888 Holdings plc (OTCPK:EIHDF) Q2 2022 Results Conference Call August 12, 2022 7:00 AM ET
Company Participants
Itai Pazner – CEO
Yariv Dafna – CFO
James Finney – IR
Conference Call Participants
Richard Stuber – Numis
Ivor Jones – Peel Hunt
John Davies – Deutsche Bank
James Wheatcroft – Jefferies
Itai Pazner
Good afternoon, everyone, and thanks for joining us today for 888’s 2022 interim results presentation. I’m joined by Yariv Dafna, our CFO, who’s in our London office.
Starting with the agenda on Slide 3. I’ll run through some highlights and then hand over to Yariv to discuss financials. I will then provide an overview of our strategic progress during the first half before concluding and opening up for some questions.
So turning to Slide 4 and getting into the highlights from the period. On a pro forma basis, as if we had been an enlarged business for both periods, revenues were broadly stable and in line with guidance we gave in June. And adjusted EBITDA was £142 million. Strong growth in retail revenues was offset by online revenues being down just over 20%.
The decline in online revenues is mainly due to lower online revenues in the U.K., where we’ve implemented a series of safer gambling and affordability measures on players’ accounts. While this causes campaign to our financials in the short term, it puts us in a much better position for any future change in regulations in the U.K. For the reported financial results, we just reflect 888 on a stand-alone basis and include Bingo, revenue was £332 million and adjusted EBITDA of £50 million.
Looking at our strategic highlights. This has been an incredible period for the business, the most significant transformation in the 21 years that I have been in 888 with the main highlight being the acquisition of William Hill, which closed on July 1. Alongside that, we continue to expand into further regulated markets with launches in Ontario and in Virginia, and we are just in the process of launching our first 4 African regulated markets with our strategic partners. I’ll expand on these and our long-term growth strategy soon. But for now, I will hand over to Yariv to walk through our financials.
Yariv Dafna
Thanks, Itai. Good morning, everyone, and thank you for joining us today.
Starting with Slide 6. You can see the financial highlights for the first half on a reported basis. For the first time, we are presenting results in pound sterling, and this is how we will be reporting our results going forward. Revenue were down 13% to £332 million. The main driver for the decline in revenue were the U.K., which was 25% down and the Netherlands closure, which was about 3% of revenue in H1 2021.
The decline in the U.K. was in line with the market, which was down 23% according to the latest UK GC data. The decline is also driven by the enhanced player protection implemented last year and in the period while the framework includes significant expansion in the number of player with deposit limit as well as reducing the maximum stake for online slot games to £10.
Looking at the remainder of the business, excluding the U.K. and the Netherlands, our revenue increased 2%, a pleasing performance against strong period in 2021. Adjusted EBITDA was down 29%, with the EBITDA margin down to 15%. This margin decline largely reflects phasing of cost and an increasing cost from player safety measure. Adjusted PBT was down 39% to £33 million, impacted by the reduction in EBITDA and an increase in a noncash FX losses. We had £16 million of exceptional items in the period, mainly related to our M&A activity, and therefore, the reported PBT and profit after tax were significantly lower.
Turning to Slide 7, you can see the pro forma financial highlights. We completed the acquisition of William Hill on July 1 and the Bingo sale on July 7. This slide presents the enlarged group financial as if we were a combined business and excluding the 888 Bingo result. Revenue was broadly stable at £943 million, and adjusted EBITDA was up 26% to £142 million, driven by the retail performance.
Retail saw really strong growth as the shop were shut for the most of the period last year. In the last 12 months, the U.K. retail business has generated revenue of £513 million and adjusted EBITDA of £97 million, and we are really pleased with the recovery of the business. William Hill U.K. online revenue were down 28%, with active fairly stable, but ARPU down 29%. And as the team implemented additional strong player protection measurer and reduce the slot to stack limit to £10.
William Hill International revenue were also down 28% following the closure of certain markets like the Netherlands, as well as strategic changes to increase focus on selected core markets. The EBITDA was stable relative to last year. On a last 12-month basis, we saw £1.9 billion in revenue and £299 million of adjusted EBITDA, reflecting an EBITDA margin of 15.8%.
