Online betting company 888 plans to slash the £1.6bn debt pile that fuelled its acquisition of William Hill’s non-US business in an attempt to quell investor fears about the impact of higher interest rates.
The Gibraltar-based betting group said on Tuesday that it was “more exposed” to higher rates because the structure of the £1.95bn William Hill purchase “resulted in the group’s net debt being higher than was anticipated”.
888 said it would take an “extremely disciplined approach” to capital allocation and set a target of cutting net debt from about 5.7 times earnings to 3.5 times by the end of 2025.
The gambling company’s net debt totalled £1.6bn at the end of September, of which 64 per cent was at floating rates, affecting its “ability to reinvest excess cash flow in accelerating growth in the short term”.
Central banks worldwide have increased interest rates in recent months to try to bring down soaring inflation, adding to borrowing costs.
888 also said it would aim to increase full-year revenues from about £1.85bn to more than £2bn by 2025. The group’s results have been affected recently by its temporary exit from the Netherlands following the loss of its gambling licence and by investment in safer gambling measures in anticipation of a UK government review of the industry.
In July, 888 completed the purchase of William Hill’s operations outside the US, which included 1,500 UK betting shops and online operations in markets such as Italy and Spain, from casino operator Caesars.
Itai Pazner, 888’s chief executive, said he “absolutely did not” regret the costly William Hill takeover, adding that worsening market conditions were “out of our control”.
“What is in our control is how we deal with it,” said Pazner. “We have very solid plans in order to deleverage and to create higher margins for our business. I’m confident that we’ll be able to deliver those plans and deliver a much stronger balance sheet.”
Pazner said the industry expected the UK government’s review of the 2005 Gambling Act to arrive before Christmas. “I think it’s a good thing because it has been hanging over the industry’s head for a long while,” said Pazner.
“We took a huge amount of steps in the last year in terms of changing the level of affordability, adjusting our slot limits already in anticipation of this,” he added. “We definitely think that a big part of the impact is already baked in.”
The group said it would tap debt markets again in the coming months to repay up to £347mn of bank loans related to the William Hill acquisition.
Banks including JPMorgan and Morgan Stanley, which backed 888’s £1bn bond and loan deal to finance the William Hill purchase, were forced to absorb a loss on the debt when selling it on to specialist funds over the summer.
Roberta Ciaccia, an analyst at Investec, said in a note that 888 had set “clear and sensible targets” but she stressed that “now it is all about delivery”.
Shares in the London-listed group were flat in morning trading on Tuesday. The stock has lost about two-thirds of its value so far this year.