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H I G H L I G H T S
2 0 0 7
NGR1, 2
Casino NGR1, 2
Poker NGR1, 2
UP
36%
UP
33%
UP
18%
2007: US$213 million
2006: US$157 million
2007: US$118 million
2006: US$89 million
2007: US$81 million
2006: US$68 million
EBITDA3, 4
Profit before tax2, 3
UP
177%
2007: US$45 million
2006: US$16 million
UP
106%
2007: US$46 million
2006: US$22 million
CONTENTS
IFC Highlights
2 888 Brands
4 Chairman’s Statement
6 Chief Executive Officer’s Review
10 Enhanced Business Review
31 Risk Report
32 Board of Directors
33 Corporate Governance
37 Remuneration Report
45 Directors’ Report
48
50 Consolidated Income Statement
Independent Auditors’ Report
1 Net Gaming Revenue (“NGR”)
2 Continuing operations relates to all non-US facing operations (see note 2 to the financial statements).
3 Excluding share benefit charges of US$7.8 million (2006: US$8.8 million).
4 Excluding exchange gain of US$1.1 million (2006: US$4.7 million).
51 Consolidated Balance Sheet
52
Consolidated Statement of Changes
in Equity
53 Consolidated Statement of Cash Flows
54
Notes to the Consolidated
Financial Statements
78 Company Balance Sheet
79
80 Company Statement of Cash Flows
81
Company Statement of Changes in Equity
Notes to the Company
Financial Statements
83 Shareholder Information
Quarterly NGR per
active customer1
Quarterly casino NGR
per active customer1
Total operating
income
UP
19%
Q407: US$270
Q107: US$228
UP
30%
Q407: US$478
Q107: US$367
UP
38%
2007: US$217 million
2006: US$157 million
Real money
registered
customer
accounts
UP
31%
2007: 4.7 million
2006: 3.6 million
At 888 we believe that entertainment is the spark that completes our
lives; that, after the challenges and routine that occupies our daily
lives, everyone seeks fun and enjoyment…
At 888 we believe that we are the home of online gaming entertainment
We believe that our primary responsibility is to provide the best gaming experience to our customers – the most entertaining,
innovative and relevant games and the most exciting and rewarding entertainment opportunities to win in a responsible yet
fun environment.
Our strategy is to achieve profitable growth through the acquisition and retention of valuable customers by providing our
customers a differentiated, intentional customer experience in a safe, secure, trustworthy and responsible environment.
Our goal is to become the leading online gaming entertainment company in the world. To achieve this, we must consistently
provide our customers with the ideal customer experience.
1 Net Gaming Revenue (“NGR”).
Annual Report & Accounts 2007
8 8 8 B R A N D S
2 0 0 7
Launched in 1997, Casino On Net is one of the
world’s largest online casinos, with localised
versions tailored for many countries and available
in 14 languages. Casino On Net features
traditional Casino games such as blackjack,
roulette, craps and baccarat, as well as a large
variety of Slot machines with bonus video games.
In addition, customers are offered with various
fixed odds games and branded Slot machines,
all of which can be played for different stakes
from $0.25 to thousands of dollars.
Launched in 2002, Pacific Poker has more than
30,000 active customers per quarter, and
features Texas Hold’em and several other
variations of Poker in both ring games and
tournaments, from free-rolls to a world leading
$3 million tournament. Available in 12 languages,
Pacific Poker is one of the strongest brands in
the Poker world, and offers a varied look and
feel which can be chosen by beginners, skilled
and professional players, all part of the same
gaming client.
Launched in March 2008, 888sport was made
available simultaneously in the UK, Germany,
Sweden, Denmark, Spain and Austria as an
international Sportsbetting offering. 888sport
offers editorial content and Sportsbetting
selections, each tailored and localised per
country, as well as live in-running betting and
coverage of a large number of sports events.
888sport is planned to launch in half a dozen
more languages and complete a global rollout
by the end of 2008.
Launched in 2008, 888ladies has already
become one of the UK’s leading bingo rooms.
With 75-ball and 90-ball rooms, 888ladies is a
glamorous place for women to indulge
themselves. 888ladies offers Bingo games with
prizes, a venue to meet and chat with new
friends, to view contemporary content alongside
a rich community interaction. Features include
the Ladies Lounge where customers can find
birthday bulletins, Bingo glossary, Bingo calls
and loyalty point offers.
Launched in 2007, www.bingo.888.com is a
bingo network created using the acquired Bingo
platform. This brand is part of a network of niche
Bingo white labels that 888 operates, but was the
first Bingo game available directly from www.888.
com. This skin has proved an instant hit and has
attracted double the traffic of the largest white
label previously available, overnight. On www.
bingo.888.com, customers chat and interact
between themselves, share jackpots and
compete for prizes.
Launched in 2006, 888mobile taps into a huge
and, to date, unaddressed market allowing
customers to use their existing online registration
and play a mobile phone Casino offering
including blackjack, roulette and video slots on
their mobile phones. This offering is updated
every year to ensure it leverages the latest 250
mobile phone models and is marketed on
www.888.com, affiliate websites and on mobile
portals such as 3, T-mobile and Orange UK.
888 Holdings Public Limited Company
Launched in 2007, 888backgammon is a popular
peer-to-peer game, offered within 888’s unified
client together with Poker, Bingo and Casino.
888backgammon features tournament arena
and extends the time that a customer spends
in 888’s gaming client.
888TV is a portal for skill games allowing users
to download games, open accounts and
play tournaments.
The site, offered in English and French, serves
as a product to monitor the potential of the
skill games market and is also used as an
additional marketing channel as well as links
to 888’s offer brands.
Lucky Ace is a high growth new Poker and
Casino brand targeted at Europe. The brand was
launched in 2008 as a white label, powered by
888 and is marketed by a team of industry
veterans, with a track record of customer
recruitment and traffic generation.
888.info is the Group’s free play Casino and
Poker site offered by 888.com, offering its
products from 888.com main Casino and
Poker offering but only with play money
for tutorial purposes.
Launched in 2007 as a white label, powered by
888, for the 165-club UK snooker, pool and
poker chain, Rileys Poker is a pioneering
partnership between 888 and Rileys that has
created a unique community of Poker customers.
This community comprises customers that meet
and play live Poker both offline in Rileys clubs and
online. The immediate success of this partnership
was recognised by e-Gaming Awards which
awarded it the 2007 Land-links Partnership of
the Year award.
Launched in 2007 as a white label, powered by
888, www.towertorneos.com – one of Latin
America’s leading Poker brands – is an online
Poker and Casino offering in Spanish,
Portuguese and English enabled by 888’s world
leading technology, marketing, payment
processing and customer support. Tower
Torneos International operates integrated
tournaments online and offline leveraging their
strong TV presence in Latin America.
Annual Report & Accounts 2007
C H A I R M A N ’ S
S T A T E M E N T
2 0 0 7
Richard Kilsby
Chairman
On behalf of the Board of 888 Holdings plc,
I am pleased to present the financial results
for the year ended 31 December 2007.
This was our first full year of operating
without our former largest market, the
US. We have successfully re-focused
our operations into other markets with
fantastic results. Our success is
manifested by our recent return to the
FTSE 250 and by industry accolades
such as Best Betting and Gaming
Company at the Leisure Report Awards
2007, Casino of the Year and Best Land-
links Partnership at the eGaming Awards
2007 as well as Casino of the Year at the
Gambling Online Awards 2007.
with Rileys Poker in the UK and Tower
Torneos in Latin America, obtained an
online sportsbetting licence in Italy,
introduced a targeted local offering in
Asia through Live Dealer and released
our first ever branded Video Slot
Machines to name a few.
I would like to thank all 888 employees,
our management and our customers for
making 2007 an outstanding year.
Our first ever acquisition was completed
in May with the purchase of the online
Bingo business of Globalcom Ltd., and
has proven to be a great success with
excellent financial results following its
integration into 888’s offering umbrella.
The year was marked as a year of
innovation and initiatives – we have
expanded our business model by
offering our full service on a “white label”
basis to selected business partners as
demonstrated by our strategic alliances
Financial results
2007 was a phenomenal year for us.
NGR increased 36% to US$213 million
(2006: US$157 million) with Total
Operating Income increase of 38% to
US$217 million (2006: US$157 million)
driven by turnover growth from both our
core Casino and Poker products and
from the introduction of new products,
particularly Bingo. Profit Before Tax*
showed remarkable growth and
increased 106% to US$46 million (2006:
US$22 million).
* Excluding share benefit charges of US$7.8 million (2006: US$8.8 million). Continuing operations.
888 Holdings Public Limited Company
Responsible gaming is a fundamental pillar to our business.
Our aim is to ensure our services are used responsibly.
Casino of the year – 2007
Dividend
Given our strong financial results, in
addition to our interim dividend of 1.8
cents per share paid in October 2007,
the Board has recommended a final
dividend of 5.0 cents per share.
Our values
During 2007 we outlined and
implemented our core values that
represent the philosophy by which we
operate. We take pride in our ability to
consistently maintain them. Our values
were implemented across all parts of the
organisation, and comprise excellence,
innovation, caring, customer centricity,
leading and collaboration.
Responsible gaming
Responsible gaming is a fundamental
pillar of our business. Our aim is to
ensure our services are used
responsibly, and are fair and transparent.
We work hard to raise awareness
through education and to provide our
staff with first rate tools for ensuring a
responsible gaming environment. In
2007, we were awarded for the first time
“Gamcare” certification, recognising
888’s dedication to customer protection.
We also launched our responsible
gaming website (www.888responsible.
com) where we offer comprehensive and
easily accessible information about
responsible gaming practices, dealing
with problem gambling, preventing
underage gambling and more.
Outlook
Building on a great 2007, we have
introduced our new Bingo brand,
888ladies, and launched 888sport,
our Sportsbook offering. Quarter 1 of
2008 started well across our business,
particularly in our new Bingo and
Sportsbook offering. Your Board
believes we are well positioned to
develop and grow our business in this
exciting and expanding space for the
foreseeable future.
Richard Kilsby
Chairman
Annual Report & Accounts 2007
C H I E F E X E C U T I V E
O F F I C E R ’ S R E V I E W
2 0 0 7
Our success in 2007 was based on a clear
strategy and business focus coupled with
great execution.
2007 was a year of transformation for
888, in which we had to restructure the
business following the enactment in the
United States of the Unlawful Internet
Gaming Enforcement Act (“UIGEA”) in
October 2006, which resulted in us losing
55% of our revenues almost overnight.
These are excellent results and given
our strong financial performance, we
will be paying a final dividend of 5.0 cents
per share, in addition to the interim
dividend of 1.8 cents per share paid in
October 2007.
I am very pleased to report that we
have now successfully completed the
restructuring and repositioning of the
business and have delivered very strong
results for the year, both in terms of
revenue and profit. We have emerged a
better company, clearer in our strategy,
more diverse and complete in our
offering, with a stronger presence in
more markets and much greater local,
“in-country” focus. We have also
restructured our senior operational
management team, with a mix of
experienced managers from within the
Group and seasoned executives recruited
from other industries, enabling us to
innovate where the industry has been
slow to change in recent years.
The financial results speak for
themselves: the 106% Profit Before Tax*
growth to US$46 million and 38%. Total
Operating Income growth to
US$217 million demonstrate the resilience
of our business, the strength of our team
and the continued attractiveness of our
business model. With basic earnings per
share* of 12.6 cents and strong 2007 we
have fully recovered from the effects of
UIGEA. With various strategic initiatives
now under way, we see a bright future for
the business.
Delivering on our strategy
Our success in 2007 was based on a
clear strategy and business focus
coupled with great execution. Our
strategy was founded on the same
principles that had made us successful in
previous years but building on these core
principles in order to incorporate several
new directions allowing us to accelerate
growth. We continued focusing on
acquiring and retaining valuable
customers by delivering a compelling,
localised, innovative, unique and
entertaining customer experience while
embarking on new initiatives. These
initiatives included strategic partnerships,
the use of new and innovative marketing
channels, the integration of third party
games, the introduction of enhanced
communication and entertainment
features and a revolutionary gaming
environment in which customers can
access all games from a single location.
2007 was a phenomenal year in terms of
the development of our offering. We
introduced an “industry first” with our first
fully-integrated gaming environment,
which allows access to all of our games
from one location. This approach clearly
enhanced revenues from customers who
were able, for the first time, to play any
game they wanted without limitation and
enabled us to better cross-sell and up-
* Excluding share benefit charges of US$7.8 million (2006: US$8.8 million). Continuing operations.
Gigi Levy
Chief Executive Officer
888 Holdings Public Limited Company
sell to our customers. The success of
this approach is now proven and we
will continue to provide an integrated
environment to more customers and add
more games into this environment.
Another significant development effort
centred on opening our platform to easy
integration with games from other
providers. Whilst we will continue
developing our own core games and
technological infrastructure, we will
carefully select “best-of-breed” partners
to provide us with additional games,
particularly those with a local flavour,
which will assist us in penetrating local
markets. The first of these games is being
introduced and we plan to leverage this
infrastructure investment and integrate
various additional games in the coming
years, with a number already in the
pipeline for 2008. This capability will
enable us to leverage the Internet’s “long
tail” phenomena as we have no “real
estate” costs in putting more games into
our software client. The introduction of
additional games, even if they will only
be played by a small percentage of our
customers, will have a positive return
on investment.
One of the key focuses of our
development effort was the integration of
a Sport betting platform into our offering.
This process was successfully completed
towards the end of the year and the
service was recently launched. We have
also introduced a live-dealer solution with
our Asian partner, Entertasia, which will
increase our presence in the Asian
market. Early 2008 saw the introduction
of 888ladies which is positioned to
appeal to a whole new market for the
Group. With these new products we now
have a strong and complete portfolio,
with our business based on the four core
pillars of Casino, Poker, Sportsbetting
and Bingo together with supplementary
Backgammon and Live-Dealer products.
During the year we managed to upgrade
and improve all of our existing platforms,
introducing new Casino and Poker
versions with additional games, innovative
features and a better overall interactive
customer experience. One such
enhancement was the introduction of our
first-ever branded game – the “Blond
Legend” video Slot which was an
immediate success, and another was our
innovative Poker client allowing users to
choose a 3D or 2D view with a rotating
table and various additional features.
Finally, given the focus on geographic
expansion, we succeeded in completing
the translation and localisation of all our
Casino games into the 14 languages we
currently support on top of expanding our
language proposition with two brand new
languages. This major effort resulted in
an immediate increase in revenues in
markets which previously were not
supported by a fully localised product.
As in previous years, we were proud
to see our innovative, market-leading
offering being selected for various
awards, including the prestigious Casino
of the Year award both in the eGaming
and the Online Gambling Awards.
From a marketing perspective, 2007 was
focused on additional brand building,
innovative marketing tools, loyalty
increasing programmes and a significant
drive on local and integrated marketing
efforts. Overall we had a very good year
in which we managed to grow our
business whilst keeping marketing spend
at 33% of NGR.
In terms of brand building, we have
invested in re-launching the 888 brand in
conjunction with our “Enjoy the Game”
tagline across all media channels and
markets. This new campaign delivered
our best ever brand awareness as
reflected in surveys conducted in the
UK and Spain. This campaign was a
milestone in our brand building efforts.
For the first time ever, in 2007 we invested
in web 2.0 marketing channels, including
viral campaigns based on a combination
of professionally crafted and user
generated content. We have also
integrated various additional innovative
online marketing tools in various areas,
especially in the search engine domain,
which allowed us to keep our marketing
costs within the challenging budget that
had been set.
Customer Relationship Management
(“CRM”) has always been one of our core
competencies with our industry leading
service levels and the personal service
we are known to provide to our
customers. 2007 saw further
enhancements with the publication of the
first two issues of our premium customer
magazine “Eight”, our improved loyalty
programme and implementation of
improved communication and
promotional tools. Coupled with our
world-famous VIP programme, our CRM
approach has ensured a very successful
2007 in terms of customers’ lifetime value
and loyalty.
Our marketing success in 2007 relied fully
on a localised and integrated approach.
We implemented better co-ordination
across the Group and comprehensive
monitoring of our activities in every
market. We signed more local TV deals
across Europe, and benefited from
extensive international coverage of our
successful sponsorships of the World
Snooker Championship and Sevilla
Football Club. The outcome of these
localisation efforts is apparent in our
numbers, which show far better
geographical diversification, with our
European market increasing to 42% of
our business in 2007 compared to 36%
in 2006. We are most satisfied with our
growth across various markets and will
continue investing in localised integrated
marketing efforts in 2008 as we continue
to penetrate yet more new markets.
Annual Report & Accounts 2007
CHIEF EXECUTIVE’s REVIEW cont.
Best operator of the year – 2007
The most significant strategic move in
the year was our decision to expand
our pure business-to-consumer business
model with a combined approach
which includes working with carefully
selected strategic business-to-business
partners. Under the “Powered by 888”
endorsement, we have launched a new
line of business as a service provider to
virtual operators. We launched three new
partnerships in 2007 with Rileys in the
UK, Tower Torneos in Latin America and
LuckyAce in Europe. More such
partnerships will follow with several
already in the pipeline.
This new area of our business received a
significant boost with our acquisition of
the Bingo assets of Globalcom in May
2007. This transaction positioned 888 at
the forefront of online Bingo service
providers, serving leading business
partners such as Cashcade, operating
Foxy Bingo, Bingo Scotland and a
number of other well-known brands. We
have already secured additional Bingo
deals, including with WinkBingo, a newly
launched Bingo network.
phenomenally throughout the year. This
now proven ability to acquire value-
enhancing assets and integrate them into
our business underlines the validity of our
M&A approach and therefore we will
continue to look for the right opportunities
to supplement our strong organic growth.
In addition to our strong financial
results, our overall performance was
acknowledged in our securing, for the
first time, the Best Betting and Gambling
Company award in the 2007 Leisure
Report awards.
Finally, we continue to be indebted to our
fantastic team of employees who have
succeeded in delivering the outstanding
2007 results. We have a phenomenal
team at all levels, with extremely talented
individuals who are led by a world-class
management team. To maintain this team
and ensure their ongoing motivation we
continue to strive to be the employer of
choice. These efforts have resulted in
successful new recruits into the Group.
Our employees will remain a key part of
our focus in the years to come.
While the core of our business remains in
the business-to-consumer area, this new
approach enables us to better leverage
our investments and generate additional
revenues and profit streams from market
segments where penetration would
require significant additional effort and
marketing spend. This activity has already
contributed to our bottom line in 2007
and is expected to grow in importance in
the coming years as we announce new
deals. Our success resulted in the Best
Land-Links Partnership award in the
eGaming awards is a clear indication of
the innovative nature of our approach in
this area.
During 2007 we successfully integrated
our acquired Bingo assets which now
work as a seamless part of our business.
On top of this successful integration, we
have managed to accelerate the growth
of the Bingo business which grew
Regulation
While the regulatory landscape remains
unstable in some regions, 2007 saw
some positive developments. In Europe,
the European Court of Justice’s ruling
in the Placanica case restated the
importance of EU regulations to our
industry. This decision, together with the
recent infringement actions and position
letters from the European Commission,
marks a very positive development
enabling EU licensed operators, such as
888, to provide their services throughout
the European Union. Moreover, we have
seen a trend throughout the year of
additional European jurisdictions
embarking on a path to license and
regulate online gaming, a route which
we clearly welcome.
Outside of Europe we have seen initial
signs of positive regulation both in Asia-
Pacific and Latin America, where newly
introduced regulations in some
jurisdictions could allow us to benefit from
working in a locally licensed environment.
As previously stated, we see these to be
very positive developments as we
continue to pursue a clear regulatory
framework for all jurisdictions in which
we operate. We will continue to monitor
the regulatory landscape and to look
for opportunities to operate in
regulated markets.
As stated in our announcement dated
5 June 2007, we have initiated preliminary
discussions with the United States
Attorney’s Office for the Southern District
of New York relating to our activity in
the US prior to the signing of the UIGEA.
It is too early to assess any particular
outcome of these discussions.
Responsible gaming
2007 was also a turning point in our
approach to responsible gaming.
Whilst 888 has always been a leader
in supporting the prevention of problem
and underage gambling we recruited
a dedicated executive to handle these
important issues. We have, as a result,
introduced both enhanced tools and
policies giving us an even tighter control
on problem and underage gamblers.
These efforts were acknowledged
by Gamcare who awarded us their
responsible gambling certificate.
Recently, our educational efforts
developed even further with the
introduction of www.888responsible.
com, a website dedicated for providing
access to tools which identify and deal
with problem gambling. This industry-first
educational effort and our additional
activities in the area mark our continued
commitment to prevent problem and
underage gambling.
Our 2008 focus
2008 will see the continued execution of
our strategy with accelerated innovation
facilitated by the investment made in our
infrastructure in 2007. Now that we have
delivered all of the required products,
888 Holdings Public Limited Company
developed integration capabilities and
white labelling capability together with
a far deeper localised offering, we
can focus on the monetisation of
these assets.
In terms of our offering, our plans include
the introduction of several new games,
with a strong focus on localised games
which will continue to support our push
into new markets. We will continue
to develop our relationships with third
party games providers to ensure that
we will not miss any exciting, potential
“hit” games. We will also introduce
various new innovative features such as
increased personalisation, tournaments
around Casino games and more
content and entertainment across
our product portfolio.
From a marketing perspective, 2008 will
see further investment in our brand and
the use of additional innovative marketing
channels. We will also introduce some
major events such as the recently
launched US$3 million World Poker
Crown Poker tournament and a major
event planned for 8 August 2008 – the
“888” date!
On the business-to-business front, we
aim to sign and launch more strategic
partnership deals as a means to
accelerate our growth.
Outlook
2008 has started well, especially with
our recently introduced female-oriented
Bingo proposition, 888ladies. This
innovative website, which already boasts
thousands of active customers daily, is
performing above our expectations.
The recent launch of our Sportsbetting
proposition, 888sport, is already
generating revenues and, coupled
with several more planned product
launches, we expect our offering to
continue being one of the main
growth drivers of our business.
With our current strategic partnerships
performing well, we are progressing with
additional potential partners and we
expect at least one new partnership to
be launched in 2008.
Given the positive start to 2008, the
successful launch of 888ladies and
888sport, our strategic partnership deals,
current trading and our clear business
strategy and focus, we are confident in
delivering future growth during 2008.
Gigi Levy
Chief Executive Officer
Annual Report & Accounts 2007
E N H A N C E D B U S I N E S S
R E V I E W
2 0 0 7
In 2007, 888 continued to follow its strategy
of expanding and diversifying its business.
Introduction
888 Holdings plc is one of the world’s
most popular online gaming
entertainment companies. 888 owns
and operates various world renowned
websites, including www.888.com, www.
Casino-on-Net.com, www.pacificpoker.
com, www.888ladies.com and
www.888sport.com.
In 2007, 888 continued to follow its
strategy of expanding and diversifying its
business on the basis of this strong
foundation. During the year, 888 acquired
the business and assets of a market
leading Bingo network operator, it added
the in-house developed Backgammon to
its offering and an online Sportsbook
licensed in Italy. Recent additions include
the global rollout of an international
Sportsbook offering in six European
countries. In a key strategic move, 888 has
also expanded its business model,
leveraging its existing assets and brand
reputation, by licensing its software and
unique services to carefully selected
“white label” partners who allow 888 to
penetrate new markets. 888 is indeed the
home of online gaming entertainment.
2007 was 888’s first full year without a
contribution from the US market, after the
cessation of its operations in that market in
October 2006. It was a year characterised
by rapid growth, with a 38% increase in
Total Operating Income and a 106%
increase in Profit Before Tax*, as the Group
refocused its activities on non-US markets
by localising its product offerings and
releasing more games in more languages
than ever before.
The addition of Casino games into the
Poker client has dramatically increased the
revenue stream from 888’s traditional core
product, and has signalled continued
progress towards the ultimate goal of
providing all of its offerings through a
single, unified client. In addition, 888’s
offering benefited from the addition of
Backgammon to its suite of games, and
also enhanced the appeal of existing
games by adding both contemporary and
themed games such as the sports themed
“rough rugby” and Marilyn Monroe
inspired “Blond Legend” Video Slots.
The immediate success of 888’s new
white label strategy was demonstrated by
the partnerships developed with Tower
Torneos in Latin America, Rileys Poker in
the UK, and Lucky Ace in Europe.