Moving to Slide 8. In the last few years, one of our key goals was to build 888 into a leading regulated online betting and gaming business. We made further progress in the first half of 2022 with 85% of the pro forma revenue coming from regulated and taxed markets. During H1, we launched 888 in Ontario, SI Sportsbook in Virginia and WSOP in Michigan. Looking forward, we see a clear path to almost 90% of revenue to come from regulated and taxed market with a long tail of offshore market served by our scalable global platform.
Slide 9, you can see the diversity of the business from geographic and a product perspective. The U.K. remains our most important market with 38% of revenue from U.K. online and another 28% from the U.K. retail.
Italy remains our #2 market, making up 7% of the enlarged group revenue, and the 888 brand has continued to grow market share in the first half even with retail fully open. The Americas made up 5% of our revenue and Spain represent another 4%.
From a product perspective, you can see the strong benefit of the transaction with a better balanced product split with 20% betting, 51% gaming and 27% retail all on a pro forma basis.
Moving to Slide 10. I will provide overview of our net debt position and the long-term financing we have put in place as part of the acquisition of William Hill. In total, we have approximately £1.8 billion in external debt. And in the table below, you can see how this is split between the different instruments with maturity mainly being 6 years.
Most of the debt is variable rate debt. And based on the current market condition and the forward curve we expect cash interest cost to be approximately £65 million in H2 2022 and £130 million to GBP140 million in 2023. This represents a blended interest rate of about 8%.
In addition to the external debt, we have approximately £100 million of capitalized lease liability under IFRS 16 and cash of £178 million, excluding customer balances. This brings the current net debt to approximately £1.7 billion.
On a last 12-month basis, and including the planned £85 million of OpEx synergies, this would be 4.4x leverage. With our long-term debt structure in place, the strong progress with our integration plan, we are confident about our plan to achieve the midterm in the mean term, and net leverage of 3x.
Turning to Slide 11, a few words about our outlook for the year. For the second half of the year, we expect revenue to be broadly similar to the first half, such that on a pro forma basis, we currently expect revenue of approximately £1.9 billion for the full year 2022, consistent with the last 12 months period.
Within the business, we see a real stability in retail, which has been running at approximately £500 million of annual revenue since the U.K. reopened. Within online, there have been many factors driving revenue, including significant changes in regulatory and compliance matter, but we believe that the last 12 months run rate of approximately £1.4 billion is a good indication of our business run rate for the short term. As you can see from the actives over the last 12 months, we see continued strong consumer engagement, and this gives us confidence that our product and marketing investments are working. As for the synergy, we still expect a single-digit million in 2022, increasing to at least £54 million in 2023.
It is too early to talk about 2023 in details, but I can say that our priorities and focus are on integration, execution of our synergy plan and on cash generation and deleverage. We remain confident that in our plans and outlook, including the midterm target of 3x leverage, and I expect to give you more details on this in the Capital Market Day we plan for later this year.
With that, I will now hand over to Itai to tell you a bit more about our strategic priorities, key achievement and growth plans.
Itai Pazner
Thanks you. And turning to Slide 13. I thought it would be useful to provide a reminder of our refined growth strategy pillars. We have a clear framework in place to deliver sustainable long-term growth built around 3 areas: firstly, market focus. This means ensuring we invest our resources in the markets with the most attractive opportunities when we can deliver superior returns.
Secondly, reinforcing our sustainable competitive advantages. These are the 3 pillars that act as enablers and really drive market share gains. All of this is underpinned by continued investment in our talented people.
Thirdly, we will be supporting our growth with strategically and financially attractive M&A that enables us to benefit from scale advantages. I’ll expand on progress against these elements. So on Slide 14, a and our market focus, we made really strong progress here with further regulated market launches. In the U.S., we launched SI Sportsbook in Virginia, and I’m delighted to say that we will be launching sportsbook and casino in Michigan in the coming months. By the end of the year, we should be live in 4 states on a B2C basis.
Just north of the border, we launched 888 in a locally regulated basis in Ontario in April, and the initial results here have been really pleasing. Canada is one of our growth markets, and we see really strong potential there. With our strong brand and product and content leadership strategy, really building us a strong position in the Canadian market. Within our long-term investment strategy in emerging markets, we are in the process of launching our first 4 regulated African countries, which I’ll expand on shortly.
