TIDM888
RNS Number : 2912J
888 Holdings plc
15 August 2023
15 August 2023
888 Holdings Plc
("888" or "the Group")
Half year results for the six months ending 30 June 2023
Strong execution of strategy with accelerated synergy delivery,
pro forma Adjusted EBITDA +9%, leverage reduced by 0.5x, and on
track for full year guidance
888 (LSE: 888), one of the world's leading betting and gaming
companies with internationally renowned brands including William
Hill, 888 and Mr Green, today announces its financial results for
the six months ended 30 June 2023 ("H1-23" or the "Period").
KEY HIGHLIGHTS
-- Reported Group revenue +165% to GBP882m, and Adjusted
EBITDA(1) +211% to GBP156m due to acquisition of William Hill
-- Reported loss after tax of GBP33m in H1-23 compared to profit
after tax of GBP12m in H1-22, driven by increased interest costs
together with amortisation of acquired intangibles and certain
one-off costs related to the acquisition
-- Pro forma Group revenue -7%, driven by compliance changes in
dotcom markets together with refined marketing approach and market
focus. Proactively shifted the business mix and improved
sustainability, leading to 95% of Q2 2023 revenue being derived
from locally regulated or taxed markets
-- Pro forma Group Adjusted EBITDA +9%, with pro forma Adjusted
EBITDA margin +2.6ppts to 17.7%, benefitting from execution of
synergies and focused strategy
-- Accelerated synergy delivery with GBP66m of cash synergies
delivered in H1-23 and full GBP150m target benefit now expected to
be achieved in 2024 (a year earlier than prior expectations)
-- Net debt reduced by GBP68m to GBP1,660m, with cash (net of
customer balances) increasing by GBP11m since 31 December 2022 to
GBP188m at 30 June 2023. Leverage reduced from 5.6x at Dec-22 to
5.1x at Jun-23. Undrawn GBP150m RCF gives total liquidity of over
GBP300m
-- FY23 Adjusted EBITDA is expected to be significantly higher
year on year on a pro forma basis, with an Adjusted EBITDA margin
of at least 20% for the full year (2022: 16.8%), and year end
leverage of slightly below 5x
-- Post Period end, appointed Per Widerström as CEO with effect
from 16 October 2023. Per is a proven leader with extensive
industry experience and a strong track record of executing value
creation plans in omnichannel global betting and gaming
businesses
-- Recently announced, post Period end, ongoing licence review
under Section 116 (2)(c)(ii) of the Gambling Act 2005 by the GB
Gambling Commission not expected to have any impact on operations.
The Board continues to engage with the regulator as required
Lord Mendelsohn, Executive Chair of 888, commented:
"I am very pleased with the progress we have made in the first
half of the year as the Group delivered against the plans we
committed to at our investor day last year, while also successfully
navigating business, market and regulatory volatility.
We made very strong progress with the execution of our
integration plan and we now expect to realise the full GBP150m of
synergies in 2024, a year earlier than the original plan. Our
strong cash discipline and higher profits also enabled a 0.5x
reduction in our leverage. We have successfully delivered against
our focused market strategy, changing the mix of our revenue and
creating a more profitable and sustainable platform for future
growth.
I was thrilled to be able to announce the appointment of Per
Widerström as our next CEO. Over the coming weeks I will be working
closely with Per to ensure a smooth handover and I am highly
confident in his ability to lead the team to realise the full
potential of this business. The strategic progress made during the
year to date has created a fundamentally stronger business with
higher profit margins and we remain on track to deliver against
expectations for the full year."
H1 2023 RESULTS
The acquisition of the international (non-US) business of
William Hill completed on 1 July 2022, and as such, to aid
comparability, the financial results and associated commentary
presented throughout this statement, unless otherwise stated,
reflect the pro forma results as if 888 had owned William Hill for
each of the periods below. The pro forma financial results also
exclude the 888 Bingo business, the sale of which completed on 7
July 2022.
Reported(1,3) Pro forma(1,2,3)
GBP millions H1-23 H1-22 YoY% H1-23 H1-22 YoY%
------------------------ ------- ------ ------ ------ ------ -----
Revenue 881.6 332.1 +165% 881.6 943.3 -7%
Adjusted EBITDA 155.6 50.0 +211% 155.6 142.5 +9%
(Loss)/profit before
tax (32.5) 12.0 nmf*
Adjusted profit before
tax 11.8 31.9 -63%
(Loss) /earnings
per share (7.3) 2.9 nmf*
Adjusted earnings
per share (p) 2.6 7.8 -67%
Note: Both the pro forma information, and the half year results
for both periods are unaudited.
*nmf means not a meaningful figure
Reported financial highlights
-- Group revenue +165% to GBP881.6m, and Adjusted EBITDA +211%
to GBP155.6m, both principally driven by the addition of William
Hill following completion of the acquisition on 1 July 2022
-- Adjusted profit after tax(1) -63% to GBP11.8m, reflecting
increased interest costs following the acquisition
-- Reported loss after tax of GBP32.5m, driven by increased
interest costs together with amortisation of acquired intangibles
and certain one-off costs related to the acquisition and subsequent
realisation of synergies
-- Adjusted basic earnings per share(1) of 2.6p (H1-22: 7.8p).
Basic loss per share (7.3)p (H1-22: 2.9p) with the year -on- year
decline on an adjusted basis mainly reflecting additional interest
costs, together with an increased share count following the capital
raise in April 2022 to part fund the acquisition of William
Hill
Pro forma financial highlights
-- Group revenue -7% to GBP881.6m, with 6% growth in retail more
than offset by an 11% decline in online revenue
o UK&I Online: actives +10%, revenue -9% and Adjusted EBITDA
+22%, with the lower revenue reflecting ongoing implementation of
proactive player safety measures and refined marketing approach to
focus on increased marketing efficiency and profitability, both of
which impacts revenue in the short term. Proactive actions are
driving a significant mix shift in the player base to lower
spending groups, providing a more sustainable and profitable base
to drive future growth in the UK, as well as putting the Group in a
strong position ahead of any changes from the White Paper, with
various consultations ongoing
o Retail: revenue +6% and Adjusted EBITDA +23%, with continued
strong customer engagement and effective cost management
o International Online: actives +1%, revenue -14% and Adjusted
EBITDA -25%, primarily due to implementing compliance changes in
certain dotcom markets and a robust new governance framework, and
also includes a slower than expected recovery in the Middle East.
Together with a refined market focus, these actions have improved
sustainability
-- Adjusted EBITDA of GBP155.6m (H1-22: GBP142.5m), +9%
year-on-year, driven by GBP54m of operating cost synergies
delivered in H1-23, together with a continued focus on
profitability and efficiency
-- Adjusted EBITDA margin of 17.7% (H1-22: 15.1%), with
synergies driving a significant improvement in profitability, with
further benefits and marketing phasing meaning margin improvement
is more weighted to H2-23
Operational and strategic highlights
-- Priority 1: Integrate businesses and realise synergies
o Rapid progress on synergy delivery, with GBP66m (GBP54m opex,
GBP12m capex) delivered in H1-23
o Accelerated delivery of upgraded GBP150m target pre-tax cost
synergies, which are now expected to be fully realised by 2024, a
year earlier than planned
o Scope for further cost saving opportunities, to be reinvested
into future growth projects
-- Priority 2: Focus on select markets and key growth opportunities
o Double-digit growth in Core international markets of Italy and
Spain, in both revenue and contribution terms
o 888AFRICA joint venture reached over 1 million customers
across its four markets, and recently acquired BetLion to further
accelerate growth in the region. Strong month-on-month revenue
growth and already profitable and cash generative on a run-rate
basis
-- Priority 3: Invest in our sources of sustainable competitive advantage
o Product: Launched Mr Green in Germany, the first Mr Green
product on the 888 platform, and SI Casino in Michigan in March
2023. Within retail, continued the rollout of best-in-class gaming
cabinets
o Brand: Consolidated brand plans by market, driving improved
marketing efficiency (online marketing ratio -3ppts to 22%).
Continue to invest in building and reinforcing the Group's leading
brands, with innovative new campaigns
o Customer: New operating model in place with customer service
functions centralised and increased use of automation, delivering
synergies as well as improved customer experience, with an
all-time-high customer satisfaction for William Hill UK in June
2023
-- Priority 4: Support sustainable growth through Players People Planet ESG framework
o Regulatory settlement with the Gibraltar regulator for GBP2.9m
related to the self-identified issues with Middle East VIPs, with
proactive, swift, and robust remedial actions taken
o Proactively reshaping and changing the business mix to improve
sustainability and set a platform for future growth and long-term
value creation
-- Priority 5: Prioritise debt reduction through focus on capital efficiency
o Net debt reduced by GBP68m in the Period, driven by GBP11m
increase in cash excluding customer balances, together with a
reduction in the gross debt principle due to favourable foreign
exchange movements. During the Period, non-core asset sales
including the Latvia business and the sale and leaseback of certain
freeholds realised approximately GBP41m
o Net debt reduction coupled with EBITDA growth reduced leverage
by 0.5x to 5.1x at 30 June 2023. With a continued focus on
deleveraging, and expected EBITDA growth in the second half of the
year, net leverage is expected to be slightly below 5x at year
end
OUTLOOK
-- In line with prior guidance, the Board continues to expect
2023 revenues to be lower than pro forma 2022 by a low to mid
single digit percentage. The slower than anticipated recovery in
the Middle East means revenues are likely to be at the mid single
digit end of this range
-- The Board continues to expect Adjusted EBITDA to be
significantly higher year on year on a pro forma basis, with an
Adjusted EBITDA margin of at least 20% for the full year
Sell side analyst and investor presentation
Lord Mendelsohn (Executive Chair), Yariv Dafna (Chief Financial
Officer), and Vaughan Lewis (Chief Strategy Officer) will host a
presentation for sell-side analysts and investors today at 09.00am
(BST).
Live audio webcast link: https://brrmedia.news/888_HY23
To participate in Q&A please contact 888@hudsonsandler.com
or call +44 (0)207 796 4133 for further details.
A replay will be available on our website shortly after:
https://corporate.888.com/investors
Notes
(1) Adjusted EBITDA is defined as earnings before interest, tax,
depreciation and amortisation, and excluding share based payment
charges, foreign exchange losses and exceptional items and other
defined adjustments. Adjusted measures, including Adjusted EBITDA,
Adjusted profit after tax, and Adjusted earnings per share, are
alternative performance measures ("APMs"). These APMs should be
considered in addition to, and are not intended to be a substitute
for, IFRS measurements. As they are not defined by International
Financial Reporting Standards, they may not be directly comparable
with other companies' APMs. The Directors believe these APMs
provide additional useful information for understanding performance
of the Group. They are used to enhance the comparability of
information between reporting periods and are used by management
for performance analysis and planning. An explanation of our
adjusted results, including a reconciliation to the statutory
results is provided in note 3 to the financial statements and in
the condensed consolidated income statement respectively.
(2) Pro forma information, which is unaudited, reflects the
results as if the Group had owned William Hill for all periods, and
excludes the Bingo business in all periods.
(3) Subtotals, totals, and percentage changes shown throughout
this document have been calculated based on the underlying numbers
and therefore may not sum directly when using the rounded numbers
presented.
This announcement contains inside information.
Enquiries and further information:
888 Holdings Plc +44(0) 800 029 3050
Lord Mendelsohn, Executive Chair
Yariv Dafna, Chief Financial Officer
Vaughan Lewis, Chief Strategy Officer
Investor Relations ir@888holdings.com
James Finney, Director of IR
Media 888williamhill@hudsonsandler.com
Hudson Sandler
Alex Brennan / Charlotte Cobb / Andy Richards +44(0) 207 796 4133
About 888 Holdings Plc:
888 Holdings plc (and together with its subsidiaries, "888" or
the "Group") is one of the world's leading betting and gaming
companies. The Group owns and operates internationally renowned
brands including William Hill, 888, and Mr Green. In addition, the
Group operates the SI Sportsbook and SI Casino brands in the US in
partnership with Authentic Brands Group.
Incorporated in Gibraltar, and headquartered and listed in
London, the Group operates from offices around the world and
employs over 11,000 people globally.
The Group's mission is to lead the gambling world in creating
the best betting and gaming experiences, bringing unrivalled
moments of excitement to people's day-to-day lives. It achieves
this by developing state-of-the-art technology and content-rich
products that provide fun, fair, and safe betting and gaming
entertainment to customers worldwide.
Find out more at:
http://corporate.888.com/
Important Notices
This announcement may contain certain forward-looking
statements, beliefs or opinions, with respect to the financial
condition, results of operations and business of 888. These
statements, which contain the words "anticipate", "believe",
"intend", "estimate", "expect", "may", "will", "seek", "continue",
"aim", "target", "projected", "plan", "goal", "achieve", words of
similar meaning or other forward looking statements, reflect 888's
beliefs and expectations and are based on numerous assumptions
regarding 888's present and future business strategies and the
environment 888 will operate in and are subject to risks and
uncertainties that may cause actual results to differ materially.
No representation is made that any of these statements or forecasts
will come to pass or that any forecast results will be achieved.
Forward-looking statements involve inherent known and unknown
risks, uncertainties and contingencies because they relate to
events and depend on circumstances that may or may not occur in the
future and may cause the actual results, performance or
achievements of 888 to be materially different from those expressed
or implied by such forward looking statements. Many of these risks
and uncertainties relate to factors that are beyond 888's ability
to control or estimate precisely, such as future market conditions,
currency fluctuations, the behaviour of other market participants,
the actions of regulators and other factors such as 888's ability
to continue to obtain financing to meet its liquidity needs,
changes in the political, social and regulatory framework in which
888 operates or in economic or technological trends or conditions.
Past performance of 888 cannot be relied on as a guide to future
performance. As a result, you are cautioned not to place undue
reliance on such forward-looking statements. The list above is not
exhaustive and there are other factors that may cause 888's actual
results to differ materially from the forward-looking statements
contained in this announcement. Forward-looking statements speak
only as of their date and 888, its respective parent and subsidiary
undertakings, the subsidiary undertakings of such parent
undertakings, and any of such person's respective directors,
officers, employees, agents, affiliates or advisers expressly
disclaim any obligation to supplement, amend, update or revise any
of the forward-looking statements made herein, except where it
would be required to do so under applicable law. No statement in
this announcement is intended as a profit forecast or a profit
estimate and no statement in this announcement should be
interpreted to mean that the financial performance of 888 for the
current or future financial years would necessarily match or exceed
the historical published for 888
STRATEGY REVIEW
BUILDING A SUSTAINABLE PLATFORM FOR GROWTH
At our Capital Markets Day in November 2022 we laid out our
position-plan-potential roadmap for the Group and how we planned to
build a focused, streamlined, and more profitable business that is
positioned for future growth and value creation. 2023 is a pivotal
year in executing our plan as we bring the 888 and William Hill
businesses together, and I'm delighted that we continue to make
significant progress and take assertive actions to drive
sustainable value creation.
While this is a complex, global business, with multiple
technological, regulatory and competitive dynamics, at its heart
there are three key drivers of performance that we are resolutely
focused on: revenue, marketing and operating costs.
Revenue
We took robust actions during the Period to provide a higher
quality, more profitable and more sustainable revenue mix. In line
with this goal, 95% of our revenue came from locally regulated or
taxed markets in Q2 2023. Pro forma revenue in the first half was
down 7% year over year reflecting the combination of our actions in
reducing our exposure to higher risk offshore markets, implementing
progressive safer gambling restrictions, and removing revenues that
were driven by unprofitable or low-return marketing spend. These
actions were both planned and necessary, and have created a
stronger platform for future growth.
