the full year were $1.24 billion. Our bingo business contributed 20 million to revenue in the first half of 2022. After removing that and adding William Hill revenue of 630 million for the first half, Performa revenue for the full year were 1.85 billion. On the right hand side, you can see the same build up from 2021 actual to 2022 reported and Performa adjusted EBITDA. It is important to say that revenue of 1.85 billion and adjusted EBITDA of 311 million were in line with our guidance from the Investor Day. In slide 10, we present the revenue and adjusted EBITDA by segment on a performer basis. We operate the business in two main segments, the UK, which include all of our UK and Ireland online businesses and our retail business, and the international, which include all our business outside the UK, including the US. For the UK, performer revenue were flat in 2022, reflecting a full year recovery of retail, which was up 54%, offset by online revenue down 20%. The decline in online reflects some of the COVID unwin as customer went back to retail and other leisure activity, but mainly reflects the ongoing impact of our safer gambling measure, including reducing stake limit for slot to 5 and 10 pounds and implementing more affordability checks as soon as player have deposited 500 pounds. For our international business, revenue were down 9%, reflecting strong performance in our core and growth markets, offset by a bigger decline in our optimized market where we exited some market, including the Netherlands. Excluding the Netherlands, revenues were down 4%. Adjusted EBITDA was 311 million on a performer basis in line with consensus and representing an adjusted EBITDA margin of 17%. Turning to slide 11, we made good progress on our three core priorities that we laid out at our investor day. Our first focus is execution of synergies. We delivered 25 million of cash synergies in 2022, and the good progress that was made with integration enabled us to increase our 2023 target from 54 million to 111 million. Our second priority is improving our adjusted EBITDA margin. As we have been executing on our integration plan and delivering improved ROI from our marketing spend, we have confidence in our plan to deliver an adjusted EBITDA margin above 20% in the full year 2023. And our third priority is deleveraging. We ended the year with a net debt of 1.73 billion. This represents a leverage ratio of 5.6x on a performer basis, which drops to a little over 4x after reflecting the full synergies. We continue to target below 3.5x in 2025, And we will continue to be disciplined with capital allocation to prioritize debt reduction in the next couple of years. Our discipline approach to capital allocation includes reviewing opportunities to generate cash from a lower return or non-core asset. For example, we are selling some freehold properties, and we have a 19.5% stake in SAS, which is undertaking a strategic review. Turning to slide 12, I would like to provide a summary of our debt structure. At the end of 2022, we completed another part of our debt syndication, and we now have a strong and long-term debt structure in place with no significant maturity before 2027. We also undertook further hedging at the end of last year, such that 70% of our debt is now interest fixed for the next three years. We have also better matched our debt to our cash flow with about half of the date in euros, 43% in pounds, and only 7% in US dollars. You can find more details breakdown of the debt structure by instrument in the appendix of this presentation. This long-term and largely fixed debt structure give us a better visibility about our future cash requirement and our expected cash interest cost of 165 to 170 million for 2023 is consistent with our prior guidance. It is also important to say that our debt is fairly flexible from a rate perspective. So as we execute our plans and the leverage, we will have future opportunities to optimize the cost of the debt. Turning to slide 13, I would like to provide some details about our Q1 performance and some commentary on our outlook for 2023. For Q1, 2023 revenue were 446 million compared to 469 million on a performer basis in 2022. The decline of approximately 5% is broadly in line with what we expect for the full year. We are pleased with the continued engagement we see from customer with active up about 6% year on year, but we continue to see lower spend per player. The decline in the UK revenue reflect a drop of 9% in online caused by the ongoing impact of our safer gambling measure together with our focus on profitability that led us to remove loss making or low return revenues. While we are seeing lower online revenue as we continue to remix the business and drive a low spending recreational base, I'm pleased to say that we are seeing and expect to see in the full year 2023 higher profits from the UK online segment, and strong performance from the retail business. In our international markets, revenue were down approximately 11%, which reflects strong growth in some of our core and growth market, offset by disruption in some of our dot-com market, like the Middle East, where we expect 25 to 30 million revenue headwind. In terms of the outlook, We expect 2023 revenue to be lower than 2022 by a low to mid single digit percentage, largely as we outline at our investor day and as we saw in the Q1 performance. On the profitability, I can say that we continue to track toward an adjusted EBITDA margin of above 20% for the full year. It's worth noting that EBITDA performance will be more H2-weighted, given the timing of synergy realization. For further technical guidance matters, see more details in the appendix. Most of it is largely consistent with what we gave at our Capital Market Day. Finally, on slide 14, I just wanted to reiterate the 2025 financial targets introduced at the Capital Markets Day last year. As we have discussed already, we are very focused on delivering a leaner, higher margin, more efficient business that will unlock the strong potential of our business and drive rapid deleveraging. Supported by our clear focus on our core growth and pipeline markets, we remain confident in our 2025 ambitions of over 2 billion of revenue, at least 23% adjusted EBITDA margin, leverage of below 3.5x and over 35p of adjusted EPS. I would like to mention again that additional financial information can be found in the appendix. I will now hand over to Von to run through the strategic highlights.

