888 has recruited Sean Wilkins as its new CFO, effective from 1 February 2024.
This change in leadership coincides with the upcoming departure of current 888 CFO Yariv Dafna on 2 October 2023.
Wilkins brings a wealth of experience, spanning 17 years in CFO roles across both private and public companies.
Most recently, he served as the group CFO of Superbet, a betting and gaming business with operations primarily across Romania, Poland, Serbia and Belgium.
Before his tenure at Superbet, Wilkins held CFO positions at several consumer-facing businesses, including Big Bus Tours, Domino’s Pizza Group PLC, Tesco Malaysia, Tesco Telecom, and O2 Asia.
In the intervening period, Dafna will hand over his responsibilities to 888 chief strategy officer Vaughan Lewis, who will take on the role of interim CFO.
Commenting on Wilkin’s appointment, 888 executive chair Lord Mendelsohn stated: “The board is delighted to announce the appointment of Sean as the group’s new CFO following a thorough search process.
“In addition to having an in-depth understanding of the betting and gaming industry, Sean brings a wealth of relevant experience gained in CFO roles at international businesses, where he has demonstrated a strong track record of value creation.”
Lord Mendelsohn added: “Alongside Per Widerström – the group’s new CEO who joins on 16 October – and the rest of the leadership team, the board is highly confident that the group has an outstanding executive team in place with the right skills and capabilities to deliver the group’s clear strategic plans and priorities.”
An extended stay
Mendelsohn further thanked Dafna for his significant contributions to the business over the last three years, including his role in completing the integration of William Hill’s European operations into the business.
He also credited Dafna for maintaining stability in recent months while 888 was in the process of searching for a permanent successor.
Dafna had originally intended to leave the company in March 2023.
However, he extended his tenure at the end of January when Itai Pazner left the CEO position with immediate effect following an internal compliance investigation.
The investigation revealed that the company had not adhered to Know Your Customer (KYC) and Anti-Money Laundering (AML) protocols for VIP customers in the Middle East.
Wilkins said of his appointment: “Having worked in the regulated online betting and gaming industry over recent years, I have followed 888 closely.
“Following its transformational acquisition of William Hill, the group has all the ingredients for long-term success: outstanding brands, technology and people.
“The board has set out very clear plans to create significant shareholder value, and I am really looking forward to being part of the leadership team to deliver these plans and achieve the group’s clear potential,” he added.
888 CFO Yariv Dafna insists the operator is well positioned to deal with a potential clampdown on online casino stakes as part of the UK Gambling Act review.
The stakes have never been lower
Speaking during an 888 event for retail investors on 17 April, Dafna said a £2 stake limit for the under 25 cohort is likely to be introduced, although it was currently unclear whether restrictions would come into force for individuals over the age of 25.
888 has taken pre-emptive steps to soften the impact of forthcoming restrictions for UK operators, including stake limits for online slots of between £5 and £10 per spin, and enhanced affordability checks when a customer deposits £500 or more.
“We believe we are positioned well to absorb significant parts of what’s to come,” said Dafna.
The UK government’s review of the 2005 Gambling Act is expected to bring about wide-ranging legislative changes for UK-licensed gambling operators.
The review was initially launched via consultation in 2020 and has been delayed on multiple occasions due to government upheaval and more pressing national priorities.
It was widely expected to be published today (17 April), although there is still no sign of the white paper at the time of writing.
When asked about knock-on effects of the review’s recommendations, Dafna said 888 was in a better position to swallow the rule changes than several of its competitors.
888 CFO Yariv Dafna: “A £5 [limit] to our understanding is the lowest level that you can find today in the market.”
“A £5 [limit] to our understanding is the lowest level that you can find today in the market,” he told investors. “There are still operators in the market with £10, £20 and £50, and some of them even above £100.
“We are expected to have lower impact compared to others which are still running on a higher number,” he added.
Dafna believes the concrete restrictions as set out in the review (when it does eventually get published) will have a greater impact on the firm’s 2024 financials than in 2023.
However, enhanced safer gambling measures have already come at a cost for the company.
For example, UK online revenue fell by 9% year-on-year between Q1 2022 and Q1 2023 to £167m. This drop-off was attributed to reduced revenue from higher-spending players as the digital division continues to decline due to the ongoing impact of safer gambling changes.
Dafna refused to provide a concrete figure for Gambling Act review impact for two reasons. He said: “You never can expect exactly the behaviour of the customer after such a reduction and we also don’t know where it [the review] will land.”
No easy ride for new CEO
Elsewhere, 888 executive chair Lord Jonathan Mendelsohn provided an update on the company’s search for a new CEO following the dramatic departure of Itai Pazner in January.
He told investors that appointing a new permanent CEO was the board’s main priority and that an announcement would be forthcoming in the coming months.
“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 and our interviews,” said Mendelsohn.
888’s new leader will be judged on several key strategic targets, including delivering cost synergies of £150m following the firm’s acquisition of William Hill and Mr Green.