Finally, the combination with William Hill is really complementary in terms of market focus, giving us top 3 position in the U.K. and Spain and top 5 position across several other markets. There are some additional markets where the William Hill and Mr. Green brands performed strongly that we could now consider growth markets for the group. And equally, there are certain markets where having all 3 brands won’t make sense, and we are working through all of these now as part of the integration to decide where we can optimize our investment decision and marketing approach.
Turning to Slide 15. And I’m delighted to tell you about the huge progress we made in 888Africa. We set up 888Africa in March. There is a joint venture with a team of founders with huge experience in the online betting and gaming and real passion for product and customer excellence. Right now, we are launching our first 4 countries in Tanzania, Zambia, Kenya and Mozambique.
The operations are under the brand 888bet, which is already scoring well in our targeted markets, leveraging the global brand awareness of the 888 brand. It is very early days, but we are really pleased with the rapid progress the team has made.
As you can see from the slide here, we’ve got some great branding and offers as we roll out the 888 brand into all of the markets. Industry commentators expect the addressable market in Africa to grow rapidly over the medium term. So this is a really exciting opportunity for 888, and we think this could be a source of significant value in the coming years.
Turning to Slide 16. Our growth strategy is underpinned by investing in our sources of sustainable competitive advantages. We made further progress with each of these in this period. Our product and content leadership plan means building best-in-class products and creating easy, quick and seamless player experiences.
During the first half, we launched a whole host of great new products, including a new bet slip for 888sport with a tab layout, making it quicker and easier to use, an industry-first live slot experience using Safari Riches one of our really strong in-house game brands. And we rolled out a great pre-toplate game in the U.S., which is called Perfect 10.
Our second pillar is world-class brands and marketing. We rolled out our master brand plan for 888 in the period, uniting all of 888 sub-brands under the Made to Play banner, giving us a really consistent and strong brand positioning.
Our third pillar is customer excellence and customer safety. It was great to see another improvement in our customer satisfaction scores, which was really supported by the rollout of Amanda, a new virtual assistant to help customers get really quick answers and resolutions to any issues they have. This also helps us streamline our customer service, saving time and cost and freeing up time for our excellent team to help customers. Customer safety is one of the most critical focuses for us and it was great to continue rolling out our control center into more countries as we strive to drive higher and higher standards in player safety.
I’ll now turn to our — the third part of our strategy, strategically and financially attractive M&A. Before talking about that transformational acquisition of William Hill, here is a short video about the combination.
[Audio/Video Presentation]
Itai Pazner
As you can see this landmark combination, bringing together 2 really strong businesses to create a powerful and large business.
Turning to Slide 18. The combination brings together some of the industry’s strongest brands with 888, William Hill and Mr. Green. On an enlarged basis, our brands serve almost 6 million customers. And in the last 12 months, we generated almost £2 billion of revenues and over £380 million of EBITDA after reflecting the synergies that we expect to deliver.
This acquisition fits perfectly with our strategy and really accelerates our plan to become a global leader. We are now a top 3 player in the U.K. and in Spain and have significantly enhanced market positions across a range of the most attractive markets, including key markets like Italy, Denmark and Germany. We further boost our competitive advantages with the addition of unique brands and some really great products. And as we integrate and deliver synergies, we expect that acquisition to deliver really strong financial returns.
So turning to Slide 19. I’m pleased to report that we are making really good progress with our integration. We have a really structured integration plan that is driven by strong principles to drive quick wins with cost savings and maintaining and engaging in our key talent. It’s been great to getting to know more of the William Hill team. And as we’re getting into the integration, that’s becoming even more clear to us how much upside potential there is in this combination.
Turning to Slide 20. A few words about our teams and plans. I was delighted to announce our new leadership team before completion. We have an excellent team built up from people across both businesses and also from outside of the business. A significant new appointment for us is our new Chief Risk Officer, Harinder Gill, who started with us just last week.
Safer gambling is a critical focus for us. as we further build and strengthen our approach to provide fun and entertainment to our players, but doing whatever we can to minimize risk that come from our products.