Marketing
We have a portfolio of world class brands, and a clear strategy
to build sustainable market leading positions in our Core and
Growth markets. We shifted our marketing strategy to focus on
driving more sustainable profitable returns, using our brands more
effectively as we target growth in specific countries and player
types. Our plan is to create a truly customer focused organisation
with high growth potential - we have seen the foundations of this
take shape during the Period, with higher customer volumes, lower
average spending levels, lower marketing ratio, and higher profits.
This is our platform for future sustainable value creation.
Operating costs
Our principle is to achieve scale benefits in our combined
business by removing duplication and delivering best in class and
scalable shared functions to support our global ambitions.
Alongside driving significant synergies, our focus has been on
driving efficiency and managing inflation, so we can set ourselves
up to deliver the best customer experience, and ultimately drive
growth.
BOARD PRIORITIES
Our Board has been actively focused on three key priorities.
First, we made excellent progress with our team, with the
announcement of Per Widerström as our new CEO post Period end. Per
will take up his role from October this year. The Board is also
well-advanced in its search for a new CFO, with Per to be involved
in the selection process. We have a strong business and operating
model in place and have enhanced our operational capabilities
through external hires and internal promotions as we look to
deliver the best possible experience for customers.
Secondly, we made significant strides in our ESG efforts during
the Period, particularly in the area of compliance and safer
gambling. In January 2023 we announced the immediate suspension of
our VIPs in the Middle East following an internal compliance review
that highlighted certain shortcomings in our processes. While this
was a disappointing development, we took swift and decisive action
to rectify the failings and have since put in place significantly
more robust policies and procedures, with a new governance
structure that is working well and driving higher standards across
the organisation.
In addition, we recently reached a settlement with the Gibraltar
regulator in relation to the failings that we identified in our
Middle East business. We worked closely with the regulator
following the initial discovery and continue to do so to ensure
full compliance going forward.
Third and finally, we delivered significant progress in H1-23 in
line with our third priority of execution. Namely, we achieved
accelerated synergies, a higher quality and more profitable
business mix, and highly disciplined cash management, with leverage
reducing by 0.5x to 5.1x at 30 June 2023, driven by a combination
of EBITDA growth and net debt reduction, with net debt benefitting
in the period from favourable foreign exchange movements.
STRATEGIC PRIORITIES
Integration
We made excellent progress during the Period with our
integration of William Hill. We delivered GBP66m in cash synergies
in H1-23, and accelerated the synergy programme such that we are on
track to fully realise our GBP150m target in 2024; a year earlier
than initially planned. Our profitability also improved on an
adjusted basis, with pro forma Adjusted EBITDA up 9% in H1-23 and
pro forma Adjusted EBITDA margin up by 2.6 percentage points.
We are now evolving from a phase of integration to a clear focus
on driving growth and maximizing the potential of our combined
business. While we still have work to do in unifying our technology
platforms and ensuring we are providing the best possible customer
experience across all of our markets, the bulk of the operating
changes have been completed, and any further savings or
efficiencies identified will be reinvested into further
accelerating growth.
Market focus
Across our Core markets of the UK, Italy and Spain, overall
combined pro forma revenue was flat year over year. There were
divergent trends in the UK between Retail and Online, and
double-digit growth in Italy and Spain.
In UK retail, pro forma revenue was up 6% as we continued to see
strong performance with robust customer demand and both betting
(+7%) and gaming (+4%) revenues higher. Profitability also improved
significantly, with pro forma Adjusted EBITDA up 23% as we closed a
small number of unprofitable shops and focused on our cost base.
Our efficient new staffing model has enabled us to hold operating
costs stable in the Period despite utilities inflation and our
increase in the minimum wage to GBP10.90 per hour from April
2023.
In UK online, pro forma revenue was -9% with higher player
volumes (actives +10%), and a higher market share of players, with
the William Hill brand being used by 15% of UK gamblers (up around
four percentage points from two years ago). Offsetting this
increased level of activity, we continued to see lower spend per
player, with average revenue per user ("ARPU") -18%, as the
business mix shifts towards the most sustainable, lower-spending
player groups.
We also focused on profitability in UK Online, with the result
that pro forma Adjusted EBITDA increased by 22%. Together with the
delivery of operating cost synergies, we focused on our marketing
investment and driving sustainable returns. By bringing together
all of our brands in the UK market, we've been able to change our
marketing mix to deliver more sustainable, profitable returns for
both sports and gaming investments. This was most evident in the
888 brand, as we altered the strategy and stopped investing heavily
in building brand penetration in sports, as well as adapted the
casino strategy to focus on building more sustainable revenue.
All of our actions in the UK, and the positive customer mix
shift we have seen, positions us well for the full implementation
of the anticipated White Paper outcomes, which are being consulted
on further and will be implemented over the coming years.
Our portfolio of Growth markets was broadly flat overall,
reflecting strong growth across most markets offset by
significantly lower revenues in Germany following the full
implementation of new regulations. This impact is expected to
continue into the second half. Excluding Germany, Growth markets
were +11%. We remain excited about the significant growth potential
of this portfolio of markets.
Outside of our Core and Growth markets, our Optimise markets
were impacted by our enhanced approach to compliance, with our
robust new policies and procedures impacting revenue in our dotcom
markets, principally the Middle East. Here, revenue has not
recovered as quickly as initially expected. We are seeing good
player volumes and onboarding of new customers under the new
framework, but the value of those players has not yet recovered to
prior levels. This change in our business mix is having a
short-term impact on revenue and EBITDA, but is creating a more
sustainable platform for future growth.
Excluding the main markets impacted by these regulatory and
compliance changes noted above, our international revenues are
broadly stable. The actions we have taken have effectively right
sized the International business and improved sustainability
significantly, and we see this as having set a really strong base
for future growth with an increased focus on our Core and Growth
markets.
In our pipeline markets, 888AFRICA continues to go from strength
to strength, surpassing one million customers in just 10 months of
operations. The recent acquisition of BetLion, which was announced
post period end, further strengthens our position here and will
support our expansion plans as we look to accelerate growth with
future market launches.
KEY ENABLERS
Product and content leadership
Our product and technology teams continued to work incredibly
hard in creating our platform of the future, including enhancing
and modernising the 888 platform where needed, as well as working
on the tech migrations, with Mr Green in Sweden and Denmark set to
be the first markets migrated onto the 888 platform later this
year. We launched Mr Green in Germany during the Period, which was
the first Mr Green product launched on the 888 platform, albeit as
noted previously, progress has been hampered by regulatory
challenges.
Alongside the integration work, we continued to rollout exciting
new product features for customers. We also launched SI Casino in
Michigan in March, quickly growing to a 1% market share in line
with our focus on our casino-first strategy in the US.
We also continue to enhance our product and content in retail,
with the continued rollout of our best-in-class gaming cabinets, as
well as expanding the range of games we offer.
World class brands
We have now developed brand plans by market, as we look to drive
improved marketing efficiency and a better customer experience by
operating our brands as a portfolio across markets and investing in
the best brands for each market. We have already made significant
progress here, with pro forma online active customers up 7% in
H1-23, on online marketing costs that were 23% lower, and our pro
forma online marketing ratio improved by 3 percentage points to
22%.
Our teams continued to innovate, with William Hill Vegas
launching a new out of home advertising campaign during the Period
that featured an augmented reality slot machine that appeared when
users scanned a QR code. The William Hill EPIC proposition was also
enhanced ahead of the new football season with an exciting new
campaign fronted by Eric Cantona. William Hill also launched a new
podcast series entitled Up Front with Simon Jordan, that has
already had over 15million views on our social media channels, over
1 million listens on audio streaming platforms, and is consistently
rated among the top sports podcasts on all platforms.
Customer excellence
Our new operating model is now in place, with customer service
functions centralised and an increased use of automation. This
continues to deliver synergies as well as improved customer
experience, with an all-time-high customer satisfaction score
achieved by William Hill UK in June 2023.
888 also saw its average document verification time fall
considerably during the Period, as the centralised team benefits
from scale and efficiency advantages.
LOOKING AHEAD
The actions we took in the first half are creating a strong
platform for growth in line with the plans announced at our Capital
Markets Day in November 2022. We remain focused on executing these
plans, and look forward to making further progress during the rest
of this year.
We remain on track to achieve our prior guidance for both
revenue (expecting a low-mid single digit year-on-year decline on a
pro forma basis) and Adjusted EBITDA (Adjusted EBITDA margin to be
at least 20% for the full year), and currently expect to end the
year with leverage slightly below 5x.
More broadly, we have successfully laid the groundwork for the
Group's future growth, and look forward to the next phase of our
journey under the leadership of our new CEO. Together with our
world-class teams and a clear strategic roadmap, we are confident
in our ability to deliver enhanced shareholder value and build on
our position as a global leader in the gaming industry.
BUSINESS & FINANCIAL REVIEW
Financial Summary
Reconciliation of Adjusted EBITDA, loss/profit before tax and
loss/profit after tax to their reported equivalents
Exceptional items
Adjusted results and adjustments Reported results
H1 2023 H1 2022 H1 2023 H1 2022 H1 2023 H1 2022
GBPm GBPm GBPm GBPm GBPm GBPm
Revenue 881.6 332.1 - - 881.6 332.1
Cost of sales (291.6) (116.2) (2.4) (2.1) (294.0) (118.3)
------------------------------ -------- -------- --------
Gross profit 590.0 215.9 (2.4) (2.1) 587.6 213.8
Marketing expenses (138.2) (103.9) - - (138.2) (103.9)
Operating expenses (296.8) (62.0) (22.4) (20.8) (319.2) (82.8)
Share of post-tax profit
of equity accounted
associate 0.6 - - - 0.6 -
-------- -------- -------- --------
EBITDA 155.6 50.0 (24.8) (22.9) 130.8 27.1
Depreciation and amortisation (53.8) (12.0) (52.6) - (106.4) (12.0)
------------------------------ -------- -------- --------
Profit before interest
and tax 101.8 38.0 (77.4) (22.9) 24.4 15.1
Finance income and
expenses (87.3) (0.7) 17.7 - (69.6) (0.7)
-------- -------- -------- --------
(Loss)/Profit before
tax 14.5 37.3 (59.7) (22.9) (45.2) 14.4
-------- -------- -------- --------
Taxation (2.7) (5.4) 15.4 3.0 12.7 (2.4)
-------- -------- -------- --------
(Loss)/Profit after
tax 11.8 31.9 (44.3) (19.9) (32.5) 12.0
-------- -------- -------- --------
Basic (loss)/earnings
per share 2.6 7.8 (7.3) 2.9
-------- -------- -------- --------
* EBITDA is defined as earnings before interest, tax,
depreciation and amortisation
Adjusted EBITDA is defined as EBITDA excluding share based
payment charges, foreign exchange losses and exceptional items and
other defined adjustments. Foreign exchange losses and share
benefit credit / charges were excluded to allow for further
understanding of the underlying financial performance of the
Group.
In the reporting of financial information, the Directors use
various APMs. These APMs should be considered in addition to, and
are not intended to be a substitute for, IFRS measurements. As they
are not defined by International Financial Reporting Standards,
they may not be directly comparable with other companies' APMs. The
Directors believe these APMs provide additional useful information
for understanding performance of the Group. They are used to
enhance the comparability of information between reporting periods
and are used by management for performance analysis and planning.
Further detail on exceptional items and adjusted measures is
provided in note 3 to financial statements.
Pro forma
---------------------------
H1 2023 H1 2022 Change
-------
GBP'm GBP'm
-------- -------- -------
Revenue 881.6 943.3 (6.5)%
Adjusted Cost of sales (291.6) (301.5)
-------- -------- -------
Gross profit 590.0 641.8 (8.1)%
Marketing expenses (138.2) (178.0)
Adjusted operating expenses (296.8) (321.5)
Share of post-tax profit
of equity accounted
associate 0.6 0.1
----------------------------- -------- -------- -------
Adjusted EBITDA 155.6 142.5 9.2%
----------------------------- -------- -------- -------
* Pro forma information presented in the financial summary
(including the associated narrative) is not part of the review of
financial information performed by the Independent Auditor.
SUMMARY
Reported numbers reflect the inclusion of William Hill for the
full H1-23 (acquisition completed 1 July 2022) and as such, the
acquisition is the material driver of all reported movements, as
noted in the earlier highlights.
On a pro forma basis, including the results of William Hill for
both periods and excluding the 888 bingo business for both periods,
revenue of GBP881.6m was down 7%, with Adjusted EBITDA of GBP155.6m
being up 9%, with the drivers having been discussed earlier.
Further segmental details and trends are discussed within the
segmental section later.
Our focus on profitability is working, with pro forma Adjusted
EBITDA increasing by +23% in Retail and +22% in UK Online, coupled
with a reduction in corporate costs of GBP8.8m (-34%). This growth
was partially offset by International pro forma Adjusted EBITDA,
which was down 25% due to the impact of compliance changes on our
dotcom markets, which are typically higher margin markets.
FINANCIAL PRIORITIES
At our full year 2022 results in April 2023 we reiterated the
three core financial priorities for 2023 that we had laid out at
our Capital Markets Day in November 2022, and during H1-23 we made
significant progress against all of these.
Synergies
As described earlier, we have taken decisive actions enabling us
to deliver GBP66m of cash synergies in H1-23 and accelerate the
timeline for full synergy delivery.
We implemented our new operating model in H1-23, removing
duplication and delivering the scale benefits of the combination
with William Hill, creating more efficient operations. The full
benefit of this will be weighted to H2-23 given the timing of
implementation but we are already seeing the benefits in H1-23 from
both a cost saving perspective, and an improved customer experience
perspective.
We also reviewed and adapted our marketing approach across
markets, as we look to leverage the best of our world class brands
and drive more efficient marketing decisions, with a focus on
sustainable, profitable growth.
Adjusted EBITDA Margin
Adjusted EBITDA margin was 17.7% in H1-23, which was +2.6ppts on
a pro forma basis, driven by strong synergy delivery and our
refined market focus approach more than offsetting reduced
contribution from dotcom markets.
As we have been executing on our integration plans, and
delivering improved return on investment from our marketing spend,
we have confidence in our plans to deliver an Adjusted EBITDA
margin above 20% in the full year 2023. The improvement in H2-23 is
expected to be driven by the full effect of synergies enacted
during H1-23, together with marketing phasing, with marketing costs
being more heavily weighted to H1-23.
Deleveraging
At 31 December 2022 net debt was GBP1,728m, with leverage of
5.6x. We are already making good progress with our deleveraging
plan, with leverage having reduced to 5.1x as at the end of June.
This is driven by a combination of GBP13m growth in pro forma
Adjusted EBITDA, together with a GBP68m reduction in net debt, to
GBP1,660m at 30 June 2023. The reduction in net debt is primarily
driven by favourable foreign exchange rate movements on the debt
principle, but H1-23 also saw the Group generate GBP11m cash inflow
(excluding customer balances) despite GBP23m of exceptional costs
paid out in the Period.
Our disciplined approach to capital allocation includes
reviewing opportunities to generate cash from lower-return, or
non-core assets, and during the period we realised approximately
GBP41 million from non-core asset sales including the sale of our
Latvia business, and the sale and leaseback of some freehold
properties. We will remain disciplined with respect to our capital
allocation policy as we continue to make progress against our
strategic priorities.
