TIDM888
RNS Number : 2466W
888 Holdings plc
14 April 2023
14 April 2023
NOT FOR RELEASE, PUBLICATION OR DISTRIBUTION, IN WHOLE OR IN
PART, DIRECTLY OR INDIRECTLY, IN OR INTO OR FROM ANY OTHER
JURISDICTION WHERE TO DO SO WOULD CONSTITUTE A VIOLATION OF THE
RELEVANT LAWS OR REGULATIONS OF SUCH JURISDICTION
THIS ANNOUNCEMENT CONTAINS INSIDE INFORMATION
FOR IMMEDIATE RELEASE
888 Holdings Plc
("888" or "the Group")
FY2022 Results and Q1 2023 Trading Update
FY22 pro forma revenue of GBP1.85 billion and Adjusted EBITDA of
GBP311 million both in-line with expectations
Encouraging Q1 2023 performance; synergy delivery on track; FY23
Adjusted EBITDA and FY25 outlook unchanged
888 (LSE: 888), one of the world's leading betting and gaming
companies with internationally renowned brands including William
Hill, 888, Mr Green and SI Sportsbook, today announces its audited
financial results for the year ended 31 December 2022 ("FY22" or
the "Period"), together with a trading update for the three months
ended 31 March 2023 ("Q1-23").
KEY HIGHLIGHTS
-- FY22 Results(1) in line with previously announced expectations
o Group revenue +74% to GBP1,238.8 million, and Adjusted
EBITDA(2) +82% to GBP217.9m
o Group pro forma(3) revenue -3% to GBP1,850.1 million, and
Adjusted EBITDA of GBP310.6 million
-- Q1-23 revenue of GBP446m with unchanged outlook for Adjusted
EBITDA to be in line with market expectations
o Pro forma revenue -5% year-over-year, with a strong
performance in Retail
o As at 31 March 2023, cash (net of customer balances) was
approximately GBP170m, with undrawn committed facilities of GBP150
million, giving total liquidity of over GBP320 million
o During Q1-23 the Group agreed the sale and leaseback of GBP10
million of freehold properties and is reviewing the potential
monetisation of non-core assets
o The Board continues to expect FY23 adjusted EBITDA to be
significantly higher year on year with an adjusted EBITDA margin of
at least 20% as the Group focuses on building sustainable
revenues
-- The Board is making good progress with its search for a new
CEO with Lord Mendelsohn acting as Executive Chair on an interim
basis. As previously announced, Chief Financial Officer and
Executive Director Yariv Dafna will remain in his posts until the
end of 2023, providing continuity to the Board and executive
team
-- Conclusion of internal investigation into certain shortfalls
in best practices in relation to Middle East VIP customers
announced in January 2023 with robust policies and procedures
implemented to reopen accounts and onboard new customers in the
region. No further impacts expected and the Board currently expects
to recover 40-50% of revenue from the cohort, resulting in a
GBP25-30m revenue headwind for FY23
-- No further expected impact on our UK operations or revenue
expectations arising from the settlement between the Gambling
Commission and William Hill announced on 28 March 2023 in relation
to historic player safety failings that occurred prior to the
Group's acquisition of William Hill. Significant remedial actions
have put the Group in a far stronger position from a compliance
perspective
Lord Mendelsohn, Executive Chair of 888, commented:
"The combination with William Hill transformed the Group and
brought together two exceptional and complementary businesses to
create one of the world's leading betting and gaming
businesses.
The Group's financial performance in the period primarily
reflected the extensive actions being taken to drive higher
standards of player protection. While recent compliance issues in
the Middle East were very disappointing, they have underlined the
importance of our enhanced and proactive risk management
framework.
We have made positive progress with the integration enabling us
to upgrade our synergy target from GBP100m to GBP150m. In 2023 we
remain on track to deliver higher profitability as we deliver
against our clear strategic priorities. Our clear priorities of
integration, market focus, and deleveraging give us confidence in
our 2025 targets, as we build a stronger and more sustainable
business for the future."
FY22 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 in 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, which are
unaudited, also exclude the 888 Bingo business, the sale of which
completed on 7 July 2022.
Reported(1,2,4) Pro forma(1,2,3,4)
GBP millions 2022 2021 YoY% 2022 2021 YoY%
------------------------ -------- ------ ----- -------- -------- -----
Revenue 1,238.8 712.3 +74% 1,850.1 1,907.0 -3%
Adjusted EBITDA 217.9 119.7 +82% 310.6 269.9 +15%
(Loss)/profit before
tax (115.7) 59.0 nmf
Adjusted profit before
tax 80.5 89.1 -10%
Earnings per share (28.3) 13.4 nmf
Adjusted earnings
per share (p) 15.1 22.2 -32%
Reported financial highlights
-- Group revenue +74% to GBP1,238.8 million, and Adjusted EBITDA
+82% to GBP217.9m, both principally driven by the addition of
William Hill results following completion of the acquisition on 1
July 2022
-- Adjusted profit before tax(2) -10% to GBP80.5m, reflecting
the increased interest costs following the acquisition of William
Hill
-- Reported loss before tax of GBP115.7m, impacted by
exceptional costs and adjusting items of GBP184.8m primarily
related to amortisation of acquired intangibles, impairment of
historic US goodwill and William Hill technology no longer under
development, together with transaction fees for the acquisition of
William Hill, and integration and restructuring costs post
completion as we began to realise synergies
-- Adjusted basic earnings per share(2) of 15.1p (2021: 22.2p),
basic earnings per share (28.3p) (2021: 13.4p) 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
-- Several successful debt issuances through the year, with the
proceeds used to repay the acquisition financing package for the
acquisition of William Hill. The Group ended the year with GBP1.8
billion equivalent nominal debt, with 43% of effective debt in
Sterling, 50% in Euros and 7% in USD, and approximately 70% of
interest costs fixed for at least three years, increased from 35%
in October 2022
-- Net debt of GBP1.73 billion at 31 December 2022, equivalent
to 5.6x pro forma adjusted EBITDA leverage ratio
Pro forma financial highlights
-- Group revenue -3% to GBP1,850.1 million, with the
normalisation of retail revenues substantially offsetting a -15%
decline in online, which was driven by proactive investment in
enhanced player safety measures in the UK Online segment, and the
closure of the Netherlands from Q4 2021. Online revenue outside of
the UK and the Netherlands was -4%, principally reflecting the
strong comparative period and refined market focus under our
evolved strategic framework
-- Adjusted EBITDA of GBP310.6 million (2021: GBP269.9 million),
in line with guidance from the Capital Markets Day, and +15%
year-on-year, driven by a positive retail performance since
reopening following the pandemic
-- Adjusted EBITDA margin of 16.8% (2021: 14.2%)
Operational and strategic highlights
-- Priority 1: Integrate businesses and realise synergies
o Upgraded target of GBP150m of pre-tax cost synergies by 2025;
increased 2023 target of GBP111 million (of which GBP87m relates to
operating expenses and GBP24m relates to capex)
o Synergy delivery on track, with GBP25m (GBP17m opex, GBP7m
capex) of synergies in 2022, slightly ahead of initial plans
o Accelerated decision to adopt 888's technology as the basis
for the Group's platform of the future, with good progress made on
the Mr Green migration in Sweden, the first major milestone for the
integration, which is on track to launch in the coming months
-- Priority 2: Focus on select markets and key growth opportunities
o Implemented new operating model with country level focus in
core and growth markets, to drive improvements in localisation and
support market share gains
o Launched 888 on a locally regulated basis in Ontario, Canada
and SI Sportsbook in Virginia and Michigan during the year,
supporting our growth market agenda
o Strategic investment in 888AFRICA joint venture creating a
long-term growth platform for regulated African markets, with rapid
progress made and very encouraging performance since launch, now
over 500k customers
-- Priority 3: Invest in our sources of sustainable competitive advantage
o Launched several exciting new products in parallel with
integration work, to deliver a best-in-class product and content
experience, including betslip tracking and cash out for
#BuildYourOdds and improved personalisation within gaming for all
brands
o Continued to cement world class brand positioning, with
William Hill launching a new UK brand campaign focused on providing
EPIC value and 888 aligning its sub-brands under a single Made to
Play master-brand proposition
o Focused on customer excellence through our "brilliant basics"
programme, with improvements to core customer journeys supporting
increased player engagement and satisfaction
o Continued investment in retail store technology and training
to provide best in class retail experience, with encouraging early
signs from a trial of new gaming cabinets that are planned to roll
out over the entire estate over the next 18 months
-- Priority 4: Support sustainable growth through Players People Planet ESG framework
o Appointment of Harinder Gill to newly created Chief Risk
Officer role, driving higher standards in compliance and safer
gambling
o Significant focus on safer gambling, with over 500,000
third-party financial vulnerability checks carried out in the UK,
over 2.7 million safer gambling customer interactions globally
(+19% on 2021), and 45% of global customers now having deposit
limits in place (up from 37% in 2021)
o Focused on colleague experience through integration with
rollout of improved employee engagement tracking Group wide,
achieving an initial employee NPS score of +8 across the combined
business
o 44% reduction in Scope 1 and 2 emissions from 888 vs 2019
baseline; the UK retail business became certified carbon neutral
across Scope 1 and 2 emissions, one of the first large UK retail
businesses to achieve this
-- Priority 5: Prioritise debt reduction through focus on capital efficiency
o Strong long-term debt structure put in place, with currency
profile better aligned to operating cashflows
o Clear focus on deleveraging, with EBITDA growth the main
driver into 2023 given integration costs, and free cash flow
generation expected to pick up from 2024 onwards
o The Group continually reviews its asset base, and considers
opportunities to monetise assets over time that do not contribute
to its long-term strategy, including the potential sale of non-core
assets. These activities enable the Group to strengthen its balance
sheet and to focus on the Group's strategic growth opportunities.
During the first quarter of 2023, the Group has agreed the sale and
leaseback of GBP10 million freehold properties. The Group also owns
a 19.5% stake in Sports Information Services (Holdings) Limited
("SIS") and SIS is reviewing strategic options for the business
Q1 2023 TRADING UPDATE
Revenue of GBP446 million (pro forma revenue for Q1 2022: GBP469
million), with continued momentum in Spain and Italy and a strong
performance in Retail partially offsetting online revenue declines
due to the ongoing impact of safer gambling changes in the UK, and
refined market focus in International together with the impact of
compliance changes in the Middle East.
GBP millions Q1-23 Q1-22(1) YoY Q4-22(1) QoQ
UK&I 306 312 -2% 304 1%
------ --------- ----- --------- ----
- Online 167 183 -9% 172 -3%
------ --------- ----- --------- ----
- Retail 140 129 8% 131 6%
------ --------- ----- --------- ----
International 140 157 -11% 154 -9%
------ --------- ----- --------- ----
Total revenue 446 469 -5% 457 -2%
------ --------- ----- --------- ----
Pro forma financial highlights
-- UK Online -9% and beginning to stabilise sequentially with
growth in low-spending recreational cohorts, offset by reduced
revenues from higher-spending players. Strong growth in active
players, with a particularly strong Cheltenham Festival where
active players were +15% with new all-time-highs for bets per
minute
-- International revenue down -11%, reflecting the impact of our
refined focus on the most attractive Core and Growth markets,
together with the impact of lower revenues from the Middle East
-- Retail performing strongly, with revenue up +8% with both sports and gaming growing
Operational and strategic highlights
-- Customer activity remains strong with average monthly actives +6% YoY in Q1-23
-- Launch of Mr Green in Germany on the 888 platform in March,
following receipt of new German gaming licence
-- SI Casino went live in Michigan in February 2023, with an
encouraging early performance, validating our refined strategic
focus on gaming-driven US market opportunities
OUTLOOK
-- The Board expects 2023 revenues to be lower than 2022 by a
low to mid single digit percentage, but Adjusted EBITDA to be
significantly higher as we focus on building sustainable revenues,
with an Adjusted EBITDA margin of at least 20%
-- With strong progress in the realisation of synergies and
effective implementation of the new market focus plan post
acquisition of William Hill, the Board remains confident in its
2025 targets of at least GBP2 billion of revenue, an Adjusted
EBITDA margin of at least 23% and more than 35p of Adjusted EPS,
with adjusted net debt to EBITDA of below 3.5x
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_FY22
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
Debtholder call
Yariv Dafna (Chief Financial Officer) and Vaughan Lewis (Chief
Strategy Officer) will also host a Q&A session for lenders
today at 13.00pm (BST). There will be an opportunity to submit
questions via the webcast.
Live audio webcast link: https://brrmedia.news/888_FY22debt
A replay will be available on our website shortly after:
https://corporate.888.com/investors
Notes
(1) William Hill financials were previously reported on a 52
week basis opposed to calendar year. For the year ended 31 December
2022 and to align to calendar year reporting an adjustment has been
made to include the additional four days from 28 to 31 December
2022. This increases Q4 and FY 2022 revenue by approximately GBP9m
and Adjusted EBITDA by GBPnil. No adjustment has been made in
respect of the prior periods.
(2) 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,
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.
(3) 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.
(4) 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.
Enquiries and further information:
888 Holdings Plc +44(0) 800 029 3050
Lord Mendelsohn, Executive Chair ir@888holdings.com
Yariv Dafna, Chief Financial Officer
Vaughan Lewis, Chief Strategy Officer
James Finney, Director of IR
Media 888@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.
EXECUTIVE CHAIR'S STATEMENT
INTRODUCTION
2022 was a landmark year for the Group. The transformational
acquisition of William Hill, which completed in July for a revised
total consideration of GBP1.95bn, was a bold step that sets the
Group on a clear course to becoming a global leader in our
industry. The enlarged Group will benefit from significantly
increased scale, greater revenue diversification, and an increased
proportion of regulated and taxed revenues underpinned by stronger
positions across our core markets of the UK, Italy, and Spain.
For more than 25 years, 888 has grown and developed as a
technology-led gaming business. It has built a world-class and
scalable global technology platform alongside outstanding digital
marketing and data capabilities. Additionally, 888 is one of the
leading online casino brands in the world. On the other hand,
William Hill is a bookmaker by DNA, with an iconic brand that is
instantly recognised across the UK, supported by a top-class retail
estate. The highly complementary nature of these two businesses was
reinforced by the materially increased synergy target of GBP150m we
disclosed towards the end of the year. Throughout our Annual Report
we outline in detail the significant benefits and value creation
opportunities that will be delivered through the combination of
these two highly complementary businesses, as well as update on the
positive early progress made in the integration process.
As well as completing the acquisition of William Hill, we also
completed the sale of our bingo business in July 2022. The bingo
business operated on a separate platform and added operational and
technical complexity to the Group, so the strategic disposal came
at the right time for us to renew our focus on our core B2C betting
and gaming products, and direct investment toward our goal of a
building a scalable single global platform. We thank our valued
bingo colleagues for their contributions to the 888 business over
several years, and wish them well for the future.
Whilst 2022 was a year of significant strategic progress, the
trading backdrop undoubtedly presented several challenges for the
Group and indeed our wider industry. Global macroeconomic
conditions - in particular following Russia's invasion of Ukraine
in February 2022 - shifted considerably. As a result, both the
Group and its customers faced high rates of inflation and higher
interest rates. As an entertainment business, we are mindful of the
potential impact of these cost-of-living pressures on our
players.
Notably, since the acquisition of William Hill, the Group is now
more exposed to the effect of higher interest rates due to its
current high levels of debt. The ultimate structure of the William
Hill acquisition resulted in the Group's net debt being higher than
had been anticipated when the acquisition was initially announced
in 2021. As a result, the Group was more exposed to material
changes in interest rates in the year, which in turn impacted its
ability to reinvest excess cash flow into accelerating growth in
the short term.
Meanwhile, overall market growth rates across the Group's key
online markets moderated during the year. At the outset of the
global COVID-19 pandemic in 2020, consumers around the world
pivoted quickly towards e-commerce and digital forms of
entertainment. This in turn drove significantly higher growth rates
for the Group over the course of 2020 and 2021 compared to what had
been previously achieved. As pandemic- related social restrictions
have eased, growth rates in our online business have moderated,
albeit with customer activity remaining higher than pre- pandemic
levels.
Against this dynamic and testing backdrop, I would like to thank
everyone across the enlarged business for their continued
commitment during the year. The Group has made very positive early
progress with the integration process, including raising its
synergy targets materially and setting out a clear strategic
roadmap towards ambitious financial targets for 2025. The Group has
a clear plan to maximise the value creation opportunity from
combining these two world-class businesses and the Board remains
highly confident that this will underpin sustained growth and
shareholder value creation over the medium and long term.
BOARD FOCUS AREAS
As a Board, our role is to represent our shareholders and
broader stakeholders, and to ensure that we are holding management
to account to deliver long-term, sustainable, shareholder value
creation. To this end, the Board has three key priorities. The
first is to ensure that the Group executes a successful
integration, and the Board is confident that the Group is taking
the right actions to create a more streamlined, more profitable,
and more nimble business going forward.
The Board's second key focus is on building and reinforcing the
teams across the Group. We significantly strengthened the
operational management team during the year with a broad and
diverse range of talent from the William Hill team, as well as
several important external hires.