Thanks, Yareev, and good morning, everyone. Turning to slide 16, this is a reminder of our strategic pyramid. This sets the guardrails for how we manage the business and prioritize our actions. Our goal is very clear, rapidly reduce leverage and drive high EPS growth. We will do this through clear priorities of integration and market focus. The business has been quickly changed from one that is competing at low scale in a huge range of markets to one that is laser focused on maintaining and building really strong and sustainable positions in three core markets and five growth markets. In these markets, we plan to grow market share by investing in our competitive advantages, namely product and content leadership, world class brands and customer excellence. And all of this is underpinned by sustainability and our critical foundations, which are our focus on players and player safety, on people and culture, and our commitment to the planet and environment around us. Yareev has already touched on the integration and deleveraging priorities. So over the next few slides, I'll discuss some of the progress we have made across the other areas of market focus, competitive advantages, and sustainability. Turning to slide 17 and a few highlights from our core markets in 2022. These represent about 70% of our online revenues. In the UK, while revenues were lower, this reflected the impact of our proactive safer gambling measures with reductions in maximum stakes for slots and further increases in the proportion of players that have deposit limits in place. While overall revenues are lower, it is really encouraging to see that we are growing our share of active customers and really driving a positive remixing of the business towards a lower spending recreational base. Turning to Italy in the middle, we were pleased to see strong market share gains in casino for 888 during the year with a really strong recovery in the second half of 2022 as trading trends normalized following the disruption from COVID. In Spain, on the right hand side, you can see a similar trend with really strong improvement in trading in the second half of the year. Turning to slide 18 to look at how we focus on our other market archetypes. It was a busy year for our growth markets with all 888 products launching under a new license in Ontario and local licensed sports launches in Germany, Virginia and Michigan during the year. This was followed early this year with the debut launch of SI Casino in Michigan. And in Q1 2023, we also received our German gaming license and went live with the Mr. Green brand over the fully licensed 888 platform. These growth markets represent about 10% of our online revenues today, but we see really strong growth potential and are building long-term sustainable market leading positions in these jurisdictions. We launched SI Casino in February this year, and while it is early days, we've been delighted with the customer reaction here. And this has further reinforced our confidence in our US strategy to focus on gaming states where the combination of our world-class products and content platform and the strength of the SI brand gives us huge competitive advantages. In our optimized markets, we focus more on cash flow and profitability than growth. using our global services to provide incremental returns. And you can see that this group has reduced as a percentage of the total mix over the year as we focus on our core and growth markets. However, importantly, contribution margin has increased by three percentage points from H1 to H2 as we rolled out our market focus plans. This group is a diversified mix of both locally regulated markets like Sweden, Romania and Portugal, and countries that we service on our multi-jurisdictional licenses or dot-com licenses like Canada and the Middle East. As John said earlier, no country within this group represents more than 2% of our revenues. We've been really pleased with our pipeline markets with our Africa JV launching its first four locally regulated markets in the second half of 2022. And we've seen really strong progress in those markets with over half a million customers having enjoyed our products already. We're looking forward to further launches here soon. Turning to slide 19, I'm going to talk about our key enablers and how we drive growth in our target markets. Our key enablers are our three competitive advantages, product and content leadership, world-class brands, and customer excellence. On this slide, you can see some great examples of our product and content leadership. This is all about using our tech expertise to build great customer experiences. Things like our BetBuilder product, Build Your Odds, which was significantly