OUTLOOK
Overall, this has been a good first half, reflecting our really
strong financial discipline and delivering on our targets to
increase profitability and deleverage, where we expect to end the
year at slightly below 5x.
Following a 7% drop in pro forma revenue in H1-23, we remain on
track for our full year revenue guidance of a low to mid single
digit decline on a pro forma basis, with the decline likely to be
at the mid single digit end of the range, reflecting the pace of
recovery in the Middle East, which has been slower than we
anticipated.
We also remain on track to deliver an Adjusted EBITDA margin of
20% this year. We delivered an Adjusted EBITDA margin of a little
under 18% in the first half, and with the phasing of marketing
investments and synergies, we have good visibility on this reaching
20% for the full year.
Pro-forma results
Given the significance of the acquisition of William Hill midway
through the prior year, the reported results do not provide a clear
comparison of performance to the previous period as they do not
consolidate results of the William Hill business in the prior
period, given the completion date of 1 July 2022. As such, in the
analysis below, focus is given to the pro forma results showing a
clearer performance of the Group in H1-23 compared to H1-22.
Within these pro forma unaudited results, the H1 2022 financials
cover the 26 week period from the 29 December 2021 to the 28 June
2022 for William Hill. Since the acquisition, the William Hill
business has aligned to the monthly financial calendar of the Group
and, therefore, the H1 2023 financials cover the period from 1
January 2023 to 30 June 2023.
CONSOLIDATED INCOME STATEMENT
Revenue
Revenue for the Group was GBP881.6m for H1 2023 on a reported
basis; an increase of 165% to H1 2022 of GBP332.1m with the
consolidation of William Hill revenues in H1-23.
On a pro forma basis, revenue was GBP881.6m; a decrease of 6.5%
compared to GBP943.3m in H1 2022, with the drivers discussed
above.
Online sports betting revenue of GBP186.6m is in line with H1
2022, and online gaming revenue of GBP415.6m reflected a decline of
16%, predominantly driven by the factors mentioned above, with our
dotcom markets more heavily weighted to gaming.
Cost of sales
Cost of sales mainly comprise gaming taxes and levies,
commissions and royalties payable to third parties, chargebacks,
payment service provider ("PSP") commissions and costs related to
operational risk management and customer due diligence services.
Cost of sales has increased on a reported basis to GBP294.0m from
GBP118.3m due to the acquisition of William Hill. On a pro forma
basis, cost of sales has decreased by 3.3% to GBP291.6m reflecting
the reduction in revenue, with cost of sales representing 33.1% of
revenues (H1 2022: 32.0%). The slight increase in cost of sales as
a percentage of revenue reflects a change in country mix, with a
higher proportion of locally regulated and taxed revenues in
H1-23.
Gross profit
On a reported basis, gross profit has increased to GBP587.6m
from GBP213.8m with the consolidation of the results of William
Hill from the second half of FY 2022.
On a pro forma basis, gross profit has decreased by 8.1% from
GBP641.8m to GBP590.0m, alongside a decrease in the gross margin
from 68.0% to 66.9% with more revenue generated from regulated and
taxed markets as described above.
Marketing expenses
Marketing is a significant investment for our Group to drive
growth through investing in our leading brands, as well as customer
acquisition and retention activities. On a reported basis marketing
increased to GBP138.2m compared to GBP103.9m in H1 2022 with a
marketing ratio of 15.7%, which decreased from 31.3%, driven by the
inclusion of the Retail business, which has significantly lower
marketing ratio.
On a pro forma basis, marketing decreased by 22.3% from
GBP178.0m to GBP138.2m. Certain marketing is demand driven and
flexible, so part of the reduction is as a result of the reduced
online revenue noted above, with further marketing savings being
achieved following the acquisition with a refined brand marketing
strategy to focus on driving sustainable profitable growth with
improved marketing efficiency. The marketing to revenue ratio has
decreased from 18.9% in H1 2022 to 15.7% in H1 2023. This partly
reflects the mix of revenue with more generated from the Retail
business where the marketing investment is lower. Excluding the
Retail segment, the online marketing ratio decreased from 25.7% to
22.4% reflecting the refined brand marketing strategy and improved
marketing efficiency.
Operating expenses
Operating expenses mainly comprise employment costs, property
costs, technology services and maintenance and legal and
professional fees. On a reported basis, operating expenses
increased to GBP319.2m from GBP82.8m in H1 2022. This increase is
due to the acquisition of William Hill with the Retail business
having a much higher proportion of operating expenses to revenue
given the employment and property costs required to operate.
On a pro forma basis, adjusted operating expenses excluding
depreciation and amortisation have decreased by 7.7% from GBP321.5m
in H1 2022 to GBP296.8m in H1 2023, despite the inflation
challenges, driven by the delivery of synergies.
EBITDA
Reported EBITDA increased by 383% from GBP27.1m to GBP130.8m. On
an adjusted basis, the increase was 211% to GBP155.6m from
GBP50.0m, with an increased margin of 17.7% compared to 15.1% in H1
2022.
On a pro forma basis, adjusted EBITDA increased by 9% to
GBP155.6m in H1 2023 compared to GBP142.5m in H1 2022. The adjusted
EBITDA margin increased to 17.7% in H1 2023 from 15.1% in H1 2022
driven by the focus on cost efficiency alongside the early benefits
of synergy delivery, particularly marketing savings from the
optimised brand marketing strategy across different markets.
INCOME STATEMENT BY SEGMENT
The below tables show the Group's performance by segment on a
reported and pro forma basis respectively:
Reported
--------------- ------------------------------------------ ------------------------------------------
Revenue Adjusted EBITDA
--------------- ------------------------------------------ ------------------------------------------
H1 2023 H1 2022 Change % of H1 2023 H1 2022 Change % of
from reported from Adjusted
Revenue EBITDA
(H1 2023) (H1 2023)
--------------- ----------- -----------
GBP'm GBP'm previous GBP'm GBP'm previous
year year
--------------- -------- -------- --------- ----------- -------- -------- --------- -----------
Retail 279.4 - 31.7% 60.8 - 39.1%
UK&I Online 335.9 109.0 208.2% 38.1% 59.0 (1.8) >1,000% 37.9%
Total UK 615.3 109.0 464.5% 69.8% 119.8 (1.8) >1,000% 77.0%
International 266.3 203.5 30.9% 30.2% 53.1 52.5 1.1% 34.1%
Other - 19.6 (100.0)% - - 1.9 (100.0)% -
Corporate - - - - (17.3) (2.6) 565.4% (11.1)%
Total 881.6 332.1 165.5% 100.0% 155.6 50.0 211.2% 100.0%
--------------- -------- -------- --------- ----------- -------- -------- --------- -----------
Pro forma
--------------- --------------------------------------------------------------------------------------
Revenue Adjusted EBITDA
--------------- ------------------------------------------ ------------------------------------------
H1 2023 H1 2022 Change % of H1 2023 H1 2022 Change % of
from reported from Adjusted
Revenue EBITDA
(H1 2023) (H1 2023)
--------------- ----------- -----------
GBP'm GBP'm previous GBP'm GBP'm previous
year year
--------------- -------- -------- --------- ----------- -------- -------- --------- -----------
Retail 279.4 263.5 6.0% 31.7% 60.8 49.6 22.6% 39.1%
UK&I Online 335.9 370.8 (9.4)% 38.1% 59.0 48.5 21.7% 37.9%
Total UK 615.3 634.4 (3.0)% 69.8% 119.8 98.1 22.1% 77.0%
International 266.3 308.9 (13.8)% 30.2% 53.2 70.5 (24.5)% 34.2%
Other - - - - - - - -
Corporate - - - - (17.3) (26.1) (33.6)% (11.1)%
Total 881.6 943.3 (6.5)% 100.0% 155.6 142.5 9.2% 100.0%
--------------- -------- -------- --------- ----------- -------- -------- --------- -----------
For the commentary on divisional performance below, the focus is
given to the pro forma financials in order to give a clearer
comparative of performance compared to the previous period.
Furthermore, it reflects adjusted results, since that is the basis
on which these are reported internally and in our segmental
analysis.
UK
UK&I Online
On a reported basis, revenue increased by 208% to GBP335.9m and
Adjusted EBITDA increased by GBP60.8m compared to the previous
period.
On a pro forma basis, revenue declined by 9.4% to GBP335.9m
reflecting both the impact of our business mix shifting towards
lower-spending customers, and the short-term revenue impact from
the removal of low-return or unprofitable marketing, with our focus
firmly on driving profitable and sustainable growth.
Monthly average actives were up +10% in H1-23, with Q2-23 being
+12% to a record high of 1.3m active players. ARPU was down 18% in
H1-23 as we change the mix of the business to lower spending
players, which now represent over 80% of UK online revenue (up from
a little over 50% two years ago).
Pro forma adjusted EBITDA increased by GBP10.5m (+21.7%) with
the Adjusted EBITDA margin improving by 4.5 percentage points to
17.6% as a result of optimised marketing and delivery of
synergies.
Retail
On a reported basis, Retail generated revenue of GBP279.4m and
Adjusted EBITDA of GBP60.8m as the Retail business continued to
deliver robust financial performance and strong cash
generation.
On a pro forma basis, revenue increased by 6.0% to GBP279.4m in
2023 with continued strong customer engagement, and a slightly
higher sportsbook net win margin year over year, predominantly
driven by some of the bigger racing festivals. Pro forma adjusted
EBITDA increased by GBP11.2m to GBP60.8m in H1 2023 driven by the
closure of a small number of unprofitable shops and an efficient
new staffing model offsetting the impact of inflation on the cost
base.
There were 1,343 shops open at the end of H1 2023 compared to
1,386 at the end of FY 2022.
The small reduction to the already well optimised estate largely
reflects the impact of inflationary cost increases making certain
shops no longer commercially viable.
International
On a reported basis, the International business revenue
increased by 30.9% to GBP266.3m and Adjusted EBITDA increased by
GBP0.6m compared to the previous period.
On a pro forma basis revenue declined by 13.8% to GBP266.3m,
with double digit growth in our core markets of Italy and Spain and
11% growth from our growth markets excluding Germany, where the
further regulatory restrictions have impacted the market and our
business. This was more than offset by a significant reduction in
revenue from our optimise markets, which primarily reflects the
impact of regulatory and compliance changes, principally the
suspension of VIPs in the Middle East.
Pro forma adjusted EBITDA declined by GBP17.3m to GBP53.2m with
the Adjusted EBITDA margin declining primarily as a result of a
higher proportion of revenue being generated from regulated and
taxed markets.
Corporate costs
On a reported basis, corporate costs were GBP17.3m in H1 2023
compared to GBP2.6m expense in H1 2022. This is due to the
acquisition of William Hill in the second half of 2022.
On a pro forma basis, there was a reduction in corporate costs
of GBP8.8m to GBP17.3m due to the implementation of synergies and
tight cost control through the integration programme, as well as a
reallocation of certain costs to the divisions to better reflect
how the business is now managed.
EXCEPTIONAL ITEMS AND ADJUSTMENTS
Operating Exceptional items H1 2023 H1 2022
GBP'm GBP'm
Retroactive duties and associated
charges - (2.2)
Integration and transformation costs 21.9 -
Corporate transaction related costs 0.5 7.4
Regulatory provisions 3.0 -
Loss on reclassification of Bingo
business Held for sale - 11.2
Total exceptional items before
tax 25.4 16.4
Tax on exceptional items (2.5) (3.0)
Total exceptional items 22.9 13.4
Adjustments:
Amortisation of Finance Fees 8.1 -
Amortisation of acquired intangibles 52.6 -
Foreign exchange (25.2) 4.3
Share benefit (credit)/charge (1.2) 2.2
-------- --------
Total Adjustments before tax 34.3 6.5
-------- --------
Tax on adjustments (12.9) -
-------- --------
Total Adjustments 21.4 6.5
-------- --------
Total exceptional items and adjustments 44.3 19.9
-------- --------
Operating exceptional items in the Period totalled GBP22.9m in
H1 2023 compared to GBP13.4m in H1 2022.
Exceptional items are defined as those items which are
considered to be one-off or material in size or nature to be
brought to attention to better understand the Group's financial
performance. Refer to note 3 to the financial statements for
further detail.
There were GBP21.9m of costs incurred relating to the on-going
integration of the William Hill business in order to achieve
synergies, which is still expected to total GBP100m across the
integration programme. The transformation and integration programme
is currently expected to generate synergies of approximately
GBP150m, in line with guidance provided in April 2023, and to be
achieved already in 2024.
Corporate transaction related costs relates predominantly to the
disposal of the Latvia business, with prior year costs related to
the acquisition of William Hill.
Regulatory provision covers a regulatory settlement with the
Gibraltar regulator, following the Group's self-identified and
self-reported compliance shortcomings. Additionally, in the prior
year, a GBP2.2m credit was recognised in respect to exceptional
provision for retroactive duties and associated charges following a
reassessment of potential gaming duties relating to activity in
prior years.
Adjustments were those items that are recurring items that are
excluded from internal measures of underlying performance in order
to provide clear visibility of the underlying performance across
the Group. They are items that are therefore excluded from Adjusted
EBITDA, Adjusted PAT and Adjusted EPS.
The amortisation of the specific intangible assets recognised on
acquisitions has been presented as an adjusted item, totalling
GBP52.6m relating to the William Hill acquisition. This
amortisation is a recurring item that will be recognised over its
useful life.
The other items that have been presented as adjusted items are
foreign exchange gains of GBP25.2m (foreign exchange loss of
GBP4.3m in H1 2022), amortisation of finance fees of GBP8.1m (nil
in H1 2022), and share based payment (credit) / charges of
GBP(1.2)m (GBP2.2m in H1 2022).
FINANCE INCOME AND EXPENSES
Net finance expenses of GBP69.6m (H1 2022: GBP0.7m) related
predominantly on the interest expense from the debt on acquisition
of William Hill (GBP59.3m) which is net of foreign exchange. The
finance expense resulting from operating leases was GBP4.4m (H1
2022: GBP0.4m) with the increase due to the acquired Retail
business within William Hill and the finance expense from hedging
activities was GBP7.6m.
(LOSS) / PROFIT BEFORE TAX
The net loss before tax for H1 2023 was GBP45.2m (H1 2022: net
profit before tax of GBP14.4m). On an adjusted basis, profits
decreased by 53% to GBP14.5m (H1 2022: net profit before tax of
GBP30.8m) with the increased financing costs from the debt on
acquisition of William Hill offsetting the increased earnings from
the enlarged Group.
TAXATION
On a reported basis, the Group recognised a tax credit of
GBP12.7m on a loss before tax of GBP45.2m, giving an effective tax
rate of -28.1% (H1 2022: tax charge of GBP2.4m and an effective tax
rate of 16.7%). The tax credit and therefore the tax rate is lower
than the expected tax credit arising on the loss at 23.5% primarily
due to lack of tax relief on exceptional costs associated with the
acquisition of William Hill and which is offset by prior years
credits in respect of additional tax relief obtained on interest
costs.
On an adjusted basis, the Group recognised a tax charge of
GBP2.7m on a profit before tax of GBP14.5m, giving an effective tax
rate of 18.5%. (H1 2022: tax charge of GBP5.4m and an effective tax
rate of 17.5%).
The Group's effective tax rate for 2023 is now expected to be
c8%.