The Board's third focus is to ensure that management is always
thinking about the long-term direction of the business. As part of
this, the Board builds ESG and sustainability into all its
planning, whether that is by ensuring that the Group does the right
thing by its players by maintaining strong safer gambling
standards, or by providing a great workplace for its people, or by
doing its bit to support the environment and fight the climate
emergency. Led by the Board's ESG Committee, the Board has full
oversight of the Group's ESG strategy, targets, and progress.
BOARD CHANGES
Following the completion of the acquisition of William Hill, in
July 2022 we were pleased to strengthen the Board of Directors with
the appointments of Andrea Gisle Joosen and Andria Vidler as
Independent Non-Executive Directors, and Ori Shaked as a
Non-Executive Director. Each new Board member has brought extensive
and highly relevant skills and experience to the business that I
know will continue to be of significant benefit to the Group as it
delivers its long-term strategic objectives.
Following the year end the Group announced further directorate
changes with regard to executive directors, which are discussed in
more detail in the post year end developments later in this
statement.
CLEAR STRATEGIC ROADMAP: POSITION-PLAN-POTENTIAL
The Group's strategic roadmap over the coming years is firmly
focused on unlocking the significant potential from the combination
of 888 and William Hill. However, to do this we must first
acknowledge and address the key challenges that come with our
current position as a newly combined Group.
Firstly, we recognise that our debt levels are high, and
furthermore the cost of our debt is higher than we had anticipated
due to material changes in interest rates and debt market
conditions since the initial announcement of the deal in 2021. As a
result, we are currently restricted when it comes to reinvesting
excess cash flow into accelerating near term growth. Accordingly,
we know that deleveraging must be a key priority for the Group, and
we have set ourselves a clear target of reducing our net debt to
EBITDA ratio from 5.6x at the end of the Period to below 3.5x by
the end of 2025.
We also have a combination of three main platforms across 888,
William Hill and Mr Green and in some markets, our brands are
directly competing against each other. This fragmented approach and
duplicate operating and technology structure means our margins are
lower than peers and that's something that we must change.
We have a clear plan to address these challenges and to achieve
our potential as a more profitable business that is sustainably
positioned for the next decade of growth. Central to this plan is
our refined strategic framework with two clear strategic
priorities: integration and market focus.
These priorities are underpinned by our focus on continually
developing our three key strategic enablers: product and content
leadership, world-class brands, and customer excellence.
Strategic priority 1: Integration
The first of our strategic priorities is to deliver a successful
integration programme.
During the second half of the year, following completion of the
acquisition, we immediately began working hard on our technology
migration programme. We analysed every aspect of the enlarged
Group's different product platforms and took the swift decision to
use 888's technology as the Group's core platform going forward. We
also identified certain market-leading components from William
Hill's technology that we will incorporate into the core platform.
These include William Hill's global trading and retail technology
platforms.
I am pleased to report that we are making good progress with our
technology integration, with Mr Green launched in Germany on our
core platform. The next stage is migrating Mr Green in Sweden onto
the 888 platform in the coming months, which will be the first
major milestone for the technology integration program as we aim to
deliver our platform of the future over the next few years.
Not only will our platform of the future deliver a significant
cost advantage to the Group, but we also believe there is an
important revenue upside opportunity as we bring together our
best-in-class product and content from across betting and gaming.
One example of this is within our sports offering, where William
Hill currently provides over 50,000 more in-play football markets
each year than 888sport. We are confident that by expanding the
range of betting options at 888sport and SI Sportsbook we will
drive higher customer engagement and revenue. Similarly, 888 has a
world-class games development studio, Section8, which creates some
of the most successful 888casino content. We are on track to be
able to offer this content to both William Hill and Mr Green
customers across various markets in 2023.
Strategic priority 2: Market focus
The second of our strategic priorities is ensuring that we have
a very clear focus on the key market opportunities for the Group
that will deliver superior returns on investment.
This process categorises each of the Group's geographic markets
into one of four market archetypes. Firstly, our core markets of
the UK, Italy, and Spain. Cumulatively these countries represented
around 70% of the Group's online revenue in 2022 and offer a total
addressable market of more than GBP10 billion. These are all
markets with tightening regulations and rising barriers to entry,
and where we believe the Group can further build market share by
strengthening our key competitive advantages. During the year the
Group made significant investments in proactive safer gambling
measures in the UK, which we believe positions us well ahead of the
anticipated white paper on UK gambling regulation. Coupled with the
tough comparative period that was aided by COVID related digital
migration, these factors led to a 20% year-over-year decline in UK
online revenues across the Group. We look forward to the white
paper and subsequent level playing field that it should bring to
the UK market, and are confident that our leading brands and
sustainable recreational customer base will see us succeed in this
market.
Our second market archetype is our growth markets, which
includes Denmark, Germany, Ireland, Ontario in Canada, and the USA.
These are regulated but less mature markets for the Group where we
believe we can grow significantly through disrupting and building
on the strong initial positions we have developed, or by taking
advantage of our unique customer propositions. Across this group of
markets our focus is on rapid growth, which will be achieved by
reinvesting all underlying profitability generated across this
cohort of markets back into the most attractive growth
opportunities. Over time, as we grow our share in these markets,
our intention is that some of these will become additional core
markets for the Group where we will then aim to consolidate
market-leading positions and drive profitability. During the year
we launched the SI Sportsbook brand in Virginia and Michigan in the
US and launched 888 under a local licence in Ontario, Canada,
further successfully bolstering the Group's growth market
portfolio. Early in 2023 we launched newly licensed offerings with
SI casino in Michigan and Mr Green in Germany as we further support
our growth markets.
Thirdly, we have our optimise markets. The Group currently
offers its products across a huge range of global markets and, as
we have a global and scalable platform, we can do this profitably
and successfully in both regulated and offshore markets. Our
optimise markets are ones where either the market opportunity is
not compelling, or where we do not currently see an opportunity to
be one of the dominant players in that market. As a result, our
focus is on providing our products to customers in the most
cost-efficient, profitable manner.
Finally, we have our pipeline markets. These are regions or
countries where there is an attractive growth opportunity, but
where we need a different model to unlock the potential
opportunity. A great example of this is in Africa, where during the
year we launched a joint venture, 888AFRICA, to operate 888 brands
in online betting and gaming markets across selected regulated
markets in Africa. We were pleased to report that Tanzania, Zambia,
Mozambique and Kenya all successfully launched during the second
half of the year, in time for the FIFA World Cup, and we have seen
some very positive early momentum. The Group has a minority stake
in 888AFRICA, with the option to increase this to take control and
ultimately own up to 100% of the venture in the future.
KEY STRATEGIC ENABLERS
The Group's market share gains will be underpinned by our
sources of sustainable competitive advantage, which act as
strategic enablers. These are product and content leadership,
world-class brands and customer excellence.
Product and content leadership
888's proprietary technology across all products provides a
clear strategic advantage against our competitors and enables
complete flexibility over the user experience. Our focus on clear
product development principles allows us to offer best-in-class
products, differentiated content and AI-powered
personalisation.
World-class brands
The Group owns and operates some of the most recognised betting
and gaming brands in our core and growth markets, including William
Hill, 888, and Mr Green. We harness the power of our world-renowned
brands, together with our highly effective, automated, and flexible
data-driven marketing machine, to acquire, retain and engage
customers in a unique way.
Customer excellence
Understanding customer needs and building our product,
marketing, and offers to create the best experiences possible is
critical to our growth plans. A key part of our relentless focus on
customer experience is delivering quick and effective customer
service. We are investing in this area all the time and through
integration will be able to improve customer experience even
more.
CRITICAL STRATEGIC FOUNDATIONS
We know that without getting the following three critical
strategic foundations right, we will not be able to succeed in
executing on our vision for the combined Group.
People and culture
Nurturing the right corporate culture and building the right
team will be central to our future success. This starts with our
strong executive team, which comprises the best leadership talent
from across 888 and William Hill as well as some important new
hires who joined the business during the Period. These include
Harinder Gill, the Group's new Chief Risk Officer, and Anna Barsby,
our new Chief Product and Technology Officer.
As we progress further through the integration process, we are
focused on building a strong team culture that brings together the
best attributes of both businesses and ensures that the sum of
these great, historic businesses creates a combination that is
stronger together. A powerful, agile, engaged, and unified team
culture is critical to this.
Player safety
The second of our critical strategic foundations is player
safety. We strive to build seamless customer journeys that enable
players to easily track and limit their spending, while also
enabling us as the operator to intervene when there is a risk of
harm. By doing this, we will create an even more trusted
relationship with our players, who in turn know that they can enjoy
their betting and gaming with us in a safe and sustainable
manner.
Over recent years, we have made important progress in the
critical area of safer gambling. This includes making significant
investments in our team and technology, which are central to our
plans to continue to reduce the risks related to player safety. The
Group's risk and compliance team, led by Harinder Gill, has more
than doubled in size in the last three years to almost 400
employees and is now one of our largest departments.
One of our key goals is to make safer gambling a normal part of
the customer experience. This is why we are pleased to report an
8.5 percentage point year on year increase in the number of the
Group's players with safer gambling limits in place, with over 45%
of our global customers now utilising limits to help ensure both a
safer and more entertaining betting and gaming environment.
When it comes to safer gambling, we know that we are on a
journey of continual improvement, and we acknowledge that the Group
has not always got this right. We know that we must strive to do
better and, in the year ahead, we are focused on enhancing the
Group's overall approach to risk management, improving core
processes, integrating teams, and aligning the slightly different
safer gambling approaches that exist across our different
platforms.
Planet
The Group acknowledges that the urgency and importance of the
climate crisis requires everyone to play their part, and we
continue to build on the progress we have made in this area. 2022
has been a year of transition for the group, as we work to combine
the 888 and William Hill businesses. Our carbon footprint has
expanded following the William Hill acquisition, but we have
continued to evolve both in understanding our climate impact and
working to address our carbon footprint. We have continued to make
progress in delivering on our climate goals and have been rewarded
with improved ratings from various key ESG ratings bodies. In 2022
we retained membership of the FTSE4Good Index as well as achieved
much improved scores in the CDP rating, achieving a B- rating up
from a previous rating of F. In early 2023 we achieved a CSA rating
of 34, up from our prior year score of 26, an above average score
for our sector. I am pleased with progress in this area but there
is more to do in order for us to continue to ensure we are
supporting the global fight against climate change.
POST YEAR- DEVELOPMENTS
Directorate Changes
After the year-end the Group announced that Itai Pazner, Chief
Executive Officer and Executive Director, was leaving office as CEO
and as a Director with immediate effect on 30th January 2023. On
behalf of the Board, I would like to thank Itai for his significant
contributions to the business over more than 20 years, including
the last four as CEO. Itai has played a very important role in
building a business with powerful proprietary technology and has
overseen successful early stages to the William Hill integration
process. We wish him well in his future endeavours.
Since that date, I have assumed the role of Interim Executive
Chairman while the Board searches for a permanent CEO. In this role
I have assumed the responsibilities of the CEO and am fully focused
on actively driving the business forward and leading our team to
deliver our clear strategic plans. Across the leadership team we
have completely clear focus across on what we must deliver in terms
of our integration, deleveraging, and ensuring we are relentless in
our pursuit of driving market share gains in our key markets.
Also in January 2023 we announced that Yariv Dafna, the Group's
CFO would leave the business at the end of 2023. On behalf of the
Board, I would like to thank Yariv for his significant input to
888's progress in recent years and we look forward to his continued
contributions to the Board during the remainder of the year.
We have a very strong operational management team in place, and
a Board priority right now is the appointment of a permanent CEO.
We have been pleased with the depth and calibre of the candidates
that we are engaging with and are making good progress with our
search.
We are absolutely committed to appointing a CEO that will lead
the team to deliver the potential of this business. The focus of
the Board is therefore on making the right selection, rather than
just making a quick selection.
Compliance and safer gambling
Over recent periods we have invested significantly in our
compliance team, with the drive for higher standards headed by our
new Chief Risk Officer, Harinder Gill, who joined the Group last
summer. Harinder's team is on a mission to drive higher standards
across all areas of risk and safer gambling and, as a Board and
leadership team, we are all fully committed to this.
In late January, our internal team identified failures where our
safer gambling policies were not being effectively applied. Further
investigations identified similar accounts which were later
confirmed to be a broader issue within a specific cohort of
players, namely our VIPs in the Middle East. The Board once fully
briefed took the prudent decision to suspend all of these accounts
while the compliance team investigated the situation further.
Whilst this was a very disappointing development, I am pleased
with how the business responded and that we have been able to
quickly remedy the failings. Furthermore, I am highly confident
that our policies and procedures are robust, and this failure was
isolated to a very specific cohort of players. We have found no
further issues and do not anticipate any further actions here. I am
also pleased to say that we have successfully started reopening
accounts and revenues in the region are beginning to recover.
On the 28th March 2023 the GB Gambling Commission ("GBGC")
announced that a GBP19m regulatory settlement in lieu of a
financial penalty had been reached with William Hill in relation to
historic player safety failings.
The failings occurred before we owned William Hill, so we could
have had no bearing on the areas that were investigated. However,
the team had already taken significant remedial action, and we have
further reinforced this following the acquisition. As a result, the
business is now in a far stronger position from a compliance
perspective, and with the improvement actions having already been
taken, the announcement of the settlement has no further impact on
our operations or revenue expectations in the UK.
These historic failings are not acceptable to me or the Board,
and the entire Group shares the GBGC's commitment to improve
compliance standards across the industry. We will continue to work
collaboratively with the regulator and other stakeholders to
achieve this.
UK Gambling Act Review
We continue to await the outcome of a review of the Gambling
Act, which could potentially lead to major changes in UK
regulation, albeit the extent and timing of any potential changes
remains unclear. We have continued to take proactive steps during
2022 to increase the level of safer gambling interventions,
including lowering thresholds for intervention and stepping up
affordability checks, as well as lowering the max stake limits on
our slots. We believe all of this positions the business well for
any future changes through the white paper and any associated
consultations that will likely follow.
OUTLOOK
Whilst - as outlined above - the Group faces some near-term
challenges with our debt position and cost of debt,
I am confident in our clear strategic plan to create shareholder
value and achieve our exciting potential. Over the coming years the
Group's absolute focus will be on delivering our synergy targets,
deleveraging, and delivering a successful integration process that
creates a highly efficient, unified business model.
At our Capital Markets Day towards the end of 2022, the Group
outlined four key financial targets for FY25 which the Board is
confident will underpin strong shareholder returns. These are as
follows:
-- Revenue of more than GBP2bn reflecting our refined strategic
focus on a smaller number of key markets;
-- Adjusted EBITDA margin of more than 23%, up from 17% in the
Period, which will be driven by a successful integration
programme;
-- Leverage of less than 3.5x, down from 5.6x at the end of the
Period, which will be driven by an extremely disciplined approach
to capital allocation, with a focus on deleveraging; and
-- Adjusted earnings per share of more than 35p, reflecting the
strength and benefits of the combined Group.
The management team continues to make very good progress with
the integration and synergy programme. Whilst there is still much
work to be done, we are pleased with what has been achieved so far,
from critical early decisions taken around the technology platform
and migration plan, to defining our market focus and bringing the
teams together to execute on this. Our new operating model has been
rolled out and the Board is pleased with how all our colleagues are
now working together to achieve our common goals. The Board is
confident that this progress will support a superior EBITDA margin
for the Group in 2023 compared to 2022.
Whilst there remain several well-known macroeconomic and
industry challenges as outlined above, the Board is confident that
the combination with William Hill will unlock significant potential
for the enlarged Group and all its stakeholders. This will be
underpinned by its superior technology, talent, brands, scale, and
more diversified revenue streams. Your Board and executive
leadership team will continue to ensure that the Group remains
resolutely focused on enhancing long-term value creation for
shareholders and we look forward making further progress in the
year ahead.
CHIEF FINANCIAL OFFICER'S REPORT - BUSINESS & FINANCIAL
REVIEW
FINANCIAL SUMMARY
Reconciliation of Statutory EBITDA to Adjusted EBITDA, Adjusted
profit before tax and Adjusted net profit
Exceptional
Adjusted results items and adjustments Statutory results
2022 2021 2022 2021 2022 2021
GBPm GBPm GBPm GBPm GBPm GBPm
Revenue 1,238.8 712.3 0.0 0.0 1,238.8 712.3
Cost of sales (440.4) (242.3) (0.1) (10.9) (440.5) (253.2)
------------------------------- -------- ---------- --------
Gross profit 798.4 470.0 (0.1) (10.9) 798.3 459.1
Marketing expenses (257.8) (222.6) 0.0 0.0 (257.8) (222.6)
Operating expenses (323.0) (127.7) (102.3) (19.2) (425.3) (146.9)
Share of post-tax profit
of equity accounted associate 0.3 0.0 0.0 0.0 0.3 0.0
-------- -------- ---------- --------
EBITDA 217.9 119.7 (102.4) (30.1) 115.5 89.6
Depreciation and amortisation (63.6) (26.4) (56.7) 0.0 (120.3) (26.4)
------------------------------- -------- ---------- --------
(Loss)/Profit before interest
and tax 154.3 93.3 (159.1) (30.1) (4.8) 63.2
Finance income and expenses (73.8) (4.2) (37.1) 0.0 (110.9) (4.2)
-------- -------- ---------- --------
(Loss)/Profit before tax 80.5 89.1 (196.2) (30.1) (115.7) 59.0
-------- -------- ---------- --------
Taxation (16.3) (6.5) 11.4 (2.5) (4.9) (9.0)
-------- -------- ---------- --------
(Loss)/Profit after tax 64.2 82.6 (184.8) (32.6) (120.6) 50.0
-------- -------- ---------- --------
Basic earnings per share 15.1 22.2 (28.3) 13.4
-------- -------- ---------- --------
* 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 charges were excluded to allow for further understanding of
the underlying financial performance of the Group. Further detail
on exceptional items and adjusted measures is provided in note 3 to
financial statements.
