REG - 888 Holdings plc - FY2023 Results and Value Creation Plan
26/03/2024 07:15
For best results when printing this announcement, please click on link below:
http://newsfile.refinitiv.com/getnewsfile/v1/story?guid=urn:newsml:reuters.com:20240326:nRSZ3001Ia&default-theme=true
RNS Number : 3001I 888 Holdings plc 26 March 2024
26 March 2024
THIS ANNOUNCEMENT CONTAINS INSIDE INFORMATION
FOR IMMEDIATE RELEASE
888 Holdings Plc
("888" or "the Group")
FY2023 Results and Value Creation Plan
Clear strategy for success and enhanced leadership team sets foundations for
future sustainable profitable growth
New Group identity, strategic framework and Value Creation Plan unveiled
888 (LSE: 888), one of the world's leading betting and gaming companies with
internationally renowned brands including William Hill, 888 and Mr Green,
today announces its audited financial results for the year ended 31 December
2023 ("FY23" or the "Period").
Reported Pro forma(1)
£ millions 2023 2022 YoY% 2023 2022 YoY%
Revenue 1,710.9 1,238.8 +38% 1,710.9 1,850.1 -8%
Adjusted EBITDA(2) 308.3 217.9 +41% 308.3 310.6 -1%
Adjusted profit after tax(2) 48.1 64.2 -25%
Loss after tax (56.4) (120.6) -53%
Adjusted earnings per share (p)(2) 10.7 15.1 -29%
Earnings per share (p) (12.6) (28.3) -55%
Financial summary:
· FY23 financial performance in-line with January 2024 Post-Close
Trading Update:
· Revenue of £1,711m with higher quality mix driven by proactive
mix shift away from dotcom markets and customer mix changes in the UK as a
result of additional safer gambling measures, alongside the change in the
Group's marketing approach to focus more on sustainable revenue and
profitability.
· Adjusted EBITDA Margin for FY23 of 18.0%, consistent with the
previously indicated range of 18-19% and an increase from 16.8% in FY22 as
improved profitability and focus on higher return marketing spend more than
offset the impact of dotcom market changes.
· Cash (excluding customer balances) as at 31 December 2023 of
£128m, together with undrawn RCF of £150m, giving total liquidity of
approximately £278m as at 31 December 2023. Net debt fell slightly to
£1,717m, partially benefitting from FX movements, resulting in an adjusted
net debt / EBITDA ratio of 5.6x, stable year over year.
New Value Creation Plan ("VCP") - A strategy for success:
· Appointment of Per Widerström as Chief Executive Officer in October
2023, with swift and decisive actions taken to position the Group for long
term success.
· Strengthened executive team with outstanding skills and experience to
drive execution - seven out of 10 positions are new appointments. Further to
the January 2024 Post Close Trading Update the Group appointed Mark Kemp as
Chief Commercial Officer and Stephen Sheridan as Chief Customer &
Operating Officer in March 2024.
· Group operating model reset, removing duplication and inefficiencies
while enhancing accountability, as well as delivering approximately £30m of
additional annual cost savings.
· New strategic framework established, with a clear vision of what
success looks like and the strategy to get there. As part of this the Group
has commenced six strategic initiatives to drive operational excellence and
prepare the business for step-change value creation. Through a laser focus on
execution the Group will strengthen its core capabilities and competitive
advantages, creating a stronger platform for profitable growth.
· Simplified market archetypes to two categories: Core Markets (UK,
Italy, Spain, and Denmark) with in-country scale and market-leading positions,
and Optimise Markets. This supports greater focus and investment in markets
where the Group will generate strong returns while maximising cash-flow from
all markets.
· In line with this market focus, strategic review of the US B2C
business initiated in Q1 2024 to consider all potential alternatives that can
deliver value for the business, which will deliver significant cost savings.
· Proposed change of the Group's name to evoke plc, subject to
shareholder approval at the 2024 AGM, to better reflect the strength of the
Group's multi-brand operating model and its vision and mission to make life
more interesting by delighting players with world-class betting and gaming
experiences.
VCP will drive high equity returns with strong execution enhanced by reducing
leverage:
· Bold new medium-term targets to deliver high return on equity from
sustainable profitable growth:
· Drive profitable and sustainable revenue growth: 5-9% revenue
growth per year.
· Improve profitability and efficiency through operating leverage:
Adjusted EBITDA margin expansion of c.100 basis points per year.
· Deleverage through disciplined capital allocation: leverage of
below 3.5x by the end of 2026.
Current trading and outlook:
· Q1 2024 revenue expected to be in the range of £420-430m(3).
· Positive outlook for FY24 revenue consistent with medium-term
targets, with consistent growth in active players driving confidence in strong
revenue growth online in both the UK and International segments.
· Trading is consistent with the Board's previously announced
expectations for Adjusted EBITDA for 2024(4).
Per Widerström, CEO of 888, commented:
"It is incredibly exciting to announce our Value Creation Plan, our strategy
for success, our new financial targets, and our new corporate identity. Today
marks the beginning of an exciting new dawn for this business.
Having joined the company in October 2023 my conviction in the significant
opportunity for the Group is stronger than ever. We have acted with pace,
decisiveness and urgency to build a clear strategy to deliver success. These
actions include significantly strengthening our executive leadership team and
developing a new strategic framework and Value Creation Plan.
I firmly believe that the Group now has all the key ingredients for long-term
success: leading positions in growing markets with high and rising barriers to
entry; powerful proprietary technology; a top-class management team; and some
of the strongest betting and gaming brands in the world.
We are now clear on what success looks like, we have the team and capabilities
to deliver, and I am confident that the execution of our plan will deliver a
high return on equity from sustainable profitable growth, enhanced by
deleveraging."
Sell side analyst and investor presentation
Per Widerström (Chief Executive Officer), Sean Wilkins (Chief Financial
Officer), and Vaughan Lewis (Chief Strategy Officer) will host a presentation
for sell-side analysts and investors today at 08.45am (GMT).
Live audio webcast link: https://brrmedia.news/888FYR23
(https://brrmedia.news/888FYR23)
To register to attend in-person or participate in Q&A please contact
888@hudsonsandler.com (mailto: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 (https://corporate.888.com/investors)
Notes
(1) FY22 is pro-forma as if 888 had owned William Hill for the entire period
(acquisition completed 1 July 2022) and excludes the 888 bingo business (sold
in July 2022).
(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 the CFO report.
(3) Assumes normalised win margins for the remainder of the quarter.
(4) 17 January 2024 Post Close Trading Update outlined expectations for 2024
Adjusted EBITDA to be approximately £340m.
Enquiries and further information:
888 Holdings Plc +44(0) 800 029 3050
Per Widerström, CEO
Sean Wilkins, CFO
Vaughan Lewis, Chief Strategy Officer
Investor Relations ir@888holdings.com (mailto:ir@888holdings.com)
James Finney, Director of IR
Media 888williamhill@hudsonsandler.com (mailto:888williamhill@hudsonsandler.com)
Hudson Sandler +44(0) 207 796 4133
Alex Brennan / Charlotte Cobb / Andy Richards
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. Incorporated in Gibraltar, and headquartered and listed in London, the
Group operates from offices around the world.
The Group's vision is to make life more interesting and its mission is to
delight players with world-class betting and gaming experiences.
Find out more at:
http://corporate.888.com/ (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.
CHIEF EXECUTIVE OFFICER'S REVIEW
Introduction
I am pleased to take this opportunity in my first statement as CEO of the
Group to write to our stakeholders and outline our vision for the future,
including our new strategic framework and exciting value creation plan.
The world of betting and gaming has changed significantly over the past
decade. There has been a continued push towards local regulation and
ever-increasing barriers to entry through significant compliance requirements.
This is coupled with rapid technological advancements fundamentally changing
the way customers interact with our products and brands.
What that means today is that for those businesses seeking to follow the
locally regulated path, scale is critical. It is why industry consolidation
continues at pace and was a key strategic benefit of 888 acquiring William
Hill in 2022. Outsized returns also accrue to those operators that take
leading positions within target markets. To build leading positions, operators
need first-class brands, leading products, and excellent people. Our business
has these key ingredients for success, but it has yet to unlock its full
potential, in part because of the significant impact of regulatory and
compliance changes we have made in the past two years.
Renewed focus and a new identity
The regulatory and compliance changes we have made in recent years in some of
our key regulated markets as well as in our dotcom markets have changed the
mix of our business. As a result of this, coupled with the integration
activities undertaken to date, the combined business today is fundamentally
different to the previous individual businesses that made up the combination.
The consumer brands remain as strong as ever, but to reflect the fact that
this is a new company on a new journey, we are proposing to change the name of
the Group to evoke plc. This will be subject to shareholder approval at our
upcoming 2024 AGM.
We look forward to sharing more about our new corporate brand in due course,
but we believe that creating an identity that better reflects the combined
Group, our mission and values, alongside the clear strategic framework and
value creation plan we are announcing today, will better support the business
in reaching its significant potential.
Moving forward, creating value through clarity of what success looks like
In order for the business to achieve its full potential, as well as having a
clear Group-wide vision and mission to explain why we are here, it is critical
that everyone in the Company has absolute clarity on what success looks like,
including what we plan to do, how we will execute our plans, and where we
intend to focus in order to maximise our returns.
That's why since joining the business on 16 October 2023 I have made rapid
progress in formulating our strategic framework, translating this into a value
creation plan, and ensuring that everyone in the business is fully aligned
behind it through our One Company programme.
Creating value
Starting with what we will do; we will deliver high return on equity
underpinned by the following key principles:
1. Driving profitable and sustainable revenue growth. We will deliver
profitable and sustainable revenue growth by both increasing our player base
and by growing share of wallet with our customers. We will utilise our
improved customer lifecycle management capabilities to ensure strong
sustainable revenues, always underpinned by a clear customer value proposition
and our uncompromising safer gambling principles.
2. Improving profitability and efficiency through operating leverage.
We will improve profitability by investing into capability build up, in
particular through insights, AI, and intelligent automation. Along with our
'Glocal' operating model and supported by our proprietary technology, this
will increase our efficiency and deliver greater productivity at lower cost,
ensuring that the operating leverage in our business model delivers profitable
growth.
3. Being highly disciplined with our use of capital. Our financial
leverage is relatively high in the context of our sector, but I firmly believe
this will be a significant positive driver of our return on equity and will
magnify the returns that we will generate in the coming years. Our business is
highly cash generative and we will use this cash wisely to ensure we deliver
profitable growth and deleveraging, thereby multiplying our return on equity.
The above key drivers of return on equity underpin our bold medium-term
targets, which further define what success looks like for the company:
· Revenue growth of 5-9% per year
· Adjusted EBITDA margin expansion of 100 basis points per year
· Leverage of below 3.5x by the end of 2026
Executing our plan
Our success in achieving these goals will be underpinned by our ability to
drive successful operational execution, which will be my key priority over the
coming years. This is the how of our strategic framework.
Our focus will be on strengthening the Group's core capabilities and
competitive advantages to create a scalable platform for profitable growth
while being laser focused on our customer value proposition. This will
comprise three key components:
· First-class and consistent customer value propositions: Ensuring
our distinct brands and products are tuned in to our customer needs, offering
personalised value with sustainability embedded into every offering.
· Operational excellence driven by data insights and intelligent
automation: This allows us to build scalability to drive operating leverage,
ensure consistent execution, deliver high quality outcomes for customers, and
unlock new opportunities for efficiency.
· A winning culture: We are committed to fostering a culture that
empowers our colleagues to unleash their full potential and contribute to our
collective success.
In order to turn this into tangible actions, drive execution and value
creation we have created six strategic initiatives, which provide the roadmap
for delivering our value creation plan:
1. Customer lifecycle management: Building personalised and long-term
customer relationships which are critical to sustainable growth, driven by
intelligent automation.
2. Customer value propositions: Continuously differentiating our
brands from the competition and being relevant to specific customer needs.
3. Operations 2.0: Leveraging AI and automation to drive efficiency,
effectiveness, and scalability.
4. Product and Technology foundation: Unifying our proprietary
technology platform while delivering outstanding products that are aligned
with our brands and customer needs.
5. Winning organisation: One Company with a "Glocal" operating model
that has a shared culture that empowers everyone in the business and helps us
to attract and retain the best talent to power our value creation journey.
6. ESG: Integrating environmental, social, and governance principles
into our core operations to ensure sustainable long-term value creation.
Refined market focus
Given outsized returns go hand in hand with market leadership positions, it is
more important than ever in today's regulatory and competitive environment
that we are laser-focused on where we invest in order to generate superior
returns on investment.
Having reviewed our market focus approach, we have redefined our market
archetypes to fall under two key categories: Core Markets and Optimise
Markets. This simplified approach enables increased focus and investment in
our core markets, while maximising cashflow from all markets.
We will remain laser-focused on our four Core Markets - the UK, Italy, Spain,
and Denmark - which already generate approximately 85% of our total revenue
and nearly 80% of our online revenue, and where we have established strong
positions. These are markets that boast attractive long-term growth potential,
high barriers to entry, and established regulatory frameworks. In these
markets we will continue to leverage our local expertise and diverse brand
portfolio to increase market share and drive sustainable profitable growth.
In all other markets, our Optimise category, we will prioritize cash flow
generation and value maximization through leveraging our enhanced capabilities
and scale. We will identify future potential core markets where we can target
podium positions with our improved organic capabilities or through alternative
strategic routes in the coming years. At the same time, we will exit
unprofitable markets or monetize assets through alternative operating models,
such as local partnerships.
New group executive team and operating model that is fit for purpose and
future proof
One of the key ingredients to success and drive value creation is having the
right people. We have some fantastic people in the business, and an important
part of my job is to empower them to add real value as we deliver our
strategic priorities. A critical part of this is ensuring we have the most
effective management structure and operating model. Often this means fewer
layers, optimisation of spans-of-control, and establishment of centres of
excellence to provide world-class service. Clarity of accountability is also
paramount.
Over recent months we have implemented several changes to our organisational
structure to ensure it is fully aligned to deliver our new strategic framework
and value creation plan. This has included the transformation of our operating
model into a "Glocal" structure with a revised Group Executive team, with each
member having clearly defined areas of accountability across the business. We
have significantly strengthened our Group Executive team with seven new
external hires to fill critical roles across product and technology,
operations, commercial, finance, legal and growth.
We have assembled a truly top-quality Group Executive team that will be laser
focused on delivering upon our strategic framework and value creation plan and
I am absolutely confident we will unlock our full potential.
My commitment to our value creation journey
We are at the beginning of an exciting new journey. We will build on our
strong foundations through a clear strategy and focused plan that will deliver
sustainable profitable growth and unlock significant value creation. I look
forward to updating shareholders and our wider stakeholders on progress
against our plans over the coming months and years.
CHIEF FINANCIAL OFFICER'S REPORT - BUSINESS & FINANCIAL REVIEW
INTRODUCTION
Having joined the Group on 1 February 2024 it was clear that 2023 was a
critical year for the business, with strong delivery against the previously
increased and accelerated synergy target, as well as fundamental revenue mix
shifts that have improved the sustainability of the business.
These mix shifts, both in terms of the country mix towards more regulated
markets and the customer mix in the UK towards lower spending customers, had a
significant negative impact on the financial results for 2023 and the
year-over-year growth rates observed on a pro-forma basis.
The business is now at a critical but exciting juncture. We must invest in
improving our capabilities in a few critical areas to successfully drive
sustainable, profitable growth. Our clear plans are outlined in the CEO report
and will be supported by robust financial governance including highly
disciplined capital allocation. We will ensure our growth plans support
deleveraging and enable strong shareholder returns in the coming years.