Alongside the new team you see here, we have a huge depth of talent across both businesses. Together, we are really focused on the huge long-term value creation potential from this combination. We are building a powerful proprietary technology platform that will deliver class-leading products and content globally, delivered from a portfolio of amazing brands, and always with focus on customer excellence.
Turning to Slide 21 and to conclude. The first half of 2022 was a truly transformational period for the group. Financial results were solid as we lapped a record period with the U.K. performance more or less in line with the overall market. We continue to invest in new regulated markets.
Our extensive M&A activity has given us a platform to create a world leader in online betting and gaming. We are making really good progress on executing of our integration plans and look forward to telling you a lot more about this and our future at an Investor Day in November. With that, we’ll be happy to take your questions.
Question-and-Answer Session
Operator
[Operator Instructions] The first question comes from the line of Richard Stuber from Numis.
Richard Stuber
Three for me, please. So having had William Hill now under full ownership for 6 weeks, is there anything which has surprised you on either the upside or downside versus your pre-completion expectations? The second question is, could you give us an update on the timing of the Netherlands license, please? And thirdly, could you just clarify if any of your term loans or any debt facilities have any financial covenants which we should be aware of?
Itai Pazner
Thanks, Richard. So I’ll address the first 2 questions, and Yariv will address the debt one. So first of all, in terms of surprises, I think we are pleasantly surprised by a few things. First of all, the talent that we’ve been exposed to in William Hill across the board of the business, the depth of the knowledge that they have in all parts of the business online, specifically retail, which is a new area for us, a very, very strong leadership team there and very strong position in the U.K. market. We’ve identified both growth synergies and obviously, the cost synergies that we’ve been working on for months. We’re very, very comfortable that we’ll manage to achieve them.
So I would say we’re definitely pleasantly surprised with talent, with some parts of the business that are performing well, like retail, and I’m pleasantly surprised to tell you the truth, there isn’t anything that really unpleasantly surprised us. In terms of the Netherlands, we are working on the license there. renewing our license or getting a new license there. And the expectation is in the second half of this year, but obviously, these regulatory processes have their own pace, and we can’t commit to a specific date on them.
Yariv Dafna
Yes. So Richard, first of all, maybe another piece on the Netherlands. So we were expecting Q3 and this is now seems to be more like Q4. This is just a bit more accurate on expectation. And in terms of covenants, so we don’t have a specific financial covenant that we need to meet as part of the overall debt. However, if we have — if we are using the RCF more than 40% of its level, then there will be some very light financial covenant that will kick in.
Operator
The next question comes from the line of Ivor Jones from Peel Hunt.
Ivor Jones
You’ve talked about the opportunity from William Hill, you talked about tremendous upside, you talked about huge long-term potential. When you were answering Richard’s question, you said there are identified growth synergies. Could you expand a bit on the opportunity that results from putting the 2 businesses together beyond the synergies? You’re baking the synergies in when you look at the net debt-to-EBITDA multiple, for example, what is — how would you articulate the opportunity now? What are the growth synergies? Where are they going to come from?
And then more specifically, on the international side of William Hill, I don’t really get how EBITDA is stable on declining revenue if you’re focusing on particular markets. Is this a business being run down, trying to get more cash out of it? So what’s happening on the international side? And thirdly, is 888Africa gaming only? Or is it sports? Will it get access to the William Hill brand for its market?
Itai Pazner
Okay. Thanks, Ivor, I’ll address the first question in Africa, and Yariv can expand on the second one. So in terms of the growth synergies, we have — we’re going to have an Investor Day in November, and we’re going to expand much further on both growth synergies and our plans on the cost synergies. But for now, the areas that we see a big kind of potential for growth, first of all, it’s the brands, okay? So the group has significant brands, both in terms of sports betting and in gaming.
And we’re planning to take the best brands for each market, invest in them and then obviously reduce investments in brands that need to be rationalized. And that have a lower potential in each market. This gives us an opportunity to put our resources behind the most successful brands with the highest potential for growth. in each market rather than investing in all brands and all markets.
The second potential is in terms of a platform. So we are planning to work under 1 enhanced platform for the entire group. That will create both cost synergies and growth synergies as we deliver the best technology and customer experience to all of our customers over all of the brands across the group.