888’s Italian customers have enjoyed the
launch of a dedicated online Sportsbook
proposition which has not only provided
invaluable experience from 888’s first foray
into this product type but also, through
its licensing by the Italian Government,
further validated 888’s regulatory and
licensing credentials.
In addition to its organic growth and in-
house development, 888 completed
its first ever acquisition through the
acquisition of the assets comprising the
online Bingo business of Globalcom Ltd.
in May 2007. This business has now been
successfully integrated into 888’s existing
operations.
* Excluding share benefit charges of US$7.8 million (2006: US$8.8 million). Continuing operations.
Aviad Kobrine
Chief Financial Officer
0
888 Holdings Public Limited Company
888 has achieved a great deal in 2007 and will continue to explore all
opportunities to meet its goal of becoming the largest community of
people who play online for money.
At the end of 2007, 888 entered into a deal
with Blue Square which allows the Group
to offer a sportsbetting product to all of its
customers in early 2008. This deal
completes the Group’s aim to provide a
“one stop” betting and gaming proposition
to its customers. As an added benefit, 888
has moved closer towards its goal of
providing a full multi-currency offering.
The Bingo acquisition and the partnership
with Blue Square represent new,
previously unexplored growth avenues.
The addition of the Bingo business is the
first time 888 has opted for growth by
acquisition, and demonstrates its ability to
identify, execute and integrate profitable
external opportunities.
2007 was 888’s tenth anniversary and,
as in previous years, 888’s excellence
and market leading position was
acknowledged by third parties. 888 was
recently awarded Best Betting and
Gaming Company at the Leisure Report
Awards 2007, Casino of the Year and
Best Land-links Partnership at the
eGaming Awards 2007 as well as Casino
of the Year at the Gambling Online
Awards 2007.
Review of financial results
Financial summary
Net Gaming Revenue
Casino
Poker
Emerging offerings
Total Net Gaming Revenue
Other Operating Income
Total Operating Income
Operating Expenses2
Research and Development Expenses
Selling and Marketing Costs
Administrative Expenses3
EBITDA2
Finance Income and Exchange Gains
Depreciation and Amortisation
Profit Before Tax – Continuing Operations4
Year ended
31 December
2007
US$ million
Year ended
31 December
2006
US$ million
% change
118.1
80.8
14.4
213.41
3.6
216.91
59.1
23.5
70.9
17.9
45.5
6.1
(5.8)
45.8
88.8
68.2
–
157.0
–
157.0
45.6
19.4
51.0
24.6
16.4
9.6
(3.8)
22.2
33
18
–
36
–
38
177
106
1 Rounded.
2 Excluding depreciation of US$4.2 million (2006: US$3.8 million) and amortisation of US$1.6 million (2006: US$nil).
3 Excluding exchange gain of US$1.1 million (2006: US$4.7 million).
4 Excluding share benefit charges of US$7.8 million (2006: US$8.8million).
Annual Report & Accounts 2007
ENHANCED BUSINESS REVIEW cont.
Financial results
Total Operating Income and NGR
The Group achieved strong financial
results in 2007 with NGR increasing by
36% to US$213.4 million (2006:
US$157.0 million), Total Operating
Income increasing by 38% to US$216.9
million (2006: US$157.0 million), EBITDA1
increasing by 177% to US$45.5 million
(2006: US$16.4 million) and Profit Before
Tax1 from continuing operations
increasing 106% to US$45.8 million
(2006: US$22.2 million).
of new products (“Emerging Offerings”).
These products, particularly the newly
acquired Bingo business (since 17 May
2007), generated US$14.4 million NGR in
2007. In 2007, the Group introduced, for
the first time, the option for customers to
transact in their local currency, and as a
result, other operating income has been
generated representing fees from
processing customers’ cross-currency
deposits and withdrawals effectively
reducing costs associated with payment
service providers.
NGR increased strongly in both Casino
and Poker, and also from the introduction
Geographical segmentation
As the table below illustrates, in 2007,
Europe (excluding the UK) showed
dramatic growth of 58%, with strong
growth from both Poker and Casino,
followed by the UK, which grew by
32%. The Rest of the World, mostly
attributable to the Asia-Pacific region,
also grew rapidly by 35% compared to
2006. Growth in the Americas (excluding
the USA) was modest.
As a result of the strong revenue growth
during the year in Europe (excluding the
UK), this region now represents 42% of
888’s total operating income compared
to 36% in 2006.
Total operating income by geographical market
Total operating income
UK
Europe (excl. UK)
Americas (excluding USA)
Rest of World
Total
* Rounded.
Year ended
31 December
2007
Year ended
31 December
2006
US$ million
% share
US$ million
% share
2007 Growth
%
93.0
90.1
18.0
15.9
216.9*
43
42
8
7
100
70.6
57.1
17.6
11.8
157.0*
45
36
11
8
100
32
58
2
35
38
Casino
The Casino business was one of the
main drivers for the Group’s strong
revenue growth in 2007, with a NGR
increase of 33% to US$118.1 million
(2006: US$88.8 million). The continued
localisation of the Casino software client
by providing the offering in additional
languages and the introduction of the
Casino games into the Poker client
was an instant success, and was the
source of much of this growth. This
growth demonstrates the high
potential for cross-selling services
in a unified offering.
Casino growth was driven predominantly
by the popularity of 888’s ever expanding
selection of Video slot machines. Video
slot bet levels increased year on year by
a staggering 108%. It is expected that
this trend will continue well into 2008 and
is anticipated to be boosted by the
planned integration of a wide variety of
new third party games. The continued
popularity of Roulette and Blackjack
supported continued growth that has
resulted in an improvement to overall
house edge on Casino games; House
edge increased from 2.9% in 2006 to
3.1% in 2007. The Group will continue to
encourage customers to migrate towards
its higher margin games.
Poker
The Poker business also delivered strong
growth in 2007 with NGR increase of
18% to US$80.8 million (2006: US$68.2
million). This growth was driven mainly by
the popular Texas Hold”em and Omaha
ring games which appeal to a broad
spectrum of customers. The attraction
of ring games resulted in a 25% growth
in bet levels compared to 2006. The
Group’s tournaments benefited from
the introduction in June of “re-buy”
1 Excluding share benefit charges of US$7.8 million (2006: US$8.8 million).
888 Holdings Public Limited Company
of NGR, demonstrating sustained
marketing efficiency. In 2007, the Group
focused on a rapid expansion of its
affiliate channels. This expansion
enabled cost control per new customer
acquisition and a means of quickly
penetrating new markets. Attracting
valuable new customers at the right
cost is a key driver of 888’s business
profitability. In 2007 the Group continued
to be focused on attracting, and
retaining, customers from selected
segments which are most profitable and
optimising the recruitment channel to
cost. During the year 888’s marketing
operations recruited more than 260,000
new Casino and Poker First Time
Depositors (“FTDs”) from more than a
million new real money registrations with
an average Cost Per Acquisition (“CPA”)
in 2007 of US$225 (2006: US$183)3.
Administrative expenses4 decreased by
15% to US$16.9 million (2006: US$19.8
million), mainly driven by the departure of
the former Chief Executive Officer which
triggered a non-recurring payment of
US$2.75 million. Professional fees also
decreased as post-UIGEA the Group
looked to balance the change in costs of
this nature.
and “add-on” functionality. Poker
growth was also driven by the
introduction of the white label business
model – the launch of Rileys Poker
and the Tower Torneos offering.
For consistency, NGR from Poker
excludes NGR generated by customers
playing Casino games from the Poker
platform, which increased overall revenue
and helped retain customers for longer.
Emerging offerings
Emerging Offerings contributed
US$14.4 million of NGR during the year,
representing 6.8% of total NGR. This
revenue is primarily generated by the
Bingo business (acquired in May 2007),
but also by the newly introduced
Backgammon offering (April 2007). It is
expected that these new games will
generate higher NGR in 2008.
The Group’s Bingo business generates
royalty revenue both from its position as
a software licensor and network provider
to a number of popular household name
brands such as www.thinkbingo.com
and www.foxybingo.com, and also NGR
from customers playing on the Group’s
own websites including www.888ladies.
com and www.bingoballroom.com.
Over the short time that the
Backgammon has been available, its
main benefit has been as a retention
tool and an expansion to the range of
entertainment products on offer, enabling
the Group to service a dedicated market
segment, allowing casual customers the
opportunity to test their skills.
Expenses
Effective cost control during the year
has resulted in slower expense growth
than revenue growth, with expenses2
increasing by only 22% compared to
38% total operating income growth.
Salaries and benefits, representing
the largest component of operating
expenses, increased by 30% to
US$31.0 million (2006: US$23.8 million).
The additional headcount related to the
Bingo business and the expansion of the
Group’s regional focus, were a major
source of this increase. Modest salary
increase and headcount increases
across the business contributed
the remainder.
The second largest cost item in
operating expenses is commissions paid
to Payment Service Providers, which
totalled US$13.4 million (2006: US$9.1
million) representing 6.3% of NGR (2006:
5.8%). When stripping out Emerging
Offerings, this ratio stands, in 2007, at a
comparable 6.0%.
The Group places strong emphasis
on risk management procedures,
which resulted in a decrease in its
chargeback ratio to 1.3% of NGR
in 2007 (2006: 1.6%).
Intangible assets from the Bingo
acquisition were amortised during the
year, which contributed an additional
non-cash expense of US$1.6 million
(2006: nil) to operating expenses.
The continued investment in the Group’s
products aimed at expanding the range
and appeal of its offering has resulted in
an increase in research and development
expenses in 2007 by 21% to US$23.5
million (2006: US$19.4 million). This
increase directly relates to headcount
expansion and salary increase in order
to attract and retain a highly skilled
workforce, as the Group develops most
its proprietary software internally.
Marketing expenses during the year
reached US$70.9 million (2006: US$51.0
million), representing a stable rate of 33%
2 Expenses include operating expenses (excluding share benefit charges), research and development, selling and marketing, and administrative expenses.
3 Excluding customers recruited on a revenue share basis.
4 2007 excluding share benefit charges of US$7.8 million (2006: US$8.8 million).
Annual Report & Accounts 2007
ENHANCED BUSINESS REVIEW cont.
Share benefit charges
As part of 888’s commitment to invest in
human capital, eligible management and
employees received in the past equity
awards under the 888 All Employee
Share Plan (“Share Plan”). In 2007, as in
2006, the Group continued to award
shares and options to employees under
the terms of the Share Plan. The non-
cash charge for 2007 was US$7.8 million
(2006: US$8.8 million), comprising a
US$1.8 million charge relating to grants
in the current year (2006: US$2.5 million)
and US$6.0 million relating to grants
made in the past.
Finance income
With the Group continuing to generate
and retain cash surpluses throughout the
year, net interest income remained stable
at US$5.0 million (2006: US$4.9 million).
Profit and earnings per share
As a result of strong revenue growth,
stable marketing to turnover ratio,
maintaining strong cost control and
better management of resources, Profit
Before Tax* increased dramatically
by 106% to US$45.8 million (2006:
US$22.2 million).
Profit Before Tax* from continuing
operations delivered a margin of 21%
(2006: 14%), further testament to the
Group’s strong operational gearing
throughout the year, a remarkable
achievement given the changes imposed
by discontinuing its offering in the US.
While the Group did not operate in
the US in 2007, the small loss from
discontinued operations related to
legal fees incurred in connection with
its past activities.
Basic Earnings per share more than
doubled at 12.6 cents in 2007 (2006:
5.6 cents).
Dividend
The Group’s stated policy is that it
anticipates adopting an annual dividend
payment ratio of approximately 50% of
profit, but the policy would reflect long-
term earnings and cash flow potential of
the Group. On 31 October 2007, the
Company paid an interim dividend of
1.8 cents per share totalling US$6.1
million (2006 interim dividend totalling
US$23.1 million) (in 2006 the dividend
included earnings from discontinued
operations). Given the strong financial
performance in 2007, the Board
recommends a final dividend of
5.0 cents per share.
Cash flow
The Group’s strong profitability
during the year was matched by
strong cash generation with cash
generated from operating activities
reaching US$46.2 million.
During 2007, the Group made cash
payments of US$20.0 million in respect
of investing activities (2006: US$3.6
million), primarily relating to the
Bingo acquisition.
In addition, the Group returned
US$36.2 million (2006: US$28.7 million)
in dividends to its shareholders
consistent with its dividend policy.
The Group’s cash position as at
31 December 2007 remained strong
at US$104.3 million (31 December 2006:
US$114.4 million). This is a positive
position given that the Group has
no debt.
Balance sheet
The Group’s balance sheet remains
strong, as it has no debt, but retains
ample liquid resources, including the
ability to repay all customers’ balances
on demand at any time.
As a result of the Bingo acquisition 888
recognised intangible assets and
goodwill totalling US$40.7 million after
the amortisation of intangibles of US$1.5
million in the year. Goodwill, valued at
US$37.9 million (2006: US$nil), was not
impaired at 31 December 2007 as per a
review performed by the Board.
Cash and cash equivalents as at 31
December 2007 remained strong at
US$104.3 million (31 December 2006:
US$114.4 million). The slight decrease in
the cash position during the year, despite
strong cash inflows from operations of
US$49.3 million, is a result of the
consideration paid in respect of the
Bingo acquisition of US$17.1 million, and
payment of dividends of US$36.2 million
(2006: US$28.7 million) to shareholders.
Trade receivables have increased to
US$13.4 million (2006: US$6.2 million),
the increase resulting from higher
payment processing activity during the
year, which peaked towards the end of
the year. Most balances were fully settled
immediately after the start of 2008.
Deferred consideration of US$25.1 million
payable in respect of the Bingo
acquisition is the main reason for the
increase in trade and other payables by
US$35.1 million to US$63.0 million (2006:
US$27.9 million).
Balances owed to customers increased
by 17% to US$26.4 million (2006:
US$22.7 million) representing growth in
business volume, in part being due to the
new Bingo activity.
888’s strategy
888’s goal is to create the largest
community of people who play online for
money and grow its annual revenue and
profit numbers to a level greater than
when its US business closed in October
2006. To achieve this goal, 888 must
* 2007 excluding share benefit charges of US$7.8 million (2006: US$8.8 million).
888 Holdings Public Limited Company
• Thinking Global while acting Local • Enhanced and innovative offering
• State of the art integrated marketing • Customer intimacy
• Market Leading Customer Service
• Focused, Efficient and Effective Organisation • Employer of Choice
give its customers the ultimate customer
experience whilst maintaining focus on
acquiring and retaining customers by
delivering a compelling, localised,
innovative and unique offering. Given its
2007 success, 888 remains committed
to its strategy, the main cornerstones of
which are:
•
•
•
•
•
•
•
Thinking Global while Acting Local
Enhanced and Innovative Offering
State of the Art Integrated Marketing
Customer Intimacy
Market Leading Customer Service
Focused, Efficient and Effective
Organisation
Employer of Choice
Thinking Global while Acting Local:
Providing the right customer experience
must have a local flavour.
The withdrawal from the US market
meant that 888’s principle of “thinking
global while acting local” became more
important than ever. Aiming to penetrate
new markets simultaneously, 888 had to
quickly enhance its local focus. In 2007,
888 achieved a greater regional focus
and localisation than ever before. All of
888’s Casino games were provided in 14
languages with full customer support.
The payment system backbone was
also upgraded to allow multi-currency
deposits and withdrawals. These
features succeeded in generating
additional revenues immediately. 888 will
continue to be focused on improving
localisation in 2008 and beyond, by
enhancing its offering with even more
local games.
Enhanced and Innovative Offering:
Offering a full range of entertainment
options to customers.
In 2007, 888 launched its acquired Bingo
and in-house proprietary Backgammon
offerings, added additional video Slot
machines and upgraded the Poker and
Casino versions. The “one-stop shop”
unified offering was introduced enabling
customers to play any game they want
with easy access from one platform. In
Quarter 1 of 2008, the Sportsbetting
offering was introduced, which completes
the desired range of offerings. 888 aims
to add more content, information and
community tools to its offering and,
through partnerships with alternative
platform owners, to spread this offering
beyond internet boundaries into hotels,
airplanes and onto mobile telephones.
State of the Art Integrated Marketing:
Creating an integrated marketing
approach between channels and
across the Company.
2007 saw 888 continue its extensive
investment in its brand. The “enjoy the
game” tagline was introduced to the 888
brand, and reached phenomenal levels
of brand recognition in both the UK and
Spain. Additional 888 brands were
launched such as “888ladies” and
“888sport”. As part of the drive towards
both increasing localisation and a more
fully integrated marketing approach, 888
has identified local consultants in
selected key markets for better
coordination and monitoring of its
activities in these markets. 888 signed
and launched initial strategic
partnerships with Rileys and Tower
Torneos which allow it greater
penetration to distinct local markets.
888 plans to sign further similar
partnership deals in 2008.
Customer Intimacy: Using knowledge
about Customers to optimise their
customer experience while prioritising
resource allocation.
888 has continued its focus on studying
its customers’ online behaviour more
closely, in order to improve its knowledge
of their betting habits and preferences.
From direct contact with customers, by
market research of their behaviour and
through a detailed analysis of trends
using its in-house data warehouse, 888
has continued to refine how best to
engage, thrill and retain its customers.
Market Leading Customer Service:
Providing the industry’s best customer
service.
The drive towards increased penetration
into new markets was coupled with the
need to expand customer support to
non-English languages. As part of these
significant changes, 888 achieved its
best ever results in its customer
satisfaction surveys.
Focused, Efficient and Effective
Organisation: Remaining competitive
by having an efficiently run operation
maintaining its focus on 888’s particular
plans and goals.
2007 saw 888 achieve a 38% increase
in revenue with only a 9% increase in
year-end headcount. In 2008, 888
will continue with strong cost control
to ensure high profitability levels are
maintained and further improved.
Employer of Choice: Aiming to be the
employer of choice.
888’s most important asset is its human
capital. 888 has a skilled, committed
workforce who have remained with the
Group since the early days and these
have been joined by highly talented
employees who have been recruited
during the last year. It would not have
been possible to achieve the
phenomenal results in 2007 without the
enormous efforts of these employees.
888 aims to retain its employees, ensure
their motivation and to attract further
leading talent to secure future success
by continuing to be the employer of
choice in the market.
2007 Business developments
Marketing and CRM
2007 was a busy and highly successful
year for 888’s industry leading marketing
activities. The marketing function was
restructured under four key work-
streams: acquisition, retention, branding
Annual Report & Accounts 2007
ENHANCED BUSINESS REVIEW cont.
and white label partnerships. This has
enabled solid performance of the
business in terms of acquisition and
retention, in addition to allowing significant
focus on the three priority areas:
•
•
•
Branding and integrated marketing
Customer Relationship Management
Strategic partnerships/White labels
expenditure by ensuring that customers
both play and stay with the Group for as
long as they continue to enjoy the game:
playing more games, more often, and
for more time. This customer loyalty
is generated via two departments, one
focusing on the Group’s mass market
customer base and the other
concentrating on VIP customers.
Branding
For a number of years, the Group has
enjoyed the highest level of brand
awareness in the sector in its key
markets. “888” has always been
associated with reliability, trust and
leading customer service, all of which are
important attributes for the success of
the business. In 2007, the Group started
to build on this awareness with a strong,
differentiated and more emotionally
persuasive brand positioning: www.888.
com “Enjoy the game”. During 2007,
the Group rolled out its first ever TV
campaign supported by press and
signage across the UK and in a number
of other territories. By the end of 2007
the brand saw significant improvement
in key brand attributes.
The clear, focused brand positioning also
enabled more integrated marketing. In
2007, there was considerable focus
behind fully integrated marketing
campaigns; leveraging consistent and
complementary messages across all
marketing channels. This resulted in
communication with a real impact, which
attracted more first time depositors and
reinforced retention activities.
Customer relationship management
As the Group evolves, it continues to
recognise the significance of a well
resourced Customer Relationship
Management department. As such, 888
has continued to invest substantially in
both financial and human resource terms
in the CRM department in 2007.
The CRM team is tasked with both
creating loyalty and augmenting
The CRM team continuously seeks
to innovate the range of promotions,
bonuses and communication channels,
whilst segmentation methods ensure that
the relevant message reaches the right
customer at the most opportune time. An
excellent example of this approach is the
888 customer magazine “Eight” delivered
to customers in the UK. This magazine is
a tool seeking to, reinforce loyalty and,
ultimately, spend ratios.
The VIP department ensures that the
Group builds a real one-on-one personal
relationship with VIPs so that 888
remains their online gaming provider
of choice. This approach has ensured
a very successful 2007 in terms of
customer lifespan and their playing
revenues with the Group.
These customer relationships have
been strengthened by the Group’s
commitment to localisation.
In 2008, with the introduction of
additional core products, together with
sophisticated new communication and
loyalty tools, the CRM team will be
able to even better segment and
communicate with its customer base to
ensure effective cross-selling and up-
selling of the Group’s enhanced portfolio
of products.
Strategic alliances
2007 was the year in which the Group
became a “white label” provider. Under
the “Powered by 888” endorsement, the
Group launched a new line of business
as a service provider to third parties with
their particular skill sets and target
audiences. 888 initially entered into
three partnerships:
Rileys Poker: Rileys, famous for their
chain of snooker halls, sought to refocus
their business behind in-hall Poker
tournaments. 888 created a distinctive
proposition for the Poker community
enjoying a unique environment
integrating both the online and offline
version of Rileys Poker. This partnership
was acknowledged by the industry when
888 received the 2007 Land-links
Partnership of the Year Award at the
eGaming Awards.
Tower Torneos: Tower Torneos (“TT”), are
already an established Casino operator
in Latin America with an online Poker
room. 888 worked with TT to provide
an improved online offering, and
successfully transferred TT’s existing
customers to the new gaming client
“Powered by 888”. This created an
immediate and strong foothold in the
Latin America region for the Group,
generated significant liquidity for the
Poker platform and opened new
marketing channels in the region
previously unavailable to the Group.
LuckyAce: LuckyAce is led by a team of
gaming industry veterans with a track
record of customer recruitment and
traffic generation. LuckyAcePoker and
LuckyAceCasino brands are a powerful
combination of 888’s added value
platform with the LuckyAce online
marketing expertise. LuckyAce is
focusing on rapidly growing European
markets, and will operate in parallel to
888’s own brands, boosting market
share in these high potential territories.
The new strategic alliances part of 888’s
business received a significant boost
with the acquisition of the Bingo
business, positioning the Group right at
the forefront of Bingo service providers.
While 2007 focused mainly on Poker
partnerships; in 2008, 888 will focus on
888 Holdings Public Limited Company
providing an integrated product offering
to business partners, encompassing
Poker, Casino, Bingo and Sportsbetting.
888 intends to launch several new
integrated Poker and Casino
partnerships throughout the year.
In addition to these priority areas, other
marketing channels have continued to
drive acquisition and retention:
Online
The online marketing department has
undergone significant developments in
the past year, recruiting a large portion of
the Company’s new customers through
its multi-department expertise. This
department implemented an array of
online branding and direct-response
advertising campaigns targeting a wide
range of customer segments. The
department also experimented at the
leading edge of online marketing, running
campaigns using viral marketing, user-
generated video content and several
other web 2.0 trends. There was
considerable growth in relationships
with technology providers, advertising
networks and publishers, which
contributed to increased performance
in new and existing online campaigns.
Sales
The affiliates department achieved
considerable growth in 2007, led by a
drive to register new affiliates to the
Group’s programme. There was a focus
on customised sponsorship promotions
with new and existing affiliate partners
and this contributed significantly to
increased commitment and investment
from these partners.
During Quarter 4, there was a drive to
emphasise the role of offline activation
activities for Poker. These new offline
marketing techniques and promotions
attracted many new customers, and
the Group will continue to invest in a
multitude of new marketing channels
in 2008.
Search and Web Optimisation
Technologies (“SWOT”)
SWOT is much more than traditional
simple search engine optimisation
(“SEO”). 2007 was a strong year for
SWOT, where acquisition of new
customers via search engine traffic
increased significantly across the whole
business and especially in the UK.
2008 will bring new customer acquisition
opportunities with the introduction of
the “888sport” Sportsbook and the
“888ladies” Bingo brands, and there
are a number of web 2.0 plans in
various regions.
Offline
2007 was another successful year for
the Group’s offline marketing around
the world:
888 launched a number of campaigns
in Latin America, including shirt
sponsorship of Club Nationale in
Uruguay, TV poker programming across
the region behind the 888 and Tower
Torneos brands, as well as tournaments
supported by a series of magazine and
national press advertising.