Outlook
We have a positive outlook for FY24 revenue with consistent growth in active
players driving confidence in strong revenue growth online in both the
UK&I and International segments.
At the end of 2023 the Group initiated a cost savings programme that is
expected to drive approximately £30m of cash cost savings a year. This will
be reinvested into further strengthening the Group's core capabilities in
several areas such as intelligent automation and AI-powered data and insights,
as well as marketing investment to support revenue growth. These actions,
together with the ongoing strategic initiatives that support our value
creation plan, are expected to drive improved long-term sustainable profitable
growth.
As part of our value creation plan, we have outlined new medium term financial
targets of:
1. Revenue growth of 5-9% per year
2. Adjusted EBITDA margin expansion of 100 basis points per year
3. Leverage of below 3.5x by the end of 2026
SUMMARY
Pro-forma results
Given the significance of the acquisition of William Hill midway through the
prior year, the statutory results do not provide a clear comparison of
performance against the previous period, as they do not consolidate the
results of the William Hill business for all the prior period, given the
completion date of 1 July 2022. The pro forma results provide a clearer
performance of the Group in 2023 compared to 2022.
Since the acquisition, the William Hill business has aligned to the monthly
financial calendar of the Group and, therefore, the FY 2022 pro forma
financial comparatives cover the period from 29 December 2021 to 31 December
2022.
On a pro forma basis, including the results of William Hill in full for both
periods and excluding the 888 bingo business (which was sold during 2022) for
both periods, revenue of £1,710.9m was down 7.5% (£139.2m) year-over-year.
This was driven primarily by a proactive revenue mix shift away from dotcom
markets, which impacted revenues by approximately £80m during FY 2023.
Revenue was further impacted by customer mix changes in the UK as a result of
additional safer gambling measures, as well as a change in the Group's
marketing approach to focus more on sustainable revenue and profitability.
Together, these changes have created a higher quality and more sustainable
business mix, including approximately 95% of FY 2023 revenue being generated
from regulated and taxed markets (FY22 revenue 89%).
Our focus on profitability and synergy delivery aided pro forma Adjusted
EBITDA, with a marginal reduction to £308.3m from £310.6m despite the
significant impact of our dotcom compliance changes, with dotcom markets
typically being higher margin. Adjusted EBITDA Margin increased to 18.0% from
16.8%, reflecting the improved profitability and focus on higher return
marketing spend which more than offset the impact of dotcom market changes.
Further segmental details and trends are discussed within the segmental
section later in this statement.
Synergies
In 2023 the business took decisive actions enabling it to deliver £150m of
cash synergies in FY 2023, having accelerated the timeline for full synergy
delivery.
During 2023 the business implemented a range of operational changes, removing
some duplication to create more efficient operations and begin delivering the
scale benefits of the combination with William Hill. The Group also reviewed
and adapted its marketing approach across markets with a focus on driving more
efficient marketing decisions to support sustainable, profitable growth.
Following my appointment alongside that of Per, our new CEO, the business has
reviewed its operating model in line with the new value creation plan. This
process has identified further opportunities for savings as the Group delivers
on its potential. These additional savings, along with any further
efficiencies identified, will be reinvested into driving growth, including
through increased marketing and investment in improving our core capabilities.
Deleveraging
At 31 December 2023 net debt was £1,716.9m, representing a £10.8m reduction
from 31 December 2022. The reduction in net debt was primarily driven by
favourable foreign exchange rate movements on the debt principal, offset by a
£47.9m cash outflow (excluding customer balances) in 2023, which included
£46.0m of exceptional costs paid out in the period. Leverage at 31 December
2023 was 5.6x, unchanged from the pro forma leverage at 31 December 2022.
Our disciplined approach to capital allocation includes reviewing
opportunities to generate cash from lower-return, or non-core assets, and
during 2023 the Group realised approximately £41.8m from non-core asset sales
including the sale of our Latvia business, and the sale and leaseback of some
freehold properties.
Reconciliation of Statutory EBITDA to Adjusted EBITDA, Adjusted profit
before tax and Adjusted profit after tax
Adjusted results Exceptional items and adjustments**** Statutory results
2023 2022 2023 2022 2023 2022
£'m £'m £'m £'m £'m £'m
Revenue 1,710.9 1,238.8 0.0 0.0 1,710.9 1,238.8
Cost of sales (572.6) (444.4) 2.6 3.9 (570.0) (440.5)
Gross profit 1,138.3 794.4 2.6 3.9 1,140.9 798.3
Marketing expenses (237.6) (257.8) 0.0 0.0 (237.6) (257.8)
Operating expenses ** (593.8) (319.0) (49.6) (106.3) (643.4) (425.3)
Share of post-tax profit of equity accounted associate 1.4 0.3 0.0 0.0 1.4 0.3
EBITDA * 308.3 217.9 (47.0) (102.4) 261.3 115.5
Depreciation and amortisation *** (114.0) (63.6) (114.3) (56.7) (228.3) (120.3)
Profit before interest and tax 194.3 154.3 (161.3) (159.1) 33.0 (4.8)
Finance income and expenses (173.7) (73.8) 19.4 (37.1) (154.3) (110.9)
(Loss)/Profit before tax 20.6 80.5 (141.9) (196.2) (121.3) (115.7)
Taxation 27.5 (16.3) 37.4 11.4 64.9 (4.9)
(Loss)/Profit after tax 48.1 64.2 (104.5) (184.8) (56.4) (120.6)
Basic earnings per share 10.7 15.1 (12.6) (28.3)
* EBITDA is defined as earnings before interest, tax, depreciation and
amortisation.
** Statutory Operating expenses of £643.4m includes Operating expenses of
£590.8m (being the Operating expenses of £819.1m less Depreciation and
amortisation of £228.3m) and Exceptional items - operating expenses of
£52.6m per the Consolidated Income Statement.
*** Statutory Depreciation and amortisation of £228.3m has been separated
from Operating expenses of £819.1m per the Consolidated Income Statement.
**** Foreign exchange within adjustments of £2.6m gain within Cost of sales,
£1.6m expense within Operating expenses and £36.6m gain within Finance
income and expenses.
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 above.
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 to the statutory results is provided in note 3 to the
condensed financial statements.
Pro forma (Unaudited)
2023 2022 Change
£'m £'m
Revenue 1,710.9 1,850.1 (7.5)%
Adjusted Cost of sales (572.6) (599.2)
Gross profit 1,138.3 1,250.9 (9.0)%
Marketing expenses (237.6) (331.8)
Adjusted operating expenses (593.8) (608.7)
Share of post-tax profit of equity accounted associate 1.4 0.2
Adjusted EBITDA 308.3 310.6 (0.7)%
CONSOLIDATED INCOME STATEMENT
Revenue
Revenue for the Group was £1,710.9m for 2023, an increase on a statutory
basis of 38.1% compared to 2022, reflecting the consolidation of William Hill
revenues from H2 2022.
On a pro forma basis, revenue decreased by 7.5% primarily reflecting dotcom
compliance changes and UK online customer mix changes as noted above.
Revenue from sports betting was £648.8m, representing a 0.9% decline on a pro
forma basis. Stakes were down 11.3%, offset by an increase in betting net win
margin from 10.8% to 12.1%. Both primarily reflect the customer mix changes in
the UK online segment to lower staking, higher margin, recreational customers.
Gaming revenue of £1,062.1m was down 11.2% year-over-year, predominantly
driven by the factors mentioned above, with dotcom markets more heavily
weighted towards gaming.
Cost of sales
Cost of sales mainly comprise of gaming taxes and levies, 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 increased on a statutory basis to £570.0m from
£440.5m due to the acquisition of William Hill in H2 2022. On a pro forma
basis, cost of sales decreased by 4.4% to £572.6m principally reflecting the
reduction in revenue, with cost of sales representing 33.5% of revenues (2022:
32.4%). The slight increase in cost of sales as a percentage of revenue
primarily reflects the change in country mix, with a higher proportion of
locally regulated and taxed revenues in 2023.
Gross profit
On a statutory basis, gross profit increased to £1,138.3m from £794.4m with
the consolidation of the results of William Hill from H2 2022.
On a pro forma basis, gross profit decreased by 9.0% from £1,250.9m to
£1,138.3m, alongside a decrease in the gross margin from 67.6% to 66.5% with
more revenue generated from regulated and taxed markets as described above.
Marketing expenses
Marketing is a significant investment for our Group to drive growth through
investing in our leading brands, as well as customer acquisition and retention
activities. On a statutory basis marketing decreased by 7.8% from £257.8m in
2022 to £237.6m driven by marketing synergies, as well as increased focus on
higher return marketing investments. This represents a marketing to revenue
ratio (marketing ratio) of 13.9% (2022: 20.8%), with the reduction being
driven by both lower marketing and the inclusion of a full year of Retail
results, where the marketing ratio is significantly lower.
On a pro forma basis, marketing expenses decreased by 28.4% from £331.8m to
£237.6m. Certain marketing is demand driven and flexible, so part of the
reduction is as a result of the reduced online revenue noted above. Further
marketing savings were also achieved following the acquisition of William Hill
and the development of a refined brand marketing strategy to focus on driving
sustainable profitable growth with improved marketing efficiency. The
marketing ratio decreased from 17.9% in 2022 to 13.9% in 2023. This partly
reflects the mix of revenue with more generated from the Retail business where
the marketing investment is significantly lower. Excluding the Retail segment,
the online marketing ratio decreased from 24.4% to 19.7% reflecting the
refined brand marketing strategy and improved marketing efficiency.
Operating expenses
Operating expenses mainly comprise of employment costs, property costs,
technology services and maintenance, and legal and professional fees. On a
statutory level, operating expenses increased to £643.4m from £425.3m in
2022. This increase is due to the acquisition of William Hill with the Retail
business having a much higher proportion of operating expenses to revenue
given the employment and property costs required to operate.
On a pro forma basis, adjusted operating expenses excluding depreciation and
amortisation decreased by 2.4% from £608.7m in 2022 to £593.8m in 2023. The
reduction in overheads reflects the successful delivery of synergies and focus
on cost control more than offsetting underlying inflation challenges across
the business, particularly within the Retail estate.
EBITDA & Adjusted EBITDA
Reported EBITDA increased by 126.2% from £115.5m to £261.3m. On an adjusted
basis, the increase was 41.5% to £308.3m from £217.9m, with an Adjusted
EBITDA margin of 18.0% compared to 17.6% in 2022.
On a pro forma basis, Adjusted EBITDA decreased marginally to £308.3m in 2023
compared to £310.6m in 2022. The Adjusted EBITDA Margin increased to 18.0% in
2023 from 16.8% in 2022 driven by the successful delivery of synergies and
focus on cost efficiency more than offsetting the impact of compliance and
regulation headwinds noted above.
Finance Income and Expenses
Net finance expenses of £154.3m (2022: £110.9m) related predominantly to the
interest from the debt on acquisition of William Hill of £139.4m (2022:
£97.7m), which is net of foreign exchange. The finance expense resulting from
leases was £6.9m (2022: £3.0m) with the increase due to the inclusion of a
full year of results from the acquired Retail business within William Hill,
which operates primarily from leasehold sites. The finance expense from
hedging activities was £12.1m (2022: £3.3m) predominantly due to foreign
exchange movements.
(Loss) / profit before tax
The net loss before tax for 2023 was £121.3m (2022: net loss before tax of
£115.7m). On an adjusted basis, profits decreased by 74.4% to a profit of
£20.6m (2022: net profit before tax of £80.5m), 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 credit of £64.9m on a loss
before tax of £121.3m, giving an effective tax rate of 53.5% (2022: tax
charge of £4.9m and an effective tax rate of 4.2%). The tax credit and
therefore the tax rate is higher than the expected tax credit arising on the
loss of 23.5% primarily due to operating in territories with lower effective
tax rates such as Gibraltar, Spain and Malta, additional prior year tax
credits from filing submissions in Gibraltar and from the recognition of a
previously unrecognised deferred tax asset relating to the Group's intangible
assets. These benefits have been offset by the reduced availability of tax
relief arising on costs incurred in the period.
On an adjusted basis, the Group recognised a tax credit of £27.5m on a loss
before tax of £20.6m, giving an effective tax rate of 133.5%. (2022: tax
charge of £16.3m and an effective tax rate of 20.2%). This higher rate
reflects the mix of profits and losses before tax across the group giving rise
to a lower consolidated base on which the rate is calculated.
Net (loss)/profit and adjusted net profit
The net loss for 2023 was £56.4m (2022: net loss of £120.6m). On an adjusted
basis, profit decreased by 25.1% to £48.1m from £64.2m in 2022, reflecting
the items discussed above.
Earnings per share
Basic loss per share reduced to 12.6p (2022: loss of 28.3p) because of the
full year consolidation of William Hill in 2023.
On an adjusted basis, basic earnings per share decreased by 29.1% to 10.7p
(2022: 15.1p). Further information on the reconciliation of earnings per share
is given in note 7.
Dividends
The Board of Directors is not recommending a dividend to be paid in respect of
the year ended 31 December 2023 (2022: nil per share). The Board's decision is
to suspend payments of dividends until leverage is at or below 3x, as
previously announced following the acquisition of William Hill.
Income statement by Segment
The below tables show the Group's performance by segment on a reported and pro
forma basis respectively:
Statutory
Revenue Adju
sted
EBIT
DA
2023 2022 Change from % of reported Revenue 2023 2022 Change from % of Adjusted EBITDA
(2023) (2023)
£'m £'m previous year £'m £'m previous year
Retail 535.0 255.5 109.4% 31.3% 98.9 41.2 140.0% 32.1%
UK&I Online 658.5 455.5 44.6% 38.5% 152.3 61.6 147.2% 49.4%
Total UK & I 1,193.5 711.0 67.9% 69.8% 251.2 102.8 144.4% 81.5%
International 517.4 508.3 1.8% 30.2% 99.4 118.3 (16.0%) 32.2%
Other 0.0 19.5 (100.0%) 0.0% 0.0 1.7 (100.0%) 0.0%
Corporate 0.0 0.0 - 0.0% (42.3) (4.9) 763.3% (13.7%)
Total 1,710.9 1,238.8 38.1% 100.0% 308.3 217.9 41.5% 100.0%
Pro forma
Revenue Adju
sted
EBIT
DA
2023 2022 Change from % of reported Revenue 2023 2022 Change from % of Adjusted EBITDA
(2023) (2023)
£'m £'m previous year £'m £'m previous year
Retail 535.0 519.0 3.1% 31.3% 98.9 90.7 9.0% 32.1%
UK&I Online 658.5 717.4 (8.2%) 38.5% 152.3 111.9 36.1% 49.4%
Total UK & I 1,193.5 1,236.3 (3.5%) 69.8% 251.2 202.6 24.0% 81.5%
International 517.4 613.7 (15.7%) 30.2% 99.4 136.0 (26.9%) 32.2%
Corporate 0.0 0.0 - 0% (42.3) (28.1) 50.5% (13.7%)
Total 1,710.9 1,850.1 (7.5)% 100.0% 308.3 310.6 (0.7)% 100.0%
For the commentary on divisional performance below, the pro forma financials
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 to the statutory results, is provided above and in note 3
to the condensed financial statements.
UK & Ireland (UK&I)
UK&I Online
On a statutory basis, revenue increased by 44.6% to £658.5m and Adjusted
EBITDA increased by £90.7m compared to the previous period, driven by the
acquisition of William Hill.
On a pro forma basis, revenue declined by 8.2% to £658.5m reflecting the
impact of our business mix shifting towards lower-spending customers, with
average revenue per customer down 18%, which more than offset strong growth in
average monthly actives of 11%. This mix shift was driven by a range of
proactive compliance measures adopted ahead of the upcoming regulatory change
in the UK, including, among other items, significantly lowering thresholds for
financial checks, increasing the level of customer interactions and
interventions, and lowering stake limits on online slots.