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.
An explanation of our adjusted results, including a reconciliation
to the statutory results is provided in note 3 to the financial
statements.
Pro forma
---------------------------
2022 2021 Change
GBP'm GBP'm
-------- --------
Revenue 1,850.1 1,907.0 (3.0%)
Adjusted Cost of sales (599.2) (646.4)
-------- -------- -------
Gross profit 1,250.9 1,260.6 (0.8%)
Marketing expenses (331.8) (433.0)
Adjusted operating expenses (608.7) (558.5)
Share of post-tax profit
of equity accounted
associate 0.2 0.8
----------------------------- --------
Adjusted EBITDA 310.6 269.9 15.1%
----------------------------- --------
* Pro forma information presented in the financial summary
(including the associated narrative) is not part of the audit of
financial information performed by the Independent Auditor. These
are defined on page 2 and 3.
SUMMARY
Reported revenue for the year was GBP1,239m (+74%) with the main
driver being the completion of the acquisition of William Hill on 1
July 2022. On a pro forma basis revenue of GBP1,850m and Adjusted
EBITDA of GBP311m were both in line with the guidance given at our
capital markets day in November 2022.
Alongside the transformation in our revenue and earnings, our
balance sheet has significantly changed following the acquisition,
with the predominantly debt-funded deal leading to a highly
leveraged balance sheet with debt of GBP1.7bn and a net debt to
Adjusted EBITDA ratio of 5.6x at 31 December 2022. Given the
deterioration in debt capital market conditions between signing and
completing the acquisition, the ultimate structure of the William
Hill acquisition left the Group more exposed to changes in interest
rates, which continued to increase through the second half of 2022
following completion. We were pleased to successfully issue GBP347m
equivalent of new debt in December 2022 to repay some of the
initial deal financing, and increase the level of hedging we have
in place such that approximately 70% of interest is fixed for at
least the next three years.
Increased interest costs, the current macroeconomic climate and
the impact of high inflation on the cost base, is putting pressure
on the profit margins and cash generation of the Group. This
restricts our ability to reinvest excess cash flow to accelerate
near term growth and means our focus in the short term is on
improving profitability through synergies and other cost savings
generated from the transformation and integration programme. This
will allow us to enhance cash generation and deleverage which is
the key priority of the Group.
The integration and transformation programmes encompass both the
programme to integrate the William Hill business into the 888
Group, unlocking approximately GBP150m cash synergies per annum,
and wider transformation initiatives across the combined Group to
drive efficiencies in operations. The programme is expected to
continue until 2025, albeit many of the initiatives are expected to
complete in 2023. There is an expected GBP100m of cash costs to
achieve synergies expected to be incurred across the integration
programme; with the expense expected to be greater than this due to
non-cash items, such as impairments of software assets not required
as the technology stack of the two businesses are integrated, and
costs associated with the wider transformation programme.
As the Group executes these plans to improve profitability
margins and deleverage, this will enable further investment in the
growth opportunities available to the Group, in order to achieve
the key financial targets for FY 2025 as outlined within the
Capital Markets Day in November 2022 and which the Board remain
confident in achieving:
-- Revenue of more than GBP2bn
-- Adjusted EBITDA margin above 23%
-- Leverage of less than 3.5x
-- Adjusted earnings per share of more than 35p
In FY23 specifically, we currently expect revenue to decline by
low to mid single digits but EBITDA margin, on an adjusted basis,
to improve to greater than 20%. This is a significant increase
compared to the pro forma adjusted EBITDA margin of 16.8% in FY
2022, reflecting the realisation of a large proportion of the
synergies from the acquisition.
In the UK market, we look forward to the Gambling Act white
paper and subsequent level playing field that it should bring, and
are confident that our leading brands and sustainable recreational
customer base will see us succeed in this market. The acquisition
of William Hill has also meant the Group is more diversified with a
Retail business and an improved position internationally, in
particular in our core markets of Italy and Spain. This creates a
more sustainable business in a changing regulatory environment.
Revenue for the first quarter of 2023 was GBP446m, representing
an increase of 168% on a reported basis and decrease of 5% on a pro
forma basis. The reduction on a pro forma basis reflects strong
growth in retail of +8%, more than offset by UK&I Online being
down 9% with the continued impact of safer gambling changes, and
International Online being down 11% as a result of our refined
market focus and compliance changes in the Middle East.
Pro-forma results
Given the significance of the acquisition of William Hill midway
through the year, the statutory results do not provide a clear
comparison of performance to the previous period as they
consolidate results of the William Hill business for the second
half of the year in FY 2022. As such, in the analysis below, focus
is given to the pro forma results showing a clearer performance of
the Group in FY 2022 compared to FY 2021.
Within these pro forma unaudited results which do not form part
of the audited financial statements, the FY 2021 financials cover
the 52 week period from the 30 December 2020 to the 28 December
2021 for William Hill. Since the acquisition, the William Hill
business has aligned to the monthly financial calendar of the Group
and, therefore, the FY 2022 financials cover the period from 29
December 2021 to 31 December 2022.
Change in presentation currency
The Group has changed the currency in which it presents its
financial results from US Dollar to UK pound sterling (GBP) with
effect from 1 January 2022, in consideration of the William Hill
acquisition and current business mix which has now significantly
higher GBP exposure and with 888 US Dollar denominated earnings a
relatively lower proportion of overall earnings.
The opening balance sheet and comparatives have all been
translated and re-presented to GBP following this change in
presentational currency.
Segmental change
The Group has changed its operating segments within the year to
reflect geographic divisions as opposed to segments by product as
disclosed in previous years. This reflects the way in which results
are monitored and reported in the enlarged Group.
Following the acquisition of William Hill, the business has been
restructured to be managed as a UK business, comprising UK Retail
and UK&I Online segments, and an International business with
both supported by a Corporate centre. The US business is disclosed
within the International segment and the Irish business is managed
within the UK&I Online segment.
The results of the Bingo business that was sold during the year
are presented within 'Other'.
The comparatives have been re-presented to display the results
in these new reportable segments.
CONSOLIDATED INCOME STATEMENT
Revenue
Revenue for the Group was GBP1,238.8m for FY 2022 on a statutory
basis; an increase of 74% to FY 2021 of GBP712.3m with the
consolidation of William Hill revenues across H2 2022.
On a pro forma basis, revenue was GBP1,850.1m; a decrease of 3%
compared to GBP1,907.0m in FY 2021.
The decline in revenue primarily reflects the additional player
safety checks implemented in the UK&I Online business across
both brands over the previous two years with a 20% reduction in
UK&I Online revenue in FY 2022 compared to FY 2021.
On a pro forma basis, the International business declined by 9%,
mainly due to regulatory changes across a range of markets, most
notably the impact of the Netherlands business closing at the end
of Q3 2021.
This is partly offset by a 54% increase in Retail revenues
driven by a full year with a full Retail estate trading compared to
lockdowns and other restrictions particularly across H1 2021.
Online sports betting revenue of GBP363.1m reflected a decline
of 24%, and online gaming revenue of GBP968.0m reflected a decline
of 11%. Performance across both products was principally driven by
the same factors as above, with the decline larger in sports due to
country mix, with more of the sports business being in the UK.
Alongside this FY 2022 had a tough comparator from a sporting
fixture perspective, with 2021 containing additional fixtures as
major football leagues caught up post COVID-19 disruption.
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 statutory basis to GBP440.5m from
GBP253.2m due to the acquisition of William Hill. On a pro forma
basis, cost of sales has decreased by 7.3% to GBP599.2m reflecting
the reduction in revenue, with cost of sales representing 32.4% of
revenues (FY 2021: 33.9%).
Gross profit
On a statutory basis, gross profit has increased to GBP798.3m
from GBP459.1m with the consolidation of the results of William
Hill for the second half of FY 2022.
On a pro forma basis, gross profit has decreased by 0.8% from
GBP1,260.6m to GBP1,250.9m but with an increase in the gross margin
from 66.1% to 67.6%.
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 statutory basis
marketing increased to GBP257.8m compared to GBP222.6m in FY 2021
with a marketing ratio of 20.8%, 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 23.4% from
GBP433.0m to GBP331.8m. Certain marketing is demand driven and
flexible so part of the reduction is as a result of the reduced
revenue noted above, with further marketing savings being achieved
following the acquisition with a refined brand marketing strategy
to focus marketing on specific brands in specific countries. The
marketing to revenue ratio has decreased from 22.7% in FY 2021 to
17.9% in FY 2022. 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 marketing ratio
decreased from 27.1% to 24.4% reflecting the refined brand
marketing strategy.
Operating expenses
Operating expenses mainly comprise employment costs, property
costs, technology services and maintenance and legal and
professional fees. On a statutory level, operating expenses
increased to GBP448.5m from GBP160.2m in FY 2021. 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, operating expenses excluding depreciation
and amortisation have increased by 9.0% from GBP558.5m in FY 2021
to GBP608.7m in FY 2022. The main reason for this increase is due
to inflationary pressures, in particular the impact of utility cost
inflation in the Retail business.
Adjusted EBITDA
Reported EBITDA increased by 28.9% from GBP89.6m to GBP115.5m.
On an adjusted basis, the increase was 82.0% to GBP217.9m from
GBP119.7m, with an increased margin of 17.6% compared to 16.8% in
FY 2021.
On a pro forma basis, adjusted EBITDA increased by 15.1% to
GBP310.6m in FY 2022 compared to GBP269.9m in FY 2021. The adjusted
EBITDA margin increased from 14.2% in FY 2021 to 16.8% in FY 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 table shows the Group's performance by segment:
Statutory
--------------- --------------------------------------------- -----------------------------------------------
Revenue Adjusted EBITDA
--------------- --------------------------------------------- -----------------------------------------------
% of % of
reported Adjusted
Change Revenue Change EBITDA
2022 2021 from (2022) 2022 2021 from (2022)
--------------- ---------- ----------
GBP'm GBP'm previous GBP'm GBP'm previous
year year
--------------- ---------- ---------- --------- ---------- ---------- ---------- --------- ----------
Retail 255.5 - 20.6% 41.2 - 18.9%
UK&I Online 455.5 255.2 78.5% 36.8% 61.6 7.7 700.0% 28.3%
Total UK 711.0 255.2 178.6% 57.4% 102.8 7.7 >1,000% 47.2%
International 508.3 410.4 23.9% 41.0% 118.3 114.1 3.7% 54.3%
Other 19.5 46.7 (58.2%) 1.6% 1.7 7.3 (76.7%) 0.8%
Corporate - - (4.9) (9.4) (47.9%) (2.2)%
Total 1,238.8 712.3 73.9% 100.0% 217.9 119.7 82.0% 100.0%
--------------- ---------- ---------- --------- ---------- ---------- ---------- --------- ----------
Pro forma
--------------- ------------------------------------------------------------------------------------
Revenue Adjusted EBITDA
--------------- ----------------------------------------- -----------------------------------------
% of % of
reported Adjusted
Change Revenue Change EBITDA
2022 2021 from (2022) 2022 2021 from (2022)
--------------- ---------- ----------
GBP'm GBP'm previous GBP'm GBP'm previous
year year
--------------- -------- -------- --------- ---------- ------- ------- --------- ----------
Retail 519.0 336.8 54.1% 28.1% 90.7 0.3 >1,000% 29.2%
UK&I Online 717.4 898.9 (20.2)% 38.8% 111.9 165.2 (32.2)% 36.0%
Total UK 1,236.3 1,235.6 0.1% 66.8% 202.6 165.4 22.5% 65.2%
International 613.7 671.4 (8.6)% 33.2% 136.0 147.5 (7.8)% 43.8%
Other - - - -
Corporate - - (28.1) (43.0) (34.7)% (9.0)%
Total 1850.1 1,907.0 (3.0)% 100.0% 310.6 269.9 15.1% 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. An explanation of our adjusted
results, including a reconciliation to the statutory results, is
provided in note 3 to the financial statements.
UK
UK&I Online
On a statutory basis, revenue increased by 78.5% to GBP455.5m
and Adjusted EBITDA increased by GBP53.9m compared to the previous
period.
On a pro forma basis, revenue declined by 20.2% to GBP717.4m
mainly due to the additional player safety measures implemented
across 888 and William Hill brands across the previous two years.
In addition to this there was a positive substitution impact from
Retail in the UK&I Online business in the first months of 2021
during the lockdown in the UK. Pro forma adjusted EBITDA has
declined by GBP53.3m or 32.2% with the Adjusted EBITDA margin
declining as a result of a high fixed cost base, which is being
addressed through the integration programme.
Retail
On a statutory basis, Retail generated revenue of GBP255.5m and
Adjusted EBITDA of GBP41.2m as the Retail business continued to
deliver robust financial performance and strong cash generation
following its re-opening.
On a pro forma basis, revenue increased by 54.1% to GBP519.0m as
2022 was a return to a full year of trading with a lockdown until
April 2021 in the prior year.
Pro forma adjusted EBITDA increased by GBP90.4m to GBP90.7m in
FY 2022, again reflecting the increased profitability from a full
year of an open trading Retail estate. At the same time the Retail
estate had a particularly large impact from the inflationary
pressures and specifically rising utilities costs in FY 2022.
There were 1,386 shops open at the end of FY 2022 compared to
1,407 at the end of FY 2021. 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 statutory basis, the International business revenue
increased by 23.9% to GBP508.3m and Adjusted EBITDA increased by
GBP4.2m compared to the previous period.
On a pro forma basis revenue declined by 8.6% to GBP613.7m, in
part due to the closure of the Netherlands market in September
2021, as well as additional regulatory impacts and other smaller
market closures. The two core markets, Italy and Spain, within the
International business both were flat compared to 2021.
Pro forma adjusted EBITDA declined by GBP11.5m to GBP136.0m with
the Adjusted EBITDA margin declining as a result of a high fixed
cost base, which is being addressed through the integration
programme.
Within the International business, the US business revenue was
GBP20.4m, an increase of 27% compared to the previous period.
Adjusted EBITDA was a loss of GBP12.3m in the period compared to a
loss of GBP12.1m in the previous period with the continued
investment in marketing and other costs to grow the business.
Corporate costs
On a statutory basis, corporate costs were GBP4.9m in FY 2022
compared to GBP9.4m expense in FY 2021. This is due to the timing
of the release of staff incentive accruals across the Group
including those accrued prior to acquisition within William
Hill.
On a pro forma basis, there was a reduction in corporate costs
of GBP14.9m to GBP28.1m due to the removal of staff incentive
accruals for FY 2022 compared to FY 2021 and certain synergies
being generated through the integration programme.
EXCEPTIONAL ITEMS AND ADJUSTMENTS
Operating Exceptional items 2022 2021
GBP'm GBP'm
Retroactive duties and associated
charges (3.9) 4.2
Transaction related costs 24.5 10.9
Transformation costs 14.4 2.2
Disposal of 888 Bingo 11.7 0.0
Impairment of US Goodwill and other
assets 55.7 0.0
Revaluation of deferred consideration (9.2) 0.0
Total exceptional items before
interest and tax 93.2 17.3
-------
Bond early redemption fees 14.1 0.0
Gain on settlement of bonds (7.1) 0.0
Total exceptional items before
tax 100.2 17.3
-------
Tax on exceptional items 2.8 2.5
Total exceptional items 103.0 19.8
-------
Adjustments:
Amortisation of Finance Fees 7.4 0.0
Amortisation of acquired intangibles 56.7 0.0
Foreign exchange 26.7 6.7
Share benefit charge 5.2 6.1
----------------------------------------- ------- ------
Total Adjustments before tax 96.0 12.8
----------------------------------------- ------- ------
Tax on adjustments (14.2) 0.0
----------------------------------------- ------- ------
Total Adjustments 81.8 12.8
----------------------------------------- ------- ------
Total exceptional items and adjustments 184.8 32.6
----------------------------------------- ------- ------
Total exceptional items in the year were GBP103.0m in FY 2022
compared to GBP19.8m in FY 2021.
Exceptional items are defined as those items which are
considered to be one-off or material in 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 GBP24.5m of costs incurred to complete the
acquisition of the William Hill business, predominantly comprising
advisor fees.