And then there’s synergies obviously in gaming, bringing 888’s best-in-class gaming products over to all of William Hill’s business, including 88 games, the games that we deliver to William Hill customer base both online and in retail. And in terms of sports betting, there’s obviously taking all the capabilities that have been built in terms of trading and managing a sports on William Hill and leveraging them also on 888. So we’re seeing a lot of them, and we’re uncovering more as the integration plans and the teams are working closely together, there are more specific areas in terms of marketing, in terms of CRM, in terms of customer support, we can — we’re basically finding areas of improvements and growth in almost every part of the business.
So as these are unfolding, like I said, we’ll be sharing more of these in the November call, but we’re — like I said, we’re very confident in terms of our cost synergies, and we’re identifying and prioritizing in terms of our road map, we’re prioritizing areas that will bring us the quickest growth synergies. So that’s from that perspective.
In terms of the Africa. So Africa, the brand there is 888bet actually, which is the first time we’re launching that brand. So it will obviously be focused on sports betting and gaming, but the lead product in Africa is actually sports betting. And in terms of access to William Hill brand, obviously, we have access to William Hill brand everywhere outside of the U.S. So we can use that brand if it makes sense in the future. At the moment, we’ve decided to launch with a bet, and that will be the lead brand in the African markets.
Yariv Dafna
Okay. with regard to the EBITDA of the international. So just to be fair, so there was some optimization in terms of cost in this part of the business, but there were also some gain on the accounting side, including also some FX benefit. So you can assume that the real underlying performance is that EBITDA is actually performing less good than last year.
Ivor Jones
And what’s the future for international online?
Yariv Dafna
So financially, of course, international has a significant synergies with the 888 business, and this is what we are going through these days. And there will be a review market by market in which, as Itai mentioned, we will need to decide what is the brand and go-to-market for each of this market. This can give us both potential of better growth for the future from the low point that we are at and also strong cost synergies looking forward.
Itai Pazner
I’ll just add to that, Ivor. If that we believe a big part of the potential growth of international was actually in sports betting. The group, if you look at both William Hill brand, Mr. Green brand and obviously, 888 brand on the international markets, which are all of the kind of European markets and Northern American markets that we’ve been focusing on. They’ve all scored really well in gaming, and I think we’ll score even better as we integrate platforms and offer the 888 gaming experience across all the different markets. But the real big potential is in terms of sports betting — so again, unifying the sports betting brand to 1 lead brand in each market. Putting the best sports product and know-how behind that product and growing the business in our focus markets in sports betting has, I think, the biggest potential for growth in the future.
Ivor Jones
So in the future, if you allocate marketing resources between U.K. online, 888 online and international online, the relative performance of those businesses is going to depend on that group-wide allocation decision. It’s going to be hard to interpret the performance of those 3 lines as you keep reporting. Is that right?
Itai Pazner
First of all, performance is not only based on marketing, performance is also based on product, customer experience and many other things, we actually saw.
Ivor Jones
And brand choices you make, right?
Itai Pazner
Yes. Obviously, brand prices, which we are making now. The brand choices are being made now and will be rationalized already in Q4 this year. So just to give a simple example, 888 in the U.K. is a challenger brand coming from a very low market share base, 888sports. William Hill is one of the top 3 brands in the U.K., building a brand in the U.K. is extremely expensive for 888 to become kind of a top-tier brand would take a few more years of significant investment in branding.
Now that the group has William Hill, obviously, we don’t have to invest that kind of level in branding, but we can still grow 888sport on more of a performance basis. And if you take that and work that out between all of the different markets, we feel we have a better way to grow sports betting in all of those markets, focusing the marketing investment and the product investments in road map into a single brand in each of the markets, while keeping the other brands, I would call them secondary or tactical or removing them all together from the market.
Operator
[Operator Instructions] The next question comes from the line of Simon Davies from Deutsche Bank. Three for me, please.
Simon Davies
Firstly, on affordability checks, obviously, a significant impact from those through the period. Where do you think you now are in terms of affordability checks relative to your expectations? And what may be enforced on the industry post the white paper? Secondly, just on platform integration. Previously, you talked about a best-of-both approach, which sounded slightly complex to execute. Have you refined your views at all in terms of how you will structure the enlarged group platform?