Alongside the more proactive compliance measures and approach, revenue was
impacted by the change in marketing approach to focus on higher return
marketing and customer retention, rather than acquisition. This has been
particularly prevalent in the 888 brands in the UK which had historically
invested significantly in customer acquisition given its subscale market
position, particularly in sports. With the range of brands and assets the
Group now has in the UK it can be much more effective with its marketing
investment, which has improved profitability but reduced revenue in the short
term.
Pro forma adjusted EBITDA increased by £40.4m (36.1%) with the Adjusted
EBITDA margin improving by 7.5 percentage points to 23.1% as a result of
optimised marketing and delivery of synergies.
Retail
On a statutory basis, Retail generated revenue of £535.0m and Adjusted EBITDA
of £98.9m as the Retail business continued to deliver robust financial
performance and strong cash generation.
On a pro forma basis, revenue increased by 3.1% to £535.0m in 2023 despite a
3% reduction in the number of shops. This was driven by continued strong
customer engagement, and a slightly higher sportsbook net win margin year over
year, particularly at some of the bigger racing festivals. During the year the
Group replaced and upgraded approximately 2,000 SSBTs and added an additional
1,000 SSBTs (self-service betting terminals) across the estate, contributing
to an improved product offering which supported revenue growth.
Pro forma Adjusted EBITDA increased by £8.2m to £98.9m in 2023 driven by the
revenue growth, with high operating leverage within Retail, as well as
excellent cost control including our refined staffing model.
There were 1,343 shops open at the end of 2023 compared to 1,386 at the end of
2022.
The small reduction to the already well optimised estate largely reflects the
impact of inflationary cost increases making certain shops no longer
commercially viable.
International
On a statutory basis, International revenue increased by 1.8% to £517.4m and
Adjusted EBITDA decreased by £18.9m compared to the previous period. The
revenue increase was driven by the acquisition of William Hill, with the
dotcom compliance changes more than offsetting this impact at an Adjusted
EBITDA level.
On a pro forma basis revenue declined by 15.7% to £517.4m, as double-digit
growth in our core markets of Italy and Spain was more than offset by a
significant reduction in revenue from our dotcom markets. This was a result of
our regulatory and compliance changes, principally the suspension of VIP
customer accounts in the Middle East, as the business did not recover as
expected following the initial suspension.
Pro forma adjusted EBITDA declined by £36.6m to £99.4m with the Adjusted
EBITDA margin declining by 3.0 percentage points to 19.2% primarily reflecting
the loss of revenue from dotcom markets, where margins are typically much
higher.
Corporate costs
On a statutory basis, corporate costs were £42.3m in 2023 compared to £4.9m
in 2022. This is due to the timing of the release of staff incentive accruals
in the prior year across the Group including those accrued prior to
acquisition within William Hill.
On a pro forma basis, there was an increase in corporate costs of £14.2m to
£42.3m due to capitalisation rate alignments across the Group, as well as
reallocation of overheads across segments.
EXCEPTIONAL ITEMS AND ADJUSTMENTS
Operating Exceptional items 2023 2022
£'m £'m
Retroactive duties and associated charges - (3.9)
Integration and transformation costs 49.3 14.4
Corporate transaction related costs (0.1) 24.5
Regulatory provisions and associated costs 3.4 -
Disposal of 888 Bingo - 11.7
Impairment of US Goodwill and other assets - 55.7
Revaluation of Contingent consideration - (9.2)
Total exceptional items before interest and tax 52.6 93.2
Bond early redemption fees - 14.1
Gain on settlement of bonds - (7.1)
Total exceptional items before tax 52.6 100.2
Tax on exceptional items (9.0) 2.8
Total exceptional items 43.6 103.0
Adjustments:
Fair value gain on financial assets (4.1) -
Amortisation of Finance Fees 17.2 7.4
Amortisation of acquired intangibles 114.3 56.7
Foreign exchange (37.6) 26.7
Share benefit (credit) / charge (0.5) 5.2
Total Adjustments before tax 89.3 96.0
Tax on adjustments (28.4) (14.2)
Total Adjustments 60.9 81.8
Total exceptional items and adjustments 104.5 184.8
Operating exceptional items in the year totalled £43.6m in 2023 compared to
£103.0m in 2022.
Exceptional items are defined as those items which are considered one-off or
material in size or nature to be brought to attention to better understand the
Group's financial performance. Refer to note 3 to the condensed financial
statements for further detail.
There were £49.3m of costs incurred relating to the on-going integration and
transformation of the William Hill business in order to achieve synergies. The
cash costs to achieve the targeted integration synergies and the global cost
saving programme has therefore now increased to cost approximately £115m,
incurred through to 2025 with the majority incurred in 2023 or expected to be
incurred in 2024. This includes the global cost saving programme of £30m,
initiated in December 2023, as well as the original £150m synergy programme.
Corporate transaction related costs relate predominantly to the disposal of
the Latvia and Colombia businesses, with prior year costs related to the
acquisition of William Hill.
The Group paid £2.9m during the period related to a regulatory settlement
with the Gibraltar regulator in relation to the previously disclosed failings
that we identified in our Middle East business. Further to this there were
£0.5m of professional fees incurred relating to this settlement.
Adjustments reflect items that are recurring, but which are excluded from
internal measures of underlying performance to provide clear visibility of the
underlying performance across the Group, principally due to their non-cash
accounting nature. They are items that are therefore excluded from Adjusted
EBITDA, Adjusted PAT and Adjusted EPS.
The amortisation of the specific intangible assets recognised on acquisitions
has been presented as an adjusted item, totalling £114.3m 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 fair value gain
on financial assets of £4.1m, foreign exchange gains of £37.6m (foreign
exchange loss of £26.7m in 2022), amortisation of finance fees of £17.2m
(£7.4m in 2022), and share based payment (credit) / charges of £(0.5)m
(£5.2m in 2022).
CONSOLIDATED STATEMENT OF FINANCIAL POSITION
Non-current assets decreased by £169.9m to £2,298.5m compared to £2,468.4m
at 2022, predominantly due to amortisation of Goodwill and Other intangible
assets which have decreased by £170.0m. Deferred tax assets have increased by
£31.8m to £37.0m compared to £5.2m in 2022, due to the recognition of a
previously unrecognised deferred tax asset related to the Group's intangible
assets.
Current assets are £449.1m, a decrease of £45.3m compared to £494.4m at
2022. Within this, cash and cash equivalents decreased by £61.4m to £256.2m
from £317.6m, which includes £127.8m of customer deposits compared to
£141.3m at 2022. Excluding client funds, cash and cash equivalents decreased
by £47.9m from £176.3m in 2022 to £128.4m in 2023.
Current liabilities decreased by £49.3m from £703.4m at FY 2022 to £654.1m
at 2023. This includes the reduction in client funds held, offset by an
increase in trade and other payables. Provisions decreased by £33.0m to
£78.5m primarily due to the payment of the regulatory settlement with the
UKGC. Furthermore, there are provisions of £62.8m for gaming tax in Austria.
Non-current liabilities were £2,013.6m, a decrease of £86.6m from the
balance of £2,100.2m at 2022. This reduction is predominantly due to the
movement in borrowing driven by foreign exchange translations. In addition,
the deferred tax liability decreased by £59.1m, mainly driven by the unwind
of deferred tax on the acquisition accounting. Lease liabilities have remained
broadly in line with prior year. Additionally, provisions for customer claims
of £104.7m, include £98.8m relating to William Hill and Mr Green brands and
£5.9m relating to 888 are currently recognised as non-current liabilities.
Net assets of £79.9m was a decrease of £79.3m compared to £159.2m at 2022.
CASH FLOWS
2023 2022
£'m £'m
Cash generated from operating activities before working capital 233.3 139.6
Working capital movements (81.9) (169.8)
Net cash generated from / (used in) operating activities 151.4 (30.2)
Acquisitions 0.0 (386.8)
Disposals 41.8 33.0
Capital expenditure (68.4) (76.8)
Net movement in borrowings incl loan transaction fees (35.8) 527.6
Proceeds from equity placing 0.0 158.5
Net interest paid (138.1) (75.6)
Settlement of derivatives (10.8) 0.0
Other movements in cash incl FX (1.5) (21.5)
Net cash (outflow)/inflow (61.4) 128.2
Cash balance 256.2 317.6
Gross Debt (1,757.7) (1,815.0)
Net Debt (1,716.9) (1,727.7)
Overall, the Group had a cash outflow of £61.4m in the year, compared to an
inflow of £128.2m in 2022. This resulted in a cash balance of £256.2m as at
31 December 2023 (£317.6m at 31 December 2022), although this included
customer deposits and other restricted cash of £127.8m such that unrestricted
cash available to the Group was £128.4m compared to £176.3m in 2022.
Cash flow from operations was a £151.4m inflow compared to an outflow of
£30.2m in 2022. This increase was partly due to a full year of EBITDA from
the enlarged business in 2023, as well as lower working capital outflows.
Disposals of £41.8m represented the proceeds on the sale of non-core assets
including the Latvia business and the sale and leaseback of certain freeholds.
Capital expenditure was £68.4m in 2023, a reduction from £76.8m reflecting
synergies and on-going cost control.
Payment of lease liabilities represented £31.8m of lease liability payments
in the period, with the increase over the prior year driven by the acquisition
of William Hill and its associated retail estate, as well as from the sale and
leaseback of freehold properties in the year.
Included within net movement in borrowings were £4.0m of principal payments,
relating to the 1% annual amortisation on the US$ Term Loan B.
Net interest paid of £138.1m predominantly related to the borrowings
undertaken.
Settlement of derivatives of £10.8m paid in the year related to hedging
instruments.
Other movements included £4.3m further investment in 888AFRICA, as well as
dividend income received from associates of £5.9m.
NET DEBT
31 December 2023 31 December 2022
£'m £'m
Borrowings (1,661.1) (1,702.3)
Loan transaction fees (96.6) (112.7)
Gross Borrowings (1,757.7) (1,815.0)
Lease liability (87.6) (89.0)
Cash (excluding customer balances) 128.4 176.3
Net Debt (1,716.9) (1,727.7)
LTM pro forma Adjusted EBITDA 308.3 310.6
Leverage 5.6x 5.6x
The gross borrowings balance as at 31 December 2023 was £1,757.7m. The
earliest maturity of this debt is in 2026, which is £11m, with most of the
debt maturing across 2027 and 2028. In addition to this, the Group has access
to a £150m Revolving Credit Facility maturing in January 2028, which was
undrawn at 31 December 2023, consistent with 31 December 2022.
The debt is across GBP sterling, Euro and US Dollar; with 49% of the debt in
Euro; 43% in GBP and 8% in USD. The Group has undertaken hedging activities
such that 70% of the interest is at fixed rates and 30% at floating rates with
the hedging relationships in place for three years to 2025. The Group
continues to assess all opportunities to optimise its debt capital structure
and manage its debt facilities.
The net debt balance at 31 December 2023 was £1,716.9m with a net debt to
EBITDA ratio of 5.6x. This compares to £1,727.7m and 5.6x respectively as at
31 December 2022. The reduction in net debt is predominantly due to foreign
exchange movements on the USD and EUR denominated debt principal amounts,
together with lower loan transaction fees. This is partly offset by lower
closing cash position following outflow of cash detailed above.
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.
Regulatory and Compliance Risks
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.
Our strategic focus is on regulated markets, as these represent the best
opportunity for sustainable growth as regulation drives better outcomes for
customers, for the business, and for wider stakeholders.
The integrity of our privacy and data protection framework, including the
holding and processing of personal data, is crucial to ensure compliance with
our regulatory obligations and build customer trust.
888 Holdings accepts that regulatory compliance risks may be present in the
ordinary course of business, however the enterprise risk management approach
allows us to identify these as they arise and implement mitigations and
controls targeted at removing and reducing these risks and, where possible,
improving player experience, regulatory transparency and stakeholder
engagement. The growing complexity of the Company's regulatory footprint means
a robust understanding of the legal, and regulatory position in key locations
worldwide is crucial to mitigating this risk combined with strong
relationships with regulators.
Anti-Money Laundering Risk
Ensuring compliance with regulatory requirements and the prevention of money
laundering is critical to maintaining our licences. We are committed to
combating financial crime and ensuring that proceeds of crime do not enter the
business.
The EU Supranational Risk Assessment 2022 estimates the risk level for online
gambling is very high for both money laundering and terrorist financing in the
absence of controls. Therefore, we make every effort to ensure that controls
related to AML and CFT are robust and reviewed regularly to provide assurance.
Brand & Reputational Risks
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.
In various regions where our business operates, there is an ongoing trend
towards the enhancement of regulations focused on safer gambling and the
protection of consumers. This trend is particularly aimed at safeguarding
underage individuals and players who are vulnerable or at heightened risk of
harm.
Media reporting on the industry has seen continuing and 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 sanctions imposed by
regulators.
ESG Risks
The Group is dedicated to implementing and maintaining robust policies,
procedures, and controls that ensure the effective delivery of our
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. ESG risks, particularly those related to
climate, often present unique characteristics distinct from other types of
risk. They are typically marked by a lack of extensive historical data and
exhibit non-linear patterns, complicating their forecasting and management
efforts.
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 direct carbon
emissions by 2030.
Market Risks
The acquisition of William Hill was funded through various means, including
significant debt facilities. The Group has implemented a series of hedging
strategies, securing approximately 70% of our interest costs at fixed rates
for the next two years, while also aligning the currency composition of our
debt more closely with that of the Group's financial profile. Despite these
measures, the Group remains susceptible to risks associated with changes in
interest rates and currency values. Such fluctuations could elevate our
borrowing costs, potentially diverting financial resources away from critical
areas such as growth initiatives, marketing efforts, and the development and
launch 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 exposure to operating expenses in Swedish
krona and Polish zloty. The Group also has debt servicing costs which are
denominated in USD and EUR, partially hedged in GBP.
Liquidity & Capital Management
Liquidity risk is the risk that the Group has insufficient funds available to
settle its liabilities as they fall due. The Group generates strong operating
cash flows and aims to maintain sufficient cash balances to meet its
anticipated working capital requirements based on regularly updated cash flow
forecasts. Liquidity requirements that cannot be met from operational cash
flow or existing cash resources would be satisfied by drawings under the
Group's revolving credit facility and overdraft facility.
We fund our investments in people, product, marketing, and technology with
positive cash flows generated from our trading activities and its available
cash resources. As the business continues to invest in strengthening its core
capabilities there could be increased need to reduce operating costs and
improve liquidity by removing duplications, delivering best in class and
scalable shared functions, and driving efficiency to reinvest in growth.
People Risk
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 elevated 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 and operating model changes following the acquisition of the
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.
Third Party Risk
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 on 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. Any risks to our B2B partnerships or meeting our contractual
obligations with them must be managed to ensure the long-term viability of our
operations linked to these relationships, and to ensure we can meet our
strategic growth targets.
Information Security Risks
There is an ongoing risk that cyber-attacks, such as Distributed Denial of
Service (DDoS) by malicious third parties, could impact our technology systems
and, consequently, our operations. This risk extends to the potential theft or
misuse of customer and business data by both internal and external entities.
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.
Product & Technology
As a company, we acknowledge the importance of innovation and digital
transformation, and we recognize that these initiatives come with inherent
risks. We recognize that consolidating multiple systems can be complex and
challenging and may lead to potential disruptions in our operations.
In pursuing our goal of building one unified global scalable technology
platform, we understand that it requires us to take on higher levels of risk
in the short term. However, we believe that the potential rewards outweigh the
risks. By creating a unified platform, we will be able to streamline our
operations, improve efficiency, and enhance our ability to respond to changing
market conditions.