Furthermore, GBP14.4m of costs were incurred relating to the
on-going transformation and integration of the William Hill
business. This includes GBP12.5m of cash costs incurred to achieve
synergies, which is still expected to total GBP100m across the
integration. There were also GBP1.9m of additional transformation
costs relating to a restructure of the Retail operating model to
drive further efficiencies, albeit these efficiencies are not
classified as synergies.
The transformation and integration programme is expected to take
three years until 2025 and is currently expected to generate
synergies of approximately GBP150m, an increase of GBP50m over our
initial target.
During the year, as part of the annual impairment review, the
Group has impaired the goodwill of its US business. As such, the
goodwill of the US business has been impaired in full, totalling
GBP25.7m. In addition to this there were non-cash impairment costs
of GBP30.0m relating predominantly to the write off of software
acquired with the William Hill business that is not planned to be
used by the Group following the decision to use the existing 888
platform as the Group's platform going forward.
We completed the sale of the Bingo business to Saphalata
Holdings Ltd., a member of the Broadway Gaming Group, for a total
cash consideration of GBP37.4m with the loss on disposal of
GBP11.7m recognised as an exceptional item.
As a part of the transaction agreement with Caesars for the
purchase of William Hill, an amount of up to GBP100m consideration
was deferred subject to the enlarged group hitting specific EBITDA
metrics. This was fair valued on acquisition at GBP9.6m and
revalued at the year-end date to GBP0.4m, leading to a release in
this contingent consideration of GBP9.2m.
The final operating exceptional item was a credit of GBP3.9m
relating to the reversal of previous regulatory provisions after a
settlement of a specific liability relating to Spain; with the
credit recognised as an exceptional item to ensure a consistent
accounting treatment to the recognition of the original
provision.
There were also GBP7.0m of non-operating exceptional items
within finance costs. GBP14.1m of costs associated with the early
settlement of the William Hill Senior Unsecured Notes representing
early redemption fees and the accelerated write off of unamortised
finance fees. This is offset by a credit of GBP7.1m representing
the reduction in value on settlement of the William Hill Senior
Unsecured Notes compared to the fair value recognised on
acquisition.
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 intangibles assets recognised
on acquisitions has been presented as an adjusted item, totalling
GBP56.7m 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 losses of GBP26.7m (GBP6.7m in FY 2021), share
based payment charges of GBP5.2m (GBP6.1m in FY 2021), and
amortisation of finance fees of GBP7.4m (GBPnil in FY 2021).
Finance income and expenses
Net finance expenses of GBP110.9m (2021: GBP4.2m) related
predominantly on the interest expense from the debt on acquisition
of William Hill (GBP75.0m). There were also exceptional net finance
charges of GBP7.0m related to the bond early redemption fee and
gain on settlement of bonds as explained within Exceptional items
and Adjustments section above. The finance expense resulting from
operating leases was GBP3.0m (2021: GBP0.9m) with the increase due
to the acquired Retail business within William Hill and the finance
expense from hedging activities was GBP3.3m.
Profit before tax
The net loss before tax for 2022 was GBP115.7m (2021: net profit
before tax of GBP59.0m). On an adjusted basis, profits decreased by
10% to GBP80.5m (2021: net profit before tax of GBP89.1m) with the
increased financing costs from the debt on acquisition of William
Hill offsetting the increased earnings from the enlarged Group.
Taxation
On a statutory basis, the Group recognised a tax charge of
GBP4.9m on a loss before tax of GBP115.7m, giving an effective tax
rate of 4.2% (2021: tax charge of GBP9.0m and an effective tax rate
of 15%). The tax charge and therefore the tax rate is higher than
the expected tax credit arising on the loss of 19% 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
GBP16.3m on a profit before tax of GBP80.5m, giving an effective
tax rate of 20.2%. (2021: tax charge of GBP6.5m and an effective
tax rate of 7%). The tax charge and therefore the tax rate is
broadly in line with the expected tax rate of 19%.
The Group's adjusted effective tax rate for 2023 is now expected
to be c8%.
Net (Loss)/Profit and adjusted net profit
The net loss for 2022 was GBP120.6m (2021: net profit of
GBP50.0m). On an adjusted basis, profits decreased to GBP64.2m from
GBP82.6m in 2021.
Earnings per share
Basic earnings per share decreased to a loss of 28.3p (2021:
profit of 13.4p) as a result of the reduction in net profits in
2022 predominantly due to the exceptional items surrounding
transaction and transformation related costs.
On an adjusted basis, basic earnings per share decreased by 32%
to 15.1p (2021: 22.2p). Further information on the reconciliation
of earnings per share is given in note 10 to 2022 financial
statements.
Dividend
The Board of Directors is not recommending a dividend to be paid
in respect of the year ended 31 December 2022 (2021: 3.2p 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.
Accounting for the acquisition of the William Hill business
As part of the accounting for the GBP1.95bn acquisition of the
William Hill business, it is necessary to allocate the acquisition
value between acquired assets and liabilities. As such the Group
have valued the acquired assets and liabilities of William Hill to
fair value as at the 1 July 2022 acquisition date.
This has led to the recognition of certain separately
identifiable intangible assets on the consolidated statement of
financial position of the Group in addition to other fair value
adjustments on other recognised assets and liabilities.
The separately identifiable intangible assets include the value
of the William Hill brand of GBP574.4m, the value of customer
relationships of GBP595.1m and GBP8.5m in respect of licences.
These assets are amortised, with the amortisation recognised as an
Adjusting item within Exceptional items and Adjustments to aid
further understanding of the underlying financial performance of
the Group.
The remaining value of the transaction after recognising the
fair value of all identifiable assets and liabilities has been
allocated to goodwill, with the value of GBP785.6m recognised. This
goodwill value represents a number of factors such as the future
growth of the William Hill business, potential to achieve buyer
specific synergies and the value of the workforce.
CONSOLIDATED STATEMENT OF FINANCIAL POSITION
The consolidated statement of financial position consolidated
the acquired William Hill business from 1 July 2022 and as such
there are significant differences in the 31 December 2022 position
compared to the 31 December 2021. Note 16 to the financial
statements shows the assets and liabilities acquired which explain
a majority of the differences.
Non-current assets increased by GBP2,297.2m to GBP2,457.1m
compared to GBP159.9m at FY 2021, predominantly due to assets
recognised on the acquisition of the William Hill business of
GBP2,614.8m including goodwill (GBP785.6m); brand (GBP574.4m);
customer relationships (GBP595.1m); licences (GBP8.5m); software
and technology (GBP226.2m); property, plant and equipment
(GBP109.5m); right of use lease assets (GBP72.3m) and investments
and associates (GBP40.0m).
Within the period there were material impairments relating to
the US B2C business of GBP25.7m, due to changing market and
economic conditions leading to a revised strategy in the US
business and an increased discount rate driving an impairment. In
addition to this there were non-cash impairment costs of GBP30.0m
relating predominantly to the write off of software acquired with
the William Hill business that is not planned to be used by the
Group following the decision to use the existing 888 platform as
the Group's platform going forward. Within this GBP28.1m
specifically related to the impairment of the Unity platform that
had been under development within William Hill.
Current assets are GBP494.4m, an increase of GBP254.2m compared
to GBP240.2m at FY 2021. Within this cash and cash equivalents has
increased to GBP317.6m from GBP189.4m, although this includes
GBP141.3m of client funds held compared to GBP60.1m at FY 21 due to
the additional client liabilities in the William Hill business.
Excluding client funds, cash and cash equivalents have increased by
GBP47.0m from GBP129.3m in FY 21 to GBP176.3m in FY 2022.
Total current liabilities have increased by GBP451.5m from
GBP251.9m at FY 2021 to GBP703.4m at FY 2022. This includes the
increase of client funds held and the trade and other payables
acquired on acquisition of the William Hill business of GBP382.3m.
Provisions have increased to GBP111.5m from GBP19.0m. This includes
the current portion of the provision for customer claims, as well
as a provision of GBP19.2m for the regulatory settlement agreed
between William Hill and the GB Gambling Commission. There are then
additional provisions of GBP61.7m for gaming tax in Austria;
GBP2.0m of provisions relating to shop closure costs and GBP3.7m of
restructuring costs.
Non-current liabilities are GBP2,088.9m, an increase of
GBP2,065.2m to the balance of GBP23.7m in FY 2021. This increase is
predominantly due to funding the acquisition of William Hill of
GBP1,697.5m. In addition, the deferred tax liability has increased
by GBP218.5m mainly driven from the acquisition accounting and the
lease liabilities have increased by GBP46.9m with the acquisition
of the Retail estate in William Hill. This includes the non-current
portion of the provision for customer claims of GBP86.2m,
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.
Net assets of GBP159.2m is an increase of GBP34.7m compared to
GBP124.5m at FY 2021. The equity includes the net proceeds of
GBP158.5m from the share issue in April 2022 to partly fund the
acquisition of the William Hill business.
Cash flows
2022 2021
----------------------------------------
GBP'm GBP'm
---------------------------------------- --------- ------
Cash generated from operating actvities
before working capital 139.6 98.0
Working capital movements (169.8) (1.4)
---------------------------------------- ------
Net cash (used in) / generated from
operating activities (30.2) 96.6
Acquisitions (386.8) -
Disposals 33.0 -
Capital expenditure (76.8) (23.0)
Net movement in borrowings incl loan
transaction fees 527.6 -
Proceeds from equity placing 158.5 -
Interest paid (75.6) (0.5)
Dividends paid - (43.8)
Other movements in cash incl FX (21.5) (2.9)
---------------------------------------- ------
Net cash inflow 128.2 26.4
Cash balance at 31 December 317.6 189.4
Gross Debt (1,815.0) 0.0
Net Debt (1,727.7) 106.4
--------- ------
Overall the Group had a cash inflow of GBP128.2m in the year,
compared to an inflow of GBP26.4m in FY 2021. This resulted in a
cash balance of GBP317.6m as at 31 December 2022 (GBP189.4m at 31
December 2021) although this included client funds and other
restricted cash of GBP141.3m such that unrestricted cash available
to the Group was GBP176.3m compared to GBP129.3m in FY 2021.
The cash inflow in the year predominantly reflected the
financing for and acquisition of the William Hill business. The
inflows from the net borrowings after payment of loan transaction
fees and the refinancing of the debt within the William Hill
business was GBP527.6m coupled with the proceeds from the equity
issue in April 2022 of GBP163m, before fees with net proceeds of
GBP158.5m. The acquisition of William Hill was for a cash equity
value of GBP386.8m, net of cash acquired, which nets to an inflow
of GBP299.3m. Cash interest payments on the borrowings were
GBP75.6m.
The disposal of the Bingo business to Saphalata Holdings Ltd., a
member of the Broadway Gaming Group, generated cash of GBP37.4m
with GBP0.5m generated from the sale of property, plant and
equipment in the Retail business.
Cash flow from operations was a GBP30.2m outflow compared to an
inflow of GBP96.6m in FY 2021. This reduction was partly due to
significant working capital outflows in the period coming from the
acquired balance sheet from William Hill and the exceptional items
in the year causing a statutory loss before tax as well as a
reduction of staff incentive accruals and reduced marketing spend
driven from the brand marketing synergies.
Debt
2022
GBP'm
Borrowings (1,702.3)
Loan transaction fees (112.7)
---------------------------
Gross Borrowings (1,815.0)
Lease liability (89.0)
Cash (excluding customer
balances) 176.3
---------------------------
Net Debt (1,727.7)
Pro forma Adjusted EBITDA 310.6
Leverage 5.6x
---------------------------
The gross borrowings balance as at 31 December 2022 was
GBP1,815.0m. 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 50% of
the debt in Euro; 43% 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 31 December 2022 was GBP1,727.7m with a
net debt to EBITDA ratio of 5.6x. The Group has the target to bring
this down to less than 3.5x by FY 2025.
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. 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. During the year the
Group was subject to additional regulatory requirements across a
number of its markets, including newly regulated markets in which
it launched its products for the first time such as Ontario in
Canada and certain US states.
Consolidated Income Statement
For the year ended 31 December 2022
2022 2021
Note GBP million GBP million
-------------------------------------------------- ---- ----------- -----------
Revenue 2 1,238.8 712.3
Gaming duties (256.3) (133.7)
Other cost of sales (188.1) (115.3)
Exceptional items - cost of sales 3 3.9 (4.2)
Cost of sales (440.5) (253.2)
Gross profit 798.3 459.1
Marketing expenses (257.8) (222.6)
Operating expenses (448.5) (160.2)
Share of post-tax profit of equity accounted
associate 0.3 -
Exceptional items - operating expenses 3 (97.1) (13.1)
-------------------------------------------------- ---- ----------- -----------
Operating (loss)/profit (4.8) 63.2
Adjusted EBITDA(1) 217.9 119.7
Exceptional items - cost of sales and operating
expenses 3 (93.2) (17.3)
Foreign exchange (4.0) (6.7)
Share benefit charge (5.2) (6.1)
Depreciation and amortisation (120.3) (26.4)
-------------------------------------------------- ---- ----------- -----------
Operating (loss)/profit (4.8) 63.2
-------------------------------------------------- ---- ----------- -----------
Finance income 4 0.8 -
Finance expenses 5 (111.7) (4.2)
(Loss)/profit before tax (115.7) 59.0
Taxation 6 (4.9) (9.0)
-------------------------------------------------- ---- ----------- -----------
(Loss)/profit after tax (120.6) 50.0
Adjusted profit after tax(1) 64.2 82.6
Exceptional items - cost of sales and operating
expenses 3 (93.2) (17.3)
Exceptional items - finance expenses 3,5 (7.0) -
Amortisation of finance fees (7.4) -
Amortisation of acquired intangibles (56.7) -
Tax on exceptional items 11.4 (2.5)
Foreign exchange (26.7) (6.7)
Share benefit charge (5.2) (6.1)
(Loss)/profit after tax (120.6) 50.0
---- -----------
Attributable to equity holders of the parent (120.5) 49.9
-------------------------------------------------- ---- ----------- -----------
Attributable to non-controlling interests (0.1) 0.1
-------------------------------------------------- ---- ----------- -----------
(Loss)/ earnings per share
Basic (pence) 7(28.3) 13.4
Diluted (pence) 7(28.3) 13.2
----------------------------- ------ ----
(1) Adjusted EBITDA and adjusted profit after tax are
Alternative Performance Measures ("APMs") which do not have an IFRS
standardised meaning. The Group presents these two measures since
they are the main measures 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.
Consolidated Statement of Comprehensive Income
For the year ended 31 December 2022
2022 2021
Note GBP million GBP million
----------------------- -------------
(Loss)/profit for the year (120.6) 50.0
Items that may be reclassified subsequently
to profit or loss (net of tax)
-------------------------------------------------- ------- ----------------------- -------------
Exchange differences on translation of foreign
operations 2.5 1.3
-------------------------------------------------- ------- ----------------------- -------------
Items that will not be reclassified to profit
or loss (net of tax)
Remeasurement of severance pay liability 1.7 2.2
Actuarial remeasurement in defined benefit
pension scheme (0.8) -
Tax on severance pay liability 0.6 -
Movement in cash flow hedging position 13 (14.4) -
Movement in cost of hedging reserve 13 1.0 -
Movement in equity investment designated at
fair value through OCI (1.0) -
-------------------------------------------------- ------- ----------------------- -------------
Total other comprehensive (loss)/income for
the year (10.4) 3.5
-------------------------------------------------- ------- ----------------------- -------------
Total comprehensive (loss)/income for the
year attributable to equity holders of the
parent (130.9) 53.4
-------------------------------------------------- ------- ----------------------- -------------
Total comprehensive (loss)/income for the
year attributable to non-controlling interests (0.1) 0.1
-------------------------------------------------- ------- ----------------------- -------------
Consolidated Statement of Financial Position
At 31 December 2022
2022 2021
Note GBP million GBP million
---------------------------------------------- ---- ----------- -----------
Assets
Non-current assets
Goodwill and other intangible assets 9 2,197.0 123.9
Right-of-use assets 81.9 18.7
Property, plant and equipment 110.4 9.3
Investment in sublease 1.4 -
Investments in associates 38.4 -
Non-current prepayments 6.2 5.8
Derivative financial instruments 13 16.6 -
Deferred tax assets 5.2 2.2
---------------------------------------------- ---- ----------- -----------
2,457.1 159.9
Current assets
Cash and cash equivalents(1) 317.6 189.4
Trade and other receivables 132.7 50.8
Income tax receivable 35.2 -
Derivative financial instruments 13 2.0 -
Assets held for sale 6.9 -
494.4 240.2
Total assets 2,951.5 400.1
---------------------------------------------- ---- ----------- -----------
Equity and liabilities
Equity attributable to equity holders of
the parent
Share capital 14 2.2 1.9
Share premium 160.7 2.5
Treasury shares (0.9) (0.9)
Foreign currency translation reserve 24.6 22.1
Hedging reserves 13 (13.4) -
Retained earnings (14.0) 98.8
---------------------------------------------- ---- ----------- -----------
Total equity attributable to equity holders
of the parent 159.2 124.4
Non-controlling interests - 0.1
---------------------------------------------- ---- ----------- -----------
Total equity 159.2 124.5
Liabilities
Non-current liabilities
Borrowings 12 1,697.5 -
Severance pay liability 1.2 3.7
Retirement benefit liability 1.2 -
Provisions 11 86.2 -
Deferred tax liability 220.4 1.9
Derivative financial instruments 13 17.4 -
Lease liabilities 65.0 18.1
---------------------------------------------- ---- ----------- -----------
2,088.9 23.7
Current liabilities
Borrowings 12 4.8 -
Trade and other payables 368.0 145.3
Provisions 11 111.5 19.0
Derivative financial instruments 13 20.8 -
Income tax payable 33.0 22.7
Lease liabilities 24.0 4.8
Customer deposits 141.3 60.1
703.4 251.9
Total equity and liabilities 2,951.5 400.1
-------------------------------- ------- -----
(1) Cash and cash equivalents includes customer funds which
represent bank deposits matched by customer liabilities of an equal
value. Cash and cash equivalents excludes restricted short--term
deposits of GBP21.6 million which are presented in Trade and other
receivables (31 December 2021: GBP7.0 million).