In Australia, 888 launched the 888Poker
brand offline through a heavyweight
outdoor campaign, in Sydney, on the
bus and train networks, supported with
national press and magazine activities.
Across Europe, 888 had another year of
major success with the shirt sponsorship
of Sevilla FC. Sevilla won the UEFA Cup
for the second consecutive year, the
Spanish Cup (Copa del Rey) and finished
third in the Spanish premier league
(La Liga).
In the UK, the coming into force of the
Gambling Act 2005 opened the way
for the Group to launch television
advertising. 888 retained London’s
leading creative agency, CHI & Partners,
to deliver a UK based branding
campaign across all marketing channels
behind the new positioning “Enjoy
the game”.
The Group’s ongoing sponsorship of the
World Snooker Championship in
Sheffield generated over 140 hours of
television coverage on the BBC and
Eurosport, and was rebroadcast globally.
888 also generated over 80 hours of its
own Poker content in 2007 which is
syndicated globally. In addition to existing
content of the UK Poker Open, the Poker
Nations Cup and the Women’s Poker
Tour, 2007 saw the Group becoming the
presenting sponsor of the World Heads
Up Championships held in Barcelona.
2008 will prove to be an even bigger year
for the Group as 888 continues to build
upon its brand having launched its
Sportsbook, 888sport, and its new
Bingo offering, 888ladies. In addition,
888 will run the biggest ever non-US
facing online Poker event of its kind,
branded the World Poker Crown, with a
US$3 million guaranteed prize pool.
Offering and R&D
Casino
888’s major Casino brand, Casino on
Net, has consistently been ranked as the
leading online Casino brand in the world.
It continues to generate substantial
business, and despite the recent
introduction of 888’s Emerging Offerings,
still represented more than 55% of the
Group’s NGR in 2007 (2006: 57%) with
NGR growth of 33% over the year and,
significantly, with 60% growth between
Quarter 4 2007 (US$35.3 million) and
Quarter 4 of 2006 (US$22.1 million).
During 2007, 888’s tenth anniversary
year, the Group focused on retaining a
contemporary feel to the Casino, adding
more games, and increasing the level of
localisation while maintaining its core
propositions of trust and simplicity
combined with its first class customer
Annual Report & Accounts 2007
ENHANCED BUSINESS REVIEW cont.
service. Listening to its customers, 888
has enhanced the customer experience
by providing faster game play, and by
giving the customer greater choice over
bet size. 888 also continued to expand
its Casino offering: it introduced a new
gaming “ecosystem” which enables third
party game developers to integrate their
products seamlessly into 888’s gaming
environment, provided Casino software
to white labels and introduced a live
dealer Casino tailored for certain
Asian markets.
The combination of trendy entertainment
content consumed by customers
worldwide together with a unique gaming
experience is a key factor to 888’s
success, as it has increasingly become
the entertainment destination of choice
for more customers. To this end, 888
added four new and unique Video Slots
to increase game variety, with the
majority available in each of the 14
languages (including voice localisation)
which 888 supports. 888 released its
“Rough Rugby” Slot to coincide with the
Rugby World Cup and, in October 2007,
released the “Blond Legend” Video Slot.
This Video Slot, featuring “Marilyn
Monroe” pictures, provided by the “Sam
Shaw Collection”, has proven very
popular among customers. 888 aims to
identify further themed content for
Casino games. Both games ranked
amongst the three most popular Video
Slots in 888’s Casino immediately upon
their launch, and made themed Video
Slots one of the most significant
acquisition and retention tools 888 has.
Following this success, 888 is planning
to maintain its front-line position through
internal development programmes, as
well as acquiring or licensing third party
games to be integrated directly into 888’s
gaming environment.
2007 saw 888 move product localisation
to the next level by enabling the
establishment of partnerships with local
providers. These partnerships are
possible as 888 has successfully opened
its platform to third party games, by
providing an “integration platform” layer.
This “integration platform” enables the
swift integration of third party games,
and will be used to add additional, new
and localised games, adapted to 888’s
own high standards, to its Casino
offering during 2008. This will provide its
customers with a large variety of quality
entertainment, and will contribute to
customer acquisition by appealing to
expanded demographics. Customer
retention will be further reinforced by the
excitement and the choice of an ever
expanding proposition.
The Group’s latest partnership was
entered into with Entertasia, one of the
leading providers of gaming solutions
for the Asian market. Through this
partnership, 888 has launched in
January 2008 a Live Dealer Casino
offering Baccarat, Asian Roulette and
Sic Bo. These games are an entry level
requirement to compete in the Asian
market and will be a key tool for growing
888’s presence in this region. 888
continues to seek such partnerships and
to integrate other localised games to
further target the Asian market.
Once again, 888’s Casino has
maintained its position as the number
one online Casino. The Group was
proud to receive the prestigious
Casino Operator of the Year award
at the eGaming awards, in addition
to the Casino of the Year at the
Gambling Online Awards 2007.
1
2
3
4
1
2
3
4
2006*
2007
21,496
54,053
398
22,531
48,425
465
22,646
46,444
488
22,088
25,952
27,900
28,992
41,307
70,769
72,362
72,847
535
367
386
398
35,276
73,737
478
Casino KPIs
Casino
Year
Quarter
NGR (US$’000)
Active Customers
NGR per Active Customer (US$)
* NGR figures Rounded.
888 Holdings Public Limited Company
As can be seen from the previous table,
the Casino experienced 60% NGR
growth from Quarter 4 of 2006 to Quarter
4 of 2007. The inclusion of Casino games
in the Poker client at the end of 2006
greatly increased the customer base and
thus the number of quarterly active
customers. This resulted in a 4.2%
growth in quarterly active customers
between Quarter 1 and Quarter 4 of
2007. The increased number of active
customers resulted in substantially higher
growth in NGR in 2007, particularly in
Quarter 4 where NGR increased 22% to
US$35.3 million. As a result of the sharp
increase in active customer base in
Quarter 1 2007, NGR per active customer
decreased, but has been steadily
increasing since, and in Quarter 4 2007,
reached US$478 per active customer.
During 2008, the Group aims to use its
strong technological, CRM, data mining
and optimisation capabilities to provide its
customers with an even more intimate
experience tailored to their preferences
and playing habits.
While, today, 888’s offering is already fully
localised, in 2008, the Group intends to
extend this initiative. It will introduce
further localised versions of its popular
games together with local games played
in specific target markets. It will also
adapt its traditional Casino games to the
local preferences as best observed today
in terrestrial Casinos. Asian and Latin
American customers will continue to be
at the core of 888’s focus.
first integration with a third party provider
is in its final stages, and the first batch of
games is aimed to be released during the
first half of 2008.
In order to complete the excitement and
competitive environment which 888’s
customers seek, and to broaden its
offering with additional gaming models,
the Group also plans to introduce Casino
races and tournaments. The Group sees
these events as additional marketing
methods for enticing new customers, and
as a tool for retaining existing ones. With
its expertise in tournament management,
888 expects these events to form key
part of its gaming environment.
Poker
Poker operations also enjoyed strong
growth in 2007, with NGR increasing by
18% to US$80.8 million (2006: US$68.2
million) contributing 38% (2006: 43%) of
the Group’s NGR. This growth has been
achieved by combining the commitment
to its large legacy customer base with the
introduction of new software features;
increasing the variety of tables and
through the enrichment of 888’s
existing tournaments.
During the year, 888 has demonstrated
an ever increasing global reach. The
Group has achieved further penetration in
territories such as Latin America and
Asia-Pacific, and is operating a truly
global 24/7 Poker room, in which
customers can find their game of choice
at the time of their choice.
Leveraging its multi-million dollar
marketing budget and the strongest
global brand in online gaming, in 2008,
888 will launch www.888debut.com, a
platform for third party game developers
to debut themselves in the online gaming
world and to make their product available
on the stage of the world’s largest online
gaming entertainment destination. 888’s
888 has moved a step forward in
addressing the increased retention
requirements of its existing customers by
integrating its Casino games into the
Poker client. The success of Casino in
Poker led to the integration of
Backgammon and Bingo in Poker in
2007, with Sportsbook in Poker
integration planned for 2008. This
integration strategy is the achievement of
the Group’s stated goal of delivering a
unified offering and adding new revenue
streams to existing ones, and by
capitalising on the synergies between
888’s offerings.
Through 2007 and into 2008, the Group
has enriched its user experience. In 2007,
888 added 3D tables with avatars
alongside its 2D classic view tables. While
the 2D addresses the needs of high stake
and multiple table Poker customers, the
newly designed 3D tables with avatars
have been very popular, and became the
table of choice for the majority of
customers. Continuing this effort, 888 is
committed to developing features such
as its newly introduced “chat call-outs”,
which allow customers to get closer to a
“live-like” user experience.
In addition, in 2007 888 integrated
Backgammon into its unified Poker client,
in order to enhance customer retention.
In 2008, 888 plans to increase its
Backgammon liquidity, by further
localising the game by targeting new
customer segments. 888 also plans to
integrate other local peer to peer games
in different regions, to make its gaming
environment a one stop shop, which
includes globally popular games as well
as locally popular ones.
2007 has also marked 888’s evolution
to become a new “Poker Network”
providing a full, end to end solution for
“white label” Poker operators, making
888 itself a “Poker Network Operator”.
As a Poker Network Operator, 888
stands out by offering a complete
solution, in which existing operators can
leverage their customer base and new
operators can grow from scratch using
the shared liquidity offered by 888’s
network and the robust back office
operation that the Group provides.
Annual Report & Accounts 2007
ENHANCED BUSINESS REVIEW cont.
Poker KPIs
Poker
Year
Quarter
NGR (US$’000)
Active Customers
1
2
3
4
1
2
3
4
2006*
2007
17,857
16,322
15,686
18,374
20,918
19,890
18,590
21,419
134,710
122,087
132,995
147,805
168,066
166,772
168,105
170,401
NGR per Active Customer (US$)
133
134
118
124
124
119
111
126
* NGR figures Rounded.
As can be seen from the previous table,
888’s Poker NGR grew by 18% in 2007.
During the year, the historical seasonal
pattern of a slower Quarter 2 and Quarter
3 was repeated with a stronger Quarter 4.
This continuous growth in NGR in 2007 is
particularly impressive given that the
additional revenue derived from Poker
customers playing Casino games is
included in Casino NGR. Active
customers increased during the year,
showing 15% increase between Quarter
4 2006 to Quarter 4 2007. Finally,
quarterly NGR per active customer
remained relatively constant.
year has started with the keynote
announcement of the “World Poker
Crown”, a sequence of branded events,
which will culminate with a US$3 million
guaranteed prize pool, offline tournament.
To date, this is the largest single event of
its kind offered to the non-US market.
This US$3 million event is the tournament
final and daily and weekly satellite
tournaments are run, customised to
match 888’s geographic customer base
profiles in terms of game level, risk profile
and financial capability. This activity
will ultimately provide 10 qualifiers for
the final.
In order to drive further growth in 2008,
888 is currently working to improve the
conversion of its play for free “Demo”
customers to real money customers by
including the demo mode play option
within the real money environment. The
The Group plans to introduce more
features designed to maintain customers’
engagement and commitment
throughout the year. Such features
include the addition of advanced
community and communication tools,
which 888 has already started to roll out.
In 2008, 888 will also introduce the
broadcasting of relevant global and
localised TV content, generated both by
itself and by its users. Such content will
be made available through 888’s various
marketing channels and on its website,
through a planned advanced Video
Portal. These enhancements will further
strengthen the performance and reach of
888’s Poker room.
Combined Casino and Poker KPIs
With the gradual migration of the Group’s
customers onto the unified offering, the
distinction between Casino and Poker
revenue becomes more and more
difficult. As a result, the Group reports its
KPIs for the combined Casino and Poker
activity in the table below.
Year
Quarter
NGR (US$’000)
Active Customers
1
2
3
4
1
2
3
4
2006*
2007
39,353
38,853
38,332
40,463
46,870
47,790
47,582
56,695
188,763
170,512
179,439
189,112
205,907
208,876
209,811
209,918
NGR per Active Customer (US$)
208
228
214
214
228
229
227
270
* NGR figures Rounded.
0
888 Holdings Public Limited Company
As can be seen from the previous table,
the combined Casino and Poker KPIs
reveal strong NGR growth in 2007
compared to 2006, growth which
accelerated during the Quarter 4. This,
in part, can be attributed to increased
active customer numbers that have
grown in each quarter since the FIFA
World Cup in the summer of 2006, as
well as migration into higher edge
games. The growth in both factors has
resulted in a stable NGR per active
customer for the first three quarters,
followed by a significant increase to
US$270 per quarter (2006: US$214) in
Quarter 4 2007, which benefited from the
substantial NGR growth.
Bingo
2007 heralded 888’s entry into the online
Bingo market with, in May 2007, the
successful Bingo acquisition. The
acquired Bingo business constitutes the
provision of software, customer support
and payment processing to some of
the premium Bingo partners in the UK,
such as:
www.foxybingo.com,
www.mirrorbingo.com,
www.thinkbingo.com,
www.bingoscotland.com,
www.thinkbingoplus.com
In addition to the Bingo business, 888
now operates a white label Bingo
network which has some 50 white labels,
including BingoBallroom and PoshBingo.
2007 continued to see growth in online
Bingo with a number of new networks
and white label sites entering the market,
in which 888 Bingo has continued to be
a dominant customer.
In parallel to increasing the number of
90-ball and 75-ball Bingo rooms, the
Group continued to strengthen the
community feel of its offering, and
achieved significant customer
satisfaction and retention levels. The
community feeling in 888’s Bingo
rooms is a combination of its friendly,
welcoming team of moderators who
follow customers throughout their stay
within 888’s Bingo rooms, and its
rewarding website that includes a variety
of interaction, chat tools and venues. An
example of such features is the Ladies
Lounge where 888’s customers can find
birthday bulletins, the Bingo glossary,
Bingo calls and loyalty point offers.
Loyalty to 888ladies and to the Bingo
venues powered by 888, whether one
of 888’s premium partners or one of
its white label partners, is proof of
the pervasiveness of community
characteristics of an online Bingo and
further evidence of the appropriateness
of 888’s stated strategy to continuously
invest in expanding the scope of
community services and tools in its
Bingo offering.
888’s Bingo virtual venues are places
that people feel excited to enter into. Its
view on promotions to customers is
simply: to constantly give customers a
reason to return. The excitement in 888’s
Bingo rooms in 2007 took the forms of
monthly guaranteed jackpots, special
event jackpots, weekly and bi-weekly
indulging events such as shopping
sprees and giveaway of daily prizes that
were part of the games themselves. The
other side of excitement is providing
customers with welcome “surprises”. For
this purpose, the Group worked closely
with its game and content providers, and
together tailored its gaming so that they
do not only expand its offering but also
excite and surprise. This included a
variety of scratch card games, fixed odds
games and branded games.
2008 has seen the launch of the new 888
Bingo network: www.888ladies.com.
The site is positioned to appeal to a
whole new market for the Group and
will provide women a place where
they can enjoy Bingo games, with chat,
community features and indulgent prizes.
In addition to 888ladies, 888’s latest
licensee has released their Bingo
network www.winkbingo.com in Quarter
1, 2008, which is further evidence of the
Group’s desire to grow its business by
partnering with more licensees.
Currently with predominately English
language customers, the Group plans to
expand into the Spanish market in 2008.
This market is increasingly a major
market for online Bingo, and discussions
are already underway with a number of
potential licensees. 888 plans to
introduce its Bingo offering in two
additional localised versions of the game
for identified high growth markets.
In order to crystallise its position as a
leading entertainment and content
destination for women, the Group is
planning to scale up its editorial
capabilities. This will turn 888’s gaming
offering into a more contextual
experience that links between what
people read, consume and win on 888
website; ranging from linking
personalised online horoscope, bonuses
and invitations to play on birthdays and
lucky days, to games themed after the
brands 888’s customers care the most
about, whether their favourite TV show
or celebrity.
Communities are comprised of
customers and the community operator.
In 2008, 888 plans to strengthen the ties
between the two by taking its community
tools to the next level, through 888’s own
community platform. This platform is the
culmination of the vast experience
obtained by 888’s customer retention
teams through chat, interaction with
customers and observing their
behaviour, combined with the latest
technology developments, including RSS
feeds and web 2.0 widgets. 888’s
community platform will centralise
contemporary content editing,
information distribution, sharing spaces
and personalisation tools. The Group
Annual Report & Accounts 2007
ENHANCED BUSINESS REVIEW cont.
believes that this platform will have a
positive effect on its business and ability
to cross-sell new offers to its customers.
Casinos and Bingo clubs across the UK
and Europe.
Italian Sportsbook
In December 2006, the Group was
awarded one of the online Sportsbetting
licences issued by the Italian
Government. This licence grants the right
to offer online betting facilities to the
Italian market in conjunction with a local
partner. This licence became operational
and the business commenced trading
with a soft launch in late 2007.
Sportsbetting
In early 2008, 888 unveiled its new
international Sportsbetting service to
complement its existing product suite.
“888sport” is a fully functioning portal
allowing customers to place bets in
various currencies via a number of
language specific web sites.
“888sport” offers a full range of
Sportsbetting services, including; UK,
European and international football, horse
and greyhound races from around the
world and a whole host of other sporting
events such as tennis, rugby, motor
racing, golf and other popular sports,
targeting both international and local
markets. “888sport” also features an “in
play” betting service allowing customers
to place bets on live events as they are
taking place, in some cases right up to
the final whistle.
As a result of the partnership with Blue
Square, 888 benefits from Blue Square’s
experience in trading and risk
management to reduce the inherent risks
associated with this business. Instead,
888 can concentrate on marketing to new
customers using its sport related
sponsorships, such as Sevilla football
club and the 888 World Snooker
Championship, and cross-selling its other
products to these new customers.
The launch of 888’s sportsbook in March
2008 was an important milestone for the
Group. The UK version of the sportsbook
immediately featured the popular
Cheltenham Festival and Champions
League knockout stages, whilst April
sees the climax of the UK domestic
football season, the Grand National, the
888 World Snooker Championships and
the US Masters golf from Augusta. In
addition to the UK, 888sport will be
launching versions of the sportsbook
simultaneously in Spain, Germany,
Austria, Sweden and Denmark and will
be featuring prime sporting events action
from these countries. Additional territories
will be added throughout the year in
Europe, Asia and South America, each
with its own local sporting events
coverage. The Group sees significant
opportunities with Sportsbetting markets
such as Spain being largely untapped.
The Group’s route into this challenging
marketplace has been to develop its
product in conjunction with Blue Square,
one of the most popular and well
established sportsbooks in the UK.
Based in London, Blue Square was
launched in May 1999, and as well as
providing internet based Sportsbetting
opportunities, also offers its services
through other channels including
Interactive TV, WAP and Telephone
Betting. In 2003, Blue Square was
acquired by the Rank Group, who are a
major force in land-based gambling, with
The complementary skills and work
cultures of the 888 and Blue Square
teams make 888 confident of completing
a global rollout by the end of 2008. The
international launch reinforces 888’s
strategy of creating a large community
of people consuming entertainment
content online.
New platforms
In 2007, 888 has become an interactive
entertainment destination with “real
estate” expanding beyond the www.888.
com website, spanning mobile phones
through hotel room entertainment into
in-flight systems. As part of its unified
offering, 888 allows interactive gaming
on each of these new platforms with
the same customer account, password
and, where allowed, wallet which its
customers use online.
The roll-out of 888’s gaming offerings
onto these platforms has enabled its
customers to play anytime, anywhere
on 888’s global network, experiencing
the same branded user experience
historically enjoyed only online.
The purpose of developing these new
platforms is two-fold: firstly, to improve
retention of existing customers by giving
them more ways to interact with 888 and,
secondly, to acquire new customers by
offering 888’s products to audiences that
consume entertainment whilst travelling
(airplanes, hotels) or on their personal
communication tool (mobile phone).
For the platform developer and owner,
888’s wide game variety and strong
brand enables them to broaden the
content they offer to their users by
incorporating 888’s offering to their
customers, thereby increasing their own
revenues and share of customers’ time.
During the year, 888 entered into a
partnership agreement with one of the
world’s leading in-room hospitality system
providers. This agreement allowed 888 to
develop its first online Casino product,
specially designed for internet enabled
hotel room televisions, with its own
branded look and feel. In addition, as part
of this partnership, all Wi-Fi access in the
hotels that install this system will feature
free access to the www.888.com site for
guests using laptops in the hotel’s
network. 888 plans to extend its first trial
in the UK in 2008, with the plan to launch
this service throughout Europe during the
remainder of the year.
A further deal entered into by 888 in 2007
was with DTI, an in-flight entertainment
888 Holdings Public Limited Company
industry leader. This agreement enables
888 to offer its Casino on in-flight
entertainment systems used by major
international airlines. 888 will be in a
position to offer its gaming services on
long-haul flights using DTI’s in-seat
entertainment systems as soon as the
technology is in place for in-flight internet
connectivity and the necessary regulatory
approvals are obtained. The product
is currently in the final stages of
development, and the plan is to finalise
installation on the first airplane in
late 2008.
888mobile plans to tap into the huge
mobile phone market, by using existing
customer registration details on Mobile
Phone Casino which includes Blackjack,
Roulette and Video Slots. The mobile
potential is considerable given that in
excess of one billion mobile phones will
be sold worldwide in 2008, compared to
200 million personal computers. An
increasing number of these mobile
phones have bigger screens, faster
processors, availability and portability
which lend themselves to a great gaming
experience. This offering, developed in
cooperation with UK-based Cellectivity
and M-Fuse, is available on over 250
models sold in some 200 countries, and
will be distributed through 3, T-mobile,
Orange UK and other mobile portals.
In 2008, 888 intends to focus on Cable
TV and IPTV. This untapped platform is
expected to become an acquisition
channel as well as a platform to increase
customer value. 888 is currently in
discussions with several partners and is
evaluating the best route to penetrate this
market.
Payments and Risk Management
E-payments, Fraud and Risk
Management Department (“e-payments”)
had a significant role in supporting
several strategic growth initiatives
undertaken by 888 in 2007.
In 2007, customers were offered 23
different deposit and 10 different
withdrawal methods. Credit cards and
debit cards were the most popular
international payment method,
representing 86.5% of total deposits in
2007 (2006: 86.7%), with each region
having its own distribution of preferred
local methods.
When customers enter www.888.com
they are offered a range of payment
options tailored to suit their local market
based on their physical location, from
which they can choose their preferred
payment method. The availability of
payment methods is a key element to a
localised offering, enabling customers
to play their local entertaining game
conveniently through their local preferred
payment method. By an analysis of
geographical data and with the
assistance of local knowledge, new
payment methods are identified,
carefully evaluated and assessed
and, where suitable, implemented.
Deposits and withdrawals are carefully
monitored by 888’s in-house Fraud and
Payment Risk Management department.
This department has a wealth of
experience in fraud prevention from years
of operation and has integrated their
internally developed prevention and
verification procedures with commercially
available third party measures to enable
robust verification.
By constantly reviewing and analysing the
performance of the payments process,
the system is optimised to maximise
deposit levels, approval rates, control
fraud activity and minimise payment
processing costs.
In Quarter 3 2007, 888 launched its state-
of-the-art payments processing system;
an in-house developed new financial
backbone system with both back office
functionality and user side cashier
interface. The new system provides a
major upgrade in processing capability
and flexibility, providing better customer
service combined with an improved
internal mechanism. This system
increases ease of use for customers,
significantly speeds up the integration of
new payment methods and automates
various back office procedures for greater
efficiency and cost saving. Currently in
trial, the Group intends to release the
system to all its existing and new
customers in 2008.
Expanding 888’s global business requires
tailored treatment for payment and
withdrawal methods. The Group’s e-
payments business development and
account management teams constantly
analyse customer deposit and withdrawal
habits in each country, and ensure
customers are presented with their
preferred methods as the primary
selections in the cashier and withdrawal
module. In 2007, 888’s customers were
offered the option to deposit in their
local currency, even when the games
themselves were played in US dollars.
At the beginning of 2008, Sports multi-
currency was introduced in US Dollars,
Euros, Pound Sterling, Danish Krone
and Swedish Krona, to further align
the Group’s cashier and games
with customer needs and payment
preferences. Localisation and multi-
currency support in Asia, Europe and
Latin America, will be the Group’s focus
in 2008 as well as the integration of new
local payment and withdrawal options
into the cashier.