NET (LOSS)/PROFIT AND ADJUSTED NET PROFIT
The net loss for H1 2023 was GBP32.5m (H1 2022: net profit of
GBP12.0m). On an adjusted basis, profits decreased to GBP11.8m from
GBP31.9m in H1 2022.
EARNINGS PER SHARE
Basic earnings per share decreased to a loss of 7.3p (H1 2022:
profit of 2.9p) as a result of the reduction in net profits in H1
2023 predominantly due to the additional finance costs associated
with the debt.
On an adjusted basis, basic earnings per share decreased by 67%
to 2.6p (H1 2022: 7.8p). Further information on the reconciliation
of earnings per share is given in note 4.
DIVID
The Board of Directors is not recommending a dividend to be paid
in respect of the half year ended 30 June 2023 (H1 2022: nil per
share), in light of the Board's decision to suspend payments of
dividends until leverage is at or below 3x, as previously announced
following the acquisition.
CONSOLIDATED STATEMENT OF FINANCIAL POSITION
The consolidated statement of financial position of 30 June 2023
is compared to 31 December 2022.
Non-current assets decreased by GBP101.1m to GBP2,371.7m
compared to GBP2,472.8m at FY 2022, predominantly due to
amortisation of Goodwill and Other intangible assets which have
decreased by GBP84.9m.
Current assets are GBP445.8m, a decrease of GBP48.6m compared to
GBP494.4m at FY 2022. Within this cash and cash equivalents have
increased by GBP0.4m to GBP318.0m from GBP317.6m, although this
includes GBP130.3m of client funds held compared to GBP141.3m at FY
2022. Excluding client funds, cash and cash equivalents have
increased by GBP11.4m from GBP176.3m in FY 2022 to GBP187.7m in H1
2023.
Total current liabilities have decreased by GBP66.9m from
GBP703.4m at FY 2022 to GBP636.5m at H1 2023. This includes the
increase of client funds held and the trade and other payables.
Within this total, provisions have decreased by GBP10.0m to
GBP101.5m. This includes the current portion of the provision for
customer claims of GBP110.6m, predominantly in Austria and
predominantly recognised on acquisition of William Hill as part of
acquisition accounting where previously held contingent liabilities
were recognised on the statement of financial position in line with
the business combinations accounting standards. There are then
provisions of GBP60.5m for gaming tax in Austria, and a provision
of GBP19.2m for the regulatory settlement agreed between William
Hill and the GB Gambling Commission, both acquired with William
Hill.
Non-current liabilities are GBP2,036.8m, a decrease of GBP67.8m
from the balance of GBP2,104.6m in FY 2022. This increase is
predominantly due to movement in borrowing driven by foreign
exchange translations. In addition, the deferred tax liability has
decreased by GBP23.8m mainly driven from the acquisition accounting
and lease liabilities have increased by GBP5.5m to GBP70.5m.
Net assets of GBP144.2m is a decrease of GBP15.0m compared to
GBP159.2m at FY 2022.
CASH FLOWS
H1 2023 H1 2022
----------------------------------------------
GBP'm GBP'm
---------------------------------------------- --------- -------
Cash generated from operating activities
before working capital 110.9 20.7
Working capital movements (16.6) (60.1)
---------------------------------------------- -------
Net cash (used in) / generated from operating
activities 94.3 (39.4)
Payment of lease liabilities (19.2) (2.8)
Disposals 40.6 -
Capital expenditure (33.3) (14.4)
Repayment of loans (2.0) -
Proceeds from equity placing - 157.8
Interest paid (73.4) (3.0)
Other movements in cash incl FX (6.6) 11.9
---------------------------------------------- -------
Net cash inflow 0.4 110.1
Cash balance 318.0 299.5
Gross Debt (1,755.0) -
Net Debt (1,660.2) 227.4
--------- -------
Overall the Group had a cash inflow of GBP0.4m in the Period,
compared to an inflow of GBP110.1m in H1 2022. This resulted in a
cash balance of GBP318.0m as at 30 June 2023 (GBP299.5m at 30 June
2022) although this included client funds and other restricted cash
of GBP130.3m such that unrestricted cash available to the Group was
GBP187.7m compared to GBP176.3m at 31 December 2022.
Cash flow from operations was a GBP94.3m inflow compared to an
outflow of GBP39.4m in H1 2022. This increase was partly due to
significant working capital outflows in the prior period, as well
as the increased profit before tax from an enlarged business.
Payment of lease liabilities represents GBP19.2m of lease
liability payments in the Period, with the increase over the prior
year driven by the acquisition of William Hill and its associated
retail estate.
Disposals of GBP40.6m represents the proceeds on the sale of
non-core assets including the Latvia business and the sale and
leaseback of certain freeholds.
Capital expenditure was GBP33.3m in H1-23, with the increase
over the prior year reflecting the acquisition of William Hill.
Repayment of loans reflects GBP2.0m of debt amortisation,
relating to the 1% annual amortisation on the US$ Term Loan B.
Interest paid of GBP73.4m benefits from some timing, with annual
cash interest payments for 2023 still expected to be in the range
of GBP165-170m.
Other movements include GBP2.6m further investment in 888AFRICA
and GBP4.0m of realised foreign exchange losses.
NET DEBT
30 June 31 Dec
2023 2022
GBP'm GBP'm
Borrowings (1,649.5) (1,702.3)
Loan transaction fees (105.5) (112.7)
-------------------------- ----------
Gross Borrowings (1,755.0) (1,815.0)
Lease liability (92.9) (89.0)
Cash (excluding customer
balances) 187.7 176.3
-------------------------- ----------
Net Debt (1,660.2) (1,727.7)
LTM pro forma Adjusted
EBITDA 323.9 310.6
Leverage 5.1x 5.6x
-------------------------- ----------
The gross borrowings balance as at 30 June 2023 was GBP1,755.0m.
The earliest maturity of this debt is in 2026, which is GBP11m,
with the vast majority of the debt maturing across 2027 and 2028.
In addition to this, the Group has access to a GBP150m Revolving
Credit Facility maturing in January 2028, which is currently
undrawn.
The debt is across GBP sterling; Euro and US Dollar with 49% of
the debt in Euro; 44% in GBP and 7% in USD. The Group have
undertaken hedging activities such that 70% of the interest costs
is at fixed costs and 30% at floating rates with the hedging
relationships in place for three years.
The net debt balance at 30 June 2023 was GBP1,660.2m with a net
debt to EBITDA ratio of 5.1x. This compares to GBP1,727.7m and 5.6x
respectively as at 31 December 2022. The reduction in net debt is
primarily driven by favourable foreign exchange movements on the
USD and EUR denominated debt principal amounts, together with the
cash inflow discussed above. Leverage has reduced by 0.5x,
benefiting from both the pro forma Adjusted EBITDA growth and net
debt reduction, both as described above. The Group has a target to
bring its leverage ratio down to less than 3.5x by FY 2025.
Yariv Dafna
Chief Financial Officer
15 August 2023
PRINCIPAL RISKS AND UNCERTAINTIES
The principal risks and uncertainties that are considered to
have a potentially material impact on the Group's future
performance, sustainability and strategic objectives are set out
below. The principal risks and uncertainties are consistent with
those defined in the 2022 Annual Report, available at
https://corporate.888.com.
This list is not exhaustive but encompasses management's
assessment of those risks which require considered response at this
time.
Reputational
The Group relies on its world class brands across its key
markets, with brand reputation being a key driver of customer
choice. As such, maintaining a strong reputation is critical to the
ongoing success of the Group.
There continues to be a trend in a number of jurisdictions where
the business operates to strengthen regulations over safer gambling
and customer protection, particularly in regard to those underage
and players who are vulnerable or at an increased risk of harm.
There is also an emphasis on enhancing controls over anti money
laundering and anti-terrorist funding activities across the
industry.
Media reporting on the industry as a whole has seen continuing
and indeed increased criticism of how individual customers have
been treated. This has led to further calls for additional
regulation, particularly around responsible gambling,
affordability, and advertising, Any failure to ensure the business
is fully compliant would result in significant reputational damage,
in addition to any sanctions imposed by its regulators.
ESG
The Group is committed to the policies, procedures, and controls
over the delivery of its Environmental, Social and Governance (ESG)
objectives.
ESG issues include risks such as climate change, player
protection, diversity & inclusion, cybersecurity concerns and
social responsibility not just to employees and customers but also
to the communities where the business bases its operations and
retail outlets. Unlike most other risk types, certain aspects of
ESG risks are often emerging with unique characteristics.
Climate-related risks for example tend to have little relevant
historical data associated with them and tend to be non-linear in
nature.
Nevertheless, The Group has identified several ESG objectives
and has developed sustainability metrics and targets to monitor
progress against these. The ESG framework is called 'Players,
People, Planet,' and the Group's strategic focus is on protecting
our players from gambling related harm, creating an engaging and
inclusive environment where colleagues can thrive and protecting
the environment by achieving net zero carbon emissions by 2030.
Market risk
The acquisition of William Hill was financed using a combination
of sources, including significant debt facilities. The Group has
entered into a range of hedging arrangements such that
approximately 70% of interest costs are fixed for the next three
years, and the currency profile of the debt was more closely
aligned to the currency profile of the Group. However, the Group is
still exposed to risks related to interest rate changes and
currency fluctuations, which could increase the cost of the Group's
borrowings, and this could divert resources from investing in
growth, marketing and delivery of new products and projects.
The Group is also exposed to foreign exchange rate fluctuations
and risks in its financial reporting. A substantial part of the
Group's deposits and revenues are generated in GBP, EUR and other
currencies, whilst the Group's operating expenses are largely
incurred in local currencies, primarily GBP, EUR, ILS, and USD,
with incremental operating cost exposure across our offices in
Philippines, Romania, Bulgaria and Poland. The Group also has debt
servicing costs which are denominated in USD and EUR, partially
hedged in GBP.
Taxation
The Group is subject to a range of taxes, duties, and levies in
many of the countries where we have operations or in which our
customers are located. These taxes have changed over time and
continue to be subject to change. In addition to tax rate changes,
the Group's international footprint brings added complexity to its
tax and duty positions, which requires careful management to ensure
the business fulfils its obligations.
The nature of tax affairs can be complicated with differing
legal interpretation regarding the scope and scale of taxation,
which alongside potential rate changes mean the levels of taxation
to which the Group is exposed may change in the future, creating a
risk of additional costs. There is also a risk of audits of the
Group's tax filings and/or challenges to the filing/non-filing
positions the Group is taking in certain locations. Any adjustments
made by tax authorities to the Group's filed positions may also
lead to opportunities for governments to apply financial penalties
and interest - this action may impact the company's reputation with
customers, the capital markets, and key stakeholders such as
compliance and regulatory bodies who issue and monitor its
operating licences.
People
Our colleagues across all our business functions are vital to
ensuring our day-to-day operations are undertaken efficiently and
effectively and to the successful delivery of our strategic
business objectives.
Competition for highly qualified personnel is intense in many of
the locations in which the Group is based. Ensuring our colleagues
are well remunerated, managed and supported is fundamental to the
success of the business.
The integration activities following the acquisition of William
Hill have introduced some uncertainty for our colleagues across the
business, which does carry a risk with regard to staff retention in
particular, but also recruitment in the short term.
Integration
The Group is in the process of integrating the William Hill
business into its corporate structure, with the strategy to
integrate operations and technology and deliver cost synergies
whilst retaining its customer base and experienced and qualified
personnel.
The integration is supported by strong governance, oversight and
dedicated management teams. However, risks inherently remain to the
delivery and timing of all or substantially all the expected
benefits and to the timely delivery of these benefits. The delivery
of these synergies involves complexity, and associated costs to
revising current systems and organisational structures. As such
there is a risk that these costs could exceed our current cost
estimates, impacting on anticipated integration benefits.
Consolidating multiple technology systems can be complex and
challenging, and may lead to potential disruptions in our
operations and require us to take on higher levels of risk in the
short term.
Integration risks also include the unexpected loss of key
personnel, the erosion of our existing customer base and issues in
integrating financial and operational policies, processes,
procedures and controls. There are challenges in managing the
increased scope, geographic diversity and complexity of the Group's
operations. Third-party partners and suppliers may look to
terminate or alter their existing contracts with the Group.
There are also risks associated with the management of
conflicting interests within the Group and failure to mitigate
contingent or assumed liabilities, as well as diversion of
management and resources from the Group's core business activity
due to personnel being required to assist in the integration
process.
Cyber and technology
There is a continual risk that our technology systems and as a
result our operations may be impacted by cyber-attacks such as
Distributed Denial of Service (DDoS) by malicious third parties,
the theft or misuse of customer and business data by internal or
external agents or natural or manmade disasters affecting our
offices and operational locations or those of our key
suppliers.
Cyber-attacks leading to data theft could expose the Group to
"ransom" demands or regulatory sanctions including fines and
reputational damage, which could lead to loss of customer
confidence in the business.
The loss of availability of our technology and communication
systems, or those in our key suppliers' infrastructure could cause
significant disruption and cost to the business, and lead to
revenue loss both during the incident and in the aftermath if
customers move their business to our competitors. Lengthy down-time
could also cause us to breach regulatory obligations.
Partnership
To effectively deliver our products and services to customers
the Group has reliance upon certain critical suppliers of
technology, payment services, marketing, gaming products, sports
content, and media. The effective management of critical
third-party relationships and performance is key to delivering our
strategic objectives. Any failure of our suppliers to provide
services to us may have a significant adverse impact our own
operations.
The Group also has certain strategic partnerships where we
supply third party operators with business to business (B2B)
gambling services in the United States which have strategic
importance for the longer-term growth in our US business. Any risks
to our B2B partnerships or meeting our contractual obligations with
them have to be managed to ensure the long-term viability of our
operations linked to these relationships, and to ensure we are able
to meet our strategic growth targets.
Data protection and e-privacy
The integrity of the Group's data protection framework including
the holding, processing, and protection of customer's, third party
and sensitive business data is crucial to the supply of its
services to customers and the Group's compliance with regulatory
and legal obligations.
The Group is exposed to the risk that data breaches could result
in financial loss, reputational damage, and potential regulatory
enforcement including financial penalties.
The betting and gaming sector is under increased scrutiny from
data protection regulators globally and particularly in the UK
where the ICO specifically called out the betting and gaming
industry's use of adtech, social media and general use of personal
data as an area of focus for the next three-years in the ICO25
strategy document.
Regulatory and compliance
Compliance with regulatory requirements is critical to
maintaining the Group's licences, protecting our customers, and
driving growth. With most of our revenue generated from licensed
jurisdictions and more countries looking to regulate, the
importance of such licenses to the business is constantly
increasing.
Regulatory requirements in key markets are subject to change,
sometimes at short notice, which could benefit or have an adverse
impact on the Group and additional costs may be incurred in order
to comply with any new laws or regulations.