Consolidated Statement of Changes in Equity
For the year ended 31 December 2022
Foreign
currency Cost of Non-controlling
Share Treasury translation Hedging hedging Retained interests
capital Share premium shares reserve reserve reserve earnings Total
GBP GBP GBP million GBP GBP GBP GBP million GBP
million GBP million million million million million million
------------------- ----------- -------------- -------- ----------- ------- ------- --------- ---------------- -------
Balance at 1
January 2021 1.9 2.5 (0.4) 20.8 - - 85.5 - 110.3
------------------- ----------- ------- ----- --------------------- ------- ------- --------- ---------------- -------
Profit after tax
for the year - - - - - - 49.9 0.1 50.0
Other
comprehensive
expense for the
year - - - 1.3 - - 2.2 - 3.5
------------------- ----------- ------- ----- --------------------- ------- ------- --------- ---------------- -------
Total
comprehensive
income - - - 1.3 - - 52.1 0.1 53.5
Dividend paid
(note 8) - - - - - - (43.8) - (43.8)
Equity settled
share benefit
charges - - - - - - 5.2 - 5.2
Acquisition of
treasury shares - - (0.7) - - - - - (0.7)
Exercise of
deferred share
bonus plan - - 0.2 - - - (0.2) - -
Balance at 31
December 2021 1.9 2.5 (0.9) 22.1 - - 98.8 0.1 124.5
------------------- ----------- ------- ----- --------------------- ------- ------- --------- ---------------- -------
Loss after tax
for the year - - - - - - (120.5) (0.1) (120.6)
Other
comprehensive
income/(expense)
for the year - - - 2.5 (14.4) 1.0 0.5 - (10.4)
------------------- ----------- -------------- -------- ----------- ------- ------- --------- ---------------- -------
Total
comprehensive
income/(expense) - - - 2.5 (14.4) 1.0 (120.0) (0.1) (131.0)
Issue of shares
(equity placing) 0.3 158.2 - - - - - - 158.5
Equity settled
share benefit
charges - - - - - - 7.9 - 7.9
Acquisition of
treasury shares - - (0.7) - - - - - (0.7)
Exercise of
deferred share
bonus plan - - 0.7 - - - (0.7) - -
Balance at 31
December 2022 2.2 160.7 (0.9) 24.6 (14.4) 1.0 (14.0) - 159.2
------------------- ----------- -------------- -------- ----------- ------- ------- --------- ---------------- -------
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 reacquired 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 designed 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.
Consolidated Statement of Cash Flows
For the year ended 31 December 2022
2022 2021
Note GBP million GBP million
Cash flows from operating activities
(Loss)/profit before income tax (115.7) 59.0
Adjustments for:
Depreciation of property plant and equipment
and right-of-use assets 30.8 10.3
Amortisation 9 89.5 16.1
Interest income 4 (0.8) -
Interest expenses 5 111.7 4.2
Income tax paid (35.1) (5.1)
Share of post- tax loss of equity accounted
associate (0.3) -
Non-cash exceptional items 52.3 7.4
Movement on Ante-post and other financial derivatives 2.3 -
Loss on disposal of property, plant and equipment (0.3) -
Share benefit charges 5.2 6.1
-------------------------------------------------------- ---- ----------- -----------
Cash generated from operating activities before
working capital movement 139.6 98.0
Increase in receivables (50.3) (16.9)
(Decrease)/increase in customer deposits (9.2) 4.7
(Decrease)/increase in trade and other payables (100.3) 6.1
(Decrease)/increase in provisions (10.0) 4.7
-------------------------------------------------------- ---- ----------- -----------
Net cash (used in)/generated from operating
activities (30.2) 96.6
Cash flows from investing activities
Acquisition of property, plant and equipment (8.9) (4.2)
Acquisition of William Hill (net of cash acquired) 10 (386.8) -
Proceeds from sale of investment in Bingo 10 32.5 -
Proceeds from sale of property, plant and equipment 0.5 -
Interest received 4 0.8 -
Acquisition of intangible assets (2.4) (1.7)
Internally generated intangible assets (65.5) (17.1)
Dividend received from associate 0.9 -
-------------------------------------------------------- ---- ----------- -----------
Net cash used in investing activities (428.9) (23.0)
Cash flows from financing activities
Issue of shares - equity placing 14 158.5 -
Payment of lease liabilities (21.5) (5.2)
Interest paid (75.6) (0.5)
Proceeds from loans 12 2,163.1 -
Loan transaction fees 12 (132.3) -
Repayment of loans 12 (1,503.2) -
Acquisition of treasury shares (0.7) (0.8)
Dividends paid 8 - (43.8)
-------------------------------------------------------- ---- ----------- -----------
Net cash generated/(used in) financing activities 588.3 (50.3)
Net Increase in cash and cash equivalents 129.2 23.3
Net foreign exchange difference (1.0) 3.1
Cash and cash equivalents at the beginning
of the year 189.4 163.0
-------------------------------------------------------- ---- ----------- -----------
Cash and cash equivalents at the end of the
year 317.6 189.4
-------------------------------------------------------- ---- ----------- -----------
Notes to the Consolidated Financial Statements
General information
Company description
888 Holdings PLC (the "Company") and its subsidiaries (together
the "Group") was founded in 1997 in the British Virgin Islands and
since 17 December 2003 has been domiciled in Gibraltar (Company
number 90099). On 4 October 2005, the Company listed on the London
Stock Exchange.
Definitions
In these financial statements:
The Company 888 Holdings PLC.
The Group 888 Holdings PLC and its subsidiaries.
Subsidiaries Companies over which the Company has control (as defined
in IFRS 10 - Consolidated Financial Statements) and
whose accounts are consolidated with those of the Company.
Related parties As defined in IAS 24 'Related Party Disclosures'
Associates As defined in IAS 28 'Investments in Associates and
Joint Ventures'
1. Accounting policies
The significant accounting policies applied in the preparation
of the consolidated financial statements are as follows:
Basis of preparation
The consolidated financial statements of the Group have been
prepared in accordance with UK adopted international accounting
standards in accordance with the requirements of the Gibraltar
Companies Act 2014. The consolidated financial statements have been
prepared on a historical cost basis, except where certain assets or
liabilities are held at amortised cost or at fair value as
described in the Group's accounting policies.
All values are rounded to the closest hundred thousand, except
when otherwise indicated.
The significant accounting policies applied in the consolidated
financial statements in the prior year have been applied
consistently in these consolidated financial statements, except for
the amendments to accounting standards effective for the annual
periods beginning on 1 January 2022 and representation of expenses
analysis in the income statement. These are described in more
detail below.
The financial information does not constitute the Group's
statutory accounts for the year ended 31 December 2022 or the year
ended 31 December 2021 but is derived from those accounts.
Statutory accounts for the year ended 31 December 2021 have been
delivered to the Registrar of Companies in Gibraltar. Statutory
accounts for the year ended 31 December 2022 will be filed with
Companies House Gibraltar following the Company's Annual General
Meeting. The auditors have reported on both the 2022 and 2021
accounts and their reports were unqualified, did not draw attention
to any matters by way of emphasis and did not contain statements
under sections 257(1), 258(2) and 258(2A) of the Gibraltar
Companies Act 2014.
Change in presentation currency of the Group
The Group has changed the currency in which it presents its
financial results from US Dollar to Pound sterling (GBP) with
effect from 1 January 2022, in consideration of the William Hill
acquisition and current business mix which now has significantly
higher GBP exposure. 888 US dollar denominated earnings are a
relatively lower proportion of overall earnings.
Given the current composition of the Group's activities, this
change is expected to reduce the impact of currency movements on
reported results. Accordingly, to satisfy the requirements of IAS
21 'The Effects of Changes in Foreign Exchange Rates', the reported
results for the year ended 31 December 2022 have been translated
from US Dollar to GBP using the following procedures:
-- Assets and liabilities denominated in non-GBP currencies were
translated into GBP at the relevant closing rates of exchange; --
The trading results of subsidiaries whose functional currency was
other than GBP were translated into GBP at the relevant average
rates of exchange;
-- Movements in other reserves were translated into GBP at the
relevant average rates of exchange;
-- Share capital, share premium, treasury shares/own shares and
dividends were translated at the historic rates prevailing on the
date of each transaction; and
-- The cumulative translation reserve was set to nil at 1
January 2004, being the earliest practicable date and the date of
transition to IFRS, and has been restated on the basis that the
Group had reported in GBP since that date.
The opening balance sheet and all comparatives have been
re-presented in GBP following the change in presentation
currency.
Going concern
Background
The financial statements have been prepared using the going
concern basis of accounting. As at the year end the Group had net
assets of GBP159.2m (31 December 2021: GBP124.5m) and incurred a
statutory loss before tax of GBP115.7m during the year (31 December
2021: GBP59.0m profit). The Group also had net current liabilities
of GBP209.0m (31 December 2021: GBP11.7m).
A full description of the Group's business activities, financial
position, cash flows, liquidity position, committed facilities and
borrowing position, together with the factors likely to affect its
future development and performance, is set out in the Strategic
Report, and in notes 23 to 25 to the Group financial statements
within the Annual Report.
Business planning and performance management
Following the acquisition of William Hill, the Group has
developed its 's forecasting and monitoring processes to reflect
the combined group and the new reporting structure. These consists
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 so
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 (as
summarised in the Risks section of the Strategic Report within the
Annual Report), the Group has established risk management processes
to identify and mitigate risks, and such risks have been considered
when undertaking the going concern evaluation for the period to 30
June 2024.
The Group's future prospects
As highlighted in note 24 to the Group financial statements
within the Annual Report, 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 GBP176.3m as at 31 December 2022 (31 December
2021: GBP129.3m). 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 within the
year to fund the acquisition of the William Hill business (also
described in note 23 to the Group financial statements within the
Annual Report). 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 30 June 2024, based on reasonable assumptions including, in the
base case, a 3% decline in 2023 revenue on a pro forma basis and
lower than expected EBITDA synergies in 2023, indicate that the
Group will be able to operate within the level of its currently
available and expected future facilities for this period to 30 June
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 30 June 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.
Downside sensitivities have been run, individually and in aggregate
to assess the impact of the following scenarios:
-- The adverse impact of suspension of 888 VIP customers in the Middle East region;
-- Reductions in profitability for the whole Group of 10% to
reflect potential regulatory, macroeconomic or competitive
pressures;
-- An increase in interest expense as a result of higher
interest rates on the Group's remaining floating rate debt;
-- The phasing of cash outflows relating to regulatory and other
provisions and accrual settlements; and
-- The adverse impact of potential measures that may be imposed
following the UK Gambling Act review.
Management has 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 has 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 31%. 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.
New standards, interpretations and amendments adopted by the
Group
In preparing the Group financial statements for the current
period, the Group has adopted the following new IFRSs, amendments
to IFRSs and IFRS Interpretations Committee (IFRIC)
interpretations. All standards do not have a significant impact on
the results or net assets of the Group. Changes are detailed
below:
IAS 16 (amended) Property, plant and equipment: proceeds before intended
use
----------------- -------------------------------------------------------
IAS 37 (amended) Onerous contracts: cost of fulfilling a contract
----------------- -------------------------------------------------------
IAS 39 (amended) Interest rate benchmark reform - Phase 2
----------------- -------------------------------------------------------
IFRS 1 (amended) Annual improvements to IFRS Standards 2018-2020
----------------- -------------------------------------------------------
IFRS 3 (amended) Reference to the conceptual framework
----------------- -------------------------------------------------------
IFRS 7 (amended) Interest rate benchmark reform - Phase 2
IFRS 9 (amended) Derecognition of financial liabilities
Annual improvements to IFRS standards 2018-2020
----------------- -------------------------------------------------------
IFRS 16 (amended) Annual improvements to IFRS standards 2018-2020
Interest rate benchmark reform - Phase 2
----------------- -------------------------------------------------------
Standards in issue but not effective
At the date of authorisation of the Group financial statements,
the following Standards, amendments and Interpretations, which have
not been applied in these Group financial statements, were in issue
but not yet effective:
New Standards
------------- ----------------------------------------------
IFRS 17 Insurance Contracts (effective 1 January 2023)
------------- ----------------------------------------------
Amendments and interpretations
---------------------------------------------------------------------------
Disclosure of accounting policies (effective 1 January
2023)
Classification of liabilities as current or non-current
IAS 1 (amended) (effective 1 January 2024)
----------------- --------------------------------------------------------
Definition of accounting estimates (effective 1 January
IAS 8 (amended) 2023)
----------------- --------------------------------------------------------
Deferred tax related to assets and liabilities arising
IAS 12 (amended) from a single transaction (effective 1 January 2023)
----------------- --------------------------------------------------------
Lease liabilities in a sale and leaseback (effective
IFRS 16 (amended) 1 January 2024)
----------------- --------------------------------------------------------
The Group does not currently believe that the adoption of these
new standards or amendments would have a material effect on the
results or financial position of the Group.
Impact of climate change
The business continues to consider the impact of climate change
in the consolidated and company financial statements and recognise
that the most impactful risks are around the cancellation of
sporting events due to extreme weather and the longer-term cost of
energy. These costs have been factored into future forecasts and
the carrying value of assets in these financial statements. The
Directors do not believe these risks represent a material risk to
managements forecasts this year.
Further the group has assessed the impact of climate change in
the work on going concern, viability statement and impairment
reviews and considers that the above risk of longer-term cost of
energy has been factored into these future forecasts. The Group
constantly monitors the latest government legislation in relation
to climate related matters. At the current time, no legislation has
been passed that will impact the Group. The Group will adjust key
assumptions in value in use calculations and sensitise these
calculations should a change been required.
Critical accounting judgements and key sources of estimation
uncertainty
In the application of the Group's accounting policies, which are
described below, the Directors are required to make judgements,
estimates and assumptions about the carrying amounts of assets and
liabilities that are not readily apparent from other sources. The
estimates and associated assumptions are based on historical
experience and other factors that are considered to be relevant.
Actual results may differ from these estimates.
The estimates and underlying assumptions are reviewed on an
ongoing basis. Revisions to accounting estimates are recognised in
the period in which the estimate is revised where it affects only
that period or in the period and future periods if it affects both
current and future periods.
Critical accounting judgements
Internally generated intangible assets
Costs relating to internally generated intangible assets are
capitalised if the criteria for recognition as assets are met. The
initial capitalisation of costs is based on management's judgement
that technological and economic feasibility criteria are met. In
making this judgement, management considers the progress made in
each development project and its latest forecasts for each project.
Other expenditure is charged to the consolidated income statement
in the year in which the expenditure is incurred. Following initial
recognition, intangible assets are carried at cost less any
accumulated amortisation and any accumulated impairment losses. For
further information see note 9.
IFRS 16
Management addresses the key judgements, including the
assessment of the lease term at the point where the lessee can be
reasonably certain of its right to use the underlying asset.
Given the continued uncertainty surrounding the Retail estate,
management determined the lease term under IFRS 16 across the
Retail estate as the next available break date, as this means the
Group is not 'reasonably certain' that any lease break will not be
exercised. The Group has recognised a lease liability of GBP89.0m
at 31 December 2022.
Exceptional and adjusted items
The Group classifies and presents certain items of income and
expense as exceptional items. The Group presents adjusted
performance measures which differ from statutory measures due to
exclusion of exceptional items and certain non-cash items as the
Group considers that it allows a further understanding of the
underlying financial performance of the Group. These measures are
described as "adjusted" and are used by management to measure and
monitor the Group's underlying financial performance. Non-cash
items that are excluded from adjusted performance measures of
underlying financial performance include amortisation of acquired
intangibles, amortisation of finance fees, share benefit charges
and foreign exchange differences.
The Group considers any items of income and expense for
classification as exceptional if they are one off in nature and by
virtue of their size. The items classified as exceptional (and are
excluded from the adjusted measures) are described in further
detail in note 3.