Customer Service
The Group remains committed to being
market leader in the global online gaming
industry, as measured by customer
satisfaction. The Group’s dedicated
teams of trained in-house customer
support representatives provide the
highest levels of service and support
for each of the Group’s brands and
white labels.
Annual Report & Accounts 2007
ENHANCED BUSINESS REVIEW cont.
The VIP department adopts a thorough
approach to following up on sensitive and
complex cases. Every VIP customer is
provided with a Personal Account
Manager who strives to create a personal
relationship with his customers in order to
offer the ultimate in personal service,
determine customers’ interests and
reward individual customers with gifts
tailored to suit their personal tastes.
The VIP team organises targeted,
worldwide hospitality events to reward
VIPs in a tangible manner. Events range
from horse racing, football and other
sporting events, to weekend breaks,
sold-out concerts and social gatherings,
which also give customers the
opportunity to meet their Account
Managers face-to-face.
The VIP hospitality programme
significantly enhances customer loyalty
and individual lifetime value. In 2008, the
VIP department is set to expand into
providing their hospitality programme
to each of the Group’s brands and
White Labels.
Customer satisfaction
888 continuously monitors customer
satisfaction by requesting and analysing
real-time feedback, and in 2007,
conducted a comprehensive survey to
benchmark the Group’s service level in its
primary markets. Compared to previous
studies, the results show a significant
overall increase in customer satisfaction.
Respondents attributed the highest
rating to the level of professionalism
of customer support representatives,
achieving ratings of 4.27 and 4.15 out of
a maximum of five for Casino and Poker
respectively. Additional rating include:
In 2007, the Group continued to invest in
the support infrastructure, and expanded
its language portfolio, including
expanding its existing English Live Chat
service to cover three new languages.
The Group offers first class customer
support via email and telephone, 24
hours a day, seven days a week, to
customers around the world in up to
13 different languages.
The ongoing relationship and dialogue
with customers is maintained by
Customer Relationship Management
teams in two dedicated contact centres,
located in Gibraltar and Antigua. The
main Gibraltar contact centre focuses on
providing support to the Group’s principal
markets of Europe, Asia-Pacific and Latin
America, with the Antiguan contact
centre focused on supporting the
Group’s main English speaking markets
in Europe, Australia, Asia-Pacific and
Canada. The contact centres in Gibraltar
and Antigua played a vital role in the
successful launch of the Group’s first
strategic partnerships; with Rileys in the
UK and Tower Torneos in Latin America.
Operating a dual contact centre system
is a cost effective way of managing the
overflow of phone calls, chats and emails
and allows efficient balancing of
operational demands. The Group is
therefore able to maintain the same high
level of service throughout the day. In
addition, the centres complement each
other in a number of respects:
•
•
Staff schedules are created jointly,
taking into consideration business
trends from previous years and/or
anticipated promotional campaigns
in a particular location.
Follow-up on customer issues can
be completed from either location,
from a shared database, in 888’s
integrated back office system.
888 Holdings Public Limited Company
Representatives in each location are
cross-trained to provide service for each
of the Group’s brands. Their aim is to
resolve customers’ issues during the
first contact.
The following performance levels were
attained in 2007:
Casino in English
•
94% of all phone calls are answered
within 21 seconds.
95% of all emails are replied to within
12 hours.
91% of all chat contacts are answered
within 28 seconds.
Poker in English
•
96% of all calls are answered within
21 seconds
97% of all emails are replied to within
12 hours
91% of all chats are answered within
32 seconds
•
•
•
•
In addition, expert teams in both locations
initiate outbound interaction with new and
existing customers experiencing deposit
issues. Selected customers are also
contacted about special offers and new
products, and to reactivate those that
have become inactive. The launch and
upgrade to the new 3D Poker software
and various new Casino games launched
in all 13 supported languages provided
the Group’s customer support
representatives with further opportunities
for cross-selling.
VIP service
The service level provided to individual
customers is differentiated with the
Group’s best customers receiving more
personalised service. This allows the
Group to offer its customers tailor-made
incentives to suit their profile and
maximise their lifetime values. A separate,
highly skilled team is dedicated to
providing a high level of proactive
customer service and hospitality to the
Group’s most valued Casino customers.
•
•
•
•
English Casino customers rated their
satisfaction with the quality of service
at 4.11
English Poker customers rated their
satisfaction with the quality of service
at 4.01
Overall satisfaction of customers
from various other countries and
languages is similar
Response time ratings were 4.29
and 4.16 for Casino and Poker
respectively.
A vital component in maintaining and
exceeding customer expectations is the
ability to access each customer’s full and
complete history in real time, optimising
customer interactions at all levels. The
Group’s advanced proprietary back office
application functions as the backbone for
the Group’s entire Business Operation.
Data from various divisions is integrated
and streamlined into a single point of
reference, and provides representatives
from every department – Customer
Support, VIP, Risk Management,
Business Production and Finance – the
tools to provide superior assistance to
customers regardless of the department
the query is directed to.
Customer contacts are strictly monitored
to ensure quality and parity. The Group
have retained leading contact centre
experts to further enhance the quality of
its customer support, and representatives
benefit from ongoing refresher training
courses, including responsible gaming
training.
Reporting and Data Mining
The Group has developed outstanding
reporting and data mining tools that
assist in identifying and predicting
customer behaviour, based on data
collected since the Group was founded in
1997.
Sophisticated customer tracking
technology gives the Group the ability to
extract and analyse relevant information
that enables it to better target its offering
and marketing activities to customers
around the world.
Customers also benefit from the Group’s
ability to generate tailored statistical and
contact category reports, which identify
trends, habits and expectations of
customers in real time highlighting
bottlenecks and possible training needs
at an early stage.
Responsible gaming
“Because we care, responsible gaming
means investing time, energy and
resources in the people we interact with
daily – our employees, our customers
and our community!”
The Group’s aim is to raise awareness to
responsible gaming through education
and research programmes and to provide
staff with the right tools to ensure a
responsible gaming environment.
The Group is constantly implementing
new ways to create a caring, ethical
gaming environment and to ensure
customers are safe. Responsible gaming
is a key feature in the Group’s business
strategy, reflecting the importance it feels
towards this issue. In acknowledging
the risks that the Group’s games can
pose for a small minority of people,
the Group strives to achieve excellence
in its responsible gaming policy and
ethical conduct.
The Group’s Director of CSR &
Responsible Gaming has wide-ranging
responsibilities that include responsible
gaming, fair gaming, outreach
programmes with local charities
and donations.
Training
888 believes that responsible gaming
begins from within. The Group has
therefore developed a cross-Group global
training programme in which all Group
employees have participated throughout
the past year.
The Group’s responsible training
programme includes every department in
the Group. The training has been tailor-
made for each department so that
responsible gaming awareness occurs
from the first stage of each and every
activity within the Group, including the
game development.
Protecting customers
Gamcare, one of the leading authorities
on the provision of information, advice
and practical help in addressing the
social impact of gambling, has
recognised www.888.com’s dedication
to responsible gaming and customer
protection and has awarded the Group
its certificate this year.
After undergoing an audit covering staff
training, underage verification, self
deposit limits, self exclusion, referral
processes to relevant agencies and
related issues, the Group was
commended for maintaining excellent
standards of practice.
As a responsible, regulated gaming
group, 888 also complies with all
guidelines published by eCOGRA, a non-
profit, independent, regulatory body
based in the UK. By examination of
procedures and controls eCOGRA
ensures that approved operators are
properly and transparently monitored to
provide customer protection.
www.888.com also adheres to the
stringent rules concerning underage
gambling established by the Interactive
Gaming Council of which it is a member.
Annual Report & Accounts 2007
ENHANCED BUSINESS REVIEW cont.
Preventative measures
Keeping in mind its motto “responsible
gaming means investing in the people
we care about”, Group staff are trained
to respect customer privacy. Should a
problem arise, 888 aims to work together
with customers towards the best and
most comfortable solution for them.
The Group has established several
measures designed to help prevent
gambling from becoming a problem.
Personal limits are in place across all
Group brands, and are voluntarily
available to all members using the new
payment system planned to be fully
integrated this year. If, at any stage, a
customer becomes concerned about
their play behaviour, they can request to
be self-excluded for a chosen period.
During this period, 888 will block the
account. Any new accounts the
customer might attempt to open during
the exclusion period will also be blocked
as soon as detected. In addition, the
Group will take all reasonable measures
to make sure the customer will not
receive any promotional material during
the designated time. All customers who
reactivate their account following a self-
exclusion period are given the
opportunity to set their own limits.
The Group has also added the
“Gambling Therapy” button on its
website to provide its customers with
information and support for those who
feel their gambling is a matter of concern.
Gambling Therapy provides online
support to anyone affected by
problem gambling.
Protecting minors
In accordance with its responsible
gambling policy, the Group does not
knowingly allow anyone under the age
of 18 to play its games and none of its
promotions are targeted at minors.
Together with Gamcare, the Group trains
call centre staff to identify and deal with
anyone who might be underage. The
Group has trained staff to be most
sensitive to the possibility of underage
gambling; whenever an account is
suspected of belonging to an underage
customer, it is suspended until a full
investigation has been carried out. In
order to protect minors, verification
systems are used, where applicable, to
verify and identify the age and identity of
the customer.
Raising awareness
During 2007, the Group launched
a new website dedicated exclusively
to responsible gaming called
888responsible.com (http://
www.888responsible.com/).
888responsible.com offers
comprehensive and easily accessible
information about responsible gaming
practices, dealing with problem
gambling, preventing underage
gambling, charity activities and more.
The new website provides tools with
which to address online gaming. Parents
can learn how to identify the signs
indicating that their children might have
a problem related to gambling, while
customers can take the self-assessment
test to determine their gambling habits,
learn how to keep out of debt and even
how to exclude themselves from playing
at online Casinos.
Education
During 2007, 888 joined the RIGT
(Responsibility in Gambling Trust) and
donated to their new educational
programme. The aim of the programme
is to help young people understand
the risk of problem gambling and to
show them how they can reduce
harm to themselves and their
friends by developing skills, attitudes
and knowledge.
Corporate social
responsibility policy
Working with the community
As a global Group, 888 aims to reach
out to its communities worldwide and
to work with them for a better future.
On 10 October 2007, in celebration of
its tenth birthday, the Group held its
first Charity Day in collaboration
with two global charities. The Charity
Day focused on fundraising campaigns
to support humanitarian and
environmental projects worldwide.
The day involved all aspects of the
Group, from Group employees who
volunteered their time at local charities,
to customers, whose losses during the
day, playing Casino, Poker and Bingo,
were earmarked for donation. At the
end of the day a total of US$100,000
was raised and donated to two
global charities: EarthAction and
World for World.
During the day, the Group’s employees
also volunteered their time to their local
regional charity – Macmillan Cancer
Support in the UK, St. Martin’s School in
Gibraltar, The Adele School in Antigua
and “Up for the Challenge” in Israel.
This day was only the start of what is
expected to be a long lasting relationship
between the Group, its employees and
the various charities.
As part of its ongoing CSR initiatives in
Spain through our Gibraltar site, the
Group will sponsor a pair of Lynxes,
which are new additions to the Castellar
Zoo in Spain, for the next five years.
In March 2008, 888 received formal
confirmation from FTSE4GOOD that all
requirements had been met, and that the
Group is now part of the index.
888 Holdings Public Limited Company
Environment
As an online company, the Group has a
low environmental impact. Nevertheless,
the Group acknowledges that everyday
actions may affect the environment with
potentially adverse consequences. The
Group’s offline operations are primarily
office based, and its main environmental
impact stems from transportation and
the use of paper, lighting, heating, air
conditioning and IT. 888 has established
a committee to deal with office paper
use, waste, recycling and other relevant
environmental issues. The committee,
led by the Group’s Director of Global
Purchasing and Operations, is
responsible for overseeing new
procedures, their practical
implementation within the Group, and
the exploration of new ways to minimise
environmental footprint.
This year a pilot project designed to use
energy and resources as efficiently as
possible was launched at the Group’s
offices in Israel. As the pilot was
successful, both these actions will be
implemented at all Group offices during
the coming year.
As a global business, extensive
employee travel is another environmental
challenge with which the Group is faced.
In order to minimise travel, the Group has
invested in the latest multi-media
technology and encourages employees
to use teleconferencing facilities. For
daily commuting, 888 provides its
employees with bus transportation to
minimise the use of private vehicles. The
Group has also provided bicycle locking
stations in the parking lots and other
bicycle facilities in order to encourage
employees to cycle to work. During
2008, the Group intends to finalise its
carbon footprint and process an action
plan that will reduce its carbon release.
Life@888.com
888 invests a great deal of time and
resources ensuring that customers have
access to a friendly and caring gaming
environment, employees and suppliers
enjoy an ethical and rewarding
workplace, and the greater community
as well as shareholders benefit from the
Group’s success. We follow a creed
which serves as a guideline for global
work life.
developing our employees so that they
can achieve their personal aspirations.
All employees should expect their
managers to be capable, knowledgeable
and motivating. We must always treat
our suppliers and other partners with
respect, enabling them to make a
fair profit. We will never expose our
employees to risks and all employees
should be comfortable that their actions
are just and ethical.
Entertainment@888 – We believe that
entertainment is what completes our
lives. After the challenges and routine
that occupy most of our time, everyone is
entitled to some fun and excitement.
Customers@888 – We believe that
our first responsibility is to provide
the best gaming experience to our
customers. This means offering the
most entertaining, innovative, exciting
and rewarding opportunities to win,
combined with unparalleled customer
service that is available from any
location at any given time. 888 is proud
to develop and acquire new products to
maintain its edge. We are always mindful
of the complex regulatory environment
in which it operates and the social
responsibility that comes with the
gaming industry. 888 understand that
it must invest time and resources in
caring for customers and protecting
the vulnerable.
Employees@888 – We are responsible
for our employees who work with us
worldwide. We must provide an
enjoyable work environment where
people are challenged and motivated
to excel, where flair is rewarded,
compensation is fair and the balance
between work and family is respected.
Individual development is encouraged
and advancement is based solely on
merit. We must always invest in
Responsibility@888 – We must use our
financial success for the greater good.
We are in a wonderful position to invest
in the charities and organisations that
are important to our employees and
our customers. We must especially
encourage and support the social
responsibility that accompanies our
work. We are committed to providing a
fair and responsible gaming environment
and to guiding our customers to
play responsibly.
Investors@888 – Our final responsibility
is to our shareholders. We must strive
to operate as efficiently as possible,
achieving profitable excellence, ensuring
that we treat their capital as if it were our
own. We must take risks that allow step-
changes in performance while always
calculating the risk and measuring
our results, retaining knowledge and
learning from our experiences. By
doing all of the above, we will increase
shareholder value.
Implementing our values
We set high standards for ourselves,
and we take pride in our ability to
consistently maintain them. Following
the belief that “it’s in our nature” and after
extensive internal workshops involving
employees across the organisation, we
have outlined and implemented a set
of comprehensive values that represent
the way we operate:
Annual Report & Accounts 2007
ENHANCED BUSINESS REVIEW cont.
Excellence
Innovation
Caring
The training sections were divided
into three levels: soft skill training;
technological training; and industry
training. In each training section, the
Group used professional trainers
together with well designed materials.
This year, 888 has also initiated a “Train
the Trainer” internal programme which
focused on assisting expert employees
to improve their presentational skills and
their professionalism.
Equal opportunity
The Group believes in promoting equal
opportunities through every aspect of
the employment relationship and by
providing a workplace that welcomes
difference and enables employees to
feel comfortable.
As 888 enjoys a cosmopolitan workforce
from a large variety of nationalities all
working side by side, the Group’s
diversity policy is explicit. The Group
does not tolerate any form of
harassment, including any uninvited,
unwelcome behaviour which offends,
humiliates or intimidates. 35% of the
Group’s worldwide management team
is female.
At year end, the Group had 805
employees (2006: 736) at the following
locations; Gibraltar 270, Israel 451,
Antigua 68, London 16.
Excellence: We consistently challenge
ourselves to reach the highest
performance level in everything we do.
Innovation: We dare to question
our own “way of doing things”, keeping
an open mind, experimenting, and
constantly creating new and
surprising solutions.
Caring: At 888.com, we value every
employee, colleague and customer.
We show it by creating a nurturing
environment of respect and sensitivity to
the needs of others. We do not forget our
commitment to provide a responsible
gaming environment to all.
Customer centricity: Keeping our
customers (both internal and external)
at the centre of all decision-making
processes, we strive to exceed customer
expectations and provide the best
customer experience.
Leading: We strive to remain one step
ahead of the competition. This means
we are constantly on our toes, thinking
ahead and keeping a close eye on
industry developments.
Collaboration: Our success depends on
our ability to work as a single unit while
sharing our knowledge, capabilities and
opinions in an open, respectful and
trusting environment.
These values underpin the Group’s
strategic goals, giving all employees
a sense of identification and a defined
way of behaving as well as ensuring
alignment between the organisation’s
business objectives and those of
individual employees. These values serve
us as our guidelines, and we strive to
obtain a high level of integrity in the way
we work, communicate and act.
Professional development
The Group recognises that investment
in the professional development of its
employees is a key factor in its ongoing
success. This year, the Group developed
a leadership programme which focused
on providing managers with leading
global managerial tools and solutions
(e.g. Ken Blanchard and Myers Briggs)
for leading and managing their
employees successfully.
The leadership programme focused on
coaching managers to adopt appropriate
leadership styles to suit individuals in
their team and to develop the behaviour
required by managers to achieve
excellent performance and teamwork.
Building on effective communications,
motivation skills and concentrating on
the relationship between manager and
employee, the programme succeeded
in enabling managers to analyse and
resolve a variety of possible situations
that they may experience and apply
themselves in the most appropriate way.
This embedded the Group’s value of
leadership in its daily operations.
Training
Ensuring that staff have all the skills and
knowledge required to perform their job
well and assisting them to develop the
next generation of products and services
is crucial to a growing business. The
Group is dedicated to the professional
development of its employees so
that they can achieve their personal
aspirations. Training is therefore part
of life@888.com.
Training initiatives are offered both
internally and externally and include
technical skills as well as soft skills
training. In 2007, 80% of all Group
employees participated in internal and/or
external professional training seminars.
888 Holdings Public Limited Company
Customer Centricity
Leading
Collaboration
In addition to these infringement
proceedings, the EU Commission is
involved in other instances in which the
online gambling and betting regulatory
regimes appear to contravene rights and
freedoms of online gambling and betting
operators (e.g., issuing detailed opinions
against the enactment of prohibitive
legislation, and intervening in the WTO
process described above).
On 6 March 2007, the European Court
of Justice issued its judgment in the
Placanica case, which focuses on the
compatibility of the Italian gambling
legislation with EU law. The Court ruled,
inter alia, that insofar as the prohibition
to offer gambling services which is set
within a Member State’s legislation is
found to be incompatible with EU law,
such Member State may not apply
criminal sanctions to an activity which
contravenes this prohibition. The Court
found this to be the case there, as a
specific prohibition contained in the
Italian gambling legislation which was
reviewed by the Court was found to
contravene EU law. Therefore, the Court
ruled that Italy cannot apply criminal
sanctions for breaching this prohibition.
Regulation and general
regulatory developments
The regulatory framework of online
gaming in different countries around the
world remains as dynamic and rapidly
evolving as ever. While some jurisdictions
have moved to curtail the activities of
online gaming sites, many others are
currently contemplating liberalisation and
regulation of the industry, and some have
already taken this route. The Board notes
that there are significant risks, unique to
the online gaming industry, including
from activity with customers in the USA
prior to the Group’s withdrawal from
the market in October 2006, where
customers of 888 generated 55% of
its Net Gaming Revenue. The Board
remains committed to monitoring closely
and addressing regulatory changes as
they occur, and to fostering, so far as
possible, the trend towards liberalisation
and regulation of online gaming
throughout the world.
Gibraltar
888 is licensed and regulated in Gibraltar.
Italy
In Italy, 888 received a Sportsbetting
licence, which allows it to offer
Sportsbetting services (supervised by
the
State Monopoly Authority). Following
regulations issued by the Italian
authorities in 2007, the licence will allow
888 to offer skill games (including Poker
tournaments), subject to receiving
the proper authorisations from the
Italian authorities.
EU
The European Commission is challenging
the online gambling and betting
regulatory regimes of various European
States, as the Commission holds that as
regards EU licensed companies, these
regimes might infringe the enshrined
freedom to provide services, the freedom
of establishment and the concept of
mutual recognition. This effort is
reflected in, inter alia, the infringement
proceedings initiated against several
EU States – Italy, Denmark, Finland,
Germany, Hungary, the Netherlands,
Sweden, France, Austria and Greece;
should these Member States fail to
supply adequate reasoning of their
gambling legislation, the Commission
may refer the issue with each Member
State to the European Court of Justice.
While these proceedings may, in the end,
cause the European States to liberalise
their gambling markets, it should be
noted that it could be a very long time
before resolutions or judgments are
reached (if at all). In this light, in France,
during March 2007, 888’s Non-Executive
Director and former Chief Executive
Officer, John Anderson, attended an
interview with the French authorities.
888 is in consultation with its legal
advisers with regard to this matter, and
closely monitors the situation for any
developments. Specifically as to France,
the French Supreme Court annulled a
French Court of Appeals judgment
issued against Zeturf, an online gambling
operator licensed in Malta, due to the
fact that the Court of Appeals failed to
examine whether the French gambling
legislation is compatible with EU law.
The Supreme Court ordered the Court
of Appeals to re-examine the issue
according to EU law, and also to
consider whether the social goals which
justify the gambling monopoly are not
fulfilled by the Maltese gambling
legislation.
Annual Report & Accounts 2007
ENHANCED BUSINESS REVIEW cont.
USA/WTO
In the USA, UIGEA added a new section
to the United States Code making it
illegal for anyone engaging in the
business of betting or wagering to
knowingly accept any credit, electronic
funds transfer, check, draft, etc. in
connection with the participation of
another person in unlawful internet
gaming. In essence, the UIGEA act
prohibits online gambling operators
from receiving the proceeds of financial
transactions in connection with internet
gaming if the gaming is illegal in the state
where the bettor is located. In addition,
the United States Secretary of Treasury
and Federal Reserve are directed under
UIGEA to promulgate regulations which
will require financial institutions to block
transactions in connection with internet
gaming (draft regulations were issued
in October 2007). In October 2006,
the Group stopped taking bets from
US customers.
On 5 June 2007, the Group announced
that it had initiated preliminary
discussions with the United States
Attorney’s Office for the Southern District
of New York regarding activity prior to
enactment of the legislation. It is too early
to assess any particular outcome of
these discussions.
It was recently found by the World Trade
Organization that the US legislative
position with respect to Internet
Gambling violates US trade
commitments. Following this decision,
the US withdrew its trade commitment in
the sphere of gambling; while several
trade partners required compensation
from the US following this withdrawal,
none of the agreements reached, so far,
between the US and some of these trade
partners, have had an impact within the
online gambling market. Antigua and
Costa Rica did not reach agreement with
the US, and applied to the WTO to
arbitrate a settlement between them and
the US, in connection with the withdrawal
of the US commitment.
In December 2007, the Remote Gaming
Association (a trade body representing
several online gaming operators, of
which the Group is a member) filed a
complaint with the European Union
against the US in connection with the
breach of its trade commitments.
Following this complaint, the European
Commission decided to open an
investigation into whether the United
States is in breach of its WTO obligations
in the sphere of gambling (in relation to
the period prior to the withdrawal of its
commitment). The investigation is
expected to take five to seven months,
at the end of which the Commission will
present its findings, which could lead to
the initiation of WTO proceedings.
The Board continues to monitor these
developments closely, and is alert to
changes as they may occur in areas
where the Group operates.
0
888 Holdings Public Limited Company
R I S K R E P O R T
2 0 0 7
The Group operates in a new and
dynamic business environment. In
addition to the day to day commercial
risks faced by most enterprises, the online
gaming industry presents the Group with
particular challenges in respect of
Regulatory risk, Reputational risk,
Information Technology risk and Taxation
risk, each of which is detailed below.
Regulatory risk
The regulatory framework of online
gaming is dynamic and complex. Change
in the regulatory regime in a specific
jurisdiction could have a material adverse
effect on business volume and financial
performance in that jurisdiction.
A detailed regulatory review is set
out below.