Condensed Consolidated Income Statement
For the six months ended 30 June 202 3
Six months Six months
ended ended
30 June 30 June
202 3 202 2
GBPm GBPm
Note (unaudited) (unaudited)
----------------------------------------- ---- ----------- -----------
Revenue 2 881.6 332.1
Gaming duties (190.9) (62.3)
Other cost of sales (103.1) (58.2)
Exceptional items - cost of sales 3 - 2.2
----------------------------------------- ---- ----------- -----------
Cost of sales (294.0) (118.3)
----------------------------------------- ---- ----------- -----------
Gross profit 587.6 213.8
Marketing expenses (138.2) (103.9)
Operating expenses (400.2) (76.2)
Share of post-tax profit of equity
accounted associate 0.6 -
Exceptional items - operating expenses 3 (25.4) (18.6)
----------------------------------------- ---- ----------- -----------
Operating profit 24.4 15.1
Adjusted EBITDA (1) 155.6 50.0
Exceptional items - cost of sales and
operating expenses 3 (25.4) (16.4)
Foreign exchange differences (0.6) (4.3)
Share benefit credit/(charge) 1.2 (2.2)
Depreciation and amortisation (106.4) (12.0)
----------------------------------------- ---- ----------- -----------
Operating profit 24.4 15.1
----------------------------------------- ---- ----------- -----------
Finance income 2.3 0.1
Finance expenses 5 (71.9) (0.8)
(Loss)/profit before tax (45.2) 14.4
Taxation 6 12.7 (2.4)
----------------------------------------- ---- ----------- -----------
(Loss)/profit after tax (32.5) 12.0
----------------------------------------- ---- ----------- -----------
Adjusted profit after tax(1) 11.8 31.9
Exceptional items - cost of sales and
operating expenses 3 (25.4) (16.4)
Amortisation of finance fees (8.1) -
Amortisation of acquired intangibles (52.6) -
Tax on exceptional and adjusted items 15.4 3.0
Foreign exchange 25.2 (4.3)
Share benefit credit/(charge) 1.2 (2.2)
----------------------------------------- ---- ----------- -----------
(Loss)/profit after tax (32.5) 12.0
----------------------------------------- ---- ----------- -----------
(Loss)/earnings per share (pence)
Basic 4 (7.3) 2.9
Diluted 4 (7.3) 2.9
----------------------------------------- ---- ----------- -----------
(1) Adjusted EBITDA and adjusted profit after tax are
Alternative Performance Measures ("APMs") which do not have an IFRS
standardised meaning. The Group present these two measures since
they are the main measure the analyst community uses to evaluate
the Company and compare it to its peers. The Group presents
adjusted measures because it allows for a further understanding of
the underlying financial performance of the Group.
Condensed Consolidated Statement of Comprehensive Income
For the six months ended 30 June 2023
Six months Six months
ended ended
30 June 30 June
202 3 202 2
GBPm GBPm
(unaudited) (unaudited)
(Loss)/profit for the period (32.5) 12.0
Items that may be reclassified subsequently
to profit or loss
------------------------------------------------- ----------- -----------
Exchange differences on translation of foreign
operations (5.1) 13.5
Items that will not be reclassified to
profit or loss
------------------------------------------------- ----------- -----------
Remeasurement of severance pay liability - 1.0
------------------------------------------------- ----------- -----------
Movement in cash flow hedging position 23.7 -
------------------------------------------------- ----------- -----------
Total other comprehensive income for the
period 18.6 14.5
------------------------------------------------- ----------- -----------
Total comprehensive (loss)/income for the
year attributable to equity holders of the
parent (13.9) 26.5
------------------------------------------------- ----------- -----------
The notes below form part of these condensed consolidated
financial statements.
Condensed Consolidated Balance Sheet
At 30 June 2023
30 June 31 December
202 3 202 2
GBPm GBPm
Note (unaudited) (audited)
Assets
Non-current assets
Goodwill and other intangible assets(2) 2,127.8 2,212.7
Right-of-use assets 79.2 81.9
Property, plant and equipment 101.8 110.4
Investment in sublease 1.2 1.4
Investments in associates 39.1 38.4
Non-current prepayments 3.2 6.2
Derivative financial instruments 14.3 16.6
Deferred tax assets 5.1 5.2
------------------------------------------ ---- ----------- -----------
2,371.7 2,472.8
Current assets
Cash and cash equivalents(1) 318.0 317.6
Trade and other receivables 116.9 132.7
Income tax receivable 7.5 35.2
Derivative financial instruments 2.9 2.0
Assets held for sale 0.5 6.9
445.8 494.4
Total assets 2,817.5 2,967.2
------------------------------------------ ---- ----------- -----------
Equity and liabilities
Equity attributable to equity holders
of the parent
Share capital 2.2 2.2
Share premium 160.7 160.7
Treasury shares (0.9) (0.9)
Foreign currency translation reserve 19.5 24.6
Hedging reserves 10.3 (13.4)
Retained earnings (47.6) (14.0)
------------------------------------------ ---- ----------- -----------
Total equity attributable to equity
holders of the parent 144.2 159.2
Non-controlling interests - -
------------------------------------------ ---- ----------- -----------
Total equity 144.2 159.2
Liabilities
Non-current liabilities
Borrowings 7 1,644.7 1,697.5
Severance pay liability 0.4 1.2
Retirement benefit liability 1.2 1.2
Provisions(2) 8 104.4 101.9
Deferred tax liability 196.6 220.4
Derivative financial instruments 19.0 17.4
Lease liabilities 70.5 65.0
------------------------------------------ ---- ----------- -----------
2,036.8 2,104.6
Current liabilities
Borrowings 7 4.8 4.8
Trade and other payables 358.8 368.0
Provisions 8 101.5 111.5
Derivative financial instruments 16.9 20.8
Income tax payable 1.8 33.0
Lease liabilities 22.4 24.0
Customer deposits 130.3 141.3
636.5 703.4
Total equity and liabilities 2,817.5 2,967.2
------------------------------------------ ---- ----------- -----------
(1) Cash and cash equivalents includes customer funds which
represent bank deposits matched by customers liabilities of an
equal value. Cash and cash equivalents excludes restricted
short-term deposits of GBP21.5 million which are presented in Trade
and other receivables (31 December 202 2 : GBP21.6 million).
(2) Since the disclosure of the provisional fair values in the
31 December 2022 year end accounts and during the measurement
period, an adjustment of GBP15.7m has been made to increase the
fair value of provisions, and an equivalent increase in goodwill.
See note 9 for further details.
The condensed financial statements herein were approved and
authorised for issue by the Board of Directors on 14 August 2023
and were signed on its behalf by:
Lord Mendelsohn Yariv Dafna
Executive Chair Chief Financial Officer
Condensed Consolidated Statement of Changes in Equity
For the six months ended 30 June 2023
Foreign Cost Non-controlling
currency of interests
Share Share Treasury translation Hedging hedging Retained
capital premium shares reserve reserve reserve earnings Total
GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm
------------------ -------- -------- -------- ----------- -------- -------- --------- --------------- -------
Balance at 1
January
2022 (audited) 1.9 2.5 (0.9) 22.1 - - 98.8 0.1 124.5
------------------ -------- -------- -------- ----------- -------- -------- --------- --------------- -------
Profit after tax
for the period
attributable
to equity
holders
of the parent - - - - - - 12.0 - 12.0
Other
comprehensive
income for the
period - - - 13.5 - - 1.0 - 14.5
------------------ -------- -------- -------- ----------- -------- -------- --------- --------------- -------
Total
comprehensive
income - - - 13.5 - - 13.0 - 26.5
Share issue 0.4 162.4 - - - - - - 162.8
Share issue
costs - (4.3) - - - - - - (4.3)
Equity settled
share
benefit charges - - - - - - 3.8 - 3.8
Acquisition of
treasury
shares - - (0.7) - - - - - (0.7)
Exercise of
deferred
share bonus
plan - - 0.7 - - - (0.7) - -
Non-controlling
interests - - - - - - 0.1 (0.1) -
Balance at 30
June
2022
(unaudited) 2.3 160.6 (0.9) 35.6 - - 115.0 - 312.6
------------------ -------- -------- -------- ----------- -------- -------- --------- --------------- -------
Balance at 1
January
2023 (audited) 2.2 160.7 (0.9) 24.6 (14.4) 1.0 (14.0) - 159.2
------------------ -------- -------- -------- ----------- -------- -------- --------- --------------- -------
Loss after tax
for
the period
attributable
to equity
holders
of the parent - - - - - - (32.5) - (32.5)
Other
comprehensive
(loss)/income
for
the period - - - (5.1) 23.7 - - - 18.6
------------------ -------- -------- -------- ----------- -------- -------- --------- --------------- -------
Total
comprehensive
(loss)/income - - - (5.1) 23.7 - (32.5) - (13.9)
Equity settled
share
benefit credit - - - - - - (1.1) - (1.1)
Balance at 30
June
2023
(unaudited) 2.2 160.7 (0.9) 19.5 9.3 1.0 (47.6) - 144.2
------------------ -------- -------- -------- ----------- -------- -------- --------- --------------- -------
The following describes the nature and purpose of each reserve
within equity.
Share capital - represents the nominal value of shares allotted,
called-up and fully paid.
Share premium - represents the amount subscribed for share
capital in excess of nominal value.
Treasury shares - represent acquired own equity instruments.
Treasury shares are recognised at cost and deducted from
equity.
Foreign currency translation reserve - represents exchange
differences arising from the translation of all Group entities that
have functional currency different from GBP.
Hedging reserves - represents changes in the fair value of
derivative financial instruments designated in a hedging
relationship.
Retained earnings - represents the cumulative net gains and
losses recognised in the consolidated statement of comprehensive
income and other transactions with equity holders.
Condensed Consolidated Statement of Cash Flows
For the six months ended 30 June 2023
Six months Six months
ended ended
30 June 30 June
2023 2022
GBPm GBPm
Note (unaudited) (unaudited)
Cash flows from operating activities
(Loss)/profit before tax (45.2) 14.4
Adjustments for:
Depreciation 21.2 4.8
Amortisation 85.2 7.2
Interest income (2.3) (0.1)
Interest expenses 5 71.9 0.8
Income tax paid (11.6) (25.0)
Share of post-tax loss of equity accounted associate (0.6) -
Non-cash exceptional items 2.1 16.4
Movement on Ante-post (4.1) -
Gain on disposal of freehold properties via
sale and leaseback (3.2) -
Gain on disposal of property, plant and equipment (1.3) -
Share benefit (credit)/charge (1.2) 2.2
-------------------------------------------------------- ---- ------------ -----------
110.9 20.7
Decrease/(increase) in receivables 27.2 (2.5)
Decrease in customer deposits (11.0) (11.3)
Decrease in trade and other payables (31.8) (35.8)
Decrease in provisions (1.0) (10.5)
-------------------------------------------------------- ---- ------------ -----------
Net cash generated from/(used in) operating
activities 94.3 (39.4)
Cash flows from investing activities
Acquisition of property, plant and equipment (5.2) (3.6)
Proceeds on disposal of property, plant and
equipment 0.5 -
Proceeds on disposal of Latvia business 18.6 -
Proceeds on sale and leaseback of freehold properties 22.0 -
Loans to 888 Africa (2.6) -
Interest received 1.7 0.1
Acquisition of intangible assets (0.8) (1.1)
Internally generated intangible assets (27.8) (9.7)
-------------------------------------------------------- ---- ------------ -----------
Net cash from/(used in) investing activities 6.4 (14.3)
Cash flows from financing activities
Proceeds from share issue - 162.8
Share issue costs - (4.3)
Payment of lease liabilities (19.2) (2.8)
Interest paid (75.1) (3.1)
Repayment of loans (2.0) -
Acquisition of treasury shares - (0.7)
Net cash (used in)/generated from financing
activities (96.3) 151.9
Net increase in cash and cash equivalents 4.4 98.2
Net foreign exchange difference (4.0) 13.5
Cash reclassified as assets held for sale - (1.6)
Cash and cash equivalents at the beginning of
the period 317.6 189.4
-------------------------------------------------------- ---- ------------ -----------
Cash and cash equivalents at the end of the
period 318.0 299.5
-------------------------------------------------------- ---- ------------ -----------
The notes below form part of these condensed consolidated
financial statements.
Notes to the Condensed Consolidated Financial Statements
1 Basis of preparation and accounting policies
1.1 Basis of preparation
The annual financial statements of the Group will be prepared in
accordance with UK adopted international accounting standards. The
condensed set of financial statements included in this half-yearly
financial report has been prepared in accordance with UK adopted
International Accounting Standard 34, "Interim Financial Reporting"
and with the Disclosure and Transparency Rules of the Financial
Conduct Authority. The interim condensed consolidated financial
statements do not include all the information and disclosures
required in the Group's annual audited consolidated financial
statements and should be read in conjunction with the Group's
annual audited consolidated financial statements for the year ended
31 December 2022.
The comparatives for the year ended 31 December 2022 are not the
Group's full statutory accounts for that year. A copy of the
statutory accounts for that year has been delivered to the
Registrar of Companies in Gibraltar and is also available from the
Company's website. The auditor's report on those accounts was
unqualified and did not contain statements under Section 257(1) (a)
and Section 258(2) of the Gibraltar Companies Act.
The condensed consolidated set of financial statements included
in this half-yearly financial report has been reviewed, not
audited, and does not constitute statutory accounts.
Further information relating to significant events during the
period is provided in the Financial Review section.
The significant accounting policies applied in the consolidated
financial statements in the prior year have been applied
consistently in these consolidated financial statements.
Going concern
Background
The financial statements have been prepared using the going
concern basis of accounting. As at 30 June 2023, the Group had net
assets of GBP144.2m (31 December 2022: GBP159.2m) and incurred a
statutory loss before tax of GBP45.2m during the six months to 30
June 2023 (six months to 30 June 2022: GBP14.4m profit). The Group
also had net current liabilities of GBP190.7m (31 December 2022:
GBP209.0m).
Business planning and performance management
Following the acquisition of William Hill, the Group has
developed its forecasting and monitoring processes to reflect the
combined group and the new reporting structure. These processes
consist of weekly monitoring and careful management of liquidity,
an annual budget and a long-term plan, which generates income
statement and cash flow projections for assessment by management
and the Board. Forecasts are regularly compared with prior
forecasts and current trading to identify variances and understand
their future impact in order that management can take action where
appropriate. Analysis is undertaken to review and sense check the
key assumptions, including the integration and transformation
programmes, underpinning the forecasts.
Whilst there are risks to the Group's trading performance, the
Group has established risk management processes to identify and
mitigate those risks, and such risks have been considered when
undertaking the going concern evaluation for the period to 31
December 2024.
The Group's future prospects
The Group meets its day-to-day working capital requirements from
the positive cash flows generated by its trading activities and its
available cash resources. The Group holds cash and cash equivalents
excluding customer balances and restricted cash of GBP187.7m as at
30 June 2023 (31 December 2022: GBP176.3m). In addition to this the
Group has access, until January 2028, to a GBP150m Revolving Credit
Facility which is currently undrawn.
The Group entered into significant debt arrangements in the
prior year to fund the acquisition of the William Hill business.
Other than an annual GBP4.8m repayment on the TLB facility, no
borrowings are due within the period of the going concern
evaluation or in the period soon after it. The next due date on the
Group's debt is in 2026 and the majority is repayable in 2027-28.
The Group's Revolving Credit Facility contains a Net Leverage
covenant which is not restrictive in the base case, downside or
reverse stress test scenarios. The remainder of the Group's debt
does not contain any financial covenants.
The Group's forecasts, for the going concern evaluation period
to 31 December 2024, based on reasonable assumptions including, in
the base case, a decline in revenue on a pro forma basis and lower
than expected EBITDA synergies, indicate that the Group will be
able to operate within the level of its currently available and
expected future facilities for this period to 31 December 2024.
Under the base case forecast, the Group has sufficient cash
reserves and available facilities to enable it to meet its
obligations as they fall due, for this going concern evaluation
period to 31 December 2024.