Key accounting estimates
Identification and valuation of William Hill intangible
assets
The Group acquired the International (non-US) business of
William Hill on 1 July 2022 for an enterprise value of GBP1.73
billion. As part of the purchase price allocation the Group
recognised separately identifiable acquired intangibles comprising
brands (GBP574.4m); customer relationships (GBP595.1m) and gambling
licences (GBP8.5m). Goodwill of GBP785.6m was recognised on
acquisition. The estimate of the value of each class of asset
described above is based on recognised valuation methodologies such
as the "relief from royalty" method for brands, recognised industry
comparative data and the Group's industry experience and specialist
knowledge, and is therefore a key accounting estimate. A 5%
increase/decrease in estimated customer churn rates would
(decrease)/increase the fair value of customer relationships by
GBP(123.0)m/GBP176.0m respectively. Note that consideration of
provisions and contingent liabilities identification and valuation
on acquisition are considered in the provision, contingent
liabilities and regulatory matters section below. This has been an
area where the Group has made significant accounting estimates
during the year. However, the Group recognises that it is not an
accounting estimate where there are major sources of estimation
uncertainty at 31 December 2022 that have a significant risk of
resulting in a material adjustment to the carrying amounts of
assets and liabilities within the next financial year.
Further, the Group exercised judgement in determining the
intangible assets acquired and their fair value on the William Hill
business combination, with the support of external experts to
support the valuation process, where appropriate. See Note 10 for
additional information.
Impairment of goodwill and other long-life intangible assets
For the purposes of impairment testing under IAS 36 Impairment
of Assets, CGUs are grouped to reflect the level at which goodwill
is monitored by management. The key judgement is the level at which
the impairment tests are performed. Management have allocated
Goodwill to Retail on a group of CGUs basis, International on a
group of CGUs basis and UK Online as its own CGU as this is the
lowest level at which it is practical to monitor goodwill. These
are the levels at which goodwill is assessed for impairment.
Determining whether goodwill is impaired requires an estimation of
the value in use of the cash-generating units to which the goodwill
has been allocated. The value in use calculation requires the
entity to estimate the future cash flows expected to arise from the
cash-generating unit and a suitable discount rate in order to
calculate present value. Cash flows are typically forecast for
periods up to five years. For some cash-generating units it is
appropriate to use forecasts extending beyond five years where
future investment in the business is expected to result in a
long-term growth being achieved outside of five years. For further
information see note 9.
Taxation
The Group holds a number of provisions for uncertain tax
positions on the basis of amounts expected to be paid to the tax
authorities. If for example, the tax authorities in the relevant
jurisdictions do not regard the arrangements between any of the
group companies as being made at arm's length or insofar as changes
occur in transfer pricing regulations or in the interpretation of
existing transfer pricing regulations, including through changes to
the OECD's guidelines and/or recommendations, the amount of tax
payable by the Group may increase. The Group's current tax
liabilities reflect management's best estimate of the future
amounts of corporation tax that would be settled. However, the
actual outcome could be different to the estimate made, as the
ultimate tax liability cannot be known until a resolution has been
reached with the relevant tax authority, or the issue becomes time
barred.
Provisions, contingent liabilities and regulatory matters
The Group makes a number of estimates in respect of the
accounting for, and disclosure of, expenses and contingent
liabilities for customer claims. Provisions are described in
further detail in note 11 and contingent liabilities in note
16.
In common with other businesses in the gambling sector the Group
receives claims from customers relating to the provision of
gambling services. Claims have been received from customers 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
customer claims as they are resolved or finally determined in
customers' favour and provides for such claims where an outcome in
favour of the customers in question is probable.
Specifically, the Group has recognised a provision and
contingent liability 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. Customers who have obtained
judgement against the Business' 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, mostly related to the Mr Green brand.
The value of the provision and contingent liability are both
estimates based on the number and individual size of claims
received to date and assumptions based on such observations as can
be derived from those claims and include an estimate of claims the
Group assess it probable, for the provision, and possible, for the
contingent liability, that it will receive in the future. If these
rate of receipt of claims were to increase by 25% compared to our
expectation the value across the provision recognised and
contingent liability disclosed would increase by GBP7.0m before
consideration of potential gaming tax reclaim.
Basis of consolidation
The consolidated financial statements include the accounts of
the Company and its subsidiaries. The subsidiaries are companies
controlled by 888 Holdings PLC. Control exists where the Company
has power over an entity; exposure, or rights, to variable returns
from its involvement with an entity; and the ability to use its
power over an entity to affect the amount of its returns.
Subsidiaries are consolidated from the date the Parent gained
control until such time as control ceases.
The financial statements of subsidiaries are included in the
consolidated financial statements using the purchase method of
accounting. On the date of the acquisition, the assets and
liabilities of a subsidiary are measured at their fair values and
any excess of the fair value of the consideration over the fair
values of the identifiable net assets acquired is recognised as
goodwill.
Intercompany transactions and balances are eliminated on
consolidation.
The financial statements of subsidiaries are prepared for the
same reporting period as the Parent Company, using consistent
accounting policies.
Revenue
Revenue is measured at the fair value of the consideration
received or receivable from customers and represents amounts
receivable for goods and services that the Group is in business to
provide, net of discounts, marketing inducements and VAT, as set
out below.
In the case of licensed betting offices ("LBO") (including
gaming machines), online sportsbook and telebetting and online
casino (including games on the Online arcade and other numbers
bets) revenue represents gains and losses from gambling activity in
the period. This revenue is treated as a derivative under IFRS 9
'Financial Instruments' and is therefore out of scope of IFRS 15
'Revenue from Contracts with Customers'. Open positions are carried
at fair value, and gains and losses arising on this valuation are
recognised in revenue, as well as gains and losses realised on
positions that have closed.
Revenue from the Online poker business is within the scope of
IFRS 15 'Revenue from Contracts with Customers' and reflects the
net income (rake) earned when a poker game is completed, which is
when the performance obligation is deemed to be satisfied.
Revenue from B2B is mainly comprised of services provided to
business partners. B2B also includes fees from the provision of
certain gaming related services to partners. Customer advances
received are treated as deferred income within current liabilities
and released as they are earned.
For services provided to business partners through its B2B unit,
the Group examines whether the nature of its promise is a
performance obligation to provide the defined goods or services
itself, which means the Group is a principal and therefore
recognises revenue as the gross amount of the revenue generated
from use of the Group's platform in online gaming activities with
the partners' share of the revenue charged to marketing expenses;
or to arrange that another party provide the goods or
services which means the Group is an agent and therefore
recognises revenue as the amount of the net commission from use of
the Group's platform.
The Group is a principal when it controls the promised goods or
services before their transfer to the customer. Indicators that the
Group controls the goods or services before their transfer to the
customer include, inter alia, as follows: The Group is the
primary obligor for fulfilling the promises in the contract; the
Group has inventory risk before the goods or services are
transferred to the customer; and the Group has discretion in
setting the prices of the goods or services.
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 Chief Executive Officer and Chief
Financial Officer as Chief Operating Decision Makers review to make
strategic decisions.
During the year ended 31 December 2022, subsequent to the
acquisition of William Hill, the Group changed its segments to be
Retail, UK Online and International. As such, the comparative
information below has been re-presented from the prior year to
display results under the new reported segments.
The Retail segment comprises all activity undertaken in LBOs
including gaming machines. The UK 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 year ended 31 December 2022 is as
follows:
2022 Retail UK Online International Other(2) Corporate Total
GBP million GBP million GBP million GBP million GBP million GBP million
------------------------------ ----------- ----------- ------------- ----------- ----------- -----------
Revenue(1) 255.5 455.5 508.3 19.5 - 1,238.8
Gaming duties and other
cost of sales (55.0) (163.7) (184.7) (10.5) - (413.9)
Adjusted Gross Profit 200.5 291.8 323.6 9.0 - 824.9
Marketing (3.3) (148.1) (105.2) (2.5) - (259.1)
Contribution 197.2 143.7 218.4 6.5 - 565.8
Operating expenses (156.0) (82.1) (100.1) (4.8) (5.2) (348.2)
Associate income - - - - 0.3 0.3
------------------------------ ----------- ----------- ------------- ----------- ----------- -----------
Adjusted EBITDA 41.2 61.6 118.3 1.7 (4.9) 217.9
Depreciation (30.8)
Amortisation (excluding
acquired intangibles) (32.8)
Amortisation of acquired
intangibles (56.7)
Exceptional items -
cost of sales and operating
expenses (93.2)
Share benefit charges (5.2)
Foreign exchange (4.0)
Finance expenses (111.7)
Finance income 0.8
Loss before tax (115.7)
------------------------------ ----------- ----------- ------------- ----------- ----------- -----------
1 Revenue recognised under IFRS 9 is GBP255.5m in Retail,
GBP455.5m in UK Online, GBP502.7m in International and GBP10.9m in
other. Revenue recognised under IFRS 15 is GBPnil in Retail, GBPnil
in UK Online, GBP5.6m in International and GBP8.6m in Other.
2 'Other' represents the Bingo business that was disposed of
during the year. See note 10 for further information.
Retail UK Online International Other Corporate Total
GBP million GBP million GBP million GBP million GBP million GBP million
------------------------------ ----------- ----------- ------------- ----------- ----------- -----------
Total segment assets 542.6 1,395.5 961.3 - 11.7 2,911.1
Total segment liabilities 176.3 341.6 562.3 - 1,458.7 2,538.9
Included within total assets:
Goodwill 99.4 360.4 326.2 - - 786.0
Interests in associates - - - - 38.4 38.4
Capital additions 13.4 24.6 68.3 - 1.1 107.4
2021 Retail UK Online International Other(2) Corporate Total
GBP million GBP million GBP million GBP million GBP million GBP million
------------------------------ ----------- ----------- ------------- ----------- ----------- -----------
Revenue(1) - 255.2 410.4 46.7 - 712.3
Gaming duties and other
cost of sales - (88.7) (129.2) (24.4) - (242.3)
Adjusted Gross Profit - 166.5 281.2 22.3 - 470.0
Marketing - (118.9) (97.4) (6.2) - (222.5)
Contribution - 47.6 183.8 16.1 - 247.5
Operating expenses - (39.9) (69.7) (8.8) (9.4) (127.8)
Associate income - - - - - -
------------------------------ ----------- ----------- ------------- ----------- ----------- -----------
Adjusted EBITDA 7.7 114.1 7.3 (9.4) 119.7
Depreciation (10.3)
Amortisation (excluding
acquired intangibles) (16.1)
Exceptional items -
cost of sales and operating
expenses (17.3)
Share benefit charges (6.1)
Foreign exchange (6.7)
Finance income -
Finance expenses (4.2)
Profit before tax 59.0
------------------------------ ----------- ----------- ------------- ----------- ----------- -----------
1 Revenue recognised under IFRS 9 is GBPnil in Retail, GBP255.2m
in UK Online, GBP410.4m in International and GBP28.6m in Other.
Revenue recognised under IFRS 15 is GBPnil in Retail, GBPnil in UK
Online, GBPnil in International and GBP18.1m in Other.
2 'Other' represents the Bingo business that was disposed of
during 2022. See note 10 for further information.
Retail UK Online International Other Corporate Total
GBP million GBP million GBP million GBP million GBP million GBP million
------------------------------ ----------- ----------- ------------- ----------- ----------- -----------
Total segment assets - 79.4 304.6 - 13.9 397.9
Total segment liabilities - 132.2 100.7 - 18.1 251.0
Included within total assets:
Goodwill - 36.9 23.2 - - 60.1
Interests in associates - - - - - -
Capital additions - 0.6 22.1 - - 22.7
3 Exceptional items and adjustments
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 the ARA, 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.
We are satisfied that our policies and practice conform to the
above guidelines.
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 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 and the Strategic Report within the Annual
Report);
- 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, with the reconciling items being
itemised and described below. 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:
2022 2021
GBP million GBP million
Cost of sales
Retroactive duties and associated charges (3.9) 4.2
--------------------------------------------- ----------- -----------
Exceptional items - cost of sales (3.9) 4.2
Operating expenses
Acquisition related costs 24.5 10.9
Integration and transformation costs 14.4 2.2
Disposal of 888 Bingo 11.7 -
Impairment of US Goodwill and other assets 55.7 -
Revaluation of contingent consideration (9.2) -
Exceptional items - operating expenses 97.1 13.1
Finance expenses
Senior Unsecured Notes early redemption fees 14.1 -
Gain on settlement of Senior Unsecured Notes (7.1) -
--------------------------------------------- ----------- -----------
Exceptional items - finance expenses 7.0 -
--------------------------------------------- ----------- -----------
Total exceptional items before tax 100.2 17.3
Tax on exceptional items 2.8 2.5
Total exceptional items 103.0 19.8
--------------------------------------------- ----------- -----------
Total tax on exceptional items and adjustments is a credit of
GBP11.4m, GBP14.2m of which relates to adjustments.
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 2021, a
provision was recognised in 888 relating to a liability in Spain of
GBP4.2m. In the year GBP0.3m was settled, leading to a release of
GBP3.9m.
Acquisition related costs
The Group has incurred legal and M&A costs associated with
the acquisition of William Hill of GBP24.5m (2021: GBP10.9m).
Integration and transformation costs
Following the acquisition of the William Hill International
(non-US) business, the integration and transformation program began
and is expected to take three years until 2025. The cash costs to
achieve the targeted integration synergies are expected to cost
approximately GBP100m over the lifetime of the programme. In 2022,
there were a total of GBP8.8m of costs relating to the integration
programme, namely redundancy costs of GBP5.8m and legal and
consultancy fees of GBP3.0m and a further GBP3.7m of platform
separation and other integration costs.
Alongside this, the transformation of the Retail operating model
has led to a GBP1.9m charge, albeit the savings from this are not
classified as synergies. In the prior year, the Group incurred
GBP2.0m of redundancy costs related to the decision to close the
Antigua office, as well as GBP0.2m relating to the disposal of
property, plant and equipment.
Disposal of 888 Bingo
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. An additional GBP0.5m loss was recorded on the disposal
of the business. Refer to note 10.
Impairment of US Goodwill and other assets
During the year, as a part of the annual impairment review,
management performed a value in use calculation to assess the
recoverable amount of the Group's US business, using that
business's underlying cash flow forecasts. The recoverable amount
was lower than the book value of its assets and, as such, the Group
impaired the goodwill on the US business in full, totalling
GBP25.7m.
Additionally as part of the integration, the business intends to
use the existing 888 technology platform as the basis for the
future platform of the Group, leading to a write off of the Unity
platform, a proprietary technology system William Hill was building
that is no longer needed, at a cost of GBP28.1m. A further GBP1.4m
of smaller technology assets were written off. GBP0.5m of freehold
assets were written off when reclassified to held for sale at the
year end, due to the assets being tested for impairment as a result
of the transfer.
Revaluation of contingent consideration
As a part of the transaction agreement with Caesars for the
purchase of William Hill, an amount of up to GBP100.0m
consideration was contingent subject to the enlarged group hitting
specific EBITDA metrics. This was assessed at fair value on
acquisition at GBP9.6m and revalued at the year-end date to
GBP0.4m, leading to a release in this contingent consideration of
GBP9.2m.
Senior Unsecured Notes early redemption fees
As part of the William Hill acquisition, the Group acquired
certain Senior Unsecured Notes, GBP350.0m 4.875% due May 2023 and
GBP350.0m 4.75% due May 2026. Subsequent to the acquisition, the
GBP350.0m Note due May 2023 was fully redeemed as well as a partial
redemption amounting to GBP339.5m of the Note due May 2026.
The total cost to the Group of settling the Notes consisted of
GBP12.2m in early redemption fees together with a combined GBP1.9m
of unamortised finance fees, which were written off to profit and
loss immediately on redemption of each note. All of the costs were
considered as exceptional due to their one-off nature.
Gain on settlement of Senior Unsecured Notes
The Senior Unsecured Notes acquired in the acquisition of
William Hill were accounted for at fair value. Subsequently these
Notes have been settled and as such the gain on settlement of these
Notes of GBP7.1m has been recognised.