And lastly, just in the U.S., what were the U.S. losses in the first half? And what are your expectations now for ’22 and if possible, ’23.
Itai Pazner
Yariv, you start with affordability.
Yariv Dafna
Yes I will cover affordability and cover U.S. and then we’ll hand over to Itai to discuss our platform integration. So in terms of affordability we believe that we did a massive progress towards what is going to be the new regulation. In 2021, we have removed the threshold in which we are going to do our affordability check from [2,000] of net loss to [950]. And at the beginning of this year, we took that down to [500]. This is also in both businesses. And this is a massive change toward the — what’s going to be the regulation.
Now it’s not only about when we are meeting the customer for the first time. This kind of change requires also more resources internally in order to process all these affordability checks and also a lot of additional costs that we need to do with external that provide us all the data that we need. All these costs are already in the number reflected in the number, and therefore, we expect a minimal impact to come when the regulation would be set.
The £10 slot limit is also some kind of affordability, and this is — last year, we aligned ourselves to £20 limit. William Hill took it down £10 already from the beginning of this year, and we align as well recently to the £10. So we are across organization now on £10 slightly.
Moving to the U.S. losses. So U.S. losses for the first half of the year was £8.1 million. This is about £2.5 million more than last year. And if you look at that on a full year basis, we will be close to £20 million for the full year. And this could be also a good estimation for the next year.
Itai Pazner
Yes. And regarding — so regarding platform — in terms of the platform, that’s actually one of the areas of integration that will take more time, as you mentioned. It is complex, there’s no easy solution to unified platforms, migrate players. That’s something that we need to do very cautiously in order not to disrupt the business while we’re planning that. But we are confident that we — the group is going to work over 1 platform that’s going to be a unified platform that’s going to take the best components of both.
The teams are working on identifying that and building the plan for that these days. Like we said, we’re 6 weeks into closing the deal. But we will have much more information about that in our Investor Day in November. But as 888 has been building platform — its own platform and proprietary technology, both front end and back end for the last 21 years — sorry, for the last 25 years, we’re very confident in our ability to build a platform to migrate players from one platform to the other, which we have done in the past, including in our sports betting business and to integrate external components into our platform.
So we will share much more about that. That will take time. That’s not a quick win. — but that’s a huge amount of value that will be created as we move on with that plan, and we integrate more parts of the business under 1 unified platform.
Simon Davies
Just a follow-up on the affordability side. What percentage of your player base do you think is now recreational?
Yariv Dafna
It’s a good question. We don’t measure it necessarily in that way. But — if you look at what we are saying about active versus ARPU, you see that the ARPU went down by 29%. This is a massive change. And the more the ARPU go down, the nature of the customer become more recreational players.
Operator
And there are currently no questions in the queue. [Operator Instructions]
James Finney
Okay. We will now take some questions from the webcast. The first question has come through from David Brohan from Goodbody. David asks just a quick one around the debt. Can you give any color on covenants associated with the debt?
Yariv Dafna
Yes. So as I mentioned about the covenant, the debt is very, very light in terms of the covenant. So we don’t have financial covenant to meet unless we draw from the RCF more than 40%. And in that case, the overall debt-to-EBITDA needs to be — there is a ratio that needs to be met, and this ratio is very, very high, well above the current level, of course. There are some customary negative covenant that we need to meet, as you can expect in every big deal, the ability to sell a material asset of the business and so on and so forth. But all in a very customary level and quite light.
Operator
The next question comes from the line of James Wheatcroft from Jefferies.
James Wheatcroft
Just sort of 2 follow-up reminders, please. Firstly, could you perhaps give a little bit more color on what’s going on in William Hill retail and the sort of shape of what you expect to come over the second half of the year? And secondly, can you just give us a reminder of the mechanism for the deferred £100 million payment to Caesars?
Yariv Dafna
Yes. So if you look at the retail, so we saw actually a very significant recovery of this business in — the retail was reopened in May last year. So the last 12 months reflect already a full mode of operation. In the last 12 months, we see £513 million in revenue and £97 million in EBITDA, which is a very pleasing performance.