We recognize the importance of developing high-quality products to meet the
evolving needs of our customers, however, acknowledge that this comes with
inherent risks. We understand that product and content development require
significant investments in resources, time, and expertise. Additionally, the
fast-paced and constantly changing nature of the market may require us to take
on higher levels of risk in the short term.
Condensed Consolidated Income Statement
For the year ended 31 December 2023
2023 2022
Note £m £m
Revenue 2 1,710.9 1,238.8
Gaming duties (372.0) (256.3)
Other cost of sales (198.0) (188.1)
Exceptional items - cost of sales 3 - 3.9
Cost of sales (570.0) (440.5)
Gross profit 1,140.9 798.3
Marketing expenses (237.6) (257.8)
Operating expenses (819.1) (448.5)
Share of post-tax profit of equity accounted associate 1.4 0.3
Exceptional items - operating expenses 3 (52.6) (97.1)
Operating profit/(loss) 33.0 (4.8)
Adjusted EBITDA 308.3 217.9
Exceptional items - cost of sales and operating expenses 3 (52.6) (93.2)
Fair value gain on financial assets 13 4.1 -
Foreign exchange gains/(losses) 1.0 (4.0)
Share benefit credit/(charge) 0.5 (5.2)
Depreciation and amortisation (228.3) (120.3)
Operating profit/(loss) 33.0 (4.8)
Finance income 4 41.0 0.8
Finance expenses 5 (195.3) (111.7)
Loss before tax (121.3) (115.7)
Taxation credit/(charge) 6 64.9 (4.9)
Loss after tax (56.4) (120.6)
Equity holders of the Parent (56.4) (120.5)
Non-controlling interests - (0.1)
(56.4) (120.6)
Loss per share
Basic (pence) 7 (12.6) (28.3)
Diluted (pence) 7 (12.6) (28.3)
Condensed Consolidated Statement of Comprehensive Income
For the year ended 31 December 2023
2023 2022
Note £m £m
Loss for the year (56.4) (120.6)
Items that may be reclassified subsequently to profit or loss (net of tax)
Exchange differences on translation of foreign operations (22.8) 2.5
Movement in cash flow hedging position (1.2) (14.4)
Items that will not be reclassified to profit or loss (net of tax)
Remeasurement of severance pay liability (0.2) 1.7
Actuarial remeasurement in defined benefit pension scheme 1.8 (0.8)
Tax on severance pay liability - 0.6
Movement in hedging reserve - 1.0
Movement in equity investment designated at fair value through OCI - (1.0)
Total other comprehensive loss for the year (22.4) (10.4)
Total comprehensive loss for the year (78.8) (131.0)
Total comprehensive loss for the year attributable to equity holders of the (78.8) (130.9)
Parent
Total comprehensive loss for the year attributable to non-controlling - (0.1)
interests
Condensed Consolidated Statement of Financial Position
At 31 December 2023
2023 2022(2)
Note £m £m
Assets
Non-current assets
Goodwill and other intangible assets 9 2,038.3 2,208.3
Right-of-use assets 78.0 81.9
Property, plant and equipment 91.7 110.4
Investment in sublease 1.0 1.4
Investments in associates 33.9 38.4
Non-current prepayments 2.8 6.2
Derivative financial instruments 13 15.8 16.6
Deferred tax assets 37.0 5.2
2,298.5 2,468.4
Current assets
Cash and cash equivalents(1) 256.2 317.6
Trade and other receivables 138.0 132.7
Income tax receivable 53.3 35.2
Derivative financial instruments 13 1.6 2.0
Assets held for sale - 6.9
449.1 494.4
Total assets 2,747.6 2,962.8
Equity and liabilities
Share capital 14 2.2 2.2
Share premium 14 160.7 160.7
Treasury shares (0.6) (0.9)
Foreign currency translation reserve 1.8 24.6
Hedging reserves (14.6) (13.4)
Retained earnings (69.6) (14.0)
Total equity 79.9 159.2
Liabilities
Non-current liabilities
Borrowings 12 1,657.2 1,697.5
Severance pay liability 0.6 1.2
Retirement benefit liability - 1.2
Provisions 11 104.8 101.9
Deferred tax liability 156.9 216.0
Derivative financial instruments 13 29.9 17.4
Lease liabilities 64.2 65.0
2,013.6 2,100.2
Current liabilities
Borrowings 12 3.9 4.8
Trade and other payables 374.7 368.0
Provisions 11 78.5 111.5
Derivative financial instruments 13 23.5 20.8
Income tax payable 6 22.3 33.0
Lease liabilities 23.4 24.0
Customer deposits 127.8 141.3
654.1 703.4
Total equity and liabilities 2,747.6 2,962.8
(1) Cash and cash equivalents includes customer deposits of £127.8m (2022:
£141.3m) which represent bank deposits matched by customer liabilities of an
equal value. Cash and cash equivalents excludes restricted short‐term
deposits of £22.6m which are presented in Trade and other receivables (2022:
£21.6m).
(2) Since the disclosure of the provisional fair values for the acquisition of
William Hill on 1 July 2022, an adjustment of £15.7m has been made to
increase the fair value of provisions, with a related £4.4m reduction in
deferred tax liabilities, and an equivalent movement in goodwill. This
adjustment has been made after the 31 December 2022 year end accounts and
during the measurement period.
Condensed Consolidated Statement of Changes in Equity
For the year ended 31 December 2023
Share capital Share premium Treasury shares Foreign currency translation reserve Hedging reserve Total
Non-controlling interests
Retained earnings
£m £m £m £m £m
£m £m £m
Balance at 1 January 2022 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 - - - (13.4) 0.5 - (10.4)
2.5
Total comprehensive income/(expense) - - - 2.5 (13.4) (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 (13.4) (14.0) - 159.2
Loss after tax for the year - - - - - (56.4) - (56.4)
Other comprehensive (expense)/income for the year - - - (22.8) (1.2) 1.6 - (22.4)
Total comprehensive expense - - - (22.8) (1.2) (54.8) - (78.8)
Equity settled share benefit credit - - - - - (0.5) - (0.5)
Exercise of deferred share bonus plan - - 0.3 - - (0.3) - -
Balance at 31 December 2023 2.2 160.7 (0.6) 1.8 (14.6) (69.6) - 79.9
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 - represents 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 £.
Hedging reserve - 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 Condensed Consolidated Statement of Comprehensive Income and other
transactions with equity holders.
Condensed Consolidated Statement of Cash Flows
For the year ended 31 December 2023
2023 2022
Note £m £m
Cash flows from operating activities
Loss before income tax (121.3) (115.7)
Adjustments for:
Depreciation of property plant and equipment and right-of-use assets 46.3 30.8
Amortisation 9 182.0 89.5
Interest income 4 (41.0) (0.8)
Interest expenses 5 195.3 111.7
Income tax paid (30.1) (35.1)
Fair value gain on financial assets (4.1) -
Share of post-tax loss of equity accounted associate (1.4) (0.3)
Non-cash exceptional items 5.9 52.3
Profit on sale of businesses 0.3 -
Movement on Ante-post and other financial derivatives 7.6 2.3
Profit on sale of freehold properties via sale and leaseback (4.6) -
Gain on disposal of property, plant and equipment (1.1) (0.3)
Share benefit (credit)/charge (0.5) 5.2
Cash generated from operating activities before working capital movement 233.3 139.6
Increase in receivables (1.9) (50.3)
Decrease in customer deposits (13.4) (9.2)
Decrease in trade and other payables (39.6) (100.3)
Decrease in provisions (27.0) (10.0)
Net cash generated from/(used in) operating activities 151.4 (30.2)
Cash flows from investing activities
Acquisition of intangible assets (62.9) (67.9)
Acquisition of property, plant and equipment (7.4) (8.9)
Proceeds from sale of businesses 19.2 32.5
Proceeds on sale and leaseback of freehold properties 22.6 -
Proceeds from sale of property, plant and equipment 1.9 0.5
Loans to related parties (4.3) -
Interest received 4 3.9 0.8
Dividend received from associate 5.9 0.9
Acquisition of William Hill (net of cash acquired) 10 - (386.8)
Net cash used in investing activities (21.1) (428.9)
Cash flows from financing activities
Payment of lease liabilities (31.8) (21.5)
Settlement of derivatives 13 (10.8) -
Interest paid (142.0) (75.6)
Repayment of loans 12 (4.0) (1,503.2)
Issue of shares - equity placing 14 - 158.5
Proceeds from loans 12 - 2,163.1
Loan transaction fees - (132.3)
Acquisition of treasury shares - (0.7)
Net cash (used in)/generated from financing activities (188.6) 588.3
Net (decrease)/Increase in cash and cash equivalents (58.3) 129.2
Net foreign exchange difference (3.1) (1.0)
Cash and cash equivalents at the beginning of the year 317.6 189.4
Cash and cash equivalents at the end of the year 256.2 317.6
(3.1)
(1.0)
Cash and cash equivalents at the beginning of the year
317.6
189.4
Cash and cash equivalents at the end of the year
256.2
317.6
Notes to the condensed 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 material accounting policies applied in the preparation of the condensed
consolidated financial statements are as follows:
Basis of preparation
The financial information does not constitute the Group's statutory accounts
for the year ended 31 December 2023 or the year ended 31 December 2022 but is
derived from those accounts. Statutory accounts for the year ended 31 December
2022 have been delivered to the Registrar of Companies in Gibraltar. Statutory
accounts for the year ended 31 December 2023 will be filed with Companies
House Gibraltar following the Company's Annual General Meeting. The auditors
have reported on both the 2023 and 2022 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.
The condensed consolidated financial statements of the Group have been
prepared in accordance with UK adopted international accounting standards and
in accordance with the requirements of the Gibraltar Companies Act 2014. The
condensed 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 condensed consolidated
financial statements in the prior year have been applied consistently in these
condensed consolidated financial statements, except for the amendments to
accounting standards effective for the annual periods beginning on 1 January
2023. These are described in more detail below.
As a Company incorporated in Gibraltar, 888 Holdings plc is not required by UK
law or regulation to prepare the Directors' Remuneration or Strategic reports
under regulation that applies to UK incorporated companies. However, by virtue
of 888's Premium Listing on the London Stock Exchange and reflecting the
Director's approach to good governance and investor expectation, we have
prepared these reports in line with the requirements under the UK Companies
Act 2006.
The Directors' Remuneration Report, set out within the Annual Report and
Accounts 2023, has been voluntarily prepared in accordance with sections 420
to 422 UK Companies Act 2006.
The information given in the Strategic Report, set out within the Annual
Report and Accounts 2023, has been voluntarily prepared in accordance with
section 414 UK Companies Act 2006.
1. Accounting policies (continued)
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 £79.9m (2022:
£159.2m) and incurred a statutory loss before tax of £121.3m during the year
(2022: £115.7m loss). The Group also had net current liabilities of £205.0m
(2022: £209.0m).
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 within the Annual Report and
Accounts 2023, and in notes 12 to 13 to these financial statements.
Business planning and performance management
The Group has robust forecasting and monitoring processes which consist of
weekly monitoring and careful management of liquidity, an annual budget and a
long-term plan, which generates income statement and cash flow projections for
assessment by management and the Board. Forecasts are regularly compared with
prior forecasts and current trading to identify variances and understand their
future impact so management can act 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 and
Accounts 2023, 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 2025.
The Group's future prospects
The Group meets its day-to-day working capital requirements from the positive
cash flows generated by its trading activities and its available cash
resources. The Group holds cash and cash equivalents excluding customer
balances and restricted cash of £128.4m as at 31 December 2023 (2022:
£176.3m). In addition to this the Group has access, until 31 December 2027,
to a £150m Revolving Credit Facility, which was undrawn as of 31 December
2023.
The Group entered into significant debt arrangements in the previous year to
fund the acquisition of the William Hill business. Other than an annual $5.0m
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
2025, based on reasonable assumptions including, in the base case, a 10%
increase in 2024 revenue coupled with higher marketing investment, 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 2025.
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 2025.
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:
· Reductions in revenue reflecting a lower return on marketing
investment than budgeted;
· Reductions in profitability for the Group of 10% to reflect
potential regulatory, macroeconomic and 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
A 10% increase in the Group's capex spend as a result of execution delays or
product overspends.
1. Accounting policies (continued)
Going concern (continued)
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 adjusted EBITDA of 38%. 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 the 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:
IFRS 17 Insurance Contracts (effective 1 January 2023)
IAS 1 (amended) Disclosure of accounting policies (effective 1 January 2023)
IAS 8 (amended) Definition of accounting estimates (effective 1 January 2023)
IAS 12 (amended) Deferred tax related to assets and liabilities arising from a single
transaction (effective 1 January 2023)
IAS 12 (amended) International Tax Reform - Pillar Two Model Rules (effective 1 January 2023)
Standards in issue but not effective
At the date of authorisation of the Group financial statements, the following
amendments and Interpretations, which have not been applied in these Group
financial statements, were in issue but not yet effective:
Amendments and interpretations
IAS 1 (amended) Classification of liabilities as current or non-current (effective 1 January
2024)
IAS 7 and IFRS 17 (amended) Supplier finance arrangements (effective 1 January 2024)
IAS 21 (amended) Lack of exchangeability (effective 1 January 2024)
IFRS 16 (amended) Lease liabilities in a sale and leaseback (effective 1 January 2024)
The Group does not currently consider that the adoption of these new standards
or amendments would have a material effect on the results or financial
position of the Group.
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.
1. Accounting policies (continued)
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 Condensed 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.
Leases
Management considers the key judgement to be 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 number of shop closures in the Retail estate historically,
management determined the lease term under IFRS 16 across the Retail estate as
the next available break date, as the Group is not 'reasonably certain' that
any lease break will not be exercised. The Group has recognised a lease
liability of £87.6m at 31 December 2023 (31 December 2022: £89.0m).
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.
Significant accounting estimates
The following are the Group's major sources of estimation uncertainty that
have a significant risk of resulting in a material adjustment to the carrying
amounts of assets and liabilities within the next financial year.
Impairment of goodwill
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&I 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 Group 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 forecast for periods up to five
years. The key assumptions used in the model are based on historical
experience and other factors that are considered to be relevant, including
growth rates and discount rates. For further information see note 9.
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 has recognised a provision and contingent liability for customer
claims in Austria and Germany where the business has been subject to a
particular acceleration of claims since 2020 following marketing campaigns by
litigation funders in those jurisdictions. Customers who have obtained
judgement against the Group's entities in the Austrian and German 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 £113.0m (2022: £112.3m), mostly related to
the Mr Green brand.
1. Accounting policies (continued)
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 rates of receipt of claims were to increase by 25% compared to the
Group's expectation, the value across the provision recognised and contingent
liability disclosed would increase by £7.0m before consideration of potential
gaming tax reclaim.
Identification and valuation of William Hill intangible assets
In the prior year, the Group acquired the International (non-US) business of
William Hill on 1 July 2022 for an enterprise value of £1.73 billion. Since
the disclosure of the provisional fair values in the prior year end accounts
and during the measurement period, an adjustment of £15.7m has been made to
increase the fair value of provisions in relation to the customer claims in
Germany, and an equivalent increase in goodwill has been recognised. See note
10 for further details of the change.
As part of the purchase price allocation the Group recognised separately
identifiable acquired intangible assets comprising brands (£574.4m); customer
relationships (£595.1m) and gambling licences (£8.5m). Goodwill of £776.6m
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 significant accounting estimate. A 5% increase/decrease in
estimated customer churn rates would (decrease)/increase the fair value of
customer relationships by (£123.0m)/£176.0m 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 was an area where the
Group made significant accounting estimates.
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. These estimates and
judgements only relate to the prior year.