Reputational risk
The Group is exposed to the risk of
under-age and problem gamblers
accessing its online real money gaming
sites. The Group devotes considerable
resources in putting into place prevention
measures coupled with strict internal
procedures designed not to allow
underaged players from accessing its real
money sites. In addition, the Group
promotes a safe and responsible
gaming environment to its customers
supplemented by its corporate culture.
The Group appointed a dedicated
Director of CSR and Responsible
Gaming tasked with the responsibility
of implementing such policies. Further
details about the Group’s responsible
gaming initiatives are set out above.
Information technology risks
As a leading online business, the Group’s
IT systems are critical to its operation.
The Group is reliant on the performance
of these systems whilst ensuring
exposure to external risks is minimal.
Cutting-edge technologies and
procedures are implemented throughout
the Group’s technology operations
designed to protect its networks from
malicious attacks and other such risks.
These measures include traffic filtering,
anti-DDoS (Distributed Denial of Service)
devices, anti-virus protection from leading
vendors and other such means. Physical
and logical network segmentation is
used to isolate and protect the Group’s
networks and restrict malicious activities.
In order to ensure systems are protected
properly and effectively, external security
scan and assessments are carried out in
a timely manner. In addition, the Group
has recently implemented a new high-end
storage solution enhancing storage
availability and performance. All critical
data is replicated to another storage
device for disaster recovery purposes
and all data is stored off-site on a
daily basis.
In order to minimise dependencies on
telecommunication service providers, the
Group invests in network infrastructure
redundancies whilst regularly reviewing its
service providers.
As a part of its monitoring system, the
Group deploys set user experience
tests which measure performance from
different locations around the world.
Network-related performance issues are
addressed by re-routing traffic using
different routes or providers.
888 operate a 24x7 Network
Operations Centre (NOC). The NOC’s
role is to conduct real time monitoring
of production activities using state-of-
the-art systems. These systems are
designed to identify and provide
alerts regarding problems related
to systems, key business indicators
and issues surrounding customer
usability experience.
Taxation risk
The Group aims to ensure that each legal
entity within the Group is a tax resident of
the jurisdiction in which it is incorporated
and has no taxable presence in any other
jurisdiction. While the Group’s customers
are located worldwide, certain
jurisdictions may seek to tax such activity
which could have a material adverse
effect on the amount of tax payable by
the Group or on customers’ behaviour.
The Group benefit from favourable fiscal
arrangements in some of the jurisdictions
in which it has taxable presence without
which its results would be adversely
affected. All gaming activities are based
in Gibraltar, where the Group currently
benefits from a tax exempt status.
A change of control or activity of a tax
exempt subsidiary would result in the
loss of its tax status. However, this is not
expected to have a material adverse
effect on the overall tax rate of the Group.
The tax exempt status is due to expire by
the end of 2010 when the Government
of Gibraltar intends to introduce a new
fiscal regime that complies with EU
requirements. The replacement regime is
still to be unveiled although the Gibraltar
Government has pledged its commitment
to maintain fiscal competitiveness and a
low effective tax rate. The Group is
required to pay a gaming tax, currently
set at 1% of gaming yield, with an annual
maximum cap of £425,000 in aggregate,
in respect of its Casino, Poker, Bingo and
Backgammon activities. From 2008,
additional gaming tax at the same rate
is due in respect of the Group’s new
Sports offering.
The Group’s subsidiary in Israel, Random
Logic Limited, and the Israeli branch of
Intersafe Global Limited, have each
entered into separate transfer pricing
agreements on an arm’s-length basis with
the Israeli Income Tax Commissioner.
The arrangements for Random Logic
Limited are effective until 2010, while
the arrangement for the Intersafe Global
Limited branch has terminated on
31 December 2007. Accordingly, the
Group is in the process of discontinuing
the use of this branch and so does not
intend to enter into a new agreement.
The operation in Antigua also benefits
from a low tax regime further mitigated by
the current small scale of the operation.
Annual Report & Accounts 2007
BOARD OF DIRECTORS
Richard Kilsby
Non-executive Chairman
Richard Kilsby has been Chairman since
March 2006, having previously been
Deputy Chairman of the Group from
August 2005. He is currently a director
of Collins Stewart plc and Tullett Prebon
plc. Since 2001, he has held several
board and management positions in
various private and venture capital
funded companies. In 2004, he acted as
independent monitor for the SEC and
USA Department of Justice. From 1999
to 2002, he was Chief Executive of
Tradepoint and subsequently Executive
Vice Chairman of virt-x plc. From 1995 to
1998, he was an Executive Director of
the London Stock Exchange, prior to
which he was a Managing Director for
Bankers Trust from 1992 to 1995. He
was also Vice Chairman of Charterhouse
Bank from 1988 to 1992, and spent the
early part of his career with Price
Waterhouse (now PWC) where he was
a partner from 1984 to 1988. Age 56.
Gigi Levy
Chief Executive Officer
Gigi Levy has been Chief Executive
Officer of the Group since January 2007,
following six months as Chief Operating
Officer. Prior to his appointment, Gigi
worked for Amdocs, one of the world’s
largest software providers and systems
integrators in the telecoms market
(NYSE: DOX), most recently as Division
President managing Amdocs’ activity in
Europe (except Eastern Europe), Central
and Latin America. Before joining
Amdocs, Gigi held several interim
management and consulting roles
with various companies in Israel and
the UK. Gigi also headed Giltek, a
telecommunication systems integrator
and Girit Telecommunications, an Israeli
Information and Communications
Technology systems integrator. He holds
an MBA from the Kellogg School of
Management at Northwestern University.
Age 37.
Aviad Kobrine
Chief Financial Officer
Aviad Kobrine has been Chief Financial
Officer of the Group since June 2005,
and was appointed to the Board in
August 2005. From October 2004 he
was a consultant to 888. Previously, he
was a banker with the Media Telecoms
Investment Banking Group of Lehman
Brothers and prior to that, he was a
senior associate with Slaughter and May.
He holds a Masters in Finance from the
London Business School (Distinction), a
BA in Economics and an LLB from Tel
Aviv University. Age 44.
Brian Mattingley
Deputy Chairman and Senior
Independent Non-executive Director
Brian Mattingley has been Deputy
Chairman since March 2006, and was
appointed to the Board in August 2005.
He was previously Chief Executive of
Gala Regional Developments Limited
until 2005. From 1997 to 2003 he was
Group Finance and Strategy Director of
Gala Group Plc, prior to which he was
Chief Executive of Ritz Bingo Limited. He
has held senior executive positions within
Kingfisher Plc and Dee Corporation Plc.
Age 56.
John Anderson
Non-executive Director
John Anderson was the Chief Executive
Officer of the Group from September
2000 to December 2006. He is currently
Non-executive Chairman of Burford
Holdings plc and was Chief Executive
Officer of Burford Holdings plc from 1996
to 2000. He is Chairman of the Interactive
Gaming Council; a board member of
eCOGRA and Chairman of 10 Tech
Holdings Limited. Previously, he was a
board member of Ladbrokes plc from
1990 to 1996. Age 59.
Shay Ben-Yitzhak
Non-executive Director
Shay Ben-Yitzhak is one of 888’s
founders and has been the Chief
Technical Officer of the Group and
responsible for research and
development from the establishment of
its research and development centre in
Tel Aviv until June 2006. Previously he
was a software engineer for Tower
Semiconductor Limited and CIBAM
Technologies Limited. He holds a BSc in
computer science from Technion — the
Israel Institute of Technology. Age 39.
Michael Constantine
Independent Non-executive Director
Michael Constantine was appointed in
August 2005. From 1996 to 1998, he
was Deputy Superintendent of the Turks
and Caicos Islands Financial Services
Commission, and in 1995 was head of
the Financial Supervision Unit of the
Mauritius Offshore Business Activities
Authority. From 1991 to 1995 he was
Inspector of Licensees at the Gibraltar
Financial Services Commission, latterly
Acting Commissioner. He is a Chartered
Accountant and for many years a partner
in the firm of Spain Brothers & Company.
He served in the Royal Naval Reserve,
reaching the rank of Commander.
Age 69.
Amos Pickel
Independent Non-executive Director
Amos Pickel was appointed in March
2006. He is the Chief Executive Officer of
Atlas Management Company Limited
and was formerly Chief Executive Officer
and member of the Board of Directors of
Red Sea Hotels Ltd. Previously a Non-
executive Director of Gresham Hotel
Group Plc, he is a solicitor holding a
Masters in Law from New York University
and a BA in Law from Tel Aviv University.
Age 41.
888 Holdings Public Limited Company
CORPORATE GOVERNANCE
888 is listed on the London Stock
Exchange, but it is not subject to the
UK Combined Code on Corporate
Governance issued in June 2006
(the Code) because it is a Gibraltar
incorporated company. The Directors
support high standards of Corporate
Governance and will comply with the
Code as far as it is appropriate for a
company incorporated in Gibraltar.
The Board
The Directors consider it essential that
the Company should be both led and
controlled by an effective Board.
Composition
The Board consists of eight directors as
follows: Three Independent Non-
executive Directors, two Non-
independent Non-executive Directors,
a Non-executive Chairman, and two
Executive Directors, comprising the Chief
Executive Officer and Chief Financial
Officer. The biographical details of all of
the Directors are given on page 32.
Strategic approach
The Board focuses upon the Group’s
long-term objectives, strategic and policy
issues and considers management of
key risks facing the Group. The Board
is responsible for acquisitions and
divestments, major capital expenditure
projects and considering Group budgets
and dividend policy. The Board also
determines key appointments. The
Board receives regular updates on
shareholders’ views.
The Board has established a calendar of
business. This provides for the financial
calendar, strategic planning, annual
budgets and performance self-
assessments, as well as the conduct of
standing business. The calendar forms
the basis for effective integration of
business activities as between the Board
and its principal Committees (see pages
34 and 35, which individually consider
their own operating frameworks against
the Board’s business programme.
The Board plans to meet six times a year.
During 2007, the Board met six times.
Set out below are details of the Directors’ attendance record at Board and Committee meetings in 2007.
Total held in year
Richard Kilsby
Gigi Levy
Aviad Kobrine
John Anderson
Shay Ben-Yitzhak
Michael Constantine
Brian Mattingley
Amos Pickel
Total number of meetings held during the year ended
December 2007 and the number of meetings
attended by each Director
Board
Audit
Committee
Remuneration
Committee
Nominations
Committee
6
6
6
6
5
4
6
5
5
3
n/a
n/a
n/a
n/a
n/a
3
3
2
3
n/a
n/a
n/a
n/a
n/a
3
3
2
0
–
n/a
n/a
n/a
n/a
–
–
n/a
Annual Report & Accounts 2007
33
CORPORATE GOVERNANCE
CONTiNuEd
The Chairman has responsibility for
ensuring that agendas for Board
meetings are set in advance. Board
papers are, where practicable, issued
to Directors sufficiently in advance of
meetings to facilitate both informed
debate and timely decisions. Given the
importance of regulatory and compliance
issues to the Company, the Board
assumed direct responsibility for matters
falling within the remit of the former
Regulatory and Compliance Committee
and, accordingly, this committee
was disbanded.
Non-executive review and
performance appraisal
The Chairman holds meetings at least
once per year with the Non-executive
Directors without the Executive Directors
being present. Led by the Senior
Independent Director, the Non-executive
Directors meet once per year without the
Chairman present in order to appraise
the performance of the Chairman. The
Directors have wide ranging business
experience, and no individual, or group
of individuals, dominates the Board’s
decision making.
The Board considers that Brian
Mattingley, Michael Constantine and
Amos Pickel satisfy the criteria of the
Code to act as Independent Non-
executive Directors. The Board is
satisfied that, upon his appointment
as Chairman, Richard Kilsby met the
independence criteria of the Code. The
other significant commitments of the
Chairman during 2007 are detailed
in his biography on page 32. The
Board considers that Mr Kilsby’s other
commitments do not interfere with the
discharge of his responsibilities to the
Group and is satisfied that he makes
sufficient time available to serve the
Company effectively.
Reserved powers and delegation
A schedule of matters reserved to the
Board has been adopted and its content
is reviewed to align it with operational
needs and the Board’s preference to
monitor and, where appropriate, approve
matters of substance to the Group as
a whole. Senior executives have given
written undertakings to ensure
compliance within their business
operations with the Board’s formal
schedule of matters reserved for itself
for decision or approval.
Division of responsibilities
The responsibilities of the Chairman
are clearly and formally defined, with
the Chairman being responsible
for the effective operation of the
Board as a whole and supporting
key external relationships.
Other issues
All Directors have access to the advice
and services of the Company Secretary
and the Company’s nominated advisers,
who are responsible for ensuring
that Board procedures are followed.
Directors are able to seek independent
professional advice, if required, at the
Company’s expense provided that they
have first notified their intention to do
so. The appointment or removal of the
Company Secretary is a matter for the
Board as a whole.
The Board accepts that there should
be a formal, rigorous and transparent
procedure for the induction of new
Directors, which has been formulated
with the guidance of the Nominations
Committee.
The opportunity to hold office as Non-
executive Directors of other companies
enables Directors of 888 to broaden their
experience and knowledge, which will
benefit the Company. Executive Directors
may be allowed to accept non-executive
appointments with the Board’s prior
permission, so long as these are not
likely to lead to conflicts of interest.
Executive Directors may be required to
account for fees received from such
other companies.
The Company has arranged insurance
cover in respect of legal actions against
its Directors. To the extent permitted by
Gibraltar law, the Company also
indemnifies the Directors. Neither the
insurance nor the indemnity provides
cover where a Director has acted
fraudulently or dishonestly.
Re-election of Directors
All Directors are subject to re-
appointment by shareholders at the
first Annual General Meeting after
their appointment, and thereafter,
in accordance with the Articles of
Association of the Company, at intervals
of no more than three years. Gigi Levy
and John Anderson were appointed as
directors (Mr Anderson for an initial
period of three years) at the 2007 Annual
General Meeting. Brian Mattingley,
Michael Constantine and Amos Pickel
(the Independent Non-executive
Directors) were appointed for a period of
three years, following their reappointment
by the shareholders at the 2007 Annual
General Meeting.
Audit Committee
The Audit Committee comprises three
Independent Non-executive Directors:
Brian Mattingley (Chair), Michael
Constantine and Amos Pickel. The Board
is satisfied that Brian Mattingley has
sufficient recent and relevant financial
experience to Chair the Audit Committee.
Normally, by invitation, the Chairman,
Chief Executive Officer and Chief
Financial Officer and Internal Auditor
attend Committee meetings, as may
representatives of the Company’s
external auditors.
The Audit Committee’s terms of
reference are available on request
to the Company Secretary and are
included on the Company’s website,
www.888holdingsplc.com.
34
888 Holdings Public Limited Company
In summary, the Audit Committee
assists the Board in discharging its
responsibilities with regard to financial
reporting, external and internal audits
and controls, including reviewing 888’s
annual financial statements, considering
the scope of annual audit and the extent
of non-audit work undertaken by external
auditors, approving 888’s internal audit
programme, advising on the appointment
of external auditors and reviewing the
effectiveness of internal control systems.
Nominations Committee
The Nominations Committee comprises
three Independent Non-executive
Directors, Michael Constantine (Chair),
Brian Mattingley and Amos Pickel as
well as Richard Kilsby, Chairman. The
Nominations Committee did not meet
during 2007.
The Remuneration Committee
assists the Board in determining
its responsibilities in relation to
remuneration, including making
recommendations to the Board on 888’s
policy on executive remuneration,
determining the individual remuneration
and benefits of each of the Executive
Directors, and recommending and
monitoring the remuneration of senior
management below Board level.
888’s payment risk management team,
based in Gibraltar, has developed
stringent payment risk management and
fraud control procedures. The team
makes use of external and internal
systems to manage the payment risks
faced by 888’s operational systems.
Detailed procedures exist throughout the
Company’s operations and compliance
is monitored by operational management
and the Internal Auditor.
The Remuneration Report, which
outlines the Remuneration Committee’s
work and details of Directors’
remuneration, is on pages 37 to 44.
The Remuneration Committee’s terms
of reference are available on request
to the Company Secretary and are
included on the Company’s website,
www.888holdingsplc.com.
The Nominations Committee assists the
Board in discharging its responsibilities
relating to the composition of the Board.
The Nominations Committee is
responsible for reviewing, from time
to time, the structure of the Board,
determining succession plans for the
Chairman and Chief Executive Officer,
and identifying and recommending
suitable candidates for appointment as
Directors. The Nominations Committee’s
terms of reference are available on
request to the Company Secretary and
are included on the Company’s website,
www.888holdingsplc.com.
Risk management and
internal control
The Directors acknowledge that they are
responsible for the Company’s system of
internal control, for setting policy on
internal control, and for reviewing the
effectiveness of internal control. It is
management’s role to implement Board
policies on risk and control, including
reporting. The system of internal control
is designed to manage rather than
eliminate the risk of failure to achieve
business objectives and can only provide
reasonable, and not absolute, assurance
against material misstatement or loss.
Remuneration Committee
The Company’s Remuneration
Committee comprises solely
Independent Non-executive Directors.
Brian Mattingley chairs the Remuneration
Committee and its other members are
Michael Constantine and Amos Pickel.
The Board has delegated responsibility
to the Audit Committee to review the
appropriateness and adequacy of
systems of internal control on an ongoing
basis and to make recommendations to
the Board. The Company has an Internal
Auditor who reports to the Audit
Committee, whose audit programme for
2008 was reviewed and approved by the
Audit Committee early in 2008.
The Directors periodically review the
effectiveness of the Group’s systems of
internal control. The review considers
individual risk control responsibilities,
reporting lines and qualitative
assessments of residual risks.
Relations with shareholders and key
financial audiences
The Company maintains an active and
regular dialogue with principal and
institutional shareholders and sell-side
analysts through a planned programme
of investor relations and financial PR
activity. The outcome of these meetings
is reported to the Board. The programme
includes formal presentations of full
year and interim results, quarterly
release of Key Performance
Indicators, analysts’ conference
calls and periodic road shows.
Brian Mattingley, the Senior Independent
Director, is available to shareholders to
address any issues that normal contact
with the Chairman, Chief Executive
Officer and Chief Financial Officer is
inappropriate or has failed to resolve
the issue.
All shareholders are welcome to attend
the 2008 Annual General Meeting and
private investors are encouraged to
take advantage of the opportunity given
to ask questions. The Chairmen (or
nominated members) of the Audit,
Remuneration and Nominations
Committees will attend the meeting
and be available to answer questions.
Annual Report & Accounts 2007
35
CORPORATE GOVERNANCE
CONTiNuEd
Compliance with the
Code provisions
As 888 Holdings Public Limited
Company is registered in Gibraltar, it is
subject to compliance with Gibraltar
statutory requirements and is not bound
by the UK Combined Code. The main
legislation relevant to companies in
Gibraltar is the Gibraltar Companies
Act 1930, which is based on the UK
Companies Act 1929.
Going concern
After reviewing the Group’s budget for
2008 and its medium-term plans, the
Directors are confident that the Company
and the Group have adequate financial
resources to continue in operational
existence for the foreseeable future. They
have therefore continued to adopt the
going concern basis in preparing its
financial statements.
Corporate and Social
Responsibility Statement
The Group’s Chief Executive Officer is
the Director responsible for monitoring
corporate and social responsibility within
888. The Board receives periodic reports
on the Group’s activities in this area from
the Chief Executive Officer. Further
details are set out in the Responsible
Gaming report on page 25.
Community
Sponsorship
888 is a sizeable employer with a visible
presence in Gibraltar and enjoys a good
relationship with the local community.
During 2007, the Group continued its
policy of reinforcing this relationship by
making contributions to a number of
local causes, primarily educational.
Charities
In 2007, the Group made donations
totalling US$232,000 (2006: US$32,000)
to organisations promoting various social
causes in Gibraltar and Israel.
36
888 Holdings Public Limited Company
REMuNERATiON REPORT
In accordance with the Listing Rules,
the Company presents its report on the
remuneration of its Directors for the
year ended 31 December 2007. The
Company is incorporated in Gibraltar
and, therefore, is not required to comply
with the Directors’ Remuneration Report
requirements in Schedule 7A to the UK
Companies Act 1985, but has chosen to
prepare this Remuneration Report on the
basis of those requirements.
The report sets out the structure
and details of the remuneration of
the Directors for the year ended
31 December 2007. It also describes
the Board’s policy and approach to
the Principles of Good Governance
relating to Directors’ remuneration.
A resolution to approve the
Remuneration Report is proposed,
annually, to shareholders for approval.
This Remuneration Report will be put to
shareholder vote at the 2008 Annual
General Meeting.
Remuneration Committee
The Remuneration Committee consists
solely of independent Non-executive
Directors, currently Brian Mattingley
(Chair), Michael Constantine and Amos
Pickel. Details of attendances at
Committee meetings are contained in the
statement on Corporate Governance on
page 33. The Remuneration Committee
has formal terms of reference (which
are available on request in writing
to the Company Secretary and
on the Company’s website,
www.888holdingsplc.com).
The Board has overall responsibility for
determining the framework of executive
remuneration and its cost. It is required
to take account of any recommendation
made by the Remuneration Committee
in determining the remuneration,
benefits and employment packages
of the Executive Directors and senior
management and the fees of
the Chairman.
Independent advice
The Board intends that executive
remuneration policies be both formal and
transparent. It further acknowledges the
importance of taking into consideration
independent advice in setting
remuneration policies and benefit levels.
The Remuneration Committee has
taken advice from New Bridge Street
Consultants as independent advisors
with respect to Executive Directors’
remuneration towards the end of 2006
and therefore further advice was not
required during 2007. The policies
applied in 2007 are consistent with
that advice.
Remuneration policy
Executive Directors
Remuneration packages must be
sufficient to attract, retain and motivate
Directors of the calibre appropriate
to a global business in a competitive
environment. The components of
the remuneration structure are set
out hereafter.
At least half of the total potential
remuneration of the Chief Executive
Officer and the Chief Financial Officer
are represented by a variable element,
dependent on the performance of the
Company. The Remuneration Committee
considers that these represent
achievable and motivational levels
of personal rewards commensurate
with stipulated levels of corporate
performance.
The Remuneration Committee is
mandated by the Board to satisfy itself
that the level of the Directors’ and senior
management’s remuneration is
appropriate, having regard to pay and
conditions throughout the rest of the
sectors in which the Group operates.
It will further satisfy itself that such
remuneration aligns with the risks and
rewards to shareholders. In this context
the Remuneration Committee will
regularly review individual and corporate
performance targets.
Non-executive Directors
The Chairman and the Non-executive
Directors receive fees only, and are not
eligible to participate in any bonus plan,
pension plan, share plan, or long-term
incentive plan of the Company. The
Chairman and the Executive Directors
determine the fees paid to the Non-
executive Directors. The Chairman’s fee
is determined by the Remuneration
Committee.
Fees paid to the Non-executive Directors
are set by reference to an assessment of
the time commitment and responsibility
associated with each role. Levels take
account of additional demands placed
upon individual Non-executive Directors
by virtue of their holding particular
offices, such as Committee Chairman
and/or Deputy Chairman and travel time
to the Group’s headquarters in Gibraltar.
The fees paid to each Non-executive
Director during 2007 are disclosed in the
Directors’ remuneration summary on
page 40.
Remuneration structure
Base salary and benefits
Base salaries are subject to annual
review. Gigi Levy’s last review took place
in November 2006 and his salary for
2007 was raised to GBP420,000. Aviad
Kobrine’s last review took place in
September 2006 and his aggregate
salary for 2007 which is paid by his
employers, the Company and Cassava
Enterprises (Gibraltar) Limited was raised
to GBP275,000. Neither salary was
raised during the 2007 financial year.
Benefits provided to executive directors
include a car (in the case of Gigi Levy)
and a car allowance (in the case of
Aviad Kobrine) and health, disability
and life insurance.
Annual cash bonus
Gigi Levy and Aviad Kobrine are entitled
to an annual cash bonus of up to 120%
of annualised salary, subject to the
achievement of predetermined targets.
The Remuneration Committee sets
Annual Report & Accounts 2007
37
REMuNERATiON REPORT
CONTiNuEd
bonus targets and levels of eligibility each
year. For the 2007 financial year, the
performance target was 20% growth in
revenue* compared to 2006 for non-US
business and provided that the EBITDA*
margin for 2006 will be maintained. The
pay out levels were set at 50% of base
salary for 80% performance, increasing
on a linear basis up to 100% where
targets were fully satisfied. In the event
that revenue growth exceeded 20%, the
percentage bonus entitlement increased
by 4% for every 1% additional revenue
growth, up to a total bonus entitlement
of 120%.