The Group has also assessed a range of downside scenarios to
evaluate whether any material uncertainty exists relating to the
Group's ability to continue as a going concern. The forecasts and
scenarios consider severe but plausible downsides that could impact
the Group, which are linked to the business risks identified by the
Group. These scenarios, both individually and in combination, have
enabled the Directors to conclude that the Group has adequate
resources to continue to operate for the foreseeable future.
Specifically, the Directors have given careful consideration to
the regulatory and legal environment in which the Group operates,
including the ongoing GBGC licence review. Downside sensitivities
have been run, individually and in aggregate to assess the impact
of the following scenarios:
-- Continuation of the adverse impact seen following suspension
of 888 VIP customers in the Middle East region;
-- Reductions in profitability for the whole Group of 15% to
reflect potential regulatory, macroeconomic or competitive
pressures;
-- Increase in interest expense, as a result of higher interest
rates on the Group's remaining floating rate debt; and
-- The adverse impact of potential measures following the UK Gambling Act review.
Management note that the ongoing GBGC licence review has been
considered, however no downside scenarios have been modelled as we
believe the likelihood of a licence suspension materialising is
remote. Management have performed a separate reverse stress test to
identify the conditions that would be required to compromise the
Group's liquidity. Having done so, management has identified
further actions to conserve or generate cash to mitigate any impact
of such a scenario occurring. Management have calculated mitigating
cost savings that can be implemented by reducing variable operating
expenditure to offset a reduction in cash generation resulting from
lower profitability. Following these actions, the Group could
withstand a decrease in forecast EBITDA of 64.1%. The Board
considers the likelihood of a decline of this magnitude to be
remote. Other initiatives, not directly in the Group's control at
the date of approval of these financial statements, could be
considered including the disposal of non-core assets and
investments.
Should a more extreme downside scenario occur, or mitigations
and initiatives not be achieved, further mitigating actions that
can be executed in the necessary timeframe could be taken, such as
a temporary reduction of marketing expenditures.
Conclusion
Based on the above considerations, the Directors continue to
adopt the going concern basis in preparing these financial
statements.
1.2 New standards, interpretations and amendments adopted by the Group
The accounting policies and methods of computation adopted in
the condensed consolidated half-yearly financial information are
consistent with those followed in Group's full financial statements
for the year ended 31 December 2022, except for the adoption of new
standards effective as of 1 January 2023.
Several new and amendments to existing International Financial
Reporting Standards and interpretations, issued by the IASB and
adopted in the UK, were effective from 1 January 2023 and have been
adopted by the Group during the period with no significant impact
on the consolidated results or financial position of the Group.
The Group monitors developments in respect of the global design,
consultation and implementation of Pillar Two, which is the OECD
term for a global minimum tax rate. Pillar Two is expected to lead
to further corporation tax being payable by the Group in the future
given its online operating model. On 20 June, 2023, the United
Kingdom substantively enacted Pillar Two. As required by the
amendments to IAS 12, the Group has applied the exception to
recognising and disclosing information about deferred tax assets
and liabilities related to Pillar Two income taxes. The Group is
currently completing a detailed numerical modelling exercise to
estimate the increased tax payable and effective tax rate resulting
from the Pillar Two rules being enacted and expects to provide an
update on its work in line with recent amendments to IAS 12 in its
financial statements for the year ended 31 December 2023.
1.3 New standards that have not been adopted by the Group as
they were not effective for the period
Several new standards and amendments to existing International
Financial Reporting Standards and interpretations, issued by the
IASB and adopted, or subject to endorsement, in the UK, will be
effective from 1 January 2024 onwards and have not been adopted by
the Group during the period. At this stage management are still
assessing the full impact on the consolidated results or financial
position of the Group. None are expected to have a material impact
on the consolidated financial statements in the period of initial
application.
1.4 Key Judgements and Estimates
In the application of the Group's accounting policies,
management is required to make judgements, estimates and
assumptions about the carrying amounts of assets and liabilities
that are not readily apparent from other sources. The key sources
of estimation, uncertainty and judgement applied in the preparation
of the Interim Financial Statements are consistent with those
applied in the financial statements of the group for the year ended
31 December 2022, as disclosed in note 1 of those statements.
1.5 Fair value measurements
The Group considers that the book value of the financial assets
and liabilities, approximates to their fair value.
There were no changes in valuation techniques or transfers
between categories in the period.
2 Segment information
The Board has reviewed and confirmed the Group's reportable
segments in line with the guidance provided by IFRS 8 'Operating
Segments'. The segments disclosed below are aligned with the
reports that the Group's Executive Chair and Chief Financial
Officer as Chief Operating Decision Makers review to make strategic
decisions.
The Retail segment comprises all activity undertaken in LBOs
including gaming machines. The UK&I Online segment comprises
all online activity, including sports betting, casino, poker and
other gaming products along with telephone betting services that
are incurred within the UK and Ireland. The International segment
comprises all online activity, including sports betting, casino,
poker and other gaming products along with telephone betting
services that are incurred within all territories excluding the UK.
There are no inter-segmental sales within the Group.
Segment performance is shown on an adjusted EBITDA basis, with a
reconciliation from adjusted EBITDA to statutory results for
clarity. Information for the period ended 30 June 2023 is as
follows:
Six months ended 30 June
2023 Retail UK&I Online International Other(2) Corporate Total
GBPm GBPm GBPm GBPm GBPm GBPm
------------------------------- ------- ----------- ------------- ---------- ----------- -------
Revenue(1) 279.4 335.9 266.3 - - 881.6
Gaming duties and other
cost of sales (60.2) (128.3) (103.2) - - (291.7)
Adjusted Gross Profit 219.2 207.6 163.1 - - 589.9
Marketing (3.1) (82.9) (52.1) - - (138.1)
Contribution 216.1 124.7 111.0 - - 451.8
Operating expenses (155.3) (65.7) (57.9) - (17.9) (296.8)
Associate income - - - - 0.6 0.6
------------------------------- ------- ----------- ------------- ---------- ----------- -------
Adjusted EBITDA 60.8 59.0 53.1 - (17.3) 155.6
Depreciation (21.2)
Amortisation (excluding
acquired intangibles) (32.6)
Amortisation of acquired
intangibles (52.6)
Exceptional items - operating
expenses (25.4)
Share benefit credit 1.2
Foreign exchange (0.6)
Finance expenses (71.9)
Finance income 2.3
Loss before tax (45.2)
------------------------------- ------- ----------- ------------- ---------- ----------- -------
1 Revenue recognised under IFRS 9 is GBP279.4m in Retail, GBP335.9m in UK&I Online, GBP259.2m in International and GBPnil in Other. Revenue recognised under IFRS 15 is GBPnil in Retail, GBPnil in UK&I Online, GBP 7.1m in International and GBPnil in Other.
2 'Other' represents the Bingo business that was disposed of
during the year ended 31 December 2022.
Six months ended 30 June 2022 Retail UK&I Online International Other(2) Corporate Total
GBPm GBPm GBPm GBPm GBPm GBPm
---------------------------------- ------ ----------- ------------- ---------- ----------- --------
Revenue(1) - 109.0 203.5 19.6 - 332.1
Gaming duties and other cost
of sales - (36.2) (69.5) (10.4) - (116.1)
Adjusted Gross Profit - 72.8 134.0 9.2 - 216.0
Marketing - (55.8) (45.6) (2.5) - (103.9)
Contribution - 17.0 88.4 6.7 - 112.1
Operating expenses - (18.8) (35.9) (4.8) (2.6) (62.1)
Associate income - - - - - -
---------------------------------- ------ ----------- ------------- ---------- ----------- --------
Adjusted EBITDA - (1.8) 52.5 1.9 (2.6) 50.0
Depreciation (4.8)
Amortisation (excluding acquired
intangibles) (7.2)
Exceptional items - cost of
sales and operating expenses (16.4)
Share benefit charges (2.2)
Foreign exchange (4.3)
Finance income 0.1
Finance expenses (0.8)
Profit before tax 14.4
---------------------------------- ------ ----------- ------------- ---------- ----------- --------
1 Revenue recognised under IFRS 9 is GBPnil in Retail, GBP109.0m
in UK&I Online, GBP197.1m in International and GBP 11.0m in
Other. Revenue recognised under IFRS 15 is GBPnil in Retail, GBPnil
in UK&I Online, GBP6.4m in International and GBP8.6m in
Other.
2 'Other' represents the Bingo business that was disposed of
during the year ended 31 December 2022.
3 Exceptional items and adjusted results
In determining the classification and presentation of
exceptional items we have applied consistently the guidelines
issued by the Financial Reporting Council ('FRC') that primarily
addressed the following:
-- Consistency and even-handedness in classification and presentation;
-- Guidance on whether and when recurring items should be
considered as part of underlying results; and
-- Clarity in presentation, explanation and disclosure of
exceptional items and their relevance.
In preparing these condensed financial statements, we also note
the European Securities and Markets Authority ('ESMA') guidance on
Alternative Performance Measures (APM), including:
-- Clarity of presentation and explanation of the APM;
-- Reconciliation of each APM to the most directly reconcilable financial statement caption;
-- APMs should not be displayed with more prominence than statutory financials;
-- APMs should be accompanied by comparatives; and
-- The definition and calculation of APMs should be consistent over time.
Adjusted results
The Group reports adjusted results, both internally and
externally, that differ from statutory results prepared in
accordance with IFRS. These adjusted results, which include our key
metrics of adjusted EBITDA, adjusted profit after tax and adjusted
EPS, are considered to be a useful reflection of the underlying
performance of the Group and its businesses, since they exclude
transactions which impair visibility of the underlying activity in
each segment. More specifically, visibility can be impaired in one
or both of the following instances:
- a transaction is of such a material or infrequent nature that
it would obscure an understanding of underlying outcomes and trends
in revenues, costs or other components of performance (for example,
a significant impairment charge); or
- a transaction that results from a corporate activity that has
neither a close relationship to the Group's operations nor any
associated operational cash flows (for example, the amortisation of
intangibles recognised on acquisitions).
Adjusted results are used as the primary measures of business
performance within the Group and align with the results shown in
management accounts, with the key uses being:
- management and Board reviews of performance against
expectations and over time, including assessments of segmental
performance (see note 2);
- in support of business decisions by the Board and by
management, encompassing both strategic and operational levels of
decision-making
The Group's policies on adjusted measures are consistently
applied over time, but they are not defined by IFRS and, therefore,
may differ from adjusted measures as used by other companies.
The Consolidated Income Statement presents adjusted results
alongside statutory measures. We discriminate between two types of
reconciling items: exceptional items and adjusted items.
Exceptional items
Exceptional items are those items the Directors consider to be
one-off or material in nature that should be brought to the
reader's attention in understanding the Group's financial
performance.
Exceptional items are as follows:
Six months Six months
ended ended
30 June 30 June
2023 2022
GBPm GBPm
Cost of sales
Retroactive duties and associated charges - (2.2)
--------------------------------------------------- ---------- ----------
Exceptional items - cost of sales - (2.2)
Operating expenses
Integration and transformation costs 21.9 -
Corporate transaction related costs 0.5 7.4
Regulatory provisions 3.0 -
Loss on reclassification of Bingo business to Held
for sale - 11.2
Exceptional items - operating expenses 25.4 18.6
Total exceptional items before tax 25.4 16.4
Tax on exceptional items (2.5) (3.0)
Total exceptional items 22.9 13.4
--------------------------------------------------- ---------- ----------
For the six months ended 30 June 2023, total tax on exceptional
items and adjustments is a credit of GBP15.4m, GBP12.9m of which
relates to adjustments (Six months ended 30 June 2022: GBP3.0m tax
credit related entirely to exceptional items).
Retroactive gaming duties and associated charges
The industry in which the Group operates is subject to
continuing scrutiny by regulators and other governmental
authorities, which may, in certain circumstances, lead to
enforcement actions, sanctions, fines and penalties or the
assertion of private litigations, claims and damages. In H1 2022, a
net credit of GBP2.2 million was recognised in respect to
exceptional provision for retroactive duties and associated charges
following a reassessment of potential gaming duties relating to
activity in prior years .
Integration and transformation costs
Following the acquisition of the William Hill International
(non-US) business, the integration and transformation program began
and the full GBP150m target for pre-tax cost synergies is expected
to be realised in 2024. The cash costs to achieve the targeted
integration synergies are expected to cost approximately GBP100m,
incurred through to 2025 with the majority in 2023 and 2024. In H1
2023, there are a total of GBP21.9m of costs relating to the
integration programme, including GBP6.6m of platform integration
costs, GBP5.2m of redundancy costs, GBP3.2m of legal and
professional costs and GBP2.7m of employee incentives as part of
the integration of William Hill and 888.
Corporate transaction related costs
The Group has incurred legal and M&A costs, including in
relation to the disposal of its Latvia business. Refer to note 9
for more detail. During H1 22 the Group incurred GBP7.4m of costs
associated with the acquisition of the international (non-US)
business of William Hill.
Regulatory Provisions
The Group has booked a provision of GBP3.0m during the period
related to a regulatory settlement with the Gibraltar regulator in
relation to the previously disclosed failings that we identified in
our Middle East business. This has been presented as an exceptional
item given it is one-off in nature.
Loss on reclassification of Bingo business to Held for sale
On 7 July 2022, the Group announced that it had completed the
sale of its entire Bingo business to Saphalata Holdings Ltd., a
member of the Broadway Gaming group, for a total cash consideration
of GBP37.4m (US$45.25m), out of which GBP35.7m was paid on
completion and a further GBP1.7m will unconditionally be paid in
one year. As a result, the Group reclassified Bingo assets and
liabilities as 'Held for sale' and recognised an impairment loss of
GBP11.2m in H1 2022.
Adjusted items
Adjusted items are recurring items that are excluded from
internal measures of underlying performance and which are not
considered by the Directors to be exceptional. This relates to the
amortisation of the difference between the fair value and the
pre-acquisition book value of specific intangible assets recognised
in acquisitions, amortization of finance fees, foreign exchange and
share benefit charges. These items are defined as adjusted items as
it is believed it would impair the visibility of the underlying
activities across each segment as it is not closely related to the
businesses' or any associated operational cash flows. Each of these
items are recurring and occur in each reporting period and will be
consistently adjusted in future periods. Note that the adjusted
items are all shown on the face of the consolidated income
statement in the reconciliations of both adjusted EBITDA and
adjusted profit after tax.
4 Earnings per share
Basic earnings per share
Basic earnings per share ('EPS') has been calculated by dividing
the profit attributable to ordinary shareholders by the weighted
average number of shares in issue and outstanding during the
period.
Diluted earnings per share
The weighted average number of shares for diluted earnings per
share takes into account all potentially dilutive equity
instruments granted, which are not included in the number of shares
for basic earnings per share. Potential ordinary shares are
excluded from the weighted average diluted number of shares when
calculating IFRS diluted loss per share because they are not
dilutive. The number of equity instruments included in the diluted
EPS calculation consist of 4,008,045 ordinary shares (H1 2022:
6,970,866) and no market-value options (H1 2022: nil).
The number of equity instruments excluded from the diluted EPS
calculation is 1,070,379 (H1 2022: 1,726,593).