Basis of consolidation
The condensed 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 condensed
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.
1. Accounting policies (continued)
Revenue from Business to Business (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.
Cost of Sales
Cost of sales consists primarily of gaming duties, payment service providers'
commissions, chargebacks, commission and royalties payable to third parties,
all of which are recognised on an accruals basis.
Operating expenses
Operating expenses consist primarily of marketing, staff costs and corporate
professional expenses, all of which are recognised on an accruals basis.
Retirement benefit costs
Payments to defined contribution retirement benefit schemes are charged as an
expense as they fall due.
For defined benefit retirement schemes, the cost of providing benefits is
determined using the Projected Unit Credit Method, with actuarial valuations
being carried out at each period end date. Actuarial remeasurements are
recognised in full in the period in which they occur. They are recognised
outside profit or loss and presented in the Condensed Consolidated Statement
of Other Comprehensive Income.
The net retirement benefit asset or obligation recognised in the Condensed
Consolidated Statement of Financial Position represents the present value of
the defined benefit obligation as reduced by the fair value of scheme assets.
Any net asset resulting from this calculation is not recognised on the balance
sheet as this is expected to be used to meet the costs of eventual wind-up of
the Plan rather than refunded to the Company in practice.
Foreign currency
Monetary assets and liabilities denominated in currencies other than the
functional currency of the relevant Company are translated into that
functional currency using year-end spot foreign exchange rates. Non-monetary
assets and liabilities are translated using exchange rates prevailing at the
dates of the transactions. Exchange rate differences on foreign currency
transactions are included in financial income or financial expenses in the
Condensed Consolidated Income Statement, as appropriate.
The results and financial position of all Group entities that have a
functional currency different from pound sterling are translated into the
presentation currency at foreign exchange rates as set out below. Exchange
differences arising, if any, are recorded in the Condensed Consolidated
Statement of Comprehensive Income as a component of other comprehensive
income.
(i) assets and liabilities for each balance sheet presented are
translated at the closing rate at the date of that balance sheet; and
(ii) income and expenses for each income statement are translated at
an average exchange rate (unless this average is not a reasonable
approximation of the cumulative effect of the rates prevailing on the
transaction dates, in which case income and expenses are translated at the
dates of the transactions).
1. Accounting policies (continued)
Finance income
Finance income relates to interest income and is accrued on a time basis, by
reference to the principal outstanding and the effective interest rate
applicable.
Finance costs
Finance costs arising on interest-bearing financial instruments carried at
amortised cost are recognised in the Condensed Consolidated Income Statement
using the effective interest rate method. Finance costs include the
amortisation of fees that are an integral part of the effective finance cost
of a financial instrument, including issue costs, and the amortisation of any
other differences between the amount initially recognised and the redemption
price.
Taxation
The tax expense represents the sum of the tax currently payable and deferred
tax.
The tax currently payable is based on taxable profit for the period. Taxable
profit differs from net profit as reported in the Condensed Consolidated
Income Statement because it excludes items of income or expense that are
taxable or deductible in other periods, and it further excludes items that are
never taxable or deductible. The Group's liability for current tax is
calculated using tax rates that have been enacted or substantively enacted by
the period end date.
Deferred tax is the tax expected to be payable or recoverable on differences
between the carrying amounts of assets and liabilities in the financial
statements and the corresponding tax bases used in the computation of taxable
profit and is accounted for using the liability method. Deferred tax
liabilities are generally recognised for all taxable temporary differences and
deferred tax assets are recognised to the extent that it is probable that
taxable profits will be available against which deductible temporary
differences can be utilised. Such assets and liabilities are not recognised if
the temporary difference arises from goodwill or from the initial recognition
(other than in a business combination) of other assets and liabilities in a
transaction that affects neither the taxable profit nor the accounting profit.
Deferred tax liabilities are recognised for taxable temporary differences
arising on investments in subsidiaries and associates, except where the Group
is able to control the reversal of the temporary difference and it is probable
that the temporary difference will not reverse in the foreseeable future.
The carrying amount of deferred tax assets is reviewed at each period end date
and reduced to the extent that it is no longer probable that sufficient
taxable profits will be available to allow all or part of the asset to be
recovered.
Deferred tax is calculated at the tax rates that are expected to apply in the
period when the liability is settled or the asset is realised based on tax
laws and rates that have been enacted at the period end date. Deferred tax is
charged or credited in the
Condensed Consolidated Income Statement, except when it relates to items
charged or credited directly to equity, in which case the deferred tax is also
dealt with in equity.
The Group has applied the exception to recognising and disclosing information
about deferred tax assets and liabilities arising from the implementation of
the global minimum tax rules published by the Organization for Economic
Cooperation and Development ("OECD"), so-called Pillar Two income taxes, as
required under IAS 12.
Goodwill
Goodwill represents the excess of the fair value of the consideration in a
business combination over the Group's interest in the fair value of the
identifiable assets, liabilities and contingent liabilities acquired.
Consideration comprises the fair value of any assets transferred, liabilities
assumed and equity instruments issued.
Goodwill is capitalised as an intangible asset with any impairment in carrying
value being charged to the Condensed Consolidated Income Statement and not
subsequently reversed. Where the fair values of identifiable assets,
liabilities and contingent liabilities exceed the fair value of consideration
paid, the excess is credited in full to the Condensed Consolidated Income
Statement on the acquisition. Changes in the fair value of the contingent
consideration and direct costs of acquisition are charged or credited
immediately to the Condensed Consolidated Income Statement.
1. Accounting policies (continued)
Intangible assets
Acquired intangible assets
Intangible assets arising on acquisitions are recorded at their fair value.
Amortisation is provided at rates calculated to write off the valuation, less
estimated residual value, of each asset on a straight-line basis over its
expected useful life, as follows:
Acquired brands - assessed separately for each asset, with lives ranging up to 30 years
Customer relationships - between 18 months and 13 years
Bookmaking and mobile technology - between three and five years
Licences - 10 to 20 years
Amortisation of assets arising on acquisition is recognised as an adjusted
item, please see note 3 for further information.
Internally generated intangible assets
An internally generated intangible asset arising from the Group's development
of computer systems is recognised only if all of the following conditions are
met:
- an asset is created that can be identified (such as software and new
processes);
- it is probable that the asset created will generate future economic
benefits; and
- the development cost of the asset can be measured reliably.
Expenditure incurred on development activities of gaming platforms is
capitalised only when the expenditure will lead to new or substantially
improved products or processes, the products or processes are technically and
commercially feasible and the Group has sufficient resources to complete
development. All other development expenditure is expensed. Subsequent
expenditure on intangible assets is capitalised only where it clearly
increases the economic benefits to be derived from the asset to which it
relates. The Group estimates the useful life of these assets as between three
and five years.
Property, plant and equipment
Property, plant and equipment is stated at historical cost less accumulated
depreciation. Assets are assessed at each balance sheet date for indicators of
impairment.
Depreciation is calculated using the straight-line method, at annual rates
estimated to write off the cost of the assets less their estimated residual
values over their expected useful lives. The annual depreciation rates are as
follows:
Freehold buildings 50 years
Long leasehold properties 50 years
Short leasehold properties over the unexpired period of the lease
Short leasehold improvements the shorter of ten years or the unexpired period of the lease
Fixtures, fittings and equipment and motor vehicles at variable rates between three and ten years
Right-of-use asset reasonably certain lease term
Impairment of non-financial assets
An intangible asset with an indefinite useful life is tested for impairment
annually and whenever there is an indication that the asset may be impaired.
At each period end date, the Group reviews the carrying amounts of its
goodwill, property plant and equipment and intangible assets to determine
whether there is any indication that those assets have suffered an impairment
loss. If any such indication exists, the recoverable amount of the asset is
estimated in order to determine the extent of the impairment loss (if any).
Where the asset does not generate cash flows that are independent from other
assets, the Group estimates the recoverable amount of the cash-generating unit
to which the asset belongs.
The recoverable amount is the higher of fair value less costs to sell and
value in use. In assessing value in use, the estimated future pre-tax cash
flows are discounted to their present value using a pre-tax discount rate that
reflects current market assessments of the time value of money and the risks
specific to the asset for which the estimates of future cash flows have not
been adjusted. This process is described in more detail in note 9 to the
financial statements.
1. Accounting policies (continued)
If the recoverable amount of an asset (or cash-generating unit) is estimated
to be less than its carrying amount, the carrying amount of the asset (or
cash-generating unit) is reduced to its recoverable amount. An impairment loss
is recognised as an expense immediately.
Other than for goodwill, where an impairment loss subsequently reverses, the
carrying amount of the asset (or cash-generating unit) is increased to the
revised estimate of its recoverable amount, but only to the point that the
increased carrying amount does not exceed the carrying amount that would have
been determined had no impairment loss been recognised for the asset (or
cash-generating unit) in prior periods. A reversal of an impairment loss is
recognised as income immediately.
Fair value measurement
The Group measures certain financial instruments at fair value at each balance
sheet date. The fair value related disclosures are included in notes 24 and 25
of the Annual Report and Accounts 2023. Fair value is the price that would be
received or paid in an orderly transaction between market participants at a
particular date, either in the principal market for the asset or liability or,
in the absence of a principal market, in the most advantageous market for that
asset or liability accessible to the Group.
The Group uses valuation techniques that are appropriate in the circumstances
and for which sufficient data is available to measure fair value, maximising
the use of relevant observable inputs and minimising the use of unobservable
inputs.
IFRS 13 'Fair Value Measurement' emphasises that fair value is a market-based
measurement, not an entity-specific measurement. Therefore, fair value
measurements under IFRS 13 should be determined based on the assumptions that
market participants would use in pricing the asset or liability. As a basis
for considering market participant assumptions in fair value measurements,
IFRS 13 establishes a fair value hierarchy that distinguishes between market
participant assumptions based on market data obtained from sources independent
of the reporting entity (observable inputs that are classified within Levels 1
and 2 of the hierarchy) and the reporting entity's own assumptions about
market participant assumptions (unobservable inputs classified within Level 3
of the hierarchy).
- Level 1 inputs utilise quoted prices (unadjusted) in active
markets for identical assets or liabilities that the Company has the ability
to access.
- Level 2 inputs are inputs other than quoted prices included in
Level 1 that are observable for the asset or liability, either directly or
indirectly. Level 2 inputs may include quoted prices for similar assets and
liabilities in active markets, as well as inputs that are observable for the
asset or liability (other than quoted prices), such as interest rates, foreign
exchange rates, and yield curves that are observable at commonly quoted
intervals.
- Level 3 inputs are unobservable inputs for the asset or
liability, which are typically based on an entity's own assumptions, as there
is little, if any, related market activity. In instances where the
determination of the fair value measurement is based on inputs from different
levels of the fair value hierarchy, the level in the fair value hierarchy
within which the entire fair value measurement falls is based on the lowest
level input that is significant to the fair value measurement in its entirety.
The Company's assessment of the significance of a particular input to the fair
value measurement in its entirety requires judgment and considers factors
specific to the asset or liability.
Assets held for sale
Assets categorised as held for sale are held on the Condensed Consolidated
Statement of Financial Position at the lower of the book value and fair value
less costs to sell. This assessment is carried out when assets are transferred
to held for sale. The impact of any adjustment as a part of this assessment is
booked through the Condensed Consolidated Income Statement.
Cash and cash equivalents Cash comprises cash in hand, balances with banks and
on-demand deposits. Cash equivalents are short-term, highly liquid investments
that are readily convertible to known amounts of cash. They include short-term
deposits originally purchased with maturities of three months or less.
1. Accounting policies (continued)
Trade receivables
Trade receivables are initially recognised at fair value and subsequently
measured at amortised cost and principally comprise amounts due from credit
card companies and from e-payment companies. The Group has applied IFRS 9's
simplified approach and has calculated the 'expected credit losses' ('ECLs')
based on lifetime of expected credit losses. Bad debts are written off when
there is objective evidence that the full amount may not be collected.
Equity
Equity issued by the Company is recorded as the proceeds received from the
issue of shares, net of direct issue costs.
Treasury shares
Own equity instruments that are reacquired (treasury shares) are recognised at
cost and deducted from equity. No gain or loss is recognised in profit or loss
on the purchase, sale, issue or cancellation of the Group's own equity
instruments. Any difference between the carrying amount and the consideration,
if reissued, is recognised in the share premium account.
Dividends
Dividends are recognised when they become legally payable. In the case of
interim dividends to equity shareholders, this is when declared by the Board
of Directors and paid. In the case of final dividends, this is when approved
by the shareholders at the Annual General Meeting.
Equity-settled Share benefit charges
Where the Company grants its employees or contractors shares or options, the
cost of those awards, recognised in the Condensed Consolidated Income
Statement over the vesting period with a corresponding increase in equity, is
measured with reference to the fair value at the date of grant. Market
performance conditions are taken into account in determining the fair value at
the date of grant. Non-market performance conditions, including service
conditions, are taken into account by adjusting the number of instruments
expected to vest at each balance sheet date so that, ultimately, the
cumulative amount recognised over the vesting period is based on the number of
instruments that eventually vest.
Cash-settled transactions
A liability is recognised for the fair value of cash-settled transactions. The
fair value is measured initially and at each reporting date up to and
including the settlement date, with changes in fair value recognised within
employee benefits expenses. The fair value is expensed over the period until
the vesting date with recognition of a corresponding liability. The approach
used to account for vesting conditions when measuring equity-settled
transactions also applies to cash-settled transactions.
Severance pay schemes
The Group operates two severance pay schemes:
Defined benefit severance pay scheme
The Group operates a defined benefit severance pay scheme pursuant to the
Severance Pay Law in Israel. Under this scheme Group employees are entitled to
severance pay upon redundancy or retirement. The liability for termination of
employment is measured using the projected unit credit method.
Severance pay scheme surpluses and deficits are measured as:
· the fair value of plan assets at the reporting date; less
· plan liabilities calculated using the projected unit credit method,
discounted to its present value using yields available for the appropriate
government bonds that have maturity dates appropriate to the terms of the
liabilities.
Remeasurements of the net severance pay scheme assets and liabilities,
including actuarial gains and losses on the scheme liabilities due to changes
in assumptions or experience within the scheme and any differences between the
interest income and the actual return on assets, are recognised in the
Condensed Consolidated Statement of Comprehensive Income in the period in
which they arise.
1. Accounting policies (continued)
Defined contribution severance pay scheme
In 2017 the Group introduced a defined contribution plan pursuant to section
14 to the Severance Pay Law. Under this scheme the Group pays fixed monthly
contributions. Payments to defined contribution plans are charged as an
expense as they fall due.
Borrowings
The Group records bank and other borrowings initially at fair value, which
equals the proceeds received, or acquired in a business transaction, net of
direct issue costs, and subsequently at amortised cost. The Group accounts for
finance charges, including premiums payable on settlement or redemption and
direct issue costs, using the effective interest rate method.
Derivatives and hedging activities
The Company enters into a variety of derivative financial instruments to
manage its exposure to interest rate and foreign exchange rate risks.
Derivatives are initially recognised at fair value at the date the derivative
contracts are entered into and are subsequently remeasured to their fair value
at the end of each reporting period. The accounting for subsequent changes in
fair value depends on whether or not the derivative is designated for hedge
accounting.
Hedge accounting
The Company designates certain derivatives as hedging instruments as either:
- hedges of a particular risk associated with the cash flows of
recognised assets and liabilities and highly probable forecast transactions
(cash flow hedges); or
- hedges of the fair value of recognised assets or liabilities or
a firm commitment (fair value hedges);
At the inception of the hedge relationship, the Company documents the
relationship between the hedging instrument and the hedged item along with its
risk management objectives and its strategy for undertaking various hedge
transactions. Furthermore, at the inception of the hedge, and on an ongoing
basis, the Company documents whether a hedging relationship meets the hedge
effectiveness requirements under IFRS 9 and whether there continues to be an
economic relationship between the hedged item and the hedging instrument.