These targets were met in full during
the 2007 year and both Gigi Levy and
Aviad Kobrine are entitled to receive
the maximum annual cash bonus which
was 120% of their annualised 2007
salary. The bonuses are payable by
their respective employers. The
Remuneration Committee has rigorously
reviewed the results achieved against
the performance targets set for the
2007 financial year the Remuneration
Committee and is satisfied that the
targets it set upfront were challenging
and the bonuses awarded were earned
by outstanding performance.
Pensions
Gigi Levy and Aviad Kobrine are each
entitled to a cash payment in lieu of an
annual contribution to their personal
pension schemes of 15% of their
respective base salaries (in the case of
Aviad Kobrine, 15% of his basic salary
under both service agreements).
Long term incentives
On 30 August 2005 the Company
adopted two employee share incentive
plans which took effect on flotation:
(i) the 888 All-Employee Share
Plan; and (ii) the 888 Long
Term Incentive Plan.
The Company currently grants awards
only under the 888 All-Employee Plan.
The 888 Long Term Incentive Plan was
approved prior to flotation but no awards
have been granted under it.
Performance-dependent options and
awards were granted under the 888
All-Employee Plan to the Executive
Directors and other senior executives
on 14 September 2006, 30 April 2007,
30 May 2007 and 10 September 2007.
Details of these awards and options are
set out on pages 42 and 43.
888 All-Employee Share Plan
All employees, exclusive consultants
and Executive Directors of the Group
who are not within six months of their
normal retirement age are eligible to
participate in the 888 All-Employee
Share Plan at the discretion of the
Remuneration Committee.
Awards under the 888 All-Employee
Share Plan can either be granted for no
consideration (or with a nil exercise price)
or at an exercise price that will normally
be no less than the market value of an
Ordinary Share at the time of grant or
average share price during a period as
determined by the Remuneration
Committee at time of grant. In countries
where an award or option involving real
shares is not appropriate or feasible for
legal, regulatory or tax reasons, a
phantom award may be used.
The maximum number of Ordinary
Shares that an eligible employee may
acquire pursuant to share awards or
options granted to him in any calendar
year under the 888 All-Employee Share
Plan and the 888 Long Term Incentive
Plan may not have an aggregate market
value, as measured at the date of grant,
exceeding 200% of his annual base
salary or such higher limits as the
Remuneration Committee may determine
is appropriate in any individual case.
Awards vest in installments over a
fixed period of up to four years. The
* Subject to certain adjustments as determined by the Remuneration Committee.
Remuneration Committee may determine
that the vesting and release or exercise
of share awards and options under the
888 All-Employee Share Plan is subject
to performance conditions imposed at
the time of grant.
The performance conditions which
determine the vesting of the options and
awards granted on 12 September 2006
to Executive Directors and members of
senior management are driven solely
by financial performance, not by
comparison to an external peer Group.
Vesting occurs over a period of four
consecutive years starting in April 2007
and is subject to target growth in the
Company’s annual EPS (excluding share
benefit charges). In each year, EPS must
grow by a target of at least 20% in order
for 100% of the award for that year to
vest. For the 2008 financial year, 40% of
the award vested upon fulfilment of the
performance conditions in full (10% of
the award having vested during 2007
with the remaining 50% of the award
capable of vesting over 2009 and 2010).
50% of the award vests upon
achievement of 80% of the target EPS
growth rate and increases on a linear
basis up to 100% upon achievement of
100% of the target EPS growth. If the
threshold of 80% of target EPS growth
rate is not met in any one year, the
portion of the award due to vest in
that year shall lapse. Performance
conditions are capable of being
amended by the Remuneration
Committee if circumstances which
prevailed at the date of grant have
subsequently changed provided that the
amended performance conditions would
be a fairer measure of performance.
38
888 Holdings Public Limited Company
Share Plan where their employment has
been terminated by making a payment in
lieu of notice. No other benefits upon
termination of employment are payable.
An Executive Director’s entitlement to
share awards and share options under
the 888 All-Employee Plan on termination
of employment will be governed by the
terms of that plan (and in the case of the
initial awards made to Gigi Levy and
Aviad Kobrine by the relevant provisions
of their service agreements).
EPS was taken as the parameter for
these performance conditions as the
Remuneration Committee is of the view
that, given the nature of the industry in
which the Company operates where its
share price performance is heavily
influenced by external factors outside its
control, that it is a better measure of the
Company’s own performance. The
Remuneration Committee is of the view
that these performance conditions
provide a focus on delivering absolute
financial returns.
888 Long Term Incentive Plan
All employees and Executive Directors of
the Group who are not within six months
of their normal retirement age are eligible
to participate in the 888 Long Term
Incentive Plan at the discretion of the
Remuneration Committee. As at the date
of this report, no awards have been
granted pursuant to the 888 Long Term
Incentive Plan. 888 has given long-term
incentive awards to Executive Directors
under the 888 All Employee Plan.
Scheme limits
Awards and options granted under the
888 All-Employee Share Plan and the
888 Long Term Incentive Plan may be
satisfied through the issue of new shares.
It is intended that grants of options and
awards are to be planned so as not to
exceed 5% of the issued Ordinary Share
capital in any rolling 10 year period for
the 888 Long Term Incentive Plan, and
10% of the issued Ordinary Share capital
in any rolling 10 year period for the 888
All-Employee Share Plan and the 888
Long Term Incentive Plan, in the
aggregate. The Committee intends to
have regard to appropriate annual flow-
rates so as to ensure that these limits are
not breached.
Employee Trusts
The Company has established two
Trusts to further the interests of the
Company, its subsidiaries and
shareholders by providing share
incentives to employees (including
Executive Directors) of any Group
company to enable the Group to attract,
retain and motivate employees.
The 888 IPO Share Award Trust and the
888 Holdings Plc Share Plan Trust were
created pursuant to Trust Deeds dated
14 September 2005. The 888 IPO Share
Award Trust is operated in connection
with the grant of share awards and nil
cost options to employees of the Group
at the time of the IPO. These trusts
current hold 162,361 Ordinary Shares in
the Company.
Director appointments – service
contracts and Directors’ fees
Executive Directors
Each Executive Director’s service
agreement is terminable on no more than
12 months’ written notice by either party.
Each Executive Director’s employment
can be terminated by making a payment
equal to the salary and pension
contributions and the value of other
contractual benefits due to the Executive
Director in lieu of any unexpired notice
period. The Executive Directors continue
to be entitled to be paid a bonus during
any unexpired part of the notice period
even if the employment is terminated by
making payment in lieu of notice. Awards
granted under the 888 All-Employee
Share Plan to Gigi Levy and Aviad
Kobrine pursuant to their service
agreements, on 14 September 2006, and
29 September and 4 October 2005
respectively, continue to vest during any
unexpired part of the notice period and
they shall be treated as a “good leaver”
under the terms of the 888 All-Employee
Annual Report & Accounts 2007
39
REMuNERATiON REPORT
CONTiNuEd
Name
Position
Employer/
contracting party
Gigi Levy
Aviad Kobrine
Aviad Kobrine
Chief Executive Officer
Chief Financial Officer
Chief Financial Officer
The Company
The Company
Cassava Enterprises (Gibraltar) Limited*
Document date
18/06/2006
14/09/2005
14/09/2005
* Wholly-owned subsidiary of the Company.
Chairman and Non-executive Directors
The Chairman and the Non-executive Directors do not have service contracts but have signed Letters of Appointment.
Non-executive Directors’ appointments, which are for a fixed term of three years, may be terminated by the Company without
notice in accordance with the Company’s Articles of Association and the Gibraltar Companies Act 1930, except for the Chairman
who is required to be given six months’ prior written notice of termination. No compensation is payable on the termination of the
appointment.
Name
Position
Richard Kilsby
Brian Mattingley
John Anderson
Michael Constantine
Amos Pickel
Shay Ben-Yitzhak
Chairman
Deputy Chairman
Non-executive Director
Non-executive Director
Non-executive Director
Non-executive Director
Employer/
contracting party
The Company
The Company
The Company
The Company
The Company
The Company
Directors’ remuneration summary
The cash emoluments or fees received by the Directors for 2007 are shown below:
Document date
14/03/2006
14/03/2006
13/09/2006
14/09/2005
14/03/2006
18/06/2006
Executive
Gigi Levy
Aviad Kobrine2
Non-executive
Richard Kilsby
Brian Mattingley
Michael Constantine
John Anderson
Shay Ben-Yitzhak
Amos Pickel
Total
Base
salary/fees
US$’0001
Bonus
US$’000
Benefits
US$’000
Pensions
allowance
US$’000
Total
2007
US$’000
Total
2006
US$’000
841
553
402
161
121
141
121
1,007
683
–
2,340
1,690
36
313
22
–
89
126
83
2,010
1,350
424
161
121
141
–
121
209
4,328
1,058
1,162
278
141
111
5,983
256
93
9,082
1 Where Directors’ remuneration is denominated in Sterling, costs have been converted at the applicable rate of exchange at the transaction date.
2 Part of Mr Kobrine’s remuneration is paid by one of his employers, Cassava Enterprises (Gibraltar) Limited, a wholly-owned subsidiary of the Company.
3 Mr Kobrine was awarded a special one-off bonus of US$25,000 in recognition of specific achievements during the year in addition to his annual bonus.
40
888 Holdings Public Limited Company
Directors’ interests in Ordinary Shares
The notified interests of Executive and Non-executive Directors in the issued share capital of the Company are:
Executive
Gigi Levy
Aviad Kobrine
Non-executive
Richard Kilsby
Brian Mattingley
Michael Constantine
John Anderson
Shay Ben-Yitzhak1
Amos Pickel
Ordinary Shares
31 December
2007
31 December
2006
534,256
296,061
–
202,258
114,285
142,857
22,857
1,988,869
37,122,358
–
114,285
142,857
22,857
1,146,129
57,522,358
–
1 These shares are held on Trust and are subject to a Relationship Agreement dated 14 September 2005 between, among others, the Company and the
Principal Shareholder Trusts. Further details can be found on page 46.
Except where stated, all interests were held beneficially.
Annual Report & Accounts 2007
41
REMuNERATiON REPORT
CONTiNuEd
Directors’ interests in Share Awards and Share Options
The number of shares subject to Share Awards or Share Options granted to the Executive Directors in 2007 and outstanding as at
31 December 2007 are set out below:
Notes
Date of
Award
Earliest
exercise/
vesting
date
Exercise
period
end-date
Awards at
Exercise 31 December
2006
price
Awarded
2007
Vested in
2007
Market
price at
exercise/
vesting
date
Exercised/
transferred
2007
Gigi Levy1
2, 4
14/9/06
18/6/07
18/6/08
18/6/09
18/6/10
2, 6
14/9/06
14/4/07
14/4/08
14/4/09
14/4/10
2, 5
14/9/06
18/6/07
18/6/08
18/6/09
19/6/10
n/a
n/a
n/a
n/a
n/a
n/a
n/a
n/a
n/a
n/a
n/a
n/a
£nil
£nil
£nil
£nil
£nil
£nil
£nil
£nil
£nil
£nil
£nil
£nil
337,096
337,096
337,096
337,097
58,315
233,260
145,787
145,787
138,845
138,845
138,845
138,845
337,096
120.25p
58,315
128p
138,845
120.25p
42
888 Holdings Public Limited Company
Notes
Date of
Award
Earliest
exercise/
vesting
date
Exercise
period
end-date
Awards at
Exercise 31 December
2006
price
Awarded
2007
Vested in
2007
Market
price at
exercise/
vesting
date
Exercised/
transferred
2007
Aviad Kobrine
2, 4
29/9/05
4/10/07
4/10/08
4/10/09
n/a
n/a
n/a
3, 4
4/10/05
4/10/07
4/10/15
4/10/08
4/10/15
4/10/09
4/10/15
3, 6
14/9/06
14/4/07
14/9/16
14/4/08
14/9/16
14/4/09
14/9/16
14/4/10
14/9/16
2, 6
14/9/06
14/4/07
14/4/08
14/4/09
14/4/10
2, 6
30/4/07
30/4/07
14/4/08
14/4/09
14/4/10
n/a
n/a
n/a
n/a
n/a
n/a
n/a
n/a
3, 6
30/4/07
30/4/07
30/4/17
14/4/08
30/4/17
14/4/09
30/4/17
14/4/10
30/4/17
£nil
£nil
£nil
£nil
£nil
£nil
£nil
£nil
£nil
£nil
£nil
£nil
£nil
£nil
£nil
£nil
£nil
£nil
£nil
£nil
£nil
£nil
55,621
55,621
55,621
45,508
45,508
45,508
15,620
62,480
39,050
39,050
19,091
76,365
47,728
47,728
–
–
–
–
–
–
–
–
55,621
116.25p
45,508
116.25p
45,508
15,620
128p
19,091
128p
1,909
1,909
120.25p
7,636
4,773
4,772
1,562
1,562
120.25p
6,248
3,905
3,905
All awards were made through the 888 All-Employee Share Plan.
1 Date of appointment, being 18 June 2006, for Gigi Levy.
2 Awarded as a share award.
3 Awarded as a nil cost option.
4 This award was granted pursuant to Gigi Levy’s service agreement. This award was granted to Gigi Levy upon his recruitment as a one-off award to
secure his appointment.
5 This one-off discretionary award was made in order to secure Gigi Levy’s appointment and is subject to his annual cash bonus criteria being met.
6 Vesting subject to performance conditions, as described on page 38 and 39.
The closing price of one Ordinary Share was 142p at 31 December 2007. The highest closing price during 2007 was 142p and the
lowest was 96.5p.
No Director was materially interested during the year in any contract which was significant in relation to the business of the
Company otherwise than as disclosed in the Prospectus or these Report and Accounts.
Annual Report & Accounts 2007
43
REMuNERATiON REPORT
CONTiNuEd
Value of Sterling 100 in 888 since IPO v. FTSE 250
Total shareholder return
The chart below shows the value of an investment of Sterling £100 in the Company’s shares and in the FTSE 250 Index from
admission to 31 December 2007. The Directors have chosen the FTSE 250 Index as the most appropriate comparator index as the
company was a constituent member until October 2006
VALUE OF STERLING £100 IN 888 Since IPO v. FTSE 250
160
140
120
100
80
60
40
0
–
–
–
–
–
–
–
–
5
0
/
9
/
9
2
5
0
/
0
1
/
9
2
5
0
/
1
1
/
9
2
5
0
/
2
1
/
9
2
6
0
/
1
/
9
2
6
0
/
2
/
9
2
6
0
/
3
/
9
2
6
0
/
4
/
9
2
6
0
/
5
/
9
2
6
0
/
6
/
9
2
6
0
/
7
/
9
2
6
0
/
8
/
9
2
6
0
/
9
/
9
2
6
0
/
0
1
/
9
2
6
0
/
1
1
/
9
2
6
0
/
2
1
/
9
2
7
0
/
1
/
9
2
7
0
/
2
/
9
2
7
0
/
3
/
9
2
7
0
/
4
/
9
2
7
0
/
5
/
9
2
7
0
/
6
/
9
2
7
0
/
7
/
9
2
7
0
/
8
/
9
2
7
0
/
9
/
9
2
7
0
/
0
1
/
9
2
7
0
/
1
1
/
9
2
7
0
/
2
1
/
9
2
888 Share FTSE 250
Approval
This report was approved by the Board and signed on its behalf by:
Brian Mattingley
Chairman of the
Remuneration Committee
8 April 2008
44
888 Holdings Public Limited Company
diRECTORs’ REPORT
The Directors submit to the members their Annual Report and Accounts of the Group for the year ended 31 December 2007. The
report on Corporate Governance and the Remuneration Report on pages 33 to 36 and 37 to 44 respectively, form part of this
Directors’ Report.
Principal activities
During 2007 the Group’s principal activities were the provision of online gaming entertainment to end customers as well as
business partners. A review of the business is given in the Chairman’s statement on pages 4 to 5, the Chief Executive’s Review
on pages 6 to 9 and the Enhanced Business Review on pages 10 to 30.
The principal subsidiary undertakings are listed on page 69.
Results and dividend
The Group’s profit before tax for the financial year (excluding share benefit charges of US$7.8 million) of US$45.8 million is reported
in the Consolidated Income Statement on page 50. It is the intention of the Directors to declare a final dividend in respect of the
financial year in an amount of 5.0 cents per share.
Directors and their interests
Biographical details of the current Board of Directors are shown on page 32. The Directors who served during the year are shown
below:
Richard Kilsby
Gigi Levy
Aviad Kobrine
John Anderson
Shay Ben-Yitzhak
Michael Constantine
Brian Mattingley
Amos Pickel
(appointed 30 August 2005 and re-appointed 10 May 2006)
(appointed 18 June 2006 and re-appointed 30 May 2007)
(appointed 30 August 2005 and re-appointed 10 May 2006)
(appointed 30 August 2005 and re-appointed 30 May 2007)
(appointed 30 August 2005 and re-appointed 10 May 2006)
(appointed 30 August 2005 and re-appointed 30 May 2007)
(appointed 30 August 2005 and re-appointed 30 May 2007)
(appointed 14 March 2006 and re-appointed 30 May 2007)
The beneficial and non-beneficial interests of the Directors in shares of the Company are set out in the Remuneration Report
on pages 37 to 44.
Except as noted above, none of the Directors had any interests in the shares of the Company or in any material contract
or arrangement with the Company or any of its subsidiaries.
Richard Kilsby, Shay Ben Itzhak and Aviad Kobrine will retire by rotation at the Annual General Meeting and, being eligible,
will offer themselves for re-election.
Share capital
Changes in the Company’s share capital during the financial year are given in note 16 to the Consolidated Financial Statements
on page 67. As at 31 December 2007, the Company’s authorised share capital comprised 340,108,035 Ordinary Shares of
0.005p each.
Rights attaching to Ordinary Shares
The rights and obligations attaching to Ordinary Shares are set out in the Company’s Articles of Association. Holders of Ordinary
Shares are entitled to attend and speak at general meetings of the Company, to appoint one or more proxies and to exercise
voting rights. Holders of Ordinary Shares may receive a dividend and on liquidation may share in the assets of the Company.
Holders of Ordinary Shares are entitled to receive the Company’s Annual Report. Subject to meeting certain thresholds, holders
of Ordinary Shares may requisition a general meeting of the Company or the proposal of resolutions at general meetings.
Annual Report & Accounts 2007
45
diRECTORs’ REPORT
CONTiNuEd
Deadlines for exercising voting rights
Electronic and paper proxy appointment and voting instructions must be received by the Company’s Registrars not later than
48 hours before a general meeting.
Restrictions on transfer of shares and limitations on holdings
There are no restrictions on transfer or limitations on the holding of Ordinary Shares other than under restrictions imposed by law
or regulation (for example, insider trading laws) or pursuant to the Company’s share dealing code.
Substantial shareholdings
As at 31 December 2007 the Company had been notified of the following interests in 3% or more of its Share Capital:
Principal Shareholder Trust
E Shaked Shares Trust
O Shaked Shares Trust
Ben-Yitzhak Family Shares Trust
Number
of shares
86,283,534
86,283,534
37,122,358
% Issued
share
capital
25.4
25.4
10.9
Shareholder agreements and consent requirements
There are no known arrangements under which financial rights are held by a person other than the holder of the shares.
A Relationship Agreement governing the relationship between the above Principal Shareholder Trusts and the Company was
entered into in connection with the Company’s flotation. The Relationship Agreement provides that all transactions between the
Group and the Principal Shareholder Trusts will be on a normal business basis, that the Group will be allowed to carry on business
independently of them and that the Principal Shareholder Trusts will not cause the Group to contravene the Combined Code
unless required by law or as contemplated in the Relationship Agreement. It further provides that each of the Principal Shareholder
Trusts will not solicit Group employees without consent, that only Independent Directors can vote on proposals to amend the
Relationship Agreement, that the Principal Shareholder Trusts will consult the Group prior to disposing of a significant number of
shares in order to maintain an orderly market and shall not disclose confidential information unless required to do so or having first
received the Company’s consent. The Relationship Agreement also includes restrictions on the Principal Shareholder Trusts power
to appoint Directors and obligations to ensure that the majority of the Board, excluding the Chairman, is independent. The Principal
Shareholder Trusts can nominate a Non-executive Director for appointment to the Board and the Directors will consider the
appointment of the nominated person to the Remuneration Committee. In the event that this right is exercised and it results in
fewer than half the Board (excluding the Chairman of the Board) being Independent Directors, such appointment shall only
become effective upon the appointment to the Board of an additional Independent Director. Such restrictions and obligations
apply whilst the E Shaked Shares Trust and O Shaked Shares Trust collectively or the Ben-Yitzhak Family Shares Trust individually,
hold not less than 7.5%.
Change of control
Other than the Group’s gaming licences where change of control is subject to prior consent, there are no contracts to which the
Group is a party which would allow the counterparty to terminate or alter those contractual arrangements in the event of a change
of control of the Group.
46
888 Holdings Public Limited Company
Auditors
A resolution for the re-appointment of
BDO Stoy Hayward LLP and BDO Orion
Limited as auditors of the Company
will be proposed at the 2008 Annual
General Meeting.
During the year ended 31 December
2007 BDO Stoy Hayward LLP were
appointed auditors for the purposes
of the Company preparing financial
statements as required pursuant to the
Listing Rules of the UK Listing Authority.
BDO Orion Limited have been appointed
to act as auditors for the purposes of
issuing an audit report pursuant to
Section 10 of the Gibraltar Companies
(Accounts) Act 1999 to be filed with the
Gibraltar Companies Registry.
On behalf of the Board
Gigi Levy
Chief Executive Officer
8 April 2008
Charitable contributions
Contributions for charitable purposes
were made during the year amounting to
US$232,000 (2006: US$32,000).
Directors’ Responsibility Statement
The Directors are responsible for keeping
proper accounting records which
disclose with reasonable accuracy at
any time the financial position of the
Company, for safeguarding the assets,
for taking reasonable steps for the
prevention and detection of fraud and
other irregularities and for the preparation
of a Directors’ report which complies
with the Gibraltar Companies (Accounts)
Act 1999, the Gibraltar Companies
(Consolidated Accounts) Act 1999 and
the Gibraltar Companies Act 1930.
Financial statements are published on
the Group’s website in accordance
with legislation in the UK governing
the preparation and dissemination of
financial statements, which may vary
from legislation in other jurisdictions.
The maintenance and integrity of the
Group’s website is the responsibility
of the Directors. The Directors’
responsibility also extends to the
ongoing integrity of the financial
statements contained therein.
The Directors are responsible for
preparing the annual report and the
financial statements. The Directors are
required to prepare financial statements
for the Group in accordance with
International Financial Reporting
Standards (IFRSs) and have also chosen
to prepare financial statements for the
Company in accordance with IFRSs.
Group and parent company financial
statements
Company law requires the Directors
to prepare such financial statements
in accordance with the Gibraltar
Companies (Accounts) Act 1999, the
Gibraltar Companies (Consolidated
Accounts) Act 1999 and the Gibraltar
Companies Act 1930.
International Accounting Standard 1
requires that financial statements present
fairly for each financial year the Group
and Company’s financial position,
financial performance and cash flows.
This requires the faithful representation of
the effects of transactions, other events
and conditions in accordance with the
definitions and recognition criteria for
assets, liabilities, income and expenses
set out in the International Accounting
Standards Board’s “Framework for
the preparation and presentation of
financial statements”. In virtually all
circumstances, a fair presentation will
be achieved by compliance with all
applicable IFRSs.
A fair presentation also requires the
Directors to:
•
•
•
consistently select and apply
appropriate accounting policies;
present information, including
accounting policies, in a manner
that provides relevant, reliable,
comparable and understandable
information; and
provide additional disclosures when
compliance with the specific
requirements in IFRSs is insufficient to
enable members to understand the
impact of particular transactions,
other events and conditions on the
entity’s financial position and financial
performance.
Annual Report & Accounts 2007
47
Independent AudItors’ report to the shAreholders
of 888 holdIngs publIc lImIted compAny
We have audited the Group and the Company financial statements (the “financial statements”) of 888 Holdings Public Limited
Company for the year ended 31 December 2007 which comprise the Group Income Statement, the Group and Company
Balance Sheets, the Group and Company Cash Flow Statements, the Group and Company Statement of Changes in Equity
and the related notes 1 to 24 to the Consolidated Financial Statements and notes 1 to 11 to the Company Financial Statements.