And we expect this run rate to continue looking forward. In terms of — there is not much change in terms of the number of shops. This is a very stable, all these — our business went through our optimization during the COVID. So it’s a very optimized and running well. As for the £100 million deferred consideration, so in order for Caeser to get the £100 million, we need to achieve in 2023, £427 million in group EBITDA and below £400 million, there is no deferred consideration. In between these 2 levels, there is a certain formula on how much we pay out of the total amount. So any number below £400 million next year means there is no deferred consideration.
Operator
The next question comes from the line of Ivor Jones from Peel Hunt.
Ivor Jones
Two on North America. One, in relation to Ontario. I can’t remember what you said about whether you’ve pulled out of that province or a whole country ahead of getting licensed or if there is a risk, but you are obliged to pull out before you get the license as a drop in revenue. Could you just talk about the opportunity and risk around that potential cover point. And you answered Simon’s question about the U.S. probably being loss-making next year, and that makes sense in relation to continuing to invest. But what needs to happen to get that to breakeven and then to profit in terms of new markets entered or market share gains? Or how do we know there’s a road map to making that a positive contributor?
Itai Pazner
Okay. I’ll answer that. So actually, Ivor, we were really one of the first operators to get the license and to launch in Ontario. We did not have to close the distinguishes that we had there. So we migrated it to the license business in Ontario and when we have been operating there successfully since launch. We believe that’s one of the big — Canada in general is one of the big growth areas for the group. We’ve been trading there well for many years. We have brand presence. We have good customer experience. We obviously have a very solid customer base there. And as more of the provinces will regulate there in the future. We believe that’s a really strong growth market for the group and has been performing well since we…
Ivor Jones
Sorry, sorry, you didn’t have to pull out of other parts of Canada, and you won’t put out of other parts of Canada. .
Itai Pazner
No, no. The licensing requirement was not to pull out. It was to separate. So we separated this in poker. We separated the liquidity. So there is a share liquidity between Ontario and the rest of Canada. And obviously, all customers that are coming from Ontario have to sign up, register go through all of the regulator regulatory processes in Ontario, and we have to limit other states from not going from other sites. It’s very similar to how states work in the U.S., the U.S. So — so obviously, we have those is in our system, and that’s how we’re operating in Canada.
Now in terms of the U.S., so we shared the plan and I think we’re only — we always feel more confident in our plans in the U.S. at the moment. We’re focused on certain type of markets, markets that we believe can bring the faster return. So these are markets that have fair market conditions in terms of their cost base in terms of licensing market access deals. We’re focusing on markets that also have — now have or we believe will have access to gaming.
So the best example for that is Michigan that we just secured our license access into the market, and we’re planning to launch Michigan very shortly. With the sports betting and gaming in this — in the next half of the year. And we are going to work like I said, in a selective amount of higher potential markets in the U.S. leveraging the SI brand. And if anything, we’re very positively surprised by the of the SI brand in the U.S.
We are still in the initial phase of rollout, so we launched in Colorado a year ago and for the football season just less than a year ago. Colorada is a very, very competitive market, only with sports betting, we launched in Virginia earlier this year. We’re launching the third market now, which is, like I said, Michigan. And we’re going to focus on these markets, leveraging the SI brand, leveraging the SI traffic that we’re getting, which has been growing significantly SI as a sport content provider has been — or sports publishing group has been growing significantly.
We can leverage from the strong brand that SI have been in the market to reduce our CPAs. We don’t have to build a brand, which is extremely expensive in the U.S. And we can leverage from the content that the SI Sportsbook is regathering from as publishing to engage more with our players and keep the cost of promotions and CRM lower, which we know those are the 2 highest cost base of the U.S., both acquisition and CRM. And again, our plan and what we’re doing is leveraging the SI assets to reduce both of them and build a route to profitability faster than some of the other operators through focus on markets and lowering both acquisition and CRM costs.
Sorry, was there a question that I missed out?
Operator
Now currently no further questions in the queue. So I will now hand back over for some more webcast questions. .
James Finney
Thank you. So firstly, we come to Philippe Lacave from ODDO BHF Asset Management. Have you any acquisitions in the pipeline? If so, how will they be financed?