Cash flow hedges
The effective portion of changes in the fair value of derivatives that are
designated and qualify as cash flow hedges is recognised in other
comprehensive income and accumulated under the heading of cash flow hedge
reserve. The gain or loss relating to the ineffective portion is recognised
immediately within profit and loss.
Amounts previously recognised in other comprehensive income are reclassified
to earnings in the periods when the hedged item is recognised in profit and
loss. These earnings are included within the same line of the Condensed
Consolidated Income Statement as the recognised hedged item. However, when the
hedged forecast transaction results in the recognition of a non-financial
asset or a non-financial liability, the gains and losses previously recognised
in other comprehensive income and accumulated in equity are transferred from
equity and included in the initial measurement of the cost of the
non-financial asset or non-financial liability.
Hedge accounting is discontinued when the hedging instrument expires or is
sold, terminated, or exercised, or when it no longer meets the criteria for
hedge accounting. Any gain or loss recognised in the cash flow hedge reserve
remains in equity and is recognised in profit or loss when the forecast
transaction is ultimately recognised in profit or loss. When a forecast
transaction is no longer expected to occur, the gain or loss accumulated in
equity is recognised immediately in profit or loss.
Derivatives that do not qualify for hedge accounting
Certain derivative instruments do not qualify for hedge accounting. Changes in
the fair value of any derivative instrument that does not qualify for hedge
are recognised immediately in profit or loss and are included in "finance
income/expense".
1. Accounting policies (continued)
Leasing
At inception of a contract, the Group considers whether the contract is, or
contains, a lease. A contract is, or contains, a lease if the contract conveys
the right to control the use of an identified asset for a period of time in
exchange for consideration.
The Group recognises a right-of-use asset and a lease liability at the lease
commencement date. The lease liability is initially measured at the present
value of the lease payments that have not been paid at the commencement date,
discounted using an appropriate discount rate. The discount rate used to
calculate the lease liability is the rate implicit in the lease, if it can be
readily determined, or the lessee's incremental borrowing rate if not. The
Group uses an incremental borrowing rate for its leases, which is determined
based on the margin requirements of the Group's revolving credit facilities as
well as country specific adjustments. A right-of-use asset is also recognised
equal to the lease liability and depreciated over the period from the
commencement date to the earlier of, the end of the useful life of the
right-of-use asset or the lease term. The Group has assessed the lease term of
properties within its retail estate to be up to the first available
contractual break within the lease. The Group has deemed that it cannot be
reasonably certain that it will continue beyond this time given the continued
uncertainty surrounding the Group's retail business.
The Group has also applied the below practical expedients:
· exclude leases from measurement and recognition where the
lease term ends within 12 months from the date of initial application and
account for those leases as short-term leases;
· exclude low value leases for lease values less than
£5,000;
· apply a single discount rate to a portfolio of leases
with similar characteristics;
· use hindsight to determine the lease term if the
contract contains options to extend or terminate; and
· exclude initial direct lease costs in the measurement
of the right-of-use asset.
The Group has a small number of sublet properties. In these instances, leases
are classified as finance leases whenever the terms of the lease transfer
substantially all the risks and rewards of ownership to the lessee. All other
leases are classified as operating leases. Where the Group is an intermediate
lessor, the sublease classification is assessed with reference to the head
lease right-of-use asset. Amounts due from lessees under finance leases are
recorded as receivables at the amount of the Group's net investment in the
lease. Finance lease income is allocated to accounting periods to reflect a
constant periodic rate of return on the Group's net investment in the lease.
Rental income from operating leases is recognised on a straight-line basis
over the term of the lease. IFRS 16 requires lessees to recognise right-of-use
assets and lease liabilities for most leases.
Trade and other payables
Trade and other payables are initially recognised at fair value and
subsequently measured at amortised cost.
Provisions
Provisions are recognised when the Group has a present or constructive
obligation as a result of a past event from which it is probable that it will
result in an outflow of economic benefits that can be reasonably estimated.
Liabilities to customers
Liabilities to customers comprise the amounts that are credited to customers'
bankroll (the Group's electronic "wallet"), including provision for bonuses
granted by the Group, less fees and charges applied to customer accounts,
along with full progressive provision for jackpots. These amounts are
repayable in accordance with the applicable terms and conditions.
2. Segment information
The Board has reviewed and confirmed the Group's reportable segments in
accordance with the requirements of 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.
The Retail segment comprises all activity undertaken in LBOs including gaming
machines. The UK&I Online segment comprises all online activity, including
sports betting, casino, poker and other gaming products along with telephone
betting services that are incurred within the UK and Ireland. The
International segment comprises all online activity, including sports betting,
casino, poker and other gaming products along with telephone betting services
that are incurred within all territories excluding the UK and Ireland. 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 2023 is as follows:
2023 Retail UK&I Online International
Corporate Total
£m £m £m £m £m
Revenue(1) 535.0 658.5 517.4 - 1,710.9
Gaming duties and other cost of sales (115.4) (246.6) (207.2) - (569.2)
Adjusted Gross Profit 419.6 411.9 310.2 - 1,141.7
Marketing (6.5) (134.5) (96.8) - (237.8)
Contribution 413.1 277.4 213.4 - 903.9
Operating expenses (314.2) (125.1) (114.0) (43.7) (597.0)
Associate income - - - 1.4 1.4
Adjusted EBITDA 98.9 152.3 99.4 (42.3) 308.3
Depreciation (46.3)
Amortisation (excluding acquired intangibles) (67.7)
Amortisation of acquired intangibles (114.3)
Exceptional items (52.6)
Fair value gain on financial assets 4.1
Share benefit credit 0.5
Foreign exchange 1.0
Finance expenses (195.3)
Finance income 41.0
Loss before tax (121.3)
(1 )Revenue recognised under IFRS 9 is £535.0m in Retail, £658.5m in
UK&I Online and £486.9m in International. Revenue recognised under IFRS
15 is £nil in Retail, £nil in UK&I Online and £30.5m in International.
Retail UK&I Online International Corporate Total
£m £m £m £m £m
Total segment assets 516.2 1,292.4 759.3 89.4 2,657.3
Total segment liabilities 173.3 265.7 219.6 1,829.9 2,488.5
Included within total segment assets:
Goodwill 99.4 357.9 306.0 - 763.3
Interests in associates - - - 33.9 33.9
Capital additions 4.6 11.2 66.3 2.2 84.3
2. Segment information (continued)
2022 Retail UK&I Online International
Other(2) Corporate Total
£m £m £m £m £m £m
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 charge (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 £255.5m in Retail, £455.5m in
UK&I Online, £502.7m in International and £10.9m in Other. Revenue
recognised under IFRS 15 is £nil in Retail, £nil in UK&I Online, £5.6m
in International and £8.6m in Other.
(2) 'Other' represents the Bingo business that was disposed of during 2022.
See note 10 for further information.
Retail UK&I Online International Corporate Total
£m £m £m £m £m
Total segment assets 542.6 1,394.9 973.2 11.7 2,922.4
Total segment liabilities 176.3 341.6 578.0 1,458.7 2,554.6
Included within total assets:
Goodwill 99.4 359.8 338.1 - 797.3
Interests in associates - - - 38.4 38.4
Capital additions 13.4 24.6 68.3 1.1 107.4
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 Annual Report and Accounts, 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.
3. Exceptional items and adjustments (continued)
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 items 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 in the Annual Report and Accounts 2023);
- 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 Condensed 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:
2023 2022
£m £m
Cost of sales
Retroactive duties and associated credit - (3.9)
Exceptional items - cost of sales - (3.9)
Operating expenses
Corporate transaction related (income)/costs (0.1) 36.2
Integration and transformation costs 49.3 14.4
Regulatory provisions and other associated costs 3.4 -
Impairment of US Goodwill and other assets - 55.7
Revaluation of contingent consideration - (9.2)
Exceptional items - operating expenses 52.6 97.1
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 52.6 100.2
Tax on exceptional items (9.0) 2.8
Total exceptional items 43.6 103.0
Total exceptional items in the year were £43.6m in 2023 compared to £103.0m
in 2022.
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. Comparatives are included even when not
individually material to aid comparability.
3. Exceptional items and adjustments (continued)
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 2022, a net
credit of £3.9m was recognised in respect to exceptional provision for
retroactive duties and associated charges following a reassessment of
potential gaming duties relating to activity in prior years.
Corporate transaction related costs
The Group has incurred legal and M&A costs, including in relation to the
disposal of its Latvia and Colombia businesses of £0.8m. During 2023, income
relating to the acquisition of William Hill was received from Caesars,
amounting to £2.0m. During 2022, the Group incurred £24.5m of costs
associated with the acquisition of the international (non-US) business of
William Hill and recognised an impairment loss of £11.7m in relation to the
disposal of 888 Bingo.
Integration and transformation costs
The Group has incurred a total of £49.3m of costs relating to the integration
programme, including £14.7m of platform integration costs, £8.3m of legal
and professional costs, £10.8m of redundancy costs, £5.3m of relocation and
HR related expenses, £4.7m of employee incentives as part of the integration
of William Hill and 888, and £3.8m of technology integration costs. During
2022, the Group incurred £14.4m, including £5.8m of redundancy costs, £3.0m
of legal and consultancy fees and £3.7m of platform separation and other
integration costs.
Regulatory provisions and other associated costs
The Group has paid £2.9m during the period related to a regulatory settlement
with the Gibraltar regulator in relation to the previously disclosed failings
that we identified in our Middle East business. Further to this there was
£0.5m of professional fees incurred relating to this settlement.
Impairment of US Goodwill and other assets
During the prior 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 net assets and, as
such, the Group impaired the goodwill on the US business in full, totalling
£25.7m. 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 which led 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 £28.1m. A further £1.4m of smaller technology assets were written
off and £0.5m of 39 freehold assets were written off when reclassified to
held for sale at the prior 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 £100.0m consideration was contingent subject
to the enlarged group hitting specific EBITDA metrics. This was assessed at
fair value on acquisition at £9.6m and revalued at 31 December 2022 to
£0.4m, leading to a release in this contingent consideration of £9.2m in the
prior period.
Senior Unsecured Notes early redemption fees
As part of the William Hill acquisition, the Group acquired certain Senior
Unsecured Notes, £350.0m 4.875% due May 2023 and £350.0m 4.75% due May 2026.
Subsequent to the acquisition, the £350.0m Note due May 2023 was fully
redeemed as well as a partial redemption amounting to £339.5m of the Note due
May 2026. The total cost to the Group of settling the Notes consisted of
£12.2m in early redemption fees together with a combined £1.9m of
unamortised finance fees, which were written off to the income statement
immediately in the prior period 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. These Notes were settled in the prior period, and
as such the gain on settlement of these Notes of £7.1m was recognised in the
prior period.
3. Exceptional items and adjustments (continued)
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, fair value gain of
financial assets, 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. Adjusted items are all shown on the face of the
Condensed Consolidated Income Statement in the reconciliations of adjusted
EBITDA and note 7 in the reconciliation of adjusted profit after tax.
4. Finance income
2023 2022
£m £m
Interest income 4.6 0.8
Foreign exchange on financing activities 36.4 -
Total finance income 41.0 0.8
5. Finance expenses
2023 2022
Note £m £m
Interest expenses related to lease liabilities 6.9 3.0
Bank loans and bonds 175.8 74.9
Amortisation of finance fees - 0.1
Hedging activities 12.1 3.3
Foreign exchange on financing activities - 22.7
Other finance charges and fees 0.5 0.7
Finance expenses - underlying 195.3 104.7
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 195.3 111.7
6. Taxation
Corporate taxes
2023
£m
Current taxation
UK corporation tax charge at 23.5% 0.7
Other jurisdictions taxation 22.0
Adjustments in respect of prior years (21.0)
1.7
Deferred taxation
Origination and reversal of temporary differences (37.7)
Recognition of previously unrecognised deductible temporary differences (30.2)
Adjustments in respect of prior years 1.3
(66.6)
Taxation credit (64.9)
Deferred taxation related to items recognised in OCI
Remeasurement of severance pay liability -
6. Taxation (continued)
2022
£m
Current taxation
UK corporation tax charge at 19.0% 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
The UK tax rate increased from 19% to 25% on 1 April 2023 giving an average UK
tax rate for the year of 23.5%.
The effective tax rate in respect of ordinary activities before exceptional
items for the year ended 31 December 2023 is 81.4% (2022: 20.0%). The
effective tax rate in respect of ordinary activities after exceptional items
is 53.5% (31 December 2022: -4.2%).
Pillar Two legislation has been acted, or substantively enacted, in certain
jurisdictions in which the Group operates. The legislation will be effective
for the Group's financial year beginning 1 January 2024. The Group is in scope
of the enacted or substantively enacted legislation and has performed an
assessment of the Group's potential exposure to Pillar Two income taxes.
The assessment of the potential exposure to Pillar Two income taxes is based
on the information available regarding the financial performance of the
constituent entities in the Group for the year ended 31 December 2023 and
forecasts for the year ended 31 December 2024. Based on the assessment, the
Group has identified potential exposure to Pillar Two income taxes in respect
of profits earned in Gibraltar, Malta, and Spain. The potential exposure comes
from the constituent entities (mainly licensed operating subsidiaries) in
these jurisdictions where the expected Pillar Two effective tax rate is below
15%.
The Pillar Two effective tax rate is lower in these jurisdictions due to the
Group being subject to tax at effective rates lower than 15% in those
countries (Gibraltar at 12.5%, Spain at 12.5%, and Malta at 5% after the
distribution of profits).
Had the Pillar Two legislation been effective for the current year ending 31
December 2023, the restated effective tax rate under IFRS would be
approximately 49.5-51.5% which would have been 2-4% lower than the reported
effective rate under IFRS of 53.5%. The rate would be lower because the Group
reports a tax credit on a loss and the tax credit would be reduced due to the
Pillar Two income tax charge. The impact on the effective tax rate under IFRS
for the Group is mainly driven by top up taxes arising on profits earned in
Gibraltar, Malta, and Spain where the Pillar Two effective tax rate is lower
than 15%. The impact on the effective tax rate in 2024 will depend on factors
such as revenues and costs.
The difference between the total tax charge shown above and the amount
calculated by applying the standard rate of UK corporation tax to the
(loss)/profit before tax is as follows:
2023
£m
Loss before taxation (121.3)
Standard tax rate in UK (23.5%) (28.5)
Difference in effective tax rate in other jurisdictions (15.4)
Expenses not allowed for taxation 13.6
Accrual of liabilities for uncertain tax positions (1.8)
Deferred tax not recognised 26.5
Recognition of previously unrecognised deductible temporary differences (30.3)
Difference in current and deferred tax rate 0.2
Tax on share of result of associate (0.3)
Non-taxable income (8.8)
Adjustments to prior years' tax charges (19.7)
Losses utilised previously not recognised for deferred tax (0.4)
Total tax credit for the year (64.9)
6. Taxation (continued)
2022
£m
Loss 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
The difference in effective tax rates in other jurisdictions primarily
reflects the lower effective tax rate in Gibraltar, Spain and Malta. Expenses
not allowed for tax purposes mainly relate to reduced availability of tax
relief arising on costs incurred in the period. Deferred tax not recognised
mainly relates to restricted interest in the UK in respect of which no
deferred tax asset can be recognised. Recognition of previously unrecognised
deductible temporary differences relates to recognition of a deferred tax
asset for the Group's intangible assets. The prior year adjustments mainly
relate to additional claims being made for tax allowances in Gibraltar for
2021. Non-taxable income mainly relates to fair value and accounting gains not
taxable in Gibraltar and the UK.