These financial statements have been prepared under the accounting policies set out therein. We have also audited the parts
of the remuneration report described as having been audited.
Respective responsibilities of Directors and Auditors
The Directors’ responsibilities for preparing the Annual Report and the financial statements in accordance with applicable law
and International Financial Reporting Standards (“IFRSs”) as adopted by the European Union are set out in the Statement of
Directors’ Responsibilities. 888 Holdings Public Limited Company has complied with the requirements of rules 9.8.6 and 9.8.8 of
the Listing Rules in preparing its Annual Report and has also complied with schedule 7A of the UK Companies Act 1985 as if it
was incorporated in the UK.
Our responsibility is to audit the financial statements in accordance with relevant legal and regulatory requirements and
International Standards on Auditing (UK and Ireland).
We report to you our opinion as to whether the financial statements give a true and fair view and whether the financial statements
have been properly prepared in accordance with the Gibraltar Companies (Accounts) Act 1999, Gibraltar Companies
(Consolidated Accounts) Act 1999 and the Gibraltar Companies Act 1930 and the part of the Remuneration Report described as
having been audited, has been properly prepared in accordance with Schedule 7A of the UK Companies Act 1985. We also
report to you if, in our opinion, the Directors’ Report is not consistent with the financial statements, if the Company has not kept
proper accounting records, if we have not received all the information and explanations we require for our audit or if information
specified by the Listing Rules and Gibraltar legislation is not disclosed.
We review whether the Corporate Governance Statement reflects the Company’s compliance with the nine provisions of the 2006
FRC Combined Code specified for our review by the Listing Rules of the Financial Services Authority, and we report if it does not.
We are not required to consider whether the Board’s statements on internal control cover all risks and controls, or form an
opinion on the effectiveness of the Group’s corporate governance procedures or its risk and control procedures.
We read other information contained in the Annual Report and consider whether it is consistent with the audited financial
statements. The other information comprises only the Directors’ Report, Chairman’s Statement, Chief Executive’s Review,
Enhanced Business Review, Regulatory and Compliance Review, Corporate Governance Statement and the unaudited part of
the Remuneration Report. We consider the implications for our report if we become aware of any apparent misstatements or
material inconsistencies with the financial statements. Our responsibilities do not extend to any other information.
Our report has been prepared pursuant to the terms of our engagement letter and for no other purpose. No person is entitled to
rely on this report unless such a person is a person entitled to rely upon this report by virtue of the terms of our engagement
letter or has been expressly authorised to do so by our prior written consent. Save as above, we do not accept responsibility for
this report to any other person or for any other purpose and we hereby expressly disclaim any and all such liability.
Basis of audit opinion
We conducted our audit in accordance with International Standards on Auditing (UK and Ireland) issued by the Auditing Practices
Board. An audit includes examination, on a test basis, of evidence relevant to the amounts and disclosures in the financial
statements and the part of the Remuneration Report described as having been audited. It also includes an assessment of the
significant estimates and judgements made by the Directors in the preparation of the financial statements, and of whether the
accounting policies are appropriate to the Group’s and Company’s circumstances, consistently applied and adequately
disclosed.
We planned and performed our audit so as to obtain all the information and explanations which we considered necessary in
order to provide us with sufficient evidence to give reasonable assurance that the financial statements and the parts of the
Remuneration Report described as having been audited, are free from material misstatement, whether caused by fraud or other
irregularity or error. In forming our opinion we also evaluated the overall adequacy of the presentation of information in the
financial statements and the part of the Remuneration Report to be audited.
48
888 Holdings Public Limited Company
Opinion
In our opinion:
•
the Group financial statements give a true and fair view, in accordance with IFRSs as adopted by the European Union, of the
state of the Group’s and the Company’s affairs as at 31 December 2007 and of the Group’s profit for the year then ended;
the financial statements have been properly prepared in accordance with the Gibraltar Companies (Accounts) Act 1999,
Gibraltar Companies (Consolidated Accounts) Act 1999 and the Gibraltar Companies Act 1930, and
the part of the Remuneration Report described as having been audited, has been properly prepared in accordance with
Schedule 7A of the UK Companies Act 1985; and
the information provided in the Directors’ report is consistent with the financial statements.
•
•
•
Emphasis of matter – regulatory issues
In forming our opinion, which is not qualified, we have considered the adequacy of, and draw attention to, the disclosures made
in note 24 to the financial statements concerning the residual risk of an adverse impact arising from the Group having had
customers in the US prior to the enactment of the Unlawful Internet Gambling Enforcement Act.
Note 24 includes a statement that the Board has not been able to identify reliably at this stage what, if any, liability may arise and
accordingly no provision has been made.
BDO Stoy Hayward LLP
Chartered Accountants
55 Baker Street
London W1U 7EU
UK
8 April 2008
BDO Orion Limited
Registered Auditors
Montagu Pavilion
8-10 Queensway
Gibraltar
Annual Report & Accounts 2007
49
consolIdAted Income stAtement
for the yeAr ended 31 december 2007
Net Gaming Revenue
Other operating income
Total operating income
Operating expenses
Research and development expenses
Selling and marketing expenses
Administrative expenses
Operating profit before share benefit charges
Share benefit charges
Operating profit
Finance income
Profit before tax before share benefit charges
Share benefit charges
Profit before tax
Taxation
Profit from continuing operations
(Loss)/profit from discontinued operations
Profit after tax for the year attributable to equity holders of parent
Earnings per share
Continuing operations
Basic
Diluted
Discontinued operations
Basic
Diluted
Total
Basic
Diluted
The notes on pages 54 to 77 form part of these financial statements.
Year ended
31 December
2007
US$’000
Year ended
31 December
2006
US$’000
Note
2
2
4
5
19
6
23
Note
7
23(e)
213,383
3,563
216,946
64,864
23,496
70,897
24,660
40,829
7,800
33,029
4,957
45,786
7,800
37,986
3,199
34,787
(552)
34,235
157,000
–
157,000
49,448
19,381
51,037
28,653
17,310
8,829
8,481
4,883
22,193
8,829
13,364
3,117
10,247
64,254
74,501
Year ended
31 December
2007
Cents
Year ended
31 December
2006
Cents
10.3
10.1
(0.2)
(0.2)
10.1
9.9
3.0
3.0
19.1
18.8
22.1
21.8
50
888 Holdings Public Limited Company
consolIdAted bAlAnce sheet
At 31 december 2007
Assets
Non-current assets
Intangible assets
Property, plant and equipment
Financial assets
Deferred taxes
Current assets
Cash and cash equivalents
Trade and other receivables
Total assets
Equity and liabilities
Equity attributable to equity holders of the parent
Share capital
Available for sale reserve
Retained earnings
Total equity attributable to equity holders of the parent
Liabilities
Current liabilities
Trade and other payables
Member deposits
Total liabilities
Total equity and liabilities
31 December
2007
US$’000
31 December
2006
US$’000
Note
10
11
12
13
14
15
16
17
40,656
16,496
654
537
58,343
104,308
19,530
123,838
182,181
3,097
(105)
89,735
92,727
63,040
26,414
89,454
182,181
–
13,033
–
546
13,579
114,356
9,669
124,025
137,604
3,073
–
83,929
87,002
27,931
22,671
50,602
137,604
The financial statements on pages 50 to 77 were approved and authorised for issue by the Board of Directors on 8 April 2008
and were signed on its behalf by:
Gigi Levy
Chief Executive Officer
Aviad Kobrine
Chief Financial Officer
The notes on pages 54 to 77 form part of these financial statements.
Annual Report & Accounts 2007
51
consolIdAted stAtement of chAnges In equIty
for the yeAr ended 31 december 2007
Balance at 1 January 2006
Net profit for the year
Dividend paid
Issue of shares
Share benefit charges
Balance at 1 January 2007
Net profit for the year
Dividend paid
Issue of shares
Valuation/(losses) of available for sale investments
Share benefit charges
Balance at 31 December 2007
Share capital
US$’000
Available for
sale reserve
US$’000
3,068
–
–
5
–
3,073
–
–
24
–
–
3,097
–
–
–
–
–
–
–
–
–
(105)
–
(105)
Retained
earnings
US$’000
29,262
74,501
(28,658)
(5)
8,829
83,929
34,235
(36,205)
(24)
–
7,800
89,735
Total
US$’000
32,330
74,501
(28,658)
–
8,829
87,002
34,235
(36,205)
–
(105)
7,800
92,727
The following describes the nature and purpose of each reserve within equity.
Share capital – represents the nominal value of shares allotted, called-up and fully paid for.
Available for sale reserve – represents the gain or loss arising from a change in the fair value of an available for sale
financial assets.
Retained earnings – represents the cumulative net gains and losses recognised in the consolidated income statement.
The notes on pages 54 to 77 form part of these financial statements.
52
888 Holdings Public Limited Company
consolIdAted stAtement of cAsh flows
for the yeAr ended 31 december 2007
Year ended
31 December
2007
US$’000
Year ended
31 December
2007
US$’000
Year ended
31 December
2006
US$’000
Year ended
31 December
2006
US$’000
Cash flows from operating activities
Profit before income tax
Adjustments for
Depreciation
Loss on sale of property, plant and equipment
Amortisation
Interest received
Share benefit charges
(Increase)/decrease in trade receivables
Decrease in related party balances
Increase in other accounts receivables
Increase/(decrease) in trade payables
Increase/(decrease) in member deposits
Increase in other accounts payables
Cash generated from operations
Income tax paid
Net cash generated from operating activities
Cash flows from investing activities
Acquisition of assets comprising of the online
bingo business of Globalcom Limited (see note 9)
Purchase of property, plant and equipment
Proceeds from sale of property, plant and equipment
Interest received
Acquisition of available for sale assets
Net cash used in investing activities
Cash flows from financing activities
Dividends paid
Net cash used in financing activities
Net (decrease)/increase in cash and cash equivalents
Cash and cash equivalents at the beginning of the year
Cash and cash equivalents at the end of the year
The notes on pages 54 to 77 form part of these financial statements.
37,434
4,192
–
1,550
(5,434)
7,800
45,542
(7,241)
–
(2,620)
2,186
3,743
7,663
49,273
(3,075)
(17,142)
(7,574)
–
5,434
(759)
77,618
3,801
29
–
(4,879)
8,829
85,398
6,346
1,331
(1,002)
(1,439)
(6,654)
3,527
87,507
(3,052)
46,198
84,455
–
(8,621)
99
4,879
–
(20,041)
(3,643)
(36,205)
(28,658)
(36,205)
(10,048)
114,356
104,308
(28,658)
52,154
62,202
114,356
Annual Report & Accounts 2007
53
notes to the consolIdAted fInAncIAl stAtements
1 General information
Company description and activities
888 Holdings Public Limited Company (the “Company”) and its subsidiaries (together the “Group”) was founded in 1997 and
originally operated as a holding company domiciled in the British Virgin Islands. On 12 January 2000, the Company was
continued in Antigua and Barbuda as a corporation under the International Business Corporation Act 1982 with registered
number 12512. On 17 December 2003, the Company redomiciled in Gibraltar with the Company number 90099. On 4 October
2005, the Company listed on the London Stock Exchange.
The Group has developed and is the owner of innovative proprietary software applications solutions for virtual Casinos, for Poker
rooms, e-commerce, credit-card clearing services and online advertising methodologies. The Group also offers Sportsbetting,
Bingo games and Backgammon to end users as well as business partners.
Cassava Enterprises (Gibraltar) Limited and Brigend Limited (both subsidiaries) carried out the operations of the Group during the
year, principally under the name www.888.com under the terms of a gaming licence issued in Gibraltar.
Definitions
In these financial statements:
The Company
The Group
Subsidiaries
Related parties
Emerging Offerings
888 Holdings Public Limited Company.
888 Holdings Public Limited Company and its subsidiaries.
Companies over which the Company has control (as defined in International Accounting Standard 27
“Consolidated and Separate Financial Statements” and whose accounts are consolidated with those of
the Company).
As defined in International Accounting Standard 24 – “Related Party Disclosures”.
Comprises the Group’s offering of Bingo games to end users and business partners, Backgammon and
betting exchange.
2 Significant accounting policies
The significant accounting policies applied in the preparation of the financial statements are as follows:
Basis of preparation
The consolidated financial statements of the Group have been prepared in accordance with International Financial Reporting
Standards, including International Accounting Standards (“IAS”) and Interpretations, adopted by the International Accounting
Standards Board (“IASB”) and endorsed for use by companies listed on an EU regulated market.
The significant accounting policies applied in the financial statements of the Group in the prior years are applied consistently in
these financial statements.
The financial statements are presented in thousands of US dollars (US$’000) because that is the currency the Group primarily
operates in.
The consolidated financial statements comply with the Gibraltar Companies (Accounts) Act 1999, the Gibraltar Companies
(Consolidated Accounts) Act 1999 and the Gibraltar Companies Act 1930.
The following standards and interpretations, issued by the IASB or the International Financial Reporting Interpretations
Committee (IFRIC), are effective for the first time in the current financial year and have been adopted by the Group with no
significant impact on its consolidated results or financial position:
IFRS 7 – Financial instruments disclosure (effective for accounting periods beginning on or after 1 January 2007). Additional
disclosure has been included in the financial statements to comply with this standard.
IFRIC 7 – Applying the restatement approach under IAS 29 – Financial reporting in hyperinflationary economies (effective for
annual periods beginning on or after 1 March 2006).
IFRIC 8 – Scope of IFRS 2 – Accounting for share-based payments (effective for annual periods beginning on or after 1 May
2006).
IFRIC 9 – Reassessment of embedded derivatives (effective for annual periods beginning on or after 1 June 2006).
IFRIC 10 – Interim financial reporting and impairment (effective for annual periods beginning on or after 1 November 2006).
54
888 Holdings Public Limited Company
2 Significant accounting policies continued
The following standards and interpretations, issued by the IASB or IFRIC, have not been adopted by the Group as these were not
effective for the year 2007. The Group is currently assessing the impact these standards and interpretations will have on the
presentation of its consolidated results in future periods:
IAS 1 (Amendment) – Presentation of Financial Statements (effective for annual periods beginning on or after 1 January 2009) –
IAS 1 has not been endorsed for use in the EU.
IFRIC 11 IFRS 2 – Group and treasury share transactions (effective for annual periods beginning on or after 1 March 2007). IFRIC
11 has been endorsed for use in the EU.
IFRIC 12 – Service concession arrangements (effective for annual periods beginning on or after 1 January 2008). IFRIC 12 has
not been endorsed for use in the EU.
IFRIC 13 – Customer Loyalty Programmes (effective for annual periods beginning on or after 1 July 2008). IFRIC 13 has not been
endorsed for use in the EU.
IFRIC 14 – The Limit on Defined Benefit Asset Minimum Funding Requirements and their Interaction (effective for annual periods
beginning on or after 1 January 2008). IFRIC 19 has not been endorsed for use in the EU.
IAS 23 (Amendment) – Borrowing costs (effective for annual periods beginning on or after 1 January 2009). IAS 23 has not been
endorsed for use in the EU.
IAS 27 – Consolidated and separate financial statements (effective for periods beginning on or after 1 July 2009). IAS 27 has not
been endorsed for use in the EU.
IFRS 2 (Amendment) – Vesting conditions and cancellations (effective for accounting periods beginning on or after
1 January 2009). IFRS 2 (Amendment) has not yet been endorsed for use in the EU.
IFRS 3 (Revised) – Business combinations (effective for accounting periods beginning on or after 1 January 2009).
IFRS 3 (Revised) has not yet been endorsed for use in the EU.
IFRS 8 – Operating segments (effective for annual periods beginning on or after 1 January 2009) contains requirements for the
disclosure of information about an entity’s operating segments and also about the entity’s products and services, the
geographical areas in which it operates, and its major customers. The standard is concerned only with disclosure and replaces
IAS 14 – Segment reporting. IFRS 8 has been endorsed for use in the EU.
Amendments to IAS 32 Financial Instruments: Presentation and IAS 1 Presentation of Financial Statements – Puttable Financial
Instruments and Obligations arising on Liquidation (effective for accounting periods beginning on or after 1 January 2009). These
amendments have not been endorsed for use in the EU.
Critical accounting policies, estimates and judgements
The preparation of consolidated financial statements under IFRS requires the Group to make estimates and judgements that
affect the application of policies and reported amounts. Estimates and judgements are continually evaluated and are based on
historical experience and other factors including expectations of future events that are believed to be reasonable under the
circumstances. Actual results may differ from these estimates.
Included in this note are accounting policies which cover areas that the Directors consider require estimates and assumptions which
have a significant risk of causing a material adjustment to the carrying amount of assets and liabilities within the next financial year.
These policies together with references to the related notes to the financial statements can be found below:
Taxation
Intangible assets acquired
Impairment of goodwill
Consolidation on the basis of control
Share-based payments
Regulatory compliance and contingent liabilities
Note 6
Note 9
Note 10
Note 18
Note 19
Note 24
Annual Report & Accounts 2007
55
notes to the consolIdAted fInAncIAl stAtements
contInued
2 Significant accounting policies continued
Presentation of continuing and discontinued operations
As a result of enactment of the Unlawful Internet Gambling Enforcement Act (“UIGEA”) in October 2006, the Group withdrew from
offering real-money activity to the US facing market.
Although the Group did not operate the US facing business as a separate business, it was a separate geographical segment of
the Group’s business and in accordance with IFRS 5 – “Non-Current Assets Held for Sale and Discontinued Operations” the
income statement and related notes are required to show continued and discontinued operations separately.
Net Gaming Revenue and certain direct costs associated with the discontinued operations, which are of distinct nature, were
allocated accordingly. Other costs (such as R&D expenses, IT expenses, Share benefit charges, office rent and associated
cost, depreciation of fixed assets, gaming duty, Directors’ and Officers’ insurance, Directors’ fees and tax), which are not
distinguishable, were all allocated to the continuing operations and not to the discontinued business. In allocating the rest of the
costs of the Group between the two operations, management has applied reasonable estimates in accordance with applicable
accounting standards. However, as estimates have necessarily been used in disclosing a geographical segment as discontinued
operations, the results do not necessarily reflect the financial performance which would have been achieved had the discontinued
operations been managed as a stand-alone business.
The matters described above mainly refer to the year ended 31 December 2006, as during 2007 any cost associated with the
discontinued operations was clearly distinguishable.
Basis of consolidation
The consolidated financial statements include the accounts of the Company and its subsidiaries. The subsidiaries are companies
controlled by 888 Holdings Public Limited Company. Control exists where the Company has the power to govern the financial
and operating policies of an entity so as to obtain benefits from its activities. Subsidiaries are consolidated from the date the
parent gained control until such time as control ceases.
The financial statements of the subsidiaries are included in the consolidated financial statements using the purchase method of
accounting. On the date of the acquisition, the assets and liabilities of a subsidiary are measured at their fair values and any
excess of the fair value of the consideration over the fair values of the identifiable net assets acquired is recognised as goodwill.
Inter-company transactions and balances are eliminated on consolidation.
The financial statements of subsidiaries are prepared for the same reporting period as the parent company and using consistent
accounting policies.
Net Gaming Revenue
Revenue is recognised to the extent that it is probable that economic benefits will flow to the Group and the revenue can be
reliably measured. Revenue is recognised in the accounting periods in which the gaming transactions occurred.
Net Gaming Revenue is defined as follows:
Casino
Casino winnings that are the differences between the amounts of bets placed by members less amounts won by members.
Poker
Ring games:
Tournaments:
Rake, which is the commission charged from each winning hand played.
Entry fees charged for participation in Poker tournaments are recognised when the tournament
has concluded.
Emerging Offerings
Net Gaming Revenue from Emerging Offerings is defined as the commission charged from winnings or entry fees charged for
participation in a tournament. In the case of white label activity, Revenue is the net commission charged.
Casino winnings, revenues from the Poker business and Emerging Offerings are stated after deduction of certain bonuses
granted to members.
Other operating income
Other operating income consists mainly of revenue generated from processing customers’ cross currency deposits and
withdrawals, effectively reducing costs associated with payment service providers.
56
888 Holdings Public Limited Company
2 Significant accounting policies continued
Foreign currency
Monetary assets and liabilities denominated in non-US dollar currencies are translated into US dollar equivalents 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 administrative expenses.
The results and financial position of all Group entities that have a functional currency different from US dollars are translated into
the presentation currency as follows:
(i) Monetary assets and liabilities for each balance sheet presented are translated at the closing rate at the date of that balance
sheet.
(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).
(iii) Exchange rate differences on translation of Group entities that have functional currencies different from US dollars are
included in administrative expenses.
Taxation
The tax expense represents tax payable for the year based on currently applicable tax rates.
Deferred tax assets and liabilities are recognised where the carrying amount of an asset or liability in the balance sheet differs
from its tax base. Recognition of deferred tax assets is restricted to those instances where it is probable that taxable profit will be
available against which the difference can be utilised. The amount of the asset or liability is determined using tax rates that have
been enacted or substantively enacted by the balance sheet date and are expected to apply when the deferred tax liabilities/
assets are settled/recovered.
Research and development costs
Research and development expenditure is charged to the statement of income as incurred. IAS 38 “Intangible Assets” requires
capitalisation of certain software development costs, subsequent to technological and commercial feasibility being established
and the Group having sufficient resources to complete development. Based on the Group’s product-development process,
technological feasibility and therefore the creation of substantially improved product, is only established upon the completion of a
working model. The Group generally does not incur any significant costs between the completion of the working model and the
point at which the product is ready for general release.
Intangible assets
Identifiable assets, liabilities and contingent liabilities that meet the conditions for recognition under IFRS 3 are recognised at their
fair value at the acquisition date. The identified intangibles are amortised over the useful economic life of the assets. For
acquisitions during the year 2007, the useful economic life of the intangible assets acquired is estimated to be between three
months and four years. Intangible assets are reviewed annually for evidence of impairment.
Goodwill
Goodwill represents the excess of the cost of a business combination over the interest in the fair value of the identifiable assets,
liabilities and contingent liabilities acquired. Cost comprises the fair value of any assets given, liabilities assumed and equity
instruments issued, plus any direct costs of acquisition.
Goodwill is capitalised as an intangible asset with any impairment in carrying value being charged to the consolidated income
statement. Where the fair value of identifiable assets, liabilities and contingent liabilities exceed the fair value of consideration
paid, the excess is credited in full to the consolidated income statement on the acquisition.
Property, plant and equipment
Property, plant and equipment is stated at historic cost less accumulated depreciation. Carrying amounts are reviewed
at each balance sheet date for 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:
IT equipment
Office furniture and equipment
Motor vehicles
Leasehold improvements
33%
7–15%
15%
Over the shorter of the term of the lease or useful lives
Annual Report & Accounts 2007
57
notes to the consolIdAted fInAncIAl stAtements
contInued
2 Significant accounting policies continued
Impairment of non-financial assets
Impairment tests on goodwill and other intangible assets with indefinite useful economic lives are undertaken annually on
31 December. Other non-financial assets are subject to impairment tests whenever events or changes in circumstances indicate
that their carrying amount may not be recoverable. Where the carrying value of an asset exceeds its recoverable amount (i.e. the
higher of value in use and fair value less costs to sell), the asset is written down accordingly.
Where it is not possible to estimate the recoverable amount of an individual asset, the impairment test is carried out on
the asset’s cash generating unit (i.e. the lowest group of assets in which the asset belongs for which there are separately
identifiable cash flows).
Financial instruments
The Group does not hold or issue derivative financial instruments for trading purposes.
Trade receivables
Trade receivables are recognised at fair value and carried at amortised cost and principally comprise amounts due from the
credit-card companies and from e-payment companies. An estimate for doubtful debts is made when collection of the full
amount is no longer probable. Bad debts are written off when identified.
Cash and cash equivalents
Cash comprises cash in hand and balances with banks. Cash equivalents are short term, highly liquid investments that are
readily convertible to known amounts of cash. They include short-term bank deposits originally purchased with maturities
of three months or less.
Equity
Equity issued by the Company is recorded as the proceeds received, net of direct issue costs.
Trade and other payables
Trade and other payables are recognised at fair value and carried at amortised cost.
Member deposits
Member deposits are the amounts that clients place in the Group’s electronic “wallet” or bankroll, including provision for bonuses
granted by the Group, less management fees and charges applied to member accounts, along with full provision for Casino
jackpots. These amounts are repayable on demand in accordance with the applicable terms and conditions.
