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888 has reported a pro forma revenue decline driven by dotcom exits and safer gambling changes.

The London-listed operator reported £1.71bn in pro forma revenue for 2023, an 8% decline on the previous year.

Due to the impact of the William Hill acquisition, which completed July 2022, reported revenue increased by 38% from the 2022 total of £1.24bn.

The pro forma results provide a better guide for the genuine performance of the business, according to CFO Sean Wilkins, who said the pro forma decline in revenue was driven by a proactive revenue mix shift away from dotcom markets.

This impacted revenue by approximately £80m during 2023. Early in the year, 888 was embroiled in a Middle Eastern VIP compliance scandal that led to the resignation of then CEO Itai Pazner.

Elsewhere, one-time charges, including £49.3m in continued integration costs, contributed to a £56.4m net loss for the year.

This represents a reduction from the £120.6m net loss reported the previous year.

888’s changing customer mix

Customer mix changes in the UK were a direct result of the implementation of additional safer gambling measures, as well as a change in marketing approach to achieve more sustainable revenue and profitability.

Wilkins highlighted this “higher quality and more sustainable business mix” led to 95% of FY23 revenue being generated from locally regulated markets. This compares with 89% in FY22.

888 argued its focus on profitability and synergy dented the pro forma EBITDA impact of the revenue decline, which fell 1% to £308.3m.

This came despite the decline from the typically higher margin dotcom operations.

The EBITDA margin meanwhile increased to 18% from 16.8%, resulting from improved profitability and focus on higher return marketing spend, which more than offset the impact of dotcom market changes.

“The business is now at a critical but exciting juncture,” said Wilkins. “We must invest in improving our capabilities in a few critical areas to successfully drive sustainable, profitable growth.

“Our clear plans are outlined in the CEO report and will be supported by robust financial governance including highly disciplined capital allocation.

“We will ensure our growth plans support deleveraging and enable strong shareholder returns in the coming years.”

888 hints at future M&A during deleveraging process

The operator, which will soon rebrand to evoke, took on a great deal of debt during the acquisition of William Hill.

Due to the impact of interest rate rises since July 2022, this debt has become more expensive to service than was originally predicted.

Net debt stood at £1.72bn as of 31 December 2023, representing a £10.8m reduction from 2022 and a 5.6x EBITDA-debt leverage.

The company now aims for a 3.5x leverage by 2026, one year later than the original November 2022 leverage goal.

888 highlighted the impact of favourable foreign exchange movements of the debt, which was offset by £47.9m in cash outflow.

“Our disciplined approach to capital allocation includes reviewing opportunities to generate cash from lower-return, or non-core assets, and during 2023 the group realised approximately £41.8m from non-core asset sales including the sale of our Latvia business, and the sale and leaseback of some freehold properties,” said Wilkins.

888 highlights £150m in 2023 synergies

Wilkins pointed to several actions which he argued accelerated the timeline of delivering on previously promised synergies. This included £150m of cash synergies in FY23.

Operational changes responsible for the synergies comprised removing duplication to enable efficient operations and to begin achieving the scale benefits of the William Hill business combination.

The CFO pointed to a review of marketing decision across markets designed to increase efficiency.

“Following my appointment alongside that of Per, our new CEO, the business has reviewed its operating model in line with the new value creation plan,” said Wilkins.

“This process has identified further opportunities for savings as the group delivers on its potential. These additional savings, along with any further efficiencies identified, will be reinvested into driving growth, including through increased marketing and investment in improving our core capabilities.”

The operator guided that Q1 2024 revenue is expected to be in the range of £420m to £430m, representing an approximate 5% decline from 2022.

Overall, the company said it had a positive outlook for FY24 consistent with the medium-term targets announced as part of the firm’s strategic reset.

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