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
anti-dilutive. The number of equity instruments included in the diluted EPS
calculation consist of 2,789,783 Ordinary Shares (2022: 6,235,340) and no
market-value options (2022: nil).
The number of equity instruments excluded from the diluted EPS calculation is
2,294,080 (2022: 1,986,155).
2023 2022
Loss for the period attributable to equity holders of the Parent (£m) (56.4) (120.5)
Weighted average number of Ordinary Shares in issue and outstanding 448,166,792 426,536,392
Effect of dilutive Ordinary Shares and Share options 2,789,783 6,235,340
Weighted average number of dilutive Ordinary Shares 450,956,575 432,771,732
Basic loss per share (pence) (12.6) (28.3)
Diluted loss per share (pence) (12.6) (28.3)
The diluted loss per share in the current and prior 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.
7. Earnings per share (continued)
2023 2022
Adjusted profit after tax (£m) 48.1 64.2
Weighted average number of Ordinary Shares in issue 448,166,792 426,536,392
Weighted average number of dilutive Ordinary Shares 450,956,575 432,771,732
Adjusted basic earnings per share (pence) 10.7 15.1
Adjusted diluted earnings per share (pence) 10.7 14.8
The table below highlights the measures used to achieve Adjusted profit after
tax:
Note 2023 2022
£m £m
Adjusted profit after tax 48.1 64.2
Exceptional items - cost of sales and operating expenses 3 (52.6) (93.2)
Exceptional items - finance expenses 3,5 - (7.0)
Fair value gain on financial assets 13 4.1 -
Amortisation of finance fees (17.2) (7.4)
Amortisation of acquired intangibles (114.3) (56.7)
Tax on exceptional and adjusted items 37.4 11.4
Foreign exchange gains/(losses) 37.6 (26.7)
Share benefit credit/(charge) 0.5 (5.2)
Loss attributable to non-controlling interests - 0.1
Loss after tax (56.4) (120.5)
8. Dividends
The Board of Directors does not recommend a final dividend to be paid in
respect of the year ended 31 December 2023. No final dividend was recommended
as at 31 December 2022.
9. Goodwill and other intangibles
Goodwill Brands, customer relationships and licences Software Total
£m £m £m £m
Cost or valuation
At 31 December 2022(1) 823.0 1,230.8 403.3 2,457.1
Acquisition related adjustment(2) (20.3) - - (20.3)
Additions - 2.0 58.9 60.9
Disposals (13.7) (10.7) - (24.4)
Effect of foreign exchange rates - (3.0) (10.4) (13.4)
At 31 December 2023 789.0 1,219.1 451.8 2,459.9
Amortisation and impairments:
At 31 December 2022 25.7 73.5 149.6 248.8
Amortisation charge for the year - 90.8 91.2 182.0
Impairment charge for the year - - 0.6 0.6
Disposals - (1.3) - (1.3)
Effect of foreign exchange rates - (1.6) (6.9) (8.5)
At 31 December 2023 25.7 161.4 234.5 421.6
Carrying amounts
At 31 December 2023 763.3 1,057.7 217.3 2,038.3
At 31 December 2022 797.3 1,157.3 253.7 2,208.3
(1 ) Since the disclosure of the provisional fair values for the
acquisition of William Hill on 1 July 2022, an adjustment of £15.7m has been
made to increase the fair value of provisions, with a related £4.4m reduction
in deferred tax liabilities, and an equivalent movement in goodwill. This
adjustment has been made after the 31 December 2022 year end accounts and
during the measurement period. See note 10 for further details.
(2 ) In the current year, but outside of the measurement period, management
have identified £20.3m of additional deferred tax balances which were present
at acquisition. Management have deemed the adjustment to be qualitatively
immaterial for restatement of prior year figures, as it does not impact the
profit or loss, net assets, cash flow, remuneration, the Group's key
performance indicators or any of the Group's covenants. As such, the deferred
tax balances have been adjusted in the current year, with a corresponding
adjustment to the acquisition goodwill.
Goodwill
Including the adjustment made in the current year, goodwill recognised on the
acquisition of William Hill was £776.6m as outlined in note 10. Based on the
estimated synergies from the combination, management has allocated this
goodwill between Retail (£99.4m), UK&I Online (£357.9m) and
International (£319.3m). This represents the lowest level at which goodwill
is monitored for internal management purposes.
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 £574.4m, customer
relationships of £595.1m and licences of £8.5m. 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
where the recognition criteria are met. Capitalised costs on projects that are
works in progress amount to £44.8m at year end (2022: £42.0m). On the
acquisition of William Hill, the Group acquired software with a fair value of
£226.2m. 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 £29.5m in 2022. These assets
are being amortised over 3-5 years.
9. Goodwill and other intangibles (continued)
Impairment reviews
The Group performs an annual impairment review for goodwill, by comparing the
carrying amount of goodwill and other relevant assets with their recoverable
amount. This is an area where the directors exercise judgement and estimation,
as noted within the Annual Report and Accounts 2023. 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 prior 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&I Online and International.
Testing is carried out by allocating the carrying value of the 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.
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 assumes 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; this does not include any capex
projects or the benefits that arise from them in line with IAS 36;
- 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 assumes that the Group will achieve its target sports
betting gross win margins as set for each territory, which management bases
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 2024 budget for each segment in January 2024.
Management prepared a 3-year strategic forecast covering years 2025 to 2027
using the same basis as the four-year strategic forecast covering years 2024
to 2027 that was approved by The Board in the prior year. Additionally,
management has prepared a separate forecast for the year 2028, incorporating
long-term growth projections based on the year 2027. These five years form the
basis of our 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 assumptions incorporated into the Group's impairment reviews are
those relating to discount rates and long-term growth assumptions, as noted
below separately for each CGU or group of CGUs:
CGUs 2023 Discount rate 2023 Long-term growth rate 2022 Discount rate 2022 Long-term growth rate
% % % %
Retail 13.0 0.0 13.3 0.0
UK&I Online 13.0 2.5 12.1 2.5
International 14.7 5.0 13.8 5.0
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 the group of CGUs relative to the market in
which it operates.
9. Goodwill and other intangibles (continued)
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 2023
for each CGU or group of CGUs are as follows:
CGUs 2023 Recoverable amount 2023 Headroom 2022 Recoverable amount 2022 Headroom/ (impairment)
£m £m £m £m
Retail 559.4 71.1 668.6 165.5
UK&I Online 1,551.8 419.6 1,534.5 359.3
International 1,119.0 493.6 1,725.2 996.2
US B2C n/a n/a 19.4 (25.7)
Within the US CGU, specifically in the US B2C business, there is goodwill from
a previous acquisition in the 888 Group, however this was fully impaired in
the previous financial year and therefore no longer requires an impairment
assessment.
Sensitivity of impairment reviews
For the Retail 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:
10% fall in cash flows 1% increase in discount rate
CGUs Reduction in recoverable amount Remaining headroom Reduction in recoverable amount
Remaining headroom
£m £m £m £m
Retail (55.9) 15.1 (37.1) 34.0
Retail cash flows would have to fall by more than 12.7% before the value in
use fell below the CGU carrying value. For the UK&I Online and
International group of CGUs, no impairment would occur under any reasonable
possible changes in assumptions upon which the recoverable amount was
estimated.
10. Acquisition & disposals
Acquisitions
On 1 July 2022, the Group acquired all of the equity interests in William
Hill. Total consideration for the transaction was £554.3m, consisting of
£544.7m cash consideration and up to £100.0m of contingent consideration,
fair valued on acquisition date at £9.6m.
Identifiable assets acquired and liabilities assumed
Final
Fair Value
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(1) (194.5)
Derivative financial instruments (3.5)
Lease liabilities (76.6)
Retirement benefit liability (0.4)
Deferred tax liabilities (211.5)
Long term debt (1,165.7)
Total net identifiable liabilities (222.3)
Goodwill 776.6
Consideration transferred 554.3
( )
(1 ) Since the disclosure of the provisional fair values in the 31 December
2022 year end accounts, and during the measurement period, an adjustment of
£15.7m has been made to increase the fair value of provisions, with a related
£4.4m reduction in deferred tax liabilities, and an equivalent movement in
goodwill. In the current year but outside of the measurement period,
management have identified £20.3m of additional deferred tax balances which
were present at acquisition. Management have deemed the adjustment to be
qualitatively immaterial for restatement of prior year figures, as it does not
impact the profit or loss, net assets, cash flow, remuneration, the Group's
key performance indicators or any of the Group's covenants. As such, the
deferred tax balances have been adjusted in the current year, with a
corresponding adjustment to the acquisition goodwill.
Intangible assets
Acquired identifiable intangible assets include £574.4m in respect of brands,
£595.1m in respect of customer relationships and £8.5m in respect of
licences. Software and technology of £226.2m, inclusive of a fair value
uplift of £70.6m has also been recognised on acquisition in the prior year.
Management considers the residual goodwill of £776.6m 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 calculating 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
£(123.0)m/£176.0m respectively.
10. Acquisition & disposals (continued)
Provisions and contingent liabilities
A contingent liability with a fair value of £80.6m has been recognised in the
prior year 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 £115.2m 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.
Following receipt of updated advice, the development of case law in Germany
indicates that the courts may apply a more customer-friendly approach to the
application of the three-year limitation period and link the commencement of
the limitation period to the player's first positive knowledge of a claim to
recover his gambling losses. The law permits a maximum limitation period of 10
years in this scenario. As such, during 2023 and within the purchase price
accounting measurement period, we have re-assessed the value of the provision
for customer claims in Germany as at the acquisition date. This has led to an
increase in the provision of £15.7m to a total value of £23.4m. This has
been recognised through the opening balance sheet on acquisition, leading to
an equivalent increase in goodwill on acquisition.
Other fair value adjustments
A fair value uplift of £1.1m 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 £0.8m 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 £6.8m reduction to the right-of-use
asset and £6.4m 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 £27.4m to a
fair value of £39.0m, 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 £7.1m,
reflecting the current market price of the debt at acquisition date.
Deferred tax liabilities of £192.2m 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
2023
On 22 May 2023, the Group agreed to sell its Latvian business to Paf
Consulting Abp. On 13 June 2023, the deal with Paf Consulting Abp completed.
The cash consideration for the Latvian business was £19.5m, of which £0.9m
is a working capital adjustment. As a part of the deal, the Group agreed an
earn out with Paf Consulting Abp, under which the Group would receive further
consideration of up to €4.25m. As this is deemed to hold a fair value of
£nil this has not been recorded in these financial statements. The Group sold
net assets totalling £20.2m, leading to a loss on disposal of £0.7m. These
net assets were made up of goodwill and other intangible assets of £23.1m,
other net assets totalling £1.0m, non-controlling interests of £0.5m offset
by deferred tax liabilities totalling £4.4m.
On 1 August 2023, the Group sold its 90% holding in its Colombian business
Alfabet S.A.S to Vivo Aladdin Online S.A.S for £0.6m, recognising a gain of
£0.4m on disposal.
10. Acquisition & disposals (continued)
2022
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 £37.4m (US$45.25m), out of which £35.7m was paid on
completion and a further £1.7m 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 £11.2m
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.
£m
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
Legal and regulatory Other restructuring costs
Indirect tax provision Shop closure provision
Total
£m £m £m £m £m
At 31 December 2022(1) 61.7 143.2 4.8 3.7 213.4
Charged/(credited) to income statement:
Additional provisions recognised 5.1 8.9 1.3 - 15.3
Provisions released to income statement - (3.8) - - (3.8)
Utilised during the year (2.3) (27.8) (2.5) (1.3) (33.9)
Transfers to trade and other payables(2) - (3.6) - (1.9) (5.5)
Foreign exchange differences (1.7) (0.5) - - (2.2)
At 31 December 2023 62.8 116.4 3.6 0.5 183.3
(1 ) Since the disclosure of the provisional fair values in the 31 December
2022 year end financial statements and during the measurement period, an
adjustment of £15.7m has been made to increase the fair value of provisions,
and an equivalent increase in goodwill.
(2 ) During the year, a £1.9m provision which was previously categorised
as other restructuring costs and a provision of £3.6m within legal and
regulatory have been transferred to accruals to better reflect the nature of
the liability.
Customer claims provisions of £104.8m (2022: £101.9m) 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.
11. Provisions (continued)
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 2023 such
that this represents management's best estimate of probable cash outflows
related to these matters.
The industry in which the Group operates is subject to continuing scrutiny by
regulators and other governmental authorities, which may, in certain
circumstances, lead to enforcement actions, sanctions, fines and penalties or
the assertion of private litigations, claims and damages. Within the opening
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
£19.2m, including divestments of £0.7m. This provision was acquired at 1
July 2022 and was settled during the year.
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.
Consumers who have obtained judgement against the Group'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 £86.2m, which
includes a provision of £80.6m relating to the William Hill and Mr Green
brands and £5.6m relating to 888.
The calculation of the customer claims liability includes provision for both
legal fees and interest but, does not include any gaming taxes that have
already been paid on these revenues. 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 £28.0m has been disclosed but not
recognised for the tax reclaims.
The timing and amount of the outflows is ultimately determined by the
settlement reached with the relevant authority.
Following receipt of updated advice, the development of case law in Germany
indicates that the courts may apply a more customer-friendly approach to the
application of the three-year limitation period and link the commencement of
the limitation period to the player's first positive knowledge of a claim to
recover his gambling losses. The law permits a maximum limitation period of 10
years in this scenario. As such, during 2023 and within the purchase price
accounting measurement period, we have re-assessed the value of the provision
for customer claims in Germany as at the acquisition date. This has led to an
increase in the provision of £15.7m to a total value on acquisition of
£23.4m. This has been recognised through the opening balance sheet on
acquisition, leading to an equivalent increase in goodwill on acquisition.
During the year, the Group has utilised £3.5m of the overall provision as
claims have been settled. In addition, a further charge of £6.2m has been
recognised to reflect the receipt of new claims.
Shop closure provisions
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 announced during the current and prior year.
12. Borrowings
Interest rate Maturity 2023 2022
% £m £m
Borrowings at amortised cost
Bank facilities
€473.5m term loan facility EURIBOR + 5.25% 2028 385.6 392.6
$575.0m term loan facility CME term SOFR + 5.35% 2028 401.6 420.7
£150.0m Equivalent Multi-Currency Revolving Credit Facility Benchmark rate + 3.5% 2028 - -
Loan Notes
€582.0m Senior Secured Fixed Rate Notes 7.56 2027 489.6 498.6
€450.0m Senior Secured Floating Rate Notes EURIBOR + 5.5% 2028 373.8 379.9
£350.0m Senior Unsecured Notes 4.75% 2026 10.5 10.5
Total Borrowings 1,661.1 1,702.3
Less: Borrowings as due for settlement in 12 months 3.9 4.8
Total Borrowings as due for settlement after 12 months 1,657.2 1,697.5
Bank facilities
Term Loan Facilities
In July 2022, the Group entered into a Senior Facilities Agreement in
connection with the William Hill Group acquisition, under which the following
term loan facilities were made available:
· a 6-year euro-denominated bullet term facility of €473.5m, of which
€6.4m was repaid in September 2022.
· a 6-year sterling-denominated delayed-draw bullet term facility of
£351.8m which was partially drawn in September 2022 ("GBP Term Loan") and
used to partially prepay the William Hill Group's £350m 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 repaid and partially replaced with an
increase of $75.0m under the Group's 6-year US Dollar-denominated term
facility, with the remaining amount replaced with senior secured note
issuances.
At 31 December 2023, the following amounts were outstanding under the term
facilities made available to the Group under the Senior Facilities Agreement:
- €467.1m (2022: €467.1m) under the Group's 6-year euro-denominated term
facility.