Itai Pazner
So we’re always obviously not only open, but looking at different areas of M&A and acquisitions, obviously, after this significant acquisition and our current level of leverage, we’re focused mainly on execution of our plans of our integration plans and realizing the synergies. So I don’t expect any meaningful acquisitions in the near future. But like I said, we’re always looking open to do M&A activity.
James Finney
Great. And he also asks, are you planning to distribute dividends or buyback shares?
Itai Pazner
So on the dividend, there was a clear guidance from the Board that the dividend will be sustained until we are taking the leverage level to around 3x. So no expectation for dividend until we got to this new level of leverage.
James Finney
Okay. And what pro forma adjusted EBITDA margin is targeted in the medium term? And do you have any committed facilities undrawn as of end of June 22?
Itai Pazner
So the first part of the question, so obviously, we are not happy with the EBITDA margin that we come within the first half of the year. We will start to improve it already in the second half of the year, and this will go back to the level that we saw previously, the 17%, 18%. Looking forward obviously, with the synergies that we are going to realize in 2023, and we already said that this will be £54 million. The EBITDA margin will go in cross 20%. In terms of committed facility, yes, we do have an RCF of £150 million, which is undrawn at this point.
James Finney
Great. The next question is from Jason Late from Ares Management. Jason asks, on the £5 million synergy estimate, is that the P&L amount in H2? What is the annualized amount? And what is reasonable EBITDA margin for H2, is it fair to assume double-digit positive free cash flow in H2?
Yariv Dafna
So it’s somewhat overlap what I just said. So the £5 million, first of all, it’s an EBITDA to be achieved already in the second half of the year. So of course, on an annualized basis, this will be a high single digit. And for — when we are talking about £54 million coming next year, this is again a real contribution to the EBITDA. And I mentioned already where we think the EBITDA margin is going to be.
James Finney
Okay. And the next question is from Colin Long from Lord Abbett. Please provide more color on the 29% EBITDA decline in H1 and any margin guidance for H2 in 888.
Yariv Dafna
So again, I will add maybe on what I already mentioned. So the H1 EBITDA is below our normalized level. Obviously, we were in a transaction mode for so many months — and the market has changed. The U.K. went down 25%. It took us some time to start making all the adjustments needed for the new level of the business. And is this all will be handled already in the second half of the year in which we are planning to have an improvement — a meaningful improvement in the EBITDA margin. And obviously, again, with the synergy on the next year, so we are planning to cross the 20% EBITDA margin.
James Finney
The next question is from Anthony Brinkman from Principal Global Investors. Can you give us your thoughts on the consumer right now? Have you seen any changes in behavior.?
Yariv Dafna
I will maybe start and then Itai can add to this. I looked at this issue of the recession and how the player we are together with all the changes that we are doing in the safer gambling. All the changes we do in the safer gambling basically bring a result of a decline in the ARPU of the player. And we were mentioning in the U.K., 29% down when actives were actually stable. So this is, in a way, offsetting or overlapping any impact coming from the macroeconomic situation. So I have no doubt that part of the decline in the ARPU, is a result of the macroeconomic situation. I wouldn’t say this is a significant part of it.
Itai Pazner
Yes. So not much more to add there, apart from the more significant decline that the business saw and overall, the market is in the U.K. where we know that the cost of living there’s more pressure on cost of living than some of the other markets. In the other markets, we saw the business stable throughout this year after a very, very high comparables of the last 2 years. So we can’t really specifically say that there’s a big impact of cost of living across the whole business, but we definitely believe that in the U.K. part of it is already built in the numbers that we saw in the first half of the year and end of last year.
James Finney
Great. Well, that’s been all the questions we’ve had today. I’d like to pass back to Itai for any closing remarks?
Itai Pazner
Yes. So thanks, everyone, for joining us. Obviously, we still feel very, very confident about the combination with William Hill. We believe that over the medium term, it will achieve great benefits. And we’re now focused on executing the integration plans delivering the synergies. We’re focused on that and only on that in the near future, and we will share more on those plans in the November Investor Day, which we’re looking forward to seeing you all there. So thank you very much.
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