enhanced during the year with leg tracking, live status and cash out. And this massively improves the customer experience. We launched a new daily free play game that is branded with Millionaire Genie, one of our leading in-house games. And this provides a reason for customers to keep coming back to us, along with continued improvements in our AI personalization within gaming. On 888 Sport, users can now choose what the app looks like with light or dark mode. And we rolled out a much improved football page with live games as part of a tabs layout that makes building accumulators much quicker and simpler. This is what recreational customers want, and we saw a 20% uplift in the number of players, including in-play legs as part of their accumulators following this redesign. This shows that we continue to develop exciting new product features for all our brands and products alongside all of the work that we're doing on integration. The integration is the really exciting part that would enable us to launch all of these features across all of the brands. You can see some of the potential benefits on the right here with Section 8 games, including the latest Captain 8 franchise that has a unique daily jackpot feature and the vast library of content that we can offer once Mr. Green and William Hill are on the platform. Over on slide 20, you can see some examples of our world class brands. William Hill stands out for a love of football, the most recognized name in horse racing and being famous for trust, relevance and value. 888 is a slick, entertaining experience with a great range of content and excellent recommendations with an experience that is made to play. Mr. Green is a polished brand and experience with a differentiated position as a market leader in the crowded casino market. And Sports Illustrated is an American icon, famous for its high production values and consistent quality. These brands enable us to compete hard in our chosen markets using the strength of our brands and our marketing expertise to drive more efficient marketing spend. And you can see on the chart with our marketing ratio in H2 being three percentage points lower than in the first half of the year. Turning to slide 21 and a few words on customer excellence. This underpins our whole philosophy, understanding our customers, understanding what they want, what they don't like, and how we can engage them and create great experiences. Delivering for our customers could be resetting your password, depositing and betting, tracking your bets, or changing your player safety limits. Understanding the flow of all of these journeys, testing different options with our customers through deep insight and A-B testing, and making them as seamless as possible. We call this concept Brilliant Basics, and we've made huge improvements over the last 12 months. One of the best ways to track this is through player days and customer NPS, with increases here showing that our customers are coming back to us more as we are really getting it right and delivering what they want. We also monitor contacts and we don't really want players contacting us. This usually means that they have a problem or an issue. So the continued reduction in contacts per active you can see here is really encouraging and we're getting it right in the first place. This is also more effective from a business perspective as it reduces our costs. However, when customers do need to contact us, we want to provide excellent service and our customer satisfaction scores are a great proof point here that we are getting it right. The William Hill Center of Excellence that has driven these strong results is now looking after all of our customers across all brands, one of the big benefits of our integration. Turning to slide 22, I'm pleased to provide an update on our ESG and sustainability progress. Our whole approach to business and our strategy is built on a foundation of sustainability. This means making the right decisions to deliver long-term value for our stakeholders. Our sustainability plan is built on our three pillars of players, people, and planet. For players, we've continued to build on our ambition to create a safer gambling environment. This impacts our revenues in the short term as we intervene more and stop players from spending more, but it is the right thing to do to build a sustainable and trusted long-term business. For our people, we are committed to building a strong culture where our colleagues can grow their careers and thrive. And for the planet, we were delighted to see a 44% reduction in carbon emissions during the year and the retail estate reached net zero emissions. I'd now like to hand back to John to conclude the session.