- $568.8m (2022: $573.5m) under the Group's 6-year US Dollar-denominated
term facility.
Loan Notes
Senior Secured Notes
(i) €582m 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 €400m 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 €182m in principal amount was issued under the
same terms as the initial €400m issuance and used to partially refinance the
GBP Term Loan.
(ii) €450m Senior Secured Floating Rate Notes due July 2028
In July 2022, the Group issued €300m 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 €150m in principal amount was issued under the
same terms as the initial €300m issuance to partially refinance the GBP Term
Loan.
12. Borrowings
Senior Unsecured Notes
£350m 4.875% Senior Unsecured Fixed Rate Notes due 2023 & £350m 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). The £350m 4.875% Senior Unsecured Notes due 2023 were settled in full
and, on 22 September 2022, Noteholders of £339.5m out of £350.0m 4.75%
Senior Unsecured Notes due 2026 took the option to exercise. As a result, this
reduced the £350.0m 4.75% Senior Unsecured Notes due 2026 to £10.5m at 31
December 2023 (2022: £10.5m). 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 £7.1m, 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 the income statement as exceptional costs in the 2022 financial year (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 2023, the Group had the following undrawn credit facilities:
£150m 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 £50m revolving credit
facility was replaced with a multi-currency revolving credit facility. The
replacement facility has an aggregate principal amount of £150m with a
five-and-a-half-year maturity (maturing in January 2028). The drawn balance on
this facility at 31 December 2023 was £nil (2022: nil).
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 every reporting period 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.
There are no other covenants on the group debt, therefore 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 £5.0m.
The balance on this facility at 31 December 2023 was £nil (2022: £nil).
Weighted average interest rates
The weighted average interest rates paid, including commitment fees, were as
follows:
2023 2022
% %
€473.5m term loan facility 10.01 7.25
$575.0m term loan facility 13.49 11.47
€582.0m Senior Secured Fixed Rate Notes 8.44 8.47
€450.0m Senior Secured Floating Rate Notes 9.95 7.58
£350.0m Senior Unsecured Fixed Rate Notes 4.75 4.75
12. Borrowings
Borrowings reconciliation
2023
Debt Opening Repayments Non-cash FX Total
£m £m £m £m £m
2026 Senior Unsecured Notes 10.5 - - - 10.5
€473.5m term loan facility 392.6 - 2.9 (9.8) 385.7
$575.0m term loan facility 420.6 (4.0) 7.4 (22.3) 401.7
€582.0m Senior Secured Fixed Rate Notes 498.7 - 2.9 (12.4) 489.2
€450.0m Senior Secured Floating Rate Notes 379.9 - 3.6 (9.5) 374.0
1,702.3 (4.0) 16.8 (54.0) 1,661.1
2022
Debt Opening Inflows Acquired Repayments Fees on debt Non-cash FV adjustment FX Total
£m £m £m £m £m £m £m £m £m
2023 Senior Unsecured Notes - - 352.3 (349.0) - - (3.3) - -
2026 Senior Unsecured Notes - - 351.9 (339.0) - - (2.4) - 10.5
£358.1 term loan facility - 347.0 - (347.0) - - - - -
£461.5m asset bridge loan - - 461.5 (461.5) - - - - -
€473.5m 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
€582.0m Senior Secured Fixed Rate Notes - 517.0 - - (18.9) 0.9 - (0.3) 498.7
€450.0m 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 2023 was as
follows:
Contractual / notional amount Level 1 Level 2 Level 3
£m £m £m £m
Financial assets
888 Africa convertible loan 6.8 - - 11.3
Cross-currency swaps 385.9 - 6.1 -
Interest rate swaps 130.1 - - -
522.8 - 6.1 11.3
Financial liabilities
Cross-currency swaps 351.9 - 45.0 -
Interest rate swaps - - 1.4 -
Ante post bet liabilities - - - 7.0
351.9 - 46.4 7.0
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 amount Level 1 Level 2 Level 3
£m £m £m £m
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 - 45.0 -
Ante post bet liabilities - - - 7.8
Contingent consideration (note 10) 100.0 - - 0.4
465.3 - 45.0 8.2
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 £7.0m (2022: £7.8m)
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 2023, 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
£m
At 31 December 2022 7.8
Movement through income statement (0.8)
At 31 December 2023 7.0
13. Financial instruments (continued)
888 Africa convertible loan
On 22 March 2022 the Group entered into a joint venture agreement as 19.9%
owners of 888 Africa Limited ("888 Africa").
Whilst the Group's equity contribution was not material, as part of the joint
venture shareholder agreement, the Group agreed to lend 888 Africa $8.0m
(£7.2m) as a senior secured convertible loan that can be converted into 60.1%
of 888 Africa issued and outstanding shares at the Group's discretion. Because
of the conversion option, the loan is deemed to be a derivative financial
asset under IFRS 9 'Financial Instruments' and is held at fair value through
profit and loss.
As at 31 December 2023 the convertible loan has been fair valued using the
market approach based on forecast 2024 revenue in proven African markets. The
non-cash, fair value uplift of £4.1m is recorded within operating profit in
the Condensed Consolidated Income Statement. In the prior year fair value was
deemed approximate to the carrying value of the convertible loan due to the
early stage of the investment.
Hedging activities
The table below illustrates the effects of hedge accounting on the Condensed
Consolidated Statement of Financial Position and Condensed 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.
2023 Carrying amount Change in fair value in period for calculating ineffectiveness (hedging Cash settlements and accruals in the period (hedging instrument) Change in fair value in period for calculating ineffectiveness (hedged item) Cash settlements and accruals in the period (hedged item) Hedge ineffectiveness in the period
instrument)
£m £m £m £m £m £m
Interest rate swaps
EUR trades (0.8) (1.7) 0.3 (1.7) 0.3 -
Total (0.8) (1.7) 0.3 (1.7) 0.3 -
Cross-currency swaps
EUR trades (4.7) (9.8) (9.1) (9.8) (9.1) -
USD trades (34.8) (17.0) (2.0) (17.0) (2.0) -
Total (39.5) (26.8) (11.1) (26.8) (11.1) -
2022 Carrying amount Change in fair value in period for calculating ineffectiveness (hedging Cash settlements and accruals in the period (hedging instrument) Change in fair value in period for calculating ineffectiveness (hedged item) Cash settlements and accruals in the period (hedged item) Hedge ineffectiveness in the period
instrument)
£m £m £m £m £m £m
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)
13. Financial instruments (continued)
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:
2023 On Demand Less than 1 year 1 to 5 More than 5 years Total
years
£m £m £m £m £m
Interest rate swaps - 0.8 (1.5) - (0.7)
Cross currency swaps
EUR trades - (8.2) (7.7) - (15.9)
USD trades - (6.6) (30.7) - (37.3)
Total - (14.0) (39.9) - (53.9)
2022 On Demand Less than 1 year 1 to 5 More than 5 years Total
years
£m £m £m £m £m
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
2023 2022 2023 2022
Number Number £m £m
Ordinary Shares of £0.005 each 1,026,387,500(1) 1,026,387,500 5.1 5.1
( )
(1) including 297,501 treasury shares held by the Group as at 31 December 2023
(2022: 447,020)
Allotted, called up and fully paid
31 December 31 December 31 December 31 December
2023 2022 2023 2022
Number Number £m £m
Ordinary Shares of £0.005 each at beginning of year 446,331,656 372,759,202 2.2 1.9
Issue of Ordinary Shares of £0.005 each 2,713,601 73,572,454 - 0.3
Ordinary Shares of £0.005 each at end of year 449,045,257 446,331,656 2.2 2.2
The narrative below includes details on issue of Ordinary Shares of £0.005
each as part of the Group's employee share option plan during 2023 and 2022.
On 7 April 2022 the Company issued 70.8m 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 £2.30 per share.
After issue costs of £4.3m, the net proceeds were £158.5m. Issue costs
directly attributable to the transaction were accounted for as a deduction
from share premium in the prior period.
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 and joint ventures
As part of the William Hill acquisition in the prior year, the Group acquired
Sports Information Services (Holdings) Limited, an associate of the William
Hill Group. For the year to 31 December 2023, the Group made purchases of
£36.6m (1 July 2022 to 31 December 2022: £15.8m) from Sports Information
Services Limited, a subsidiary of Sports Information Services (Holdings)
Limited. At 31 December 2023, the amount payable to Sports Information
Services Limited by the Group was £nil (31 December 2022: £nil).
During the year the Group made loans totalling £2.4m (2022: £4.5m) to 888
Africa as part of the joint venture shareholder agreement. These loans incur
interest at 12% per annum. For the year ended 31 December 2023 the Group
received £0.7m in revenue from 888 Africa for the use of the 888 brand.
During the year the Group also made loans totalling £1.8m to 888 Emerging
limited, a joint venture of the Group.
Remuneration of key management personnel
The aggregate amounts payable to key management personnel, as well as their
share benefit charges, are set out below:
2023 2022
£m £m
Short-term benefits 1.6 2.9
Post-employment benefits 0.3 0.1
Share benefit charges - equity-settled 0.1 2.4
2.0 5.4
16. Contingent assets and liabilities
Legal claims
As at 31 December 2023, potential legal claims of £4.5m related to the
Austria and Germany provisions (see note 11 for further details) are deemed to
give rise to a possible future cash outflow, as such no provision was required
at the balance sheet date.
The calculation of the customer claims liability includes provision for both
legal fees and interest but does not include any gaming taxes that have
already been paid on these revenues. 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 £28.0m (31 December 2022: £24.3m) has
been disclosed for the tax reclaims. Refer to note 11 for further details.
17. Events after the reporting date
On 6 March 2024, the Group announced its decision to conclude its partnership
with Authentic Brands Group as part of the strategic review of its B2C
business. This partnership had granted exclusive use of the Sports Illustrated
brand for online betting and gaming. As part of the termination agreement, the
Group has agreed to pay a total termination fee of $50.0m, $25.0m of which
will be paid upfront in cash from available resources. The
remaining $25.0m will be paid between 2027 and 2029.
On 22 March 2024, the GB Gambling Commission ("GBGC") informed the Group that
it had concluded its review into the Group's operating licences that was
announced by the Group on 14 July 2023. The GBGC concluded the review without
imposing any licence conditions, financial penalties or other remedies on the
Group.
Appendix 1 - Alternative Performance Measures
In reporting financial information, the Board uses various alternative
performance measures (APMs) which it believes provide useful additional
information for understanding the financial performance and financial health
of the Group. These APMs should be considered in addition to IFRS measures and
are not intended to be a substitute for them. Since IFRS does not define APMs,
they may not be directly comparable to similar measures used by other
companies.
The Board uses APMs to improve the comparability of information between
reporting periods by adjusting for non-recurring or uncontrollable factors
which affect IFRS measures, to aid users in understanding the Group's
performance.
Consequently, the Board and management use APMs for performance analysis,
planning, reporting and incentive-setting.
APM Closest equivalent IFRS measure Definition/purpose Reconciliation/calculation
Adjusted EBITDA Operating profit/ loss Adjusted EBITDA is defined as operating profit or loss excluding share benefit A reconciliation of this measure is provided on the face of the condensed
charges, foreign exchange, depreciation and amortisation, fair value gains and consolidated income statement.
any exceptional items which are typically non-recurring in nature.
Adjusted EBITDA margin No direct equivalent Adjusted EBITDA margin is defined as adjusted EBITDA divided by revenue. It See note A.
is a measure of the business' profitability, and also measures how much
revenue the business converts into underlying profitability. Improving
Adjusted EBITDA margin is a key strategic priority for the business.
Adjusted EPS Earnings per share Adjusted EPS represents basic and diluted EPS based on adjusted profit before Reconciliations of these measures are provided in note 7 of the condensed
tax. financial statements.
Adjusted profit after tax Profit after tax Adjusted profit after tax is defined as profit after tax before amortisation A reconciliation of this measure is disclosed in note 7 of the condensed
of acquired intangibles and finance fees, foreign exchange, share benefit financial statements.
charges, exceptional items and tax on exceptional items.
Exceptional and adjusted items No direct equivalent Exceptional items are those items the Directors consider to be one-off or Exceptional items and adjusted items are included on the face of the
material in nature that should be brought to the reader's attention in consolidated income statement with further detail provided in note 3 of the
understanding the Group's financial performance. condensed financial statements.
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, foreign exchange and share benefit charges.
Effective tax rate Income tax expense This measure is the tax charge for the year expressed as a percentage of Effective tax rate is disclosed in note 6 of the condensed financial
profit before tax. statements.
Adjusted effective tax rate No direct equivalent This measure is the tax charge for the year as a percentage of profit before Adjusted effective tax rate is disclosed in note 6 of the condensed financial
tax adjusted for the items disclosed in adjusted profit after tax above. statements.
Leverage ratio No direct equivalent Leverage ratio is calculated as net debt divided by the previous 12-months See note B.
adjusted pro forma EBITDA. Net debt comprises the principal outstanding
balance of borrowings, accrued interest on those borrowings and lease
liabilities less cash and cash equivalents (excluding customer deposits).
Pro forma revenue and pro forma adjusted EBITDA No direct equivalent Pro forma metrics, which are unaudited, reflect the results as if 888 had Reconciled in the CFO report.
owned William Hill for each of the periods and excludes the results of the 888
Bingo business for all periods. This enables measurement of the performance of
the divisions on a comparable year-on-year basis.
Note A
Retail UK&I Online International Other Corporate Total
£m £m £m £m £m £m
2023
External revenue from continuing businesses 535.0 658.5 517.4 - - 1,710.9
Adjusted EBITDA 98.9 152.3 99.4 - (42.3) 308.3
Adjusted EBITDA margin % 18.5% 23.1% 19.2% - N/A 18.0%
2022
External revenue from continuing businesses 255.5 455.5 508.3 19.5 - 1,238.8
Adjusted EBITDA 41.2 61.6 118.3 1.7 (4.9) 217.9
Adjusted EBITDA margin % 16.1% 13.5% 23.3% 8.7% N/A 17.6%
Note B
2023 2022
£m £m
Borrowings (1,661.1) (1,702.3)
Add back loan transaction fees (96.6) (112.7)
Gross borrowings (1,757.7) (1,815.0)
Lease liability (87.6) (89.0)
Cash (excluding customer balances) 128.4 176.3
Net debt (1,716.9) (1,727.7)
Adjusted EBITDA 308.3 310.6
Financial leverage ratio 5.6 5.6
This information is provided by RNS, the news service of the London Stock Exchange. RNS is approved by the Financial Conduct Authority to act as a Primary Information Provider in the United Kingdom. Terms and conditions relating to the use and distribution of this information may apply. For further information, please contact
rns@lseg.com (mailto:rns@lseg.com)
or visit
www.rns.com (http://www.rns.com/)
.
RNS may use your IP address to confirm compliance with the terms and conditions, to analyse how you engage with the information contained in this communication, and to share such analysis on an anonymised basis with others as part of our commercial services. For further information about how RNS and the London Stock Exchange use the personal data you provide us, please see our
Privacy Policy (https://www.lseg.com/privacy-and-cookie-policy)
. END FR EQLBLZXLZBBVRecent news on 888 Holdings
See all newsREG - William Hill Limited 888 Holdings plc - 888 Announcement Containing Company Information
AnnouncementREG - 888 Holdings plc - Q1 2024 Trading Update
AnnouncementREG - 888 Holdings plc - Publication of Notice of AGM
AnnouncementREG - William Hill Limited 888 Holdings plc - 888 Announcement Containing Company Information
AnnouncementREG - 888 Holdings plc - Annual Report and Notice of Trading Update and AGM
Announcement