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 specific intangible assets recognised in
acquisitions, amortisation 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 Finance income
2022 2021
GBP million GBP million
--------------------- ----------- -----------
Interest income 0.8 -
Total finance income 0.8 -
---------------------- ----------- -----------
5 Finance expenses
2022 2021
Note GBP million GBP million
----------------------------------------------- ---- ----------- -----------
Interest expenses related to lease liabilities 3.0 0.9
Bank loans and bonds 74.9 -
Amortisation of finance fees 0.1 -
Hedging activities 3.3 -
Interest expenses related to settlement
of tax liability - 2.8
Interest expenses related to severance
pay liability, net - 0.1
Foreign exchange on financing activities 22.7 -
Other finance charges and fees 0.7 0.4
Finance expenses - underlying 104.7 4.2
------------------------------------------------ ---- ----------- -----------
Senior Unsecured Notes early redemption
fees 3 14.1 -
Gain on settlement of Senior Unsecured
notes 3 (7.1) -
------------------------------------------------ ---- ----------- -----------
Finance expenses - exceptional 7.0 -
------------------------------------------------ ---- ----------- -----------
Total finance expenses 111.7 4.2
------------------------------------------------ ---- ----------- -----------
6 Taxation
Corporate taxes
2022
GBP million
---------------------------------------------- -----------
Current taxation
UK corporation tax at 19% 6.5
Other jurisdictions taxation 17.8
Adjustments in respect of prior years 1.3
----------------------------------------------- -----------
25.6
Deferred taxation
Origination and reversal of temporary
differences (3.0)
Adjustments in respect of prior years (17.7)
----------------------------------------------- -----------
(20.7)
Taxation expense 4.9
----------------------------------------------- -----------
Deferred taxation related to items recognised
in OCI
Remeasurement of severance pay liability 0.6
----------------------------------------------- -----------
2021
GBP million
---------------------------------------------- -----------
Current taxation
Gibraltar corporation tax at 12.5% 0.7
Other jurisdictions taxation 8.6
Adjustments in respect of prior years (0.1)
----------------------------------------------- -----------
9.2
Deferred taxation
Origination and reversal of temporary
differences (0.2)
Adjustments in respect of prior years -
----------------------------------------------- -----------
(0.2)
Taxation expense 9.0
----------------------------------------------- -----------
Deferred taxation related to items recognised
in OCI
Remeasurement of severance pay liability 0.2
----------------------------------------------- -----------
The Group previously reported its current tax with Gibraltar taxation as the
headline tax and the Gibraltar tax rate as the rate to which the actual tax
charge was reconciled. In 2022, 888 Holdings PLC became tax resident in the
UK by virtue of its central management and control being situated in the UK
and as a result the Group has changed its disclosures to refer to the UK tax
as the headline tax and the UK tax rate for the reconciliations.
The effective tax rate in respect of ordinary activities before adjusting and
exceptional items for the year ended 31 December 2022 is 20.0%. The effective
tax rate in respect of ordinary activities after exceptional items is
-4.2% (31 December 2021: 15%).
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. The Group expects that the UK will substantively enact Pillar
Two in the first half of 2023 and that Pillar Two will impact the Group's
current tax starting in 2024.
The Group's effective tax rate for 2023 is expected to be 7.7%.
The difference between the total tax charge shown above and the amount
calculated by applying the standard rate of UK corporation tax to the
profit/(loss) before tax is as follows:
2022
GBP million
--------------------------------------------------- -----------
(Loss)/profit before taxation (115.7)
Standard tax rate in UK (19.0%) (22.0)
Difference in effective tax rate in other
jurisdictions 2.5
Expenses not allowed for taxation 32.9
Accrual of liabilities for uncertain tax positions 5.2
Tax on share of result of associate 0.1
Deferred tax not recognised 0.4
Difference in current and deferred tax rate 5.1
Non-taxable income (2.9)
Adjustments to prior years' tax charges (16.4)
Total tax charge for the year 4.9
---------------------------------------------------- -----------
2021
GBP million
------------------------------------------ -----------
(Loss)/profit before taxation 59.0
Standard tax rate in Gibraltar (12.5%) 8.1
Difference in effective tax rate in other
jurisdictions 4.1
Expenses not allowed for taxation 0.7
Deferred tax not recognised (1.5)
Losses utilised previously not recognised
for deferred tax (0.2)
Non-taxable income (2.1)
Adjustments to prior years' tax charges (0.1)
Total tax charge for the year 9.0
------------------------------------------- -----------
The expenses not allowed for tax purposes mainly relate to the acquisition
of William Hill for which no tax relief is available. The difference
in effective tax rates in other jurisdictions primarily reflect the
lower effective tax rate in Gibraltar. The adjustments in respect of
prior periods mainly relate to a higher than expected restriction on
interest deductions in the UK in earlier periods.
7 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
year.
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 6,235,340 Ordinary Shares (2021:
6,315,271) and no market-value options (2021: nil).
The number of equity instruments excluded from the diluted EPS
calculation is 1,986,155 (2021: 577,979).
2022 2021
--------------------------------------------- ----------- -----------
Profit for the period attributable to equity
holders of the parent (GBP million) (120.5) 49.9
Weighted average number of Ordinary Shares
in issue and outstanding 426,536,392 371,383,109
Effect of dilutive Ordinary Shares and Share
options 6,235,340 6,315,271
Weighted average number of dilutive Ordinary
Shares 432,771,732 377,698,380
---------------------------------------------- ----------- -----------
Basic earnings per share (pence) (28.3) 13.4
Diluted earnings per share (pence) (28.3) 13.2
---------------------------------------------- ----------- -----------
The diluted loss per share in the current year is the same as
the basic loss per share as the potentially dilutive share options
are considered antidilutive as they would reduce the loss per share
and therefore, they are disregarded in the calculation.
Adjusted earnings per share
The Directors believe that EPS excluding exceptional and
adjusted items, tax on exceptional and adjusted items ("Adjusted
EPS") allows for a further understanding of the underlying
performance of the business and assists in providing a clearer view
of the performance of the Group.
2022 2021
--------------------------------------------- ----------- -----------
Adjusted profit after tax (GBP million) 64.2 82.6
---------------------------------------------- ----------- -----------
Weighted average number of Ordinary Shares
in issue 426,536,392 371,383,109
Weighted average number of dilutive Ordinary
Shares 432,771,732 377,698,380
---------------------------------------------- ----------- -----------
Adjusted basic earnings per share (pence) 15.1 22.2
Adjusted diluted earnings per share (pence) 14.8 21.9
---------------------------------------------- ----------- -----------
8 Dividends
2022 2021
GBP million GBP million
--------------- ----------- -----------
Dividends paid - 43.8
---------------- ----------- -----------
The Board of Directors does not recommend a final dividend to be
paid in respect of the year ended 31 December 2022. No final
dividend was recommended as at 31 December 2021.
The 2020 final dividend of 10.4c (7.4p) per share plus an
additional one-off 1.6c (1.1p) per share was paid on 24 May 2021
totalling US$44.5 million (GBP31.8m) and the 2021 interim regular
dividend of 4.5c (3.2p) per share in accordance with 888's dividend
policy was paid on 13 October 2021 of US$16.8 million
(GBP12.0m).
9 Goodwill and other intangibles
Brands,
customer
relationships
Goodwill and licences Software Total
GBP million GBP million GBP million GBP million
------------------------------------ ----------- -------------- ----------- -----------
Cost or valuation
At 31 December 2021 134.3 61.0 107.4 302.7
Additions via business combinations 785.6 1,178.0 226.2 2,189.8
Additions - 2.3 65.1 67.4
Disposals (124.2) (17.4) (6.4) (148.0)
Effect of foreign exchange
rates 16.0 6.9 11.0 33.9
At 31 December 2022 811.7 1,230.8 403.3 2,445.8
------------------------------------- ----------- -------------- ----------- -----------
Amortisation and impairments:
At 31 December 2021 74.2 34.0 70.6 178.8
Amortisation charge for the
year - 45.9 43.6 89.5
Impairment charge for the year 36.9 - 29.5 66.4
Disposals (94.5) (10.4) (5.5) (110.4)
Effect of foreign exchange
rates 9.1 4.0 11.4 24.5
At 31 December 2022 25.7 73.5 149.6 248.8
------------------------------------- ----------- -------------- ----------- -----------
Carrying amounts
At 31 December 2022 786.0 1,157.3 253.7 2,197.0
------------------------------------- ----------- -------------- ----------- -----------
At 31 December 2021 60.1 27.0 36.8 123.9
------------------------------------- ----------- -------------- ----------- -----------
Goodwill
Goodwill recognised on the acquisition of William Hill was
GBP785.6m as outlined in note 16. Based on the estimated synergies
from the combination management has allocated this goodwill between
Retail (GBP99.4m), UK Online (GBP360.4m) and International
(GBP325.8m). This represents the lowest level at which goodwill is
monitored for internal management purposes.
The Group previously had GBP25.7m goodwill related to its US B2C
CGU which has been impaired at year end. See impairment reviews
below for more detail. As part of the disposal of the Group's Bingo
business, an GBP11.2m impairment charge was recognised at the half
year against the goodwill in the Bingo business, representing the
difference between the agreed sales price and the carrying value of
the Bingo businesses net assets. Upon completion of the sale in the
second half of the year, the remaining GBP29.7m of goodwill was
disposed.
Brands, customer relationships and licences
This category of assets includes brands, customer relationships
and licences primarily recognised in business combinations. As
outlined in note 10, in 2022 the Group acquired William Hill and
recognised brands of GBP574.4m, customer relationships of GBP595.1m
and licences of GBP8.5m. These assets are being amortised over
20-30 years for brands, 7-13 years for customer relationships and
20 years for licences.
Software
This category relates to the cost of both acquired software,
through purchase or acquisition, as well as the capitalisation of
internally developed software. On the acquisition of William Hill,
the Group acquired software with a fair value of GBP226.2m. The
software acquired primarily consisted of proprietary software
platforms owned by William Hill. Subsequent to the acquisition, the
decision was made to migrate a number of William Hill platforms
onto the existing 888 platforms, resulting in an asset impairment
of GBP29.5m.
Impairment reviews
The Group performs an annual impairment review for goodwill, by
comparing the carrying amount of these assets with their
recoverable amount. This is an area where the directors exercise
judgement and estimation, see note 1 for further detail. Testing is
carried out by allocating the carrying value of these assets to
CGUs or group of CGUs and determining the recoverable amount of
those CGUs through value in use calculations. Where the recoverable
amount exceeds the carrying value of the assets, the assets are
considered as not impaired.
For the purposes of impairment testing under IAS 36, CGUs are
grouped in order to reflect the level at which goodwill is
monitored by management. In the previous period, the Group defined
its groups of CGUs as Bingo B2C and US B2C. In the year, the Group
completed the acquisition of William Hill and disposed of the
Group's Bingo business, which changed the groups of CGUs to which
goodwill is allocated and monitored. The goodwill generated from
the acquisition of William Hill is monitored in line with the
Group's segments, being Retail, UK Online and International. Prior
to the impairment of the CGU, the pre-existing goodwill relating to
the US B2C CGU continued to be monitored at the US B2C CGU level
consistent with the previous period.
Value in use calculations are based upon estimates of future
cash flows derived from the Group's profit forecasts by segments.
Profit forecasts are derived from the Group's annual strategic
planning or similarly scoped exercise.
The principal assumptions underlying our cash flow forecasts are
as follows:
- management assume that the underlying business model will
continue to operate on a comparable basis, as adjusted for known
regulatory or tax changes and planned business initiatives;
- management's forecasts anticipate the continuation of recent
growth or decline trends in staking, gaming net revenues and
expenses, as adjusted for changes in our business model or expected
changes in the wider industry or economy;
- management's forecasts include assumptions on synergy cost
savings as a result of the William Hill acquisition, which have
been removed to the extent they were not committed at 31 December
2022;
- management assume that the Group will achieve its target
sports betting gross win margins as set for each territory, which
management base upon its experience of the outturn of sports
results over the long term, given the tendency for sports results
to vary in the short term but revert to a norm over a longer term;
and
- in management's annual forecasting process, expenses
incorporate a bottom-up estimation of the Group's cost base. For
employee remuneration, this takes into account staffing numbers and
models by segment, while other costs are assessed separately by
category, with principal assumptions including an extrapolation of
recent cost inflation trends and the expectation that the Group
will incur costs in line with agreed contractual rates.
The Board approved the 2023 budget for each segment in November
2022, as well as a further four-year strategic forecast covering
years 2024 to 2027. These five years form the basis of the value in
use calculation. Cash flows beyond that five-year period were
extrapolated using long-term growth rates as estimated for each
group of CGUs separately.
The other significant assumptions incorporated into our
impairment reviews are those relating to discount rates and
long-term growth assumptions, as noted below separately for each
CGU or group of CGUs:
2022
Long-term
2022 Discount growth
CGUs rate rate
% %
-------------- ------------- ----------
Retail 13.3 0.0
UK Online 12.1 2.5
International 13.8 5.0
US B2C 18.0 2.0
--------------- ------------- ----------
Discount rates are applied to each CGU or group of CGUs' cash
flows that reflect both the time value of money and the risks that
apply to the cash flows of that CGU or group of CGUs. Discount
rates are calculated using the weighted average cost of capital
formula based on the CGU's or group of CGUs' leveraged beta. The
leveraged beta is determined by management as the mean unleveraged
beta of listed gaming and betting companies, with samples chosen
where applicable from comparable markets or territories as the CGU
or group of CGUs, leveraged to the Group's capital structure.
Further risk premia and discounts are applied, if appropriate, to
this rate to reflect the risk profile of the specific CGU or group
of CGUs relative to the market in which it operates. Our discount
rates are calculated on a post-tax basis and converted to a pre-tax
basis using the tax rate applicable to each CGU or group of CGUs.
Discount rates disclosed below are pre-tax discount rates.
The long-term growth rates included in the impairment review do
not exceed the observed long-term growth rate for each respective
CGU or group of CGUs.
Results of impairment reviews
The recoverable amount and headroom above carrying amount or
impairment below carrying amount based on the impairment review
performed at 31 December 2022 for each CGU or group of CGUs are as
follows:
2022
Recoverable Headroom/
CGUs amount (impairment)
GBP million GBP million
-------------- ----------- -------------
Retail 668.6 165.5
UK Online 1,534.5 359.3
International 1,725.2 996.2
US B2C 19.4 (25.7)
--------------- ----------- -------------
As a result of a revision in the growth projections for the US
B2C CGU, the entire goodwill balance of GBP25.7m has been impaired,
as the projected cash flows no longer support the carrying value of
the CGU.
Sensitivity of impairment reviews
For the Retail and UK Online group of CGUs, the following
reasonably possible changes in assumptions upon which the
recoverable amount was estimated, would lead to the following
changes in the recoverable amount of the CGU or group of CGUs:
20% fall in cash 1% increase in discount
flows rate
Reduction Reduction
in recoverable Remaining in recoverable Remaining
CGUs amount headroom amount headroom
GBP million GBP million GBP million GBP million
---------- --------------- ----------- --------------- -----------
Retail (133.7) 31.8 (45.2) 120.3
------------ --------------- ----------- --------------- -----------
UK Online (306.9) 52.4 (149.2) 210.1
------------ --------------- ----------- --------------- -----------
For the International group of CGUs, no impairment would occur
under any reasonable possible changes in assumptions upon which the
recoverable amount was estimated.
A 1% increase in the long-term growth rate in the US B2C CGU
would have resulted in a reduction to the impairment of GBP4.0m. A
1% reduction in the discount rate used would have resulted in a
reduction to the impairment of GBP7.0m.
10 Acquisitions & 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 contingent consideration is based on the
enlarged Group hitting specific EBITDA metrics and is assessed at
fair value using a probability weighting analysis. Based on the
performance of the combined Group since the acquisition, the fair
value of this contingent consideration at 31 December 2022 is
GBP0.4m, with GBP9.2m being released to the Income Statement, see
note 3 for further detail.
Identifiable assets acquired and liabilities assumed
Provisional
Fair Value(1)
------------------------------------------- ---------------
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 (178.8)
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 (231.3)
Goodwill 785.6
Consideration transferred 554.3
------------------------------------------- ---------------
(1 The Group has invested significant resources during the year
in performing the purchase price allocation for the William Hill
acquisition, including involving experts where appropriate.
However, the Group acknowledges that, given the size and scale of
the acquisition, the fair values of assets acquired and liabilities
assumed remain provisional and may change within the measurement
period.)
In the period from 1 July 2022 to 31 December 2022, the acquired
business contributed revenue of GBP614.3m and a loss after tax of
GBP45.7m. If the acquisition had occurred on 1 January 2022, the
contributed revenue and loss before tax would have been GBP1,225.1m
and GBP56.7m respectively.
Intangible assets
Acquired identifiable intangible assets include GBP574.4m in
respect of brands, GBP595.1m in respect of customer relationships
and GBP8.5m in respect of licences. Software and technology of
GBP226.2m, inclusive of a fair value uplift of GBP70.6m has also
been recognised on acquisition. Management considers the residual
goodwill of GBP785.6m to represent a number of factors including
the future growth of the William Hill business and the potential to
achieve buyer specific synergies and workforce.
The fair value of the brand assets was assessed by considering
the benefit to the Group's future revenue of the acquired brand and
assessing the royalty costs that would be incurred in deriving the
same benefit. The key assumptions in the assessments are the
forecast revenue growth and royalty cost applied. A royalty cost of
5.0% of revenue was applied. The fair value of the customer
relationships was assessed using the multi-period excess earnings
methodology. The key assumption in the assessments is customer
retention rates. The fair value of the licences has been derived by
calculation a replacement cost for each individual licence. A 5%
increase/(decrease) in estimated customer churn rates would
(decrease)/increase the fair value of customer relationships by
GBP(123.0)m/GBP176.0m respectively.
Provisions and contingent liabilities
A contingent liability with a fair value of GBP80.6m has been
recognised on acquisition to reflect the possible future economic
outflow resulting from customer claims in Austria. The contingent
liability has been fair valued in line with IFRS 3 based on the
expected cash outflow of settled claims and recognised on the basis
that it is a possible future liability. Additional provisions of
GBP115.2m have been recognised based on pre-existing provisions
within William Hill. The carrying amount at acquisition was
assessed to be the fair value. Refer to note 11 for further details
on these acquired provisions.