Key financial targets have also been set with a deadline of 2025, including revenue of more than £2bn, an adjusted EBITDA margin above 23% and crucially, a debt leverage ratio of less than 3.5x.
“I might think more ambitiously about tasking the new chief executive officer with even bigger goals than that,” said Mendelsohn.
“But I think it’s important to say our focus has to be on ensuring that we deliver effectively, we continue to grow EBITDA, and we continue to run an efficient business,” he added.
Shares in 888 are trading more than 18% higher following the release of the company’s full-year 2022 financial results and a Q1 2023 trading update.
Topline numbers
888’s total reported revenue for 2022 was £1.24bn, an increase of 73.9% year-on-year.
That figure includes revenue from William Hill’s non-US assets, but only after 888’s acquisition of the brand was completed in July 2022.
On a pro-forma basis, calculated as if 888 had owned William Hill throughout 2021 and 2022, total revenue across the business was £1.85bn in 2022, representing a 3% decline on the prior year.
Reported adjusted EBITDA came to £217.9m for the year, up 82%, with growth driven by the William Hill acquisition.
The firm also had an adjusted profit before tax of £80.5m, a year-on-year decrease of around 10%.
After exceptional costs and adjusting items of £184.8m, however, the business declared an actual reported loss before tax of £115.7m.
This was a result of amortisation of acquired intangibles, impairment of historic US goodwill and William Hill technology no longer under development, as well as transaction fees for the acquisition and the resulting integration and restructuring costs.
In Q1 2023, according to the company’s trading update, 888 generated £469m in revenue, down 4.9% year-on-year.
Declines across the UK and Ireland online and international business segments were partially offset by 8.5% growth in the company’s UK and Ireland retail operations, which accounted for £140m or 31.4% of total Q1 revenue.
News nugget
888 expects to recover between 40% and 50% of the revenue lost following its suspension of all VIP accounts in the Middle East earlier this year.
In January, a compliance investigation saw the company suspend all VIP activities in the region after discovering that KYC and AML procedures had not been properly adhered to.
Of the suspended customers, many are expected not to return to the business.
However, 888’s board said it expects to recover as much as half of the revenue lost from the account suspensions as some customers are reactivated.
Robust policies and procedures have been put in place to allow the accounts to be reopened, the business said, but the account closures are likely to cause headwinds for full-year 2023 of between £25m and £30m.
Speaking on the firm’s full-year 2022 earnings call, executive chair Lord Mendelsohn said following the action in the Middle East: “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.
“I’m highly confident that our policies and procedures are robust, and this failure was isolated to a very specific cohort of players. We have found no further issues and we do not anticipate any further actions here,” Mendelsohn concluded.
In other news, 888’s board said it is making good progress with its search for a new CEO, while CFO Yariv Dafna has agreed to remain in his position until the end of 2023 to provide continuity to the firm’s board and executive team.
Dafna had previously announced that he would stand down from his role in March this year.
Best question
The best question on this call came from Francesco Barbato, credit research associate at JP Morgan. He asked what measures 888 had taken in the UK in advance of the Gambling Act review white paper, which is expected to be published next week.
In response, Lord Mendelsohn said: “We’ve rebuilt the entire team, rebuilt processes and enhanced our whole risk approach. We have implemented a number of measures around protecting customers from rapid losses, reducing 30-day net deposit limits, implementing third-party vulnerability checks, and other hard stops pending assessments of safer gambling and anti-money laundering.
“We’ve done more to introduce protection of customers in retail and reduce the spending triggers there. We’ve also looked at additional training for our retail colleagues which they’ve done extremely well at adopting, we’ve got a more coordinated approach to monitoring all those things and we’ve enhanced our AML processes.
“So we’ve got a pretty comprehensive range of things that we’ve done to make sure that in the UK and indeed across the business in all jurisdictions, we’re doing as much as we can to ensure that we’ve got the highest possible standards and the safest possible experience for our customers.”
Best quote
888 strategy officer Vaughan Lewis: “The business has quickly changed from one that is competing at low scale in a huge range of markets to one that is laser focused on maintaining and building really strong and sustainable positions in three core markets and five growth markets.”
Current trading and outlook
888’s focus for the immediate future is the reduction of its net debt/EBITDA ratio, which currently stands at around 5.6x on a pro-forma basis.
The business intends to reduce that figure to under 3.5x by 2025, through a combination of growing its EBITDA and paying down its debts.
888 is also targeting annual revenue in excess of £2bn, an adjusted EBITDA margin of more than 23% and adjusted earnings per share of more than 35p by 2025.
Investment bank Peel Hunt noted that the 2022 results and Q1 trading update were broadly in line with expectations, adding: “We see ‘no news’ from this highly leveraged business as good news,” and reiterating its Buy recommendation and 150p target price.
Peel Hunt also noted that the business is on track to deliver £87m worth of operating cost synergies in 2023, with more to come in 2024.
With recent market launches in Ontario, Virginia and Michigan, alongside the launch of 888AFRICA, “there is plenty going on commercially to encourage us that 888 can return to top-line growth,” the firm added.