Six months Six months
ended ended
30 June 30 June
2023 2022
(unaudited) (unaudited)
(Loss)/profit for the period attributable to equity
holders of the parent (GBPm) (32.5) 12.0
Weighted average number of Ordinary Shares in
issue 447,368,358 406,915,296
Effect of dilutive Ordinary Shares and share options 4,008,045 6,970,866
Weighted average number of dilutive Ordinary Shares 451,376,403 413,886,162
----------------------------------------------------- ----------- -----------
Basic (pence) (7.3) 2.9
Diluted (pence) (7.3) 2.9
----------------------------------------------------- ----------- -----------
Adjusted earnings per share
The Directors believe that EPS calculated using adjusted profit
after tax ("Adjusted EPS") allows for further understanding of the
underlying performance of the business and assists in providing a
clearer view of the performance of the Group.
Six months Six months
ended ended
30 June 30 June
2023 2022
GBPm GBPm
(unaudited) (unaudited)
Adjusted profit after tax 11.8 31.9
Weighted average number of Ordinary Shares in
issue 447,368,358 406,915,296
Weighted average number of dilutive Ordinary Shares 451,376,403 413,886,162
------------------------------------------------------ ------------ -----------
Adjusted basic earnings per share (pence) 2.6 7.8
Adjusted diluted earnings per share (pence) 2.6 7.7
------------------------------------------------------ ------------ -----------
5 Finance expenses
Six months Six months
ended ended
30 June 30 June
2023 2022
GBPm GBPm
------------------------------------------------- ---------- ----------
Interest expenses related to lease liabilities 4.4 0.4
Interest on bank loans and bonds 85.1 -
Hedging activities 7.6 -
Foreign exchange on financing activities (25.8) -
Other finance charges and fees 0.6 0.4
Total finance expenses 71.9 0.8
--------------------------------------------------- ---------- ----------
6 Taxation
Corporate taxes
Six months Six months
ended ended
30 June 30 June
2023 2022
GBPm GBPm
----------------------------------------------------------- ------------ --- ------------
Current taxation
UK corporation tax at 23.5% 0.2 -
Other jurisdictions taxation 3.1 2.4
Adjustments in respect of prior years 3.2 -
------------------------------------------------------------ ----- ------------ --- ------------
6.5 2.4
Deferred taxation
Origination and reversal of temporary differences (6.6) -
Adjustments in respect of prior years (12.6) -
------------------------------------------------------------ ----- ------------ --- ------------
(19.2) -
Taxation (credit)/expense (12.7) 2.4
------------------------------------------------------------ ----- ------------ --- ------------
The Group recognised a tax credit of GBP12.7m on loss before tax of GBP45.2m,
giving an effective tax rate of 28.1% (H1 22: 16.7%). This rate benefits from
the lower tax rates in Gibraltar as well as a credit arising in the period
from the utilisation of corporate interest relief.
Before exceptional and adjusted items, the Group recognised a tax charge of
GBP2.7m on profits before tax of GBP14.5m, giving an effective tax rate of
18.5% (H1 22: 17.5%). The rate is lower than the expected UK statutory rate
of 23.5% due mainly to the receipt of prior year tax credits in the first
half of the year as a result of recognising additional tax losses from earlier
years.
6 months ended 30 June
6 months ended 30 June 2023 2022
Before Before
exceptional Exceptional exceptional Exceptional
items and items / items items /
adjustments adjustments Total and adjustments adjustments Total
GBPm GBPm GBPm GBPm GBPm GBPm
-------------- ------------- ------- ----------------- ------------- ------
Profit/(loss) before
tax 14.5 (59.7) (45.2) 30.8 (16.4) 14.4
Tax (expense)/credit (2.7) 15.4 12.7 (5.4) 3.0 (2.4)
Profit/(loss) for
the period 11.8 (44.3) (32.5) 25.4 (13.4) 12.0
-------------- ------------- ------- ----------------- ------------- ------
18.5% 25.8% 28.1% 17.5% 18.3% 16.7%
6 months ended 30 June 6 months ended 30 June
2023 2022
Exceptional Exceptional
items Adjustments Total items Adjustments Total
GBPm GBPm GBPm GBPm GBPm GBPm
------------------------ ---------------------- ---------------------- ------------------------ -------------------------- ------------------------
Total
exceptional
items
and
adjustments
before tax (25.4) (34.3) (59.7) (16.4) 0.0 (16.4)
Tax on
exceptional
items
and
adjustments 2.5 12.9 15.4 3.0 - 3.0
Total
exceptional
items
and
adjustments (22.9) (21.4) (44.3) (13.4) 0.0 (13.4)
------------------------ ---------------------- ---------------------- ------------------------ -------------------------- ------------------------
9.7% 37.7% 25.8% 18.3% 0.0% 18.3%
7 Borrowings
Interest 31 December
rate Maturity 30 June 2023 2022
%
---------------------------- -------------- ----------------------------------------------
Borrowings at amortised
cost
Bank facilities
EUR473.5m term loan EURIBOR +
facility 5.5% 2028 381.5 392.6
CME term
$575.0m term loan facility SOFR + 5.35% 2028 403.4 420.7
GBP150.0m Equivalent
Multi-Currency Revolving
Credit Facility - 2028 - -
Loan Notes
EUR582.0m Senior Secured
Fixed Rate Notes 7.56 2027 484.7 498.6
EUR450.0m Senior Secured EURIBOR +
Floating Rate Notes 5.5% 2028 369.4 379.9
GBP350.0m Senior Unsecured
Notes 4.75 2026 10.5 10.5
---------------------------- -------------- --------- ---------------- ------------
Total Borrowings 1,649.5 1,702.3
Less: Borrowings as
due for settlement
in 12 months 4.8 4.8
Total Borrowings as
due for settlement
after 12 months 1,644.7 1,697.5
---
Bank facilities
Term Loan Facilities
In July 2022, the Group entered into a Senior Facilities
Agreement in connection with the William Hill Group acquisition,
under which the following term loan facilities were made
available:
-- a 6-year euro-denominated bullet term facility of EUR473.5m,
of which EUR6.4m was repaid in September 2022.
-- a 6-year sterling-denominated delayed-draw bullet term
facility of GBP351.8m which was partially drawn in September 2022
("GBP Term Loan") and used to partially prepay the William Hill
Group's GBP350m 4.75% Senior Unsecured Notes due 2026 and partially
prepay the Group's euro-denominated bullet term facility.
-- a 6-year US Dollar-denominated term facility of $500.0m.
In December 2022, the GBP Term Loan was prepaid and partially
replaced with a $75.0m increase under the Group's 6-year US
Dollar-denominated term facility, with the remaining amount
replaced with senior secured note issuances.
At 30 June 2023, the following amounts were outstanding under
the term facilities made available to the Group under the Senior
Facilities Agreement:
-- EUR467.1m under the Group's 6-year euro-denominated term facility.
-- $496.2m under the Group's 6-year US Dollar-denominated term facility.
Loan Notes
Senior Secured Notes
(i) EUR582m 7.558% Senior Secured Fixed Rate Notes due July
2027
In July 2022, as part of the William Hill Group acquisition
funding, the Group issued EUR400m of guaranteed senior secured
fixed rate notes and used the net proceeds to finance the William
Hill Group acquisition. The notes, which are guaranteed by certain
members of the Group and certain of the Group's operating
subsidiaries, mature in July 2027.
In December 2022, a further EUR182m in principal amount was
issued under the same terms as the initial EUR400m issuance and
used to partially refinance the GBP Term Loan.
(ii) EUR450m Senior Secured Floating Rate Notes due July
2028
In July 2022, the Group issued EUR300m of guaranteed senior
secured floating rate notes and used the net proceeds to partially
finance the William Hill Group acquisition. The notes, which are
guaranteed by certain members of the Group and certain of the
Group's operating subsidiaries, mature in July 2028.
In December 2022, a further EUR150m in principal amount was
issued under the same terms as the initial EUR300m issuance to
partially refinance the GBP Term Loan.
Senior Unsecured Notes
GBP350m 4.875% Senior Unsecured Fixed Rate Notes due 2023 &
GBP350m 4.75% Senior Unsecured Fixed Rate Notes due 2026
The Group acquired two separate listed Senior Unsecured notes,
due 2023 and 2026 respectively as at 1 July 2022. The acquisition
triggered a change in control and the exercise of a put option by a
number of Noteholders (refer below). T he GBP350m 4.875% Senior
Unsecured Notes due 2023 were settled in full and, on 22 September
2022, Noteholders of GBP339.5m out of GBP350.0m 4.75% Senior
Unsecured Notes due 2026 took the option to exercise. As a result,
this reduced the GBP350.0m 4.75% Senior Unsecured Notes due 2026 to
GBP10.5m. The cash purchase price of both notes was equal to 101
per cent of the principal amount together with the interest
accrued. As at 30 June 2023, GBP10.5m of Senior Unsecured Notes due
2026 (31 December 2022: GBP10.5m) were held by the Group.
Finance fees and associated costs incurred on the issue of both
notes were held in the William Hill Statement of Financial Position
at acquisition, which were subsequently fair valued which led to an
increase of GBP7.1m, reflecting the current market price of the
debt at acquisition date. This is being amortised over the life of
the respective notes using the effective interest rate method. On
redemption of the Notes, any unamortised fees were written off to
profit and loss as exceptional costs (see note 3).
Change of control
Following the occurrence of a change of control, either (i) each
lender under the Senior Facilities Agreement shall be entitled to
require prepayment of outstanding amounts and cancellation of its
commitments within a prescribed time period or (ii) the Group may
elect that all outstanding undrawn commitments of each lender shall
be cancelled and outstanding drawn commitments shall become due and
payable.
In addition, the Group will be required to make an offer to
purchase all of the Fixed Rate Notes, the Floating Rate Notes and
the 4.75% senior unsecured notes due 2026 as a result of such
change of control at a price in cash equal to 101% of the aggregate
principal amount thereof plus accrued and unpaid interest.
Undrawn credit facilities
At 30 June 2023, the Group had the following undrawn credit
facilities:
GBP150m Equivalent Multi-Currency Revolving Credit Facility
In July 2022, as part of the William Hill Group acquisition, the
Group entered into a new Senior Facilities Agreement under which
its GBP50m revolving credit facility was replaced with a
multi-currency revolving credit facility. The replacement facility
has an aggregate principal amount of GBP150m with a five and a half
year maturity (maturing in January 2028). The drawn balance on this
facility at 30 June 2023 was GBPnil.
Financial Covenant
The Revolving Credit Facilities are subject to a Senior
Facilities Agreement whereby any applicable revolving Incremental
Senior Facilities (together the "Financial Covenant Facilities")
are tested at the Financial year end to ensure that they do not
exceed a pre-agreed threshold.
The directors are satisfied that, at the period end, the net
leverage ratio has not exceeded the pre-agreed threshold and, as a
consequence, the Financial Covenants have not been breached.
Overdraft facility
In July 2022, as part of the William Hill Group acquisition, the
Group acquired an overdraft facility with National Westminster Bank
plc of GBP5.0m. The balance on this facility at 30 June 2023 was
GBPnil.
Net debt reconciliation
Total
Opening 30
1 January Fees June
Debt 2023 Inflows Outflows on debt Non-cash FX 2023
GBPm GBPm GBPm GBPm GBPm GBPm GBPm
2026 Senior Unsecured
Notes 10.5 - - - - - 10.5
EUR473.5m term loan
facility 392.6 - - - 1.2 (12.3) 381.5
$575.0m term loan
facility 420.6 - (2.0) - 3.5 (18.7) 403.4
EUR582.0m Senior
Secured Fixed Rate ( 15.7 484
Notes 498.7 - - - 1.7 ) .7
EUR450.0m Senior
Secured Floating ( 11.9 369
Rate Notes 379.9 - - - 1.4 ) .4
1,702.3 - ( 2.0) - 7.8 (58.6) 1,649.5
----------------------- ----------- -------- --------- --------- --------- ------- --------
Opening Total
1 January Fees FV 31 December
Debt 2022 Inflows Acquired Outflows on debt Non-cash adjustment FX 2022
GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm
2023 Senior
Unsecured
Notes - - 352.3 (349.0) - - (3.3) - -
2026 Senior
Unsecured
Notes - - 351.9 (339.0) - - (2.4) - 10.5
GBP358.1
term
loan
facility - 347.0 (347.0) - - - - -
GBP461.5m asset
bridge loan 461.5 (461.5) - - - - -
EUR473.5m
term
loan
facility - 420.4 - (5.7) (23.5) 1.7 - (0.3) 392.6
$575.0m term
loan
facility - 479.1 - (1.0) (57.4) 3.5 - (3.6) 420.6
EUR582.0m
Senior
Secured
Fixed
Rate Notes - 517.0 - - (18.9) 0.9 - (0.3) 498.7
EUR450.0m
Senior
Secured
Floating
Rate Notes - 399.6 - - (20.3) 0.9 - (0.3) 379.9
- 2,163.1 1,165.7 (1,503.2) (120.1) 7.0 (5.7) (4.5) 1,702.3
-------------------------- -------- --------- ---------- --------- --------- ------------ ------ ------------
30 June 2023 31 December 2022
Nominal Unamortised Book Nominal Unamortised Book
Value issue costs Value Value issue costs Value
GBPm GBPm GBPm GBPm GBPm GBPm
---------- ------------- -------- ---------- ------------- --------
2026 Senior
Unsecured Notes 10.5 - 10.5 10.5 - 10.5
EUR473.5m term loan
facility 402.5 (21.0) 381.5 413.7 (21.1) 392.6
$575.0m term loan
facility 452.9 (49.5) 403.4 476.0 (55.4) 420.6
EUR582.0m Senior
Secured
Fixed Rate Notes 501.4 (16.7) 484 .7 515.5 (16.8) 498.7
EUR450.0m Senior
Secured
Floating Rate Notes 387.7 (18.3) 369 .4 398.6 (18.7) 379.9
1,755.0 (105.5) 1,649.5 1,814.3 (112.0) 1,702.3
---------- ------------- -------- ---------- ------------- --------
8 Provisions, commitments, contingent liabilities and regulatory issues
Indirect Legal and Shop closure Other restructuring
tax provision regulatory provision costs Total
GBPm GBPm GBPm GBPm GBPm
------------------------------------ --------------- ----------- -------------- ------------------- -------
At 31 December 2022(1) 61.7 143.2 4.8 3.7 213.4
Charged/(credited) to profit
or loss
Additional provisions recognised 1.2 3.7 0.9 - 5.8
Provisions released to profit
and loss - (2.6) - - (2.6)
Utilised during the year (2.3) (1.5) (1.7) (1.3) (6.8)
Transfer between categories(2) - (1.2) - (1.9) (3.1)
Foreign exchange differences (0.1) (0.7) - - (0.8)
At 30 June 2023 60.5 140.9 4.0 0.5 205.9
1. Since the disclosure of the provisional fair values in the 31
December 2022 year end accounts and during the measurement period,
an adjustment of GBP15.7m has been made to increase the fair value
of provisions, and an equivalent increase in goodwill.
2. During the period a GBP1.9m provision which was previously
categorised as other restructuring costs has been reclassified into
legal and regulatory as this better reflects the nature of the
provision. In addition, a provision of GBP3.1m within legal and
regulatory has been transferred to accruals.
Customer claims provisions of GBP104.0m within legal and
regulatory are classified as non-current. The remaining provisions
are all classified as current.
Indirect tax provision
As part of the acquisition of William Hill in the previous
reporting period, the Group acquired a provision relating to a
gaming tax liability in Austria, where the Austrian tax authority
believes that foreign gaming companies should be liable to pay
gaming taxes in Austria. During the current reporting period, the
Group has continued to provide for the gaming taxes including
interest, as management considers that an outflow is probable. The
Group is in constructive discussions with the Austrian tax
authority over the timing of settlement.