Other fair value adjustments
A fair value uplift of GBP1.1m has been recognised on property,
plant and equipment, representing the depreciated replacement cost
of the assets in comparison to their pre-acquisition net book
value.
A fair value uplift of GBP0.8m has been recognised on the
acquired right-of-use assets, representing favourable market
positions on William Hill's portfolio of leases. This has been
offset by a GBP6.8m reduction to the right-of-use asset and GBP6.4m
reduction to the lease liability that reflects matching the
right-of-use asset to the new fair value of the lease liability,
based on a new discount rate for the liability at the acquisition
date.
The fair value of the Group's investment in SIS was increased by
GBP27.4m to a fair value of GBP39.0m, reflecting the Group's
holding and the estimated market value of the entity at the
acquisition date.
The fair value of the Group's outstanding listed debt was
increased by GBP7.1m, reflecting the current market price of the
debt at acquisition date.
Deferred tax liabilities of GBP216.9m have been recognised on
the resultant fair value uplifts to assets.
The fair value of all other assets and liabilities acquired are
considered to be equal to their net book value as at the
acquisition date.
Disposals
On 7 July 2022, the Group disposed 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 at 30 June 2022, the Group
reclassified the Bingo business assets and liabilities as 'Held for
sale', at which time an impairment loss of GBP11.2m was recognised
on the Bingo goodwill, representing the difference between the
carrying value of the businesses net assets and the fair value at
the date of reclassification to held for sale.
GBP million
----------------------------------------- -----------
Consideration received 35.7
Deferred consideration 1.7
Less:
Cash disposed of (3.2)
------------------------------------------- -----------
Net proceeds on disposal 34.2
------------------------------------------- -----------
Less:
Net assets disposed of (excluding cash):
Intangible assets (37.6)
Trade and other receivables (0.5)
Trade and other payables 3.3
------------------------------------------- -----------
Net assets disposed of (excluding cash) (34.7)
Loss on disposal (0.5)
------------------------------------------- -----------
11 Provisions
Indirect Legal and Shop closure Other restructuring
tax provision regulatory provision costs Total
GBP million GBP million GBP million GBP million GBP million
----------------------------------- --------------- ----------- -------------- ------------------- -----------
At 31 December 2021 - 19.0 - - 19.0
Acquired on acquisition 1 July
2022 57.0 111.5 5.8 4.5 178.8
Charged/(credited) to profit
or loss
Additional provisions recognised 12.7 12.3 0.8 - 25.8
Provisions released to profit
and loss (3.2) (5.1) - - (8.3)
Total charged to profit or
loss
Utilised during the year (6.0) (9.9) (1.8) (0.8) (18.5)
Foreign exchange differences 1.2 (0.3) - - 0.9
At 31 December 2022 61.7 127.5 4.8 3.7 197.7
Customer claims provisions of GBP86.2m 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, 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. Post-acquisition,
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 recorded 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 2022 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 UK Gambling Commission
("UKGC") in July and August 2021 of the William Hill business.
William Hill has been subject to an ongoing licence review and has
addressed certain action points raised by the UKGC in relation to
William Hill's social responsibility and anti-money laundering
obligations. The Group has agreed a regulatory settlement of
GBP19.2m, including divestments of GBP0.7m. This provision was
acquired at 1 July 2022 and is expected to be settled in 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 GBP80.6m relating to the William Hill and Mr Green brands
was recognised on acquisition representing the fair value of the
contingent liability at that point in time, recognised on the basis
that it was a possible future liability and in line with IFRS 3.
Please refer to note 10 for further detail.
Since acquisition, there has been an alignment in strategy and
accounting treatment with William Hill and Mr Green aligning to the
888 strategy. William Hill and Mr Green have therefore recognised a
provision for probable legal claims they expect to receive and a
contingent liability for possible legal claims they may receive. As
at 31 December 2022, the provision is estimated at GBP67.0m and the
contingent liability is estimated at GBP13.5m (note 16). Note that
the provision is less than the liability recognised on acquisition
but the liability recognised on acquisition is not released to the
income statement until the final outcome of the customer claims is
resolved and as such the liability of GBP80.6m remains the balance
provided.
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, please refer to note 16 for further detail. The timing
and amount of the outflows is ultimately determined by the
settlement reached with the relevant authority.
There has also been a similar uptick in claims in Germany, but
to a much lesser extent.
Shop closure provisions
As a result of the acquisition of William Hill, the Group holds
provisions relating to the associated costs of closure of 713 shops
in 2019, 119 shops in 2020, and 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.
12 Borrowings
31 December
Interest rate Maturity 2022
% GBPm
----------------------------------------------- --------------- --------- ------------
Borrowings at amortised cost
Bank facilities
EUR473.5m term loan facility EURIBOR + 5.5% 2028 392.6
CME term SOFR
$575.0m term loan facility + 5.35% 2028 420.7
GBP150.0m Equivalent Multi-Currency Revolving
Credit Facility - 2028 -
Loan Notes
EUR582.0m Senior Secured Fixed Rate Notes 7.56 2027 498.6
EUR450.0m Senior Secured Floating Rate
Notes EURIBOR + 5.5% 2028 379.9
GBP350.0m Senior Unsecured Notes 4.75 2026 10.5
Total Borrowings 1,702.3
----------------------------------------------- --------------- --------- ------------
Less: Borrowings as due for settlement
in 12 months 4.8
----------------------------------------------- --------------- --------- ------------
Total Borrowings as due for settlement
after 12 months 1,697.5
----------------------------------------------- --------------- --------- ------------
The Group had no borrowings in 2021 and as such no comparative
is presented in the above table.
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 31 December 2022, 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.
-- $573.7m 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 2023 to
GBP10.5m at 31 December 2022. The cash purchase price of both notes
was equal to 101 per cent of the principal amount together with the
interest accrued.
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 31 December 2022, 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 31 December 2022 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 to be agreed with the Mandated Lead
Arrangers prior to the entry into the Senior Facilities
Agreement.
The directors are satisfied that, at the year-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 31 December 2022
was GBPnil.
Weighted average interest rates
The weighted average interest rates paid, including commitment
fees, were as follows:
31 December
2022
%
---------------------------------------- ------------
EUR473.5m term loan facility 7.25%
------------------------------------------ ------------
$575.0m term loan facility 11.47%
------------------------------------------ ------------
EUR582.0m Senior Secured Fixed Rate
Notes 8.47%
------------------------------------------ ------------
EUR450.0m Senior Secured Floating Rate
Notes 7.58%
------------------------------------------ ------------
GBP350.0m Senior Unsecured Fixed rate
Notes 4.75%
------------------------------------------ ------------
The Group had no borrowings in 2021 and as such no comparative
is presented in the above table.
Net debt reconciliation
Fees
Debt Opening Inflows Acquired Outflows on debt Non-cash FV adjustment FX Total
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
GBP351.8m 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
---------------------------- -------- --------- ---------- --------- --------- -------------- ------ --------
13 Financial instruments
On acquisition, under IFRS 3 'Business Combinations', the assets
and liabilities of William Hill were recorded at fair value. Refer
to note 10 for details of values and valuation methods used.
The hierarchy (as defined in IFRS 13 'Fair Value Measurement')
of the Group's financial instruments carried at fair value as at 31
December 2022 was as follows:
Contractual
/ notional Level Level Level
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 (note 16) 100.0 - - 0.4
------------------------------------ ------------ ------ ------ ------
465.3 - 30.4 8.2
------------------------------------ ------------ ------ ------ ------
The Group did not have any financial instruments carried at fair
value during the year ended 31 December 2021.
Ante post bets
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 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 31 December 2022, the gross win margins ranged from
2%-25%.
A reconciliation of movements in the ante post bets liability in
the year is provided below.
Ante post bet
liabilities Total
GBPm GBPm
At 31 December 2021 - -
----------------------------------- -------------- ------
Acquired via business combination 3.5 3.5
----------------------------------- -------------- ------
To profit or loss 4.3 4.3
----------------------------------- -------------- ------
At 31 December 2022 7.8 7.8
----------------------------------- -------------- ------
Hedging activities
The table below illustrates the effects of hedge accounting on
the consolidated statement of financial position and consolidated
income statement by disclosing separately by risk category each
type of hedge and the details of the associated hedging instrument
and hedge item. These are for items designated as in a cash flow
hedging relationship.
Change in Change in
fair value Cash settlements fair value Cash
in period and accruals in period settlements Hedge
for calculating in the period for calculating and accruals ineffectiveness
Carrying ineffectiveness (hedging ineffectiveness in the period in the
amount (hedging instrument) instrument) (hedged item) (hedged item) period
GBPm GBPm GBPm GBPm GBPm GBPm
Interest rate
swaps
-------------------------- --- ---------------- ------------------------ -------------- ---------------------------- --------------------
EUR trades 1.0 1.0 0.9 (0.1)
----------------------- ---------- ------------------------------ -------------- ----------------- ------------------------------ -------------
Total 1.0 1.0 0.9 (0.1)
----------------------- ---------- ------------------------------ -------------- ----------------- ------------------------------ -----------
Cross-currency
swaps
------------------- ---------- ------------------------------ -------------- ----------------- ------------------------------ -------------
EUR trades 5.1 5.1 (1.4) 4.7 (1.4) (0.4)
----------------------- ---------- ------------------------------ -------------- ----------------- ------------------------------ -------------
USD trades (17.8) (17.8) (2.3) (18.7) (2.3) (0.9)
----------------------- ---------- ------------------------------ -------------- ----------------- ------------------------------ -------------
Total (12.7) (12.7) (3.7) (14.0) (3.7) (1.3)
------------------- ---------- ------------------------------ -------------- ----------------- ------------------------------ -------------
The Group did not have any hedge accounting during the year
ended 31 December 2021.
Cash flow hedging reserve
The following table identifies the movements in the cash flow
hedging reserve during the year for items designated as in a cash
flow hedging relationship:
Reclassifications during the period
Change
in fair
Opening value recorded Fixed Interest Missed Closing
balance in OCI assets expense FX remeasurement forecast balance
GBPm GBPm GBPm GBPm GBPm GBPm GBPm
Designated cash
flow hedging
relationships
------------------------- ---------- -------- --------- ----------------- ---------
Interest rate
swaps
------------------------- ---------- ---------------- -------- --------- ----------------- ---------- ---------
EUR trades - (0.8) - - - - (0.8)
------------------------- ---------- ---------------- -------- --------- ----------------- ---------- ---------
Total - (0.8) - - - - (0.8)
------------------------- ---------- ---------------- -------- --------- ----------------- ---------- ---------
Cross-currency
swaps
------------------------- ---------- ---------------- -------- --------- ----------------- ---------- ---------
EUR trades - (3.3) - (1.4) 12.7 - 8.0
------------------------- ---------- ---------------- -------- --------- ----------------- ---------- ---------
USD trades - 22.2 - (3.4) (11.7) - 7.2
------------------------- ---------- ---------------- -------- --------- ----------------- ---------- ---------
Total - 18.9 - (4.8) 1.0 - 15.2
------------------------- ---------- ---------------- -------- --------- ----------------- ---------- ---------
Cost of hedging reserve
The following table identifies the movements in the cash flow
hedging reserve during the year for items designated as in a cash
flow hedging relationship:
Change in fair
value recorded Reclassifications
Opening balance in OCI during the period Closing balance
Time Currency Time Currency Time Currency Time Currency
value basis value basis value basis value basis
GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm
-------- ----------
Designated
cash flow hedging
relationships
-------- -------- --------- ---------- -------
Cross-currency
swaps
-------------------- -------- ---------- -------- --------- --------- ---------- ------- ---------
EUR trades - - - (0.1) - - - (0.1)
-------------------- -------- ---------- -------- --------- --------- ---------- ------- ---------
USD trades - - - (1.2) - 0.3 - (0.9)
-------------------- -------- ---------- -------- --------- --------- ---------- ------- ---------
Total - - - (1.3) - 0.3 - (1.0)
-------------------- -------- ---------- -------- --------- --------- ---------- ------- ---------
Contractual maturity analysis
The tables below analyse the Group's financial liabilities into
relevant maturity groupings based on their contractual maturities
for net and gross settled derivative financial instruments.
The amounts disclosed in the table are the contractual
undiscounted cash flows:
2022 Less More
than 1 to than
On Demand 1 year 5 years 5 years Total
GBPm GBPm GBPm GBPm GBPm
Interest rate swaps - - - - -
Cross currency swaps
EUR trades - (6.2) 316.9 - 310.7
USD trades - (8.0) (43.6) - (51.6)
Total - (14.2) 273.3 - 259.1
---------------------- ----------- -------- --------- --------- -------
14 Share capital
Share capital comprises the following:
Authorised
31 December 31 December 31 December 31 December
2022 2021 2022 2021
Number Number GBP million GBP million
---------------------------- ---------------- ------------- ----------- -----------
Ordinary Shares of GBP0.005
each 1,026,387,500(1) 1,026,387,500 5.1 5.1
----------------------------- ---------------- ------------- ----------- -----------
(1) including 447,020 treasury shares held by the Group as at 31
December 2022 (2021: 307,422)
Allotted, called up and fully paid
31 December 31 December 31 December 31 December
2022 2021 2022 2021
Number Number GBP million GBP million
------------------------------------- ------------ ----------- ----------- -----------
Ordinary Shares of GBP0.005 each
at beginning of year 372,759,202 369,017,422 1.9 1.9
Issue of Ordinary Shares of GBP0.005
each 73,572,454 3,741,780 0.3 -
-------------------------------------- ------------ ----------- ----------- -----------
Ordinary Shares of GBP0.005 each
at end of year 446,331,656 372,759,202 2.2 1.9
-------------------------------------- ------------ ----------- ----------- -----------
The narrative below includes details on issue of Ordinary Shares
of GBP0.005 each as part of the Group's employee share option plan
during 2022 and 2021.
On 7 April 2022 the Company issued 70.8 million new ordinary
shares to partly fund the acquisition of the international (non-US)
business of William Hill, representing approximately 19% of its
issued capital, at GBP2.30 per share. After issue costs of GBP4.3m,
the net proceeds were GBP158.5m. Issue costs directly attributable
to the transaction have been accounted for as a deduction from
share premium.
15 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
As part of the William Hill acquisition, the Group acquired
Sports Information Services (Holdings) Limited, an associate of the
William Hill Group. From 1 July to the balance sheet date, the
Group made purchases of GBP15.8m from Sports Information Services
Limited, a subsidiary of Sports Information Services (Holdings)
Limited. At 31 December 2022, the amount payable to Sports
Information Services Limited by the Group was GBPnil.
16 Contingent assets and liabilities
Legal claims
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.
The Business has been subject to a particular acceleration of
claims in Austria since 2020 following marketing campaigns by
litigation funders in that jurisdiction. Claims have continued to
be received throughout 2021 and 2022 with a slight acceleration
across 2021 and 2022. See note 11 for further detail.
Since acquisition, there has been an alignment in strategy and
accounting treatment with William Hill and Mr Green aligning to the
888 methodology. William Hill and Mr Green have therefore
recognised a provision for probable legal claims and a contingent
liability for possible legal claims it expects to receive similar
to 888. See note 11 for further detail on the provisions recognised
with a contingent liability estimated at GBP13.5m for William Hill
and Mr Green and the contingent liability for 888 estimated at
GBP5.2m as at 31 December 2022.
The calculation of the customer claims liability includes
provision for 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 has been
disclosed for the tax reclaims. The contingent asset relating to
the tax reclaim on the total liability (both provided for (note 11)
and disclosed as a contingent liability) is a range in value of up
to GBP24.5m.
Regulatory compliance
Given the nature of the legal and regulatory landscape of the
industry, from time to time the Group has self-reported or received
notices, communications and legal actions from regulatory
authorities and other parties in respect of its activities. The
Group is furthermore subject to regular compliance assessments of
its licensed activities, from time to time. The Group's policy is
to engage in dialogue with regulators and address any concerns
raised in such assessments, to work cooperatively with the
regulator and to take action to address any concerns raised as part
of the assessment as soon as possible. The Group takes legal advice
as to the manner in which it should respond and the likelihood of
success of such actions. Based on this advice and the nature of the
actions, for the majority of these matters the Board is unable to
quantify reliably the outflow of funds that may result, if any.
For matters where an outflow of funds is probable and can be
measured reliably, amounts have been recognised in the financial
statements within Provisions. Except for the regulatory matters
described in note 11, these amounts are not material at 31 December
2022.
17 Events after the reporting date
In January 2023, an internal compliance team self-identified
failures where the Group's safer gambling policies were not being
effectively applied. Further investigations identified similar
accounts which were later confirmed to be a broader issue within a
specific cohort of players, namely 888 VIPs in the Middle East. The
Board, once fully briefed, took the prudent decision to suspend all
of these accounts while the compliance team investigated the
situation further. The investigation has concluded and the Group
has remedied the failings and is confident that its policies and
procedures are robust, and this failure was isolated to a very
specific cohort of players. It has successfully started reopening
accounts and currently expects to recover 40-50% of this
revenue.
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