Legal and regulatory provisions
The Group has a provision in respect of legal and regulatory
matters, including customer claims, and updated it to reflect the
Group's revised assessment of these risks in light of developments
arising during 2023 such that this represents management's best
estimate of probable cash outflows related to these matters.
The industry in which the Group operates is subject to
continuing scrutiny by regulators and other governmental
authorities, which may, in certain circumstances, lead to
enforcement actions, sanctions, fines and penalties or the
assertion of private litigations, claims and damages. Within this
provision, there is a provision acquired relating to a periodic
compliance assessment undertaken by the GB Gambling Commission
("GBGC") in July and August 2021 of the William Hill business.
William Hill was subject to a licence review and has successfully
addressed all action points raised by the GBGC in relation to
William Hill's social responsibility and anti-money laundering
obligations. The Group agreed a regulatory settlement of GBP19.2m,
including divestments of GBP0.7m. This liability was acquired at 1
July 2022 and is expected to be settled in the second half of
2023.
In common with other businesses in the gambling sector, the
Group receives claims from consumers relating to the provision of
gambling services. Claims have been received from consumers in a
number of (principally European) jurisdictions and allege either
failure to follow responsible gambling procedures, breach of
licence conditions or that underlying contracts in question are
null and void given local licencing regimes. The Group expenses
consumer claims as they are resolved or finally determined in
consumers' favour and provides for such claims where an outcome in
favour of the consumers in question is probable.
Within this provision, there is a provision for customer claims
in Austria where the Business has been subject to a particular
acceleration of claims since 2020 following marketing campaigns by
litigation funders in that jurisdiction. Claims have continued to
be received throughout 2021 and 2022 at a broadly consistent rate
with a slight acceleration across 2021 and 2022. Consumers who have
obtained judgement against the Business's entities in the Austrian
courts have sought to enforce those judgements in Malta and
Gibraltar. These are being defended on the basis of a public policy
argument. The provisions held for the Group relating to these
claims is GBP86.2m, which includes a provision of GBP80.6m relating
to the William Hill and Mr Green brands and GBP5.6m relating to
888.
The calculation of the customer claims liability includes
provision for both legal fees and interest but is gross of gaming
tax. Management have assessed that it is probable as opposed to
virtually certain that the tax will be reclaimed and therefore a
contingent asset of up to GBP24.3m has been disclosed for the tax
reclaims.
The timing and amount of the outflows is ultimately determined
by the settlement reached with the relevant authority.
Following receipt of updated advice, the development of case law
in Germany indicates that the courts may apply a more
customer-friendly approach to the application of the three-year
limitation period and link the commencement of the limitation
period to the player's first positive knowledge of a claim to
recover his gambling losses. The law permits a maximum limitation
period of 10 years in this scenario. As such, during 2023 and
within the purchase price accounting measurement period, we have
re-assessed the value of the provision for customer claims in
Germany as at the acquisition date. This has led to an increase in
the provision of GBP15.7m to a total value of GBP23.4m. This has
been recognised through the opening balance sheet on acquisition,
leading to an equivalent increase in goodwill on acquisition.
Shop closure provisions
As a result of the acquisition of William Hill, the Group holds
provisions relating to the associated costs of closure of large
shop closure programmes in 2019 and 2022 as well as certain shops
that ceased to trade as part of normal trading activities.
Other restructuring costs
The Group has recognised certain provisions for staff severance
as a result of restructuring due to the acquisition of William
Hill.
9 Acquisitions and disposals
Acquisitions
On 1 July 2022, the Group acquired all of the equity interests
in William Hill. Total consideration for the transaction was
GBP554.3m, consisting of GBP544.7m cash consideration and up to
GBP100.0m of contingent consideration, fair valued on acquisition
date at GBP9.6m.
The following table shows the final fair values of the
identifiable assets acquired and liabilities assumed of William
Hill at the acquisition date.
Identifiable assets acquired and liabilities assumed
Fair Value
GBPm
------------------------------------------- -----------
Intangible assets 1,404.2
Property, plant and equipment 109.5
Right-of-use assets 72.3
Investment in sublease 1.4
Investments and investments in associates 40.0
Cash and cash equivalents 157.9
Trade and other receivables 32.9
Income tax asset 10.8
Assets held for sale 0.2
Trade and other payables (399.3)
Provisions and contingent liabilities (194.5)
Derivative financial instruments (3.5)
Lease liabilities (76.6)
Retirement benefit liability (0.4)
Deferred tax liabilities (236.2)
Long term debt (1,165.7)
------------------------------------------- -----------
Total net identifiable liabilities (247.0)
Goodwill 801.3
Consideration transferred 554.3
------------------------------------------- -----------
Since the disclosure of the provisional fair values in the 31
December 2022 year end accounts and during the measurement period,
an adjustment of GBP15.7m has been made to increase the fair value
of provisions, in relation to the customer claims in Germany, and
an equivalent increase in goodwill has been recognised. See Note 8
for further details of the change.
Disposals
On 22 May 2023, the Group agreed to sell its Latvian business to
Paf Consulting Abp. On 13 June 2023, the deal with Paf Conulting
Abp completed. The cash consideration for the Latvian business was
GBP19.5m, of which GBP0.9m is a net cash adjustment. As a part of
the deal, the Group have agreed an earn out with Paf Consulting
Abp, under which the Group would receive further consideration of
up to EUR4.25m. As this is deemed to hold a fair value of GBPnil
this has not been recorded in these financial statements.
The Group sold net assets totalling GBP19.5m, leading to a
profit on disposal of GBPnil. These net assets were made up of
goodwill and other intangible assets of GBP23.1m, other net assets
totalling GBP1.0m, non-controlling interests of GBP0.5m offset by
deferred tax liabilities totalling GBP5.1m.
10 Financial instruments
The hierarchy (as defined in IFRS 13 'Fair Value Measurement')
of the Group's financial instruments carried at fair value as at 30
June 2023 and 31 December 2022 was as follows:
Contractual Level Level Level
30 June 2023 / notional amount 1 2 3
GBPm GBPm GBPm GBPm
Financial assets
--------------------------- ------------------- ------ ------ ------
Cross-currency swaps 385.3 - 15.4 -
--------------------------- ------------------- ------ ------ ------
Interest rate swaps 129.2 - 1.8 -
--------------------------- ------------------- ------ ------ ------
514.5 - 17.2 -
--------------------------- ------------------- ------ ------ ------
Financial liabilities
--------------------------- ------------------- ------ ------ ------
Cross-currency swaps 352.6 - 32.2 -
--------------------------- ------------------- ------ ------ ------
Interest rate swaps - - - -
--------------------------- ------------------- ------ ------ ------
Ante post bet liabilities - - - 3.7
--------------------------- ------------------- ------ ------ ------
Contingent consideration 100.0 - - 0.4
--------------------------- ------------------- ------ ------ ------
452.6 - 32.2 4.1
--------------------------- ------------------- ------ ------ ------
Contractual Level Level Level
31 December 2022 / notional amount 1 2 3
GBPm GBPm GBPm GBPm
Financial assets
--------------------------- ------------------- ------ ------ ------
Cross-currency swaps 397.1 - 17.7 -
--------------------------- ------------------- ------ ------ ------
Interest rate swaps 132.2 - 0.9 -
--------------------------- ------------------- ------ ------ ------
529.3 - 18.6 -
--------------------------- ------------------- ------ ------ ------
Financial liabilities
--------------------------- ------------------- ------ ------ ------
Cross-currency swaps 365.3 - 30.4 -
--------------------------- ------------------- ------ ------ ------
Interest rate swaps - - - -
--------------------------- ------------------- ------ ------ ------
Ante post bet liabilities - - - 7.8
--------------------------- ------------------- ------ ------ ------
Contingent consideration 100.0 - - 0.4
--------------------------- ------------------- ------ ------ ------
465.3 - 30.4 8.2
--------------------------- ------------------- ------ ------ ------
Ante post bets are a liability arising from an open position at
the period end date in accordance with the Group's accounting
policy for derivative financial instruments. Ante post bets at the
period end totalled GBP3.7m (31 December 2022: GBP7.8m) and are
classified as current liabilities.
Ante post bet liabilities are valued using methods and inputs
that are not based upon observable market data and all fair
value movements are recognised in revenue in the Income
Statement. Although the final value will be determined by
future
betting outcomes, there are no reasonably possible changes to
assumptions or inputs that would lead to material changes
in the fair value determined. The principal assumptions relate
to the Group's historical gross win margins by betting markets
and segments. Although these margins vary across markets and
segments, they are expected to stay broadly consistent
over time, only varying in the short term. The gross win margins
are reviewed annually at period end. As at 30 June 2023,
the gross win margins ranged from 2%-25%.
11 Related party transactions
Transactions between the Company and its subsidiaries, which are
related parties, have been eliminated on consolidation and are not
disclosed in this note. Transactions between the Group and its
associate are disclosed below.
Trading transactions
Associates
The Group holds an investment of 19.5% of the ordinary share
capital of Sports Information Services (Holdings) Limited (SIS).
During the period, the Group made purchases of GBP18.4m from Sports
Information Services Limited, a subsidiary of Sports Information
Services (Holdings) Limited. At 30 June 2023, the amount payable to
Sports Information Services Limited by the Group was GBPnil.
Remuneration of key management personnel
Transactions between the Group and key management personnel in
the first half of 2023 were limited to those relating to
remuneration previously disclosed as part of the Director's
Remuneration Report within the Group's 2022 Annual report. There
have been no other material changes to the arrangements between the
Group and key management personnel in the period.
12 Post balance sheet events
On 14 July 2023, the GBGC informed the Group that it has decided
it needed to commence a review of the Group's operating licences
under Section 116 (2)(c)(ii) of the Gambling Act 2005. The GBGC
confirmed it has determined a licence review is appropriate in
light of concerns surrounding a particular shareholder of the
Group, and its proposal to appoint certain individuals to Board
positions. The scope of the licence review is narrow and is not
expected to have any impact on the Group's ongoing operations. The
Group will liaise with the GBGC as required.
On 19 July 2023, the Group announced that Andria Vidler will
resign from the Board of Directors and as Chair of the ESG
Committee with effect from 30 September 2023.
On 25 July 2023, the Group announced the appointment of Per
Widerström as Chief Executive Officer, with effect from 16 October
2023. Upon Per joining the Group, Lord Mendelsohn will return to
the role of non-executive Chair.
Statement of Directors' Responsibilities
The Directors confirm that to the best of their knowledge:
-- The condensed set of financial statements, which has been
prepared in accordance with IAS 34 "Interim Financial Reporting" as
issued by the IASB and adopted by the UK, gives a true and fair
view of the assets, liabilities, financial position and profit of
the company and the undertakings included in the consolidation as a
whole.
-- The interim management report includes a fair review of the information required by:
a) DTR 4.2.7R of the Disclosure Guidance and Transparency Rules,
being an indication of important events that have occurred during
the first six months of the financial year and their impact on the
condensed set of financial statements; and a description of the
principal risks and uncertainties for the remaining six months of
the financial year; and
b) DTR 4.2.8R of the Disclosure and Transparency Rules, being
related party transactions that have taken place in the first six
months of the current financial year and that have materially
affected the financial position or performance of the entity during
that period; and any changes in the related party transactions
described in the 2021 Annual Report and Accounts.
The Directors of 888 Holdings plc are:
Lord Jon Mendelsohn - Executive Chair
Anne De Kerckhove - Senior Independent Director
Yariv Dafna - Chief Financial Officer
Mark Summerfield - Independent Non-Executive Director
Limor Ganot - Independent Non-Executive Director
Andrea Gisle Joosen - Independent Non-Executive Director
Andria Vidler - Independent Non-Executive Director
Ori Shaked - Non-Executive Director
A list of the current Directors is maintained on the 888
Holdings plc website: corporate.888.com .
By order of the Board of 888 Holdings plc.
Lord Mendelsohn Yariv Dafna
Executive Chair Chief Financial
Officer
INDEPENT REVIEW REPORT TO 888 HOLDINGS PLC
Conclusion
We have been engaged by the Company to review the condensed set
of financial statements in the half-yearly financial report for the
six months ended 30 June 2023 which comprises the Condensed
Consolidated Income Statement, the Condensed Consolidated Statement
of Comprehensive Income, the Condensed Consolidated Balance Sheet,
the Condensed Consolidated Statement of Changes in Equity, the
Condensed Consolidated Statement of Cash Flows and the related
notes 1 to 12. We have read the other information contained in the
half yearly financial report and considered whether it contains any
apparent misstatements or material inconsistencies with the
information in the condensed set of financial statements.
Based on our review, nothing has come to our attention that
causes us to believe that the condensed set of financial statements
in the half-yearly financial report for the six months ended 30
June 2023 is not prepared, in all material respects, in accordance
with UK adopted International Accounting Standard 34 and the
Disclosure Guidance and Transparency Rules of the United Kingdom's
Financial Conduct Authority.
Basis for conclusion
We conducted our review in accordance with International
Standard on Review Engagements 2410 (UK) "Review of Interim
Financial Information Performed by the Independent Auditor of the
Entity" issued by the Financial Reporting Council. A review of
interim financial information consists of making enquiries,
primarily of persons responsible for financial and accounting
matters, and applying analytical and other review procedures. A
review is substantially less in scope than an audit conducted in
accordance with International Standards on Auditing (UK) and
consequently does not enable us to obtain assurance that we would
become aware of all significant matters that might be identified in
an audit. Accordingly, we do not express an audit opinion.
As disclosed in note 1, the annual financial statements of the
group are prepared in accordance with UK adopted international
accounting standards. The condensed set of financial statements
included in this half-yearly financial report has been prepared in
accordance with UK adopted International Accounting Standard 34,
"Interim Financial Reporting".
Conclusions relating to going concern
Based on our review procedures, which are less extensive than
those performed in an audit as described in the "Basis of
conclusion" section of this report, nothing has come to our
attention to suggest that management have inappropriately adopted
the going concern basis of accounting or that management have
identified material uncertainties relating to going concern that
are not appropriately disclosed.
This conclusion is based on the review procedures performed in
accordance with this ISRE, however future events or conditions may
cause the entity to cease to continue as a going concern.
Responsibilities of the directors
The directors are responsible for preparing the half-yearly
financial report in accordance with the Disclosure Guidance and
Transparency Rules of the United Kingdom's Financial Conduct
Authority.
In preparing the half-yearly financial report, the directors are
responsible for assessing the company's ability to continue as a
going concern, disclosing, as applicable, matters related to going
concern and using the going concern basis of accounting unless the
directors either intend to liquidate the company or to cease
operations, or have no realistic alternative but to do so.
Auditor's responsibilities for the review of the financial
information
In reviewing the half-yearly report, we are responsible for
expressing to the Company a conclusion on the condensed set of
financial statements in the half-yearly financial report. Our
conclusion, including our conclusions relating to going concern,
are based on procedures that are less extensive than audit
procedures, as described in the "Basis for conclusion" paragraph of
this report.
Use of our report
This report is made solely to the company in accordance with
guidance contained in International Standard on Review Engagements
2410 (UK) "Review of Interim Financial Information Performed by the
Independent Auditor of the Entity" issued by the Financial
Reporting Council. To the fullest extent permitted by law, we do
not accept or assume responsibility to anyone other than the
company, for our work, for this report, or for the conclusions we
have formed.
Ernst & Young LLP
London, United Kingdom
14 August 2023
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