Available for sale financial assets
Available for sale financial assets comprise non-derivative financial assets not included in any of the above financial categories,
are classified as available for sale and comprise principally the Group’s investments in entities not qualifying as subsidiaries.
They are carried at fair value with changes in fair value recognised directly in a separate component of equity. Where there is a
significant decline in the fair value of an available for sale financial asset the full amount of the impairment, including any amount
previously charged to equity, is recognised in the income statement.
Chargebacks and returned e-cheques
The cost of chargebacks and returned e-cheques is included in operating expenses.
Leases
Leases are classified as finance leases wherever the terms of the lease transfer substantially all the risks and rewards of
ownership to the Group. All other leases are classified as operating leases and rentals payable are charged to income on a
straight-line basis over the term of the lease.
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.
Segment information
A business segment is a distinguishable component of the Group that is engaged in providing an individual product or service or
a Group of related products or services and that is subject to risks and returns that are different from those of other business
segments. A geographical segment is a distinguishable component of the Group that is engaged in providing products or
services within a particular environment and that is subject to risks and returns that are different from those of components
operating in other economic environments.
58
888 Holdings Public Limited Company
2 Significant accounting policies continued
The Group operates in the following online gaming segments:
•
•
•
Casino
Poker
Emerging Offerings is a new segment added during the year which comprises mainly the newly acquired Bingo
business and 888’s Backgammon offering.
Dividends
Dividends are recognised when they become legally payable. In the case of interim dividends this is when paid. In the case of
final dividends, this is when approved by the shareholders at the Annual General Meeting.
Share based payments
Where the Company grants its employees or contractors shares or market value options, the fair value at the date of grant is
charged to the income statement over the vesting period. Non-market performance 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.
3 Segment information
Business segments
Net Gaming Revenue
Other operating income
Total operating income
Result
Segment result
Unallocated corporate expenses1
Operating profit
Finance income
Tax expense
Profit for the year – continuing operations
Profit for the year – discontinued operations (note 23a)
Profit for the year
Assets
Unallocated corporate assets
Total assets
Liabilities
Segment liabilities – Poker2
Segment liabilities – Casino2
Segment liabilities – Emerging Offerings
Deferred acquisition liability – Emerging Offerings
Unallocated corporate liabilities
Total liabilities
Casino
US$’000
118,120
2,111
120,231
Year ended 31 December 2007
Emerging
offerings
US$’000
Poker
US$’000
Consolidated
US$’000
80,817
1,452
82,269
14,446
–
14,446
213,383
3,563
216,946
74,061
41,814
5,547
121,422
88,393
33,029
4,957
(3,199)
34,787
(552)
34,235
182,181
182,181
20,013
5,533
868
25,145
37,895
89,454
1 Including share benefit charges of US$7,800,000.
2 Included in segment liabilities are amounts owed in respect of discontinued operations. Poker US$82,000 and Casino US$13,000.
Annual Report & Accounts 2007
59
notes to the consolIdAted fInAncIAl stAtements
contInued
3 Segment information continued
Net Gaming Revenue
Other operating income
Total operating income
Result
Segment result
Unallocated corporate expenses1
Operating profit
Finance income
Tax expense
Loss for the year – continuing operations
Profit for the year – discontinued operations (note 23a)
Profit for the year
Assets
Unallocated corporate assets
Total assets
Liabilities
Segment liabilities – Poker2
Segment liabilities – Casino2
Unallocated corporate liabilities
Total liabilities
Year ended 31 December 2006
Casino
US$’000
88,760
–
88,760
Poker
US$’000
Consolidated
US$’000
68,240
–
68,240
157,000
–
157,000
52,101
41,374
93,475
84,994
8,481
4,883
(3,117)
10,247
64,254
74,501
137,604
137,604
15,445
7,226
27,931
50,602
1 Including share benefit charges of US$8,829,000.
2 Included in segment liabilities are amounts owed in respect of discontinued operations. Poker US$1,627,000 and Casino US$573,000.
Other than where amounts are allocated specifically to the Casino, Poker and Emerging Offerings segments above, the
expenses, assets and liabilities relate jointly to all segments. Any allocation of these items would be arbitrary.
Geographical segments
The Group’s performance can also be reviewed by considering the geographical markets and geographical locations within
which the Group operates. This information is outlined below:
Total operating income by geographical market
Net Gaming
Revenue
Year ended
31 December
2007
US$’000
Other
operating
income
Year ended
31 December
2007
US$’000
Total
operating
income
Year ended
31 December
2007
US$’000
Total
operating
income
Year ended
31 December
2006
US$’000
91,404
88,445
17,684
15,850
213,383
–
213,383
1,597
1,622
344
–
3,563
–
3,563
93,001
90,067
18,028
15,850
216,946
–
216,946
70,562
57,056
17,601
11,781
157,000
132,907
289,907
UK
Europe
Americas (excluding USA)
Rest of World
Total operating income – continuing operations
Total operating income – discontinued operations (note 23a )
Total operating income
60
888 Holdings Public Limited Company
3 Segment information continued
Assets by geographical location
Caribbean
Europe
Rest of World
4 Administrative expenses
Share benefit charges – all equity settled
Other administrative expenses
Administrative expenses – continuing operations
Administrative expenses – discontinued operations
Administrative expenses
5 Operating profit
Operating profit is stated after charging:
Staff costs
Audit fees
Other fees paid to auditors in respect of taxation services
Depreciation
Amortisation
Chargebacks and returned e-cheques
Exchange gains
Payment service providers’ commissions
Share benefit charges – all equity settled
Carrying amount of segment
assets by location
Additions to property,
plant and equipment
Year ended
31 December
2007
US$’000
Year ended
31 December
2006
US$’000
Year ended
31 December
2007
US$’000
Year ended
31 December
2006
US$’000
454
161,168
20,559
182,181
357
121,008
16,239
137,604
51
2,546
5,058
7,655
281
1,832
6,508
8,621
Year ended
31 December
2007
US$’000
Year ended
31 December
2006
US$’000
7,800
16,860
24,660
552
25,212
8,829
19,824
28,653
7,284
35,937
Year ended
31 December
2007
US$’000
Year ended
31 December
2006
US$’000
61,301
349
26
4,192
1,550
2,846
(1,117)
13,359
7,800
52,131
434
179
3,801
–
2,507
(4,742)
9,140
8,829
In the income statement total staff costs, excluding share benefit charge of US$7,800,000 (2006: US$8,829,000), are included
within the following expenditure categories:
Operating expenses
Research and development expenses
Administrative expenses
At 31 December 2007 the Company employed 805 (2006: 736) staff.
2007
US$’000
30,967
18,672
11,662
61,301
2006
US$’000
23,810
14,467
13,854
52,131
Annual Report & Accounts 2007
61
notes to the consolIdAted fInAncIAl stAtements
contInued
6 Taxation
Corporate taxes
Current tax
Deferred tax
Taxation expense
Analysis of current tax for the year
Profit before taxation
Current tax at the effective tax rate for the year
Deferred tax
Taxation expense
Year ended
31 December
2007
US$’000
Year ended
31 December
2006
US$’000
3,190
9
3,199
3,302
(185)
3,117
Year ended
31 December
2007
US$’000
Year ended
31 December
2006
US$’000
37,434
3,190
9
3,199
77,618
3,302
(185)
3,117
Current tax is calculated with reference to the profit of the Company and its subsidiaries in their respective countries of operation:
Gibraltar – The Company and its Gibraltar registered subsidiaries are subject to the provisions of the Gibraltar Companies
(Taxation and Concessions) Act (the “CTCA”) as a tax-exempt company. Subject to a change of ownership or activity of a tax-
exempt company, the grandfathering of tax-exempt benefits in respect of existing tax-exempt companies will extend up to
31 December 2010. Domestic corporate tax in Gibraltar is 33% (2006: 35%). Gibraltar’s Chief Minister has announced further
reductions in anticipation of the introduction of a flat low tax rate of between 10% and 12% in 2010. A consultation is in place with
respect to the new tax regime in Gibraltar.
Israel – 888’s operations in Israel have entered into separate transfer pricing agreements on an arm’s-length basis with the Israeli
Income Tax Commissioner. The agreement in respect of Random Logic Limited is effective until the end of 2010. The agreement
in respect of the Israeli branch of Intersafe Global Limited was effective until the end of 2007. The Group is in the process of
discontinuing the use of this branch and so does not intend to enter into a new agreement. Domestic corporate tax in Israel is
29% (2006: 31%).
UK – 888’s subsidiary in the UK pays corporate tax in the UK at the applicable rate of 30% (2006: 30%).
7 Earnings per share
Basic earnings per share from continuing operations
Basic earnings per share have been calculated by dividing the profit attributable to ordinary shareholders by the weighted
average number of shares in issue during the year.
Diluted earnings per share
In accordance with IAS 33, “Earnings per share”, the weighted average number of shares for diluted earnings per share takes into
account all potentially dilutive shares and share options granted, which are not included in the number of shares for basic
earnings per share. In addition, certain employee options have also been excluded from the calculation of diluted EPS as their
exercise price is greater than the weighted averaged share price during the year and it would not be advantageous for the holders
to exercise the option. The number of options excluded from the diluted EPS calculation is 4,765,036 (2006: 3,230,182).
62
888 Holdings Public Limited Company
7 Earnings per share continued
Profit from continuing operations attributable to ordinary shareholders
Weighted average number of Ordinary Shares in issue
Weighted average number of dilutive Ordinary Shares
Continuing operations
Basic
Diluted
Discontinued operations (note 23e)
Basic
Diluted
Total
Basic
Diluted
Earnings per share excluding share benefit charges
Reconciliation of profit to profit excluding share benefit charges:
Profit from continuing operations attributable to ordinary shareholders
Share benefit charges
Profit excluding share benefit charges
Weighted average number of Ordinary Shares in issue
Weighted average number of dilutive Ordinary Shares
Continuing operations
Basic earnings per share excluding share benefit charges
Diluted earnings per share excluding share benefit charges
Discontinued operations (note 23e)
Basic earnings per share excluding share benefit charges
Diluted earnings per share excluding share benefit charges
Total
Basic earnings per share excluding share benefit charges
Diluted earnings per share excluding share benefit charges
8 Dividends
Dividends paid
Year ended
31 December
2007
US$’000
Year ended
31 December
2006
US$’000
34,787
338,837,328
346,069,425
10,247
337,223,724
341,834,214
10.3¢
10.1¢
(0.2)¢
(0.2)¢
10.1¢
9.9¢
3.0¢
3.0¢
19.1¢
18.8¢
22.1¢
21.8¢
Year ended
31 December
2007
US$’000
Year ended
31 December
2006
US$’000
34,787
7,800
10,247
8,829
42,587
338,837,328
346,069,425
19,076
337,223,724
341,834,214
12.6¢
12.3¢
(0.2)¢
(0.2)¢
12.4¢
12.1¢
5.7¢
5.6¢
19.1¢
18.8¢
24.8¢
24.4¢
Year ended
31 December
2007
US$’000
Year ended
31 December
2006
US$’000
36,205
28,658
The Board of Directors will recommend to the shareholders a final divided in respect of the year ended 31 December 2007, of
5 cents.
Annual Report & Accounts 2007
63
notes to the consolIdAted fInAncIAl stAtements
contInued
9 Acquisitions made during the year
Online Bingo business
On 16 May 2007 the Group acquired the assets comprising the online Bingo business of Globalcom Limited (“Bingo Business”)
for an all cash consideration.
In calculating the goodwill arising on acquisition, the fair value of the net assets of the Bingo Business has been valued by a
professional valuation firm and recognised in accordance with IFRS 3 and adjustments from book value have been made where
necessary. These adjustments are summarised as follows:
Property, plant and equipment1
Intangible assets2
Net assets
1 See note 11
2 See note 10
Book value
on acquisition
US$’000
Fair value
adjustments
US$’000
81
200
281
–
4,114
4,114
Fair value
US$’000
81
4,314
4,395
The fair value relates to the recognition of customer lists (US$888,000), royalty agreements (US$1,113,000), licensing agreements
(US$2,113,000) and other intangible assets (US$200,000) acquired as part of the acquisition. These intangibles are being
amortised over their estimated useful economic lives of between three months and four years. All intangible assets on acquisition
have been identified and fair valued. The remaining goodwill represents the access to future trade with the Bingo customers.
Fair value of net assets acquired
Goodwill
Fair value of consideration including expenses
Which is represented by:
Cash consideration to Globalcom Limited
Deferred cash consideration to Globalcom Limited (paid during the year)
Deferred cash consideration to Globalcom Limited (included with other payables)
Earn-out payment (included with other payables)1
Expenses and other costs
Total cash consideration
US$’000
4,395
37,892
42,287
10,723
5,398
16,095
9,050
1,021
42,287
1 A further earn-out payment of US$9.05 million is payable in cash 12 months from completion on the basis of actual performance during financial year
2007, which was accomplished.
The revenue and operating profit generated from this acquisition in the post-acquisition period to 31 December 2007 were
US$14.4 million and US$5.2 million respectively. Had the business been owned for the entire year, the revenue and operating
profit would have been US$20.2 million and US$8.3 million respectively.
64
888 Holdings Public Limited Company
10 Intangible assets
Cost or valuation
At 1 January 2007
Acquisitions
At 31 December 2007
Amortisation and impairment losses
At 1 January 2007
Charge for the year
Impairments
At 31 December 2007
Carrying amounts
At 31 December 2007
At 31 December 2006
Other
intangibles
US$’000
Goodwill
US$’000
Total
US$’000
–
4,314
4,314
–
1,550
–
1,550
2,764
–
–
37,892
37,892
–
–
–
–
–
42,206
42,206
–
1,550
–
1,550
37,892
40,656
–
–
The other intangible assets relate to the recognition of customer lists, royalty agreements, licensing agreements and certain
software developed and acquired as part of the acquisition of the assets comprising the online Bingo Business of Globalcom
Limited. These intangibles are being amortised over their estimated useful economic lives of between three months and four
years. The intangible assets have been identified and valued using third party professional valuers, and are based on their value
in use to the business. Goodwill is associated with the cash generating online Bingo Business acquired during the year.
In accordance with IAS 36 and IFRS 3, the Group regularly monitors the carrying value of its goodwill. A review was undertaken
at 31 December 2007 to assess whether the carrying value of goodwill is supported by the net present value of future cash flows
generated by these assets using cash flow estimates for four years.
The discount rate used for purposes of the review is the Company specific weighted average cost of capital percentage of 19%.
In estimating the future cash flows the Group has used very prudent estimates in respect of revenues generated and costs
incurred.
The result of the review undertaken at 31 December 2007 was that no impairment is required and the carrying value of the
intangible assets is appropriate.
Annual Report & Accounts 2007
65
notes to the consolIdAted fInAncIAl stAtements
contInued
11 Property, plant and equipment
Cost
At 1 January 2006
Additions
Disposals
At 31 December 2006
Additions
Acquisitions
Disposals
At 31 December 2007
Accumulated depreciation
At 1 January 2006
Charge for the year
Disposals
At 31 December 2006
Charge for the year
Disposals
At 31 December 2007
Depreciated cost
At 31 December 2007
At 31 December 2006
12 Financial assets
IT equipment
US$’000
Office
furniture and
equipment
US$’000
Motor
vehicles
US$’000
Leasehold
improvements
US$’000
10,614
3,163
–
13,777
4,156
81
(1)
18,013
7,576
2,085
–
9,661
2,845
(1)
2,077
254
–
2,331
105
–
–
2,436
618
208
–
826
230
–
12,505
1,056
5,508
4,116
1,380
1,505
459
–
(163)
296
110
–
–
406
61
128
(35)
154
49
–
203
203
142
5,202
5,204
–
10,406
3,203
–
–
13,609
1,756
1,380
–
3,136
1,068
–
4,204
9,405
7,270
Total
US$’000
18,352
8,621
(163)
26,810
7,574
81
(1)
34,464
10,011
3,801
(35)
13,777
4,192
(1)
17,968
16,496
13,033
Opening balance at the beginning of the year
Acquisition of available for sale assets during the year
Adjustment to market price at year end
31 December
2007
US$’000
31 December
2006
US$’000
–
759
(105)
654
–
–
–
–
There were no disposals or impairment provisions on available for sale financial assets.
Available for sale assets are quoted equity securities, the fair value of which is based on their published market price.
66
888 Holdings Public Limited Company
13 Deferred taxes
Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities
for financial reporting purposes and the amounts used for income tax purposes. The Group’s deferred tax assets resulting from
temporary differences are as follows:
Accrued severance pay
Provision for share option charge
Provision for vacation
Provision for convalescence
14 Cash and cash equivalents
Cash and cash equivalents
Restricted cash
Restricted cash primarily relates to deposits held by banks for guarantees.
15 Trade and other receivables
Trade receivables
Other receivables and prepayments
The carrying value of trade and other receivables approximates to their fair value.
16 Share capital
Share capital comprises the following:
31 December
2007
US$’000
31 December
2006
US$’000
38
181
300
18
537
141
176
213
16
546
31 December
2007
US$’000
31 December
2006
US$’000
103,505
803
104,308
106,811
7,545
114,356
31 December
2007
US$’000
31 December
2006
US$’000
13,430
6,100
19,530
6,189
3,480
9,669
Ordinary Shares of £0.005 each
Authorised
31 December
2007
Number
31 December
2006
Number
31 December
2007
US$’000
31 December
2006
US$’000
426,387,500
426,387,500
426,387,500
426,387,500
3,880
3,880
3,880
3,880
Annual Report & Accounts 2007
67
notes to the consolIdAted fInAncIAl stAtements
contInued
16 Share capital continued
Ordinary Shares of £0.005 each
Issue of Ordinary Shares of £0.005 each
31 December
2007
Number
Allotted, called up and fully paid
31 December
2006
Number
31 December
2007
US$’000
31 December
2006
US$’000
337,618,820
2,489,215
337,096,320
522,500
340,108,035
337,618,820
3,073
24
3,097
3,068
5
3,073
On 16 April 2007, the Company issued 138,403 Ordinary Shares of £0.005 each in respect of shares exercised and nil cost
options exercised as part of the Company’s employee share option plan (see note 19).
On 4 May 2007, the Company issued 1,002,169 Ordinary Shares of £0.005 each in respect of shares exercised and nil cost
options exercised as part of the Company’s employee share option plan (see note 19).
On 5 July 2007, the Company issued 475,941 Ordinary Shares of £0.005 each in respect of shares exercised as part of the
Company’s employee share option plan (see note 19).
On 20 September 2007, the Company issued 212,174 Ordinary Shares of £0.005 each in respect of shares exercised and nil cost
options exercised as part of the Company’s employee share option plan (see note 19).
On 4 October 2007, the Company issued 649,777 Ordinary Shares of £0.005 each in respect of shares exercised and nil cost
options exercised as part of the Company’s employee share option plan (see note 19).
On 10 October 2007, the Company issued 10,751 Ordinary Shares of £0.005 each in respect of shares exercised as part of the
Company’s employee share option plan (see note 19).
Shares issued are converted into US$ at the exchange rate prevailing on the date of issue. The issued and fully paid share capital
of the Group amounts to US$3,098,000 (2006: US$3,073,000) and is split into 340,108,035 (2006: 337,618,820) Ordinary Shares.
The share capital in UK Sterling (GBP) is £1,700,540 (2006: £1,688,094) and translates at an average exchange rate of US$1.82
(2006: US$1.82) to GBP.
17 Trade and other payables
Trade payables
Corporate taxes
Other payables and accrued expenses
Deferred acquisition liability
The carrying value of trade and other payables approximates to their fair value.
31 December
2007
US$’000
31 December
2006
US$’000
5,297
1,131
31,467
25,145
63,040
3,111
1,016
23,804
–
27,931
68
888 Holdings Public Limited Company
18 Investments in subsidiaries
Name
Intersafe Global Limited
Cassava Enterprises Limited
Virtual Services Limited
Virtual Holdings Management Services
(Gibraltar) Limited
Intersafe Global (Europe) Limited
Cassava Enterprises (Gibraltar) Limited
Virtual Marketing Services (UK) Limited
Cassava Sports Limited
Active Media Limited
Virtual Marketing Services (Gibraltar) Limited
Dixie Operation Limited
Random Logic Limited
Brigend Limited
ACTeCASH Limited1
Country of
Incorporation
Percentage of
equity interest
2007
Percentage of
equity interest
2006
Nature of business
Gibraltar
Antigua
BVI
Gibraltar
Gibraltar
Gibraltar
UK
Gibraltar
BVI
Gibraltar
Antigua
Israel
Gibraltar
Gibraltar
100
100
100
100
100
100
100
100
100
100
100
100
100
–
100
100
100
Payment processor
Member call centre operator
Advertising
100 Operates Group headquarters
100
Payment processor
Gaming website operator
100
100
Advertising
100
Domain site owner through
which a third party operates a
betting exchange
100 Member call centre employer
Marketing acquisition
100
Member call centre operator
100
100
Research, development
–
–
and marketing
Bingo business operator
e-Wallet service
1 On 20 December 2005, the Group took responsibility for the management of ACTeCASH Limited, a company with common shareholders. From this date
ACTeCASH was managed as a unit of the Group and utilised staff employed by the Group. In accordance with IAS 27 “Consolidated and Separate
Financial Statements”, the Group is deemed to have control of ACTeCASH by virtue of the fact it has the power to govern the financial and operating
policies of this company and derives economic benefit from doing so. As such ACTeCASH has been consolidated as part of the Group.
19 Share-based payment
Prior to flotation, the Company adopted two equity-settled employee share incentive plans – the 888 All-Employee Share Plan
and the Long Term Incentive Plan. Awards have been granted under the 888 All-Employee Share Plan conditional upon flotation.
The 888 All-Employee Share Plan is open to all employees and Executive Directors of the Group who are not within six months of
their normal retirement age at the discretion of the Remuneration Committee. Awards under this scheme will vest in instalments
over a fixed period of up to four years.
The Company grants awards to certain Executive Directors and members of its senior management. These awards are subject to
performance conditions imposed by the Remuneration Committee at the dates of grant.
Details of shares and share options granted as part of the 888 All-Employee Share Plan and shares granted vesting immediately
on IPO and thereafter:
Share options granted
Outstanding at the beginning of the year
Market value options granted during the year
Market value options lapsed during the year
Outstanding at the end of the year1,2
Weighted average exercise price for options outstanding at the end of the year
Weighted average exercise price for options lapsed during the year
31 December
2007
Number
31 December
2006
Number
4,204,919
2,004,880
(1,121,352)
3,578,287
2,224,131
(1,597,499)
5,088,447
4,204,919
£1.49
£1.64
£1.67
£1.72
1 Of the total number of options outstanding at the end of the year 1,321,145 had vested and were exercisable at the end of the year (2006: 784,491).
2 Range of exercise price for options outstanding at the end of the year is £1.14–£1.80 (2006: £1.44–£1.80).
Annual Report & Accounts 2007
69
notes to the consolIdAted fInAncIAl stAtements
contInued
19 Share-based payment continued
Shares granted
Outstanding at the beginning of the year
Shares granted – future vesting
Lapsed future vesting shares
Shares issued during the year
Outstanding at the end of the year
31 December
2007
Number
31 December
2006
Number
8,316,639
5,218,255
(1,243,019)
(2,489,215)
5,247,214
5,595,219
(2,003,294)
(522,500)
9,802,660
8,316,639
The following information is relevant in the determination of the fair value of options granted during the year under the equity-
settled the 888 All-Employee Share Plan:
Valuation information
Option pricing model used
Weighted average share price at grant date
Weighted exercise price
Risk free interest rate range
Expected volatility of the price of the underlying share
2007
2006
Monte Carlo Monte Carlo
£1.61
£1.67
4.82%–5.40% 4.30%–4.70%
53%–67%
£1.18
£1.19
37%–78%
Exercise period of the market value options is from vesting until expiry of 10 years after grant date.
Monte Carlo model is taking into account all the minimum requirements set by IFRS 2 such as: the exercise price of the option,
the current price of the underlying share, the expected volatility of the price of the underlying share, the expected dividend on the
underlying share, the expected term of the option both contractual term and employees’ expected behaviour and the risk-free
interest rate for the expected term of the option.
In accordance with International Financial Reporting Standards a charge to the income statement in respect of any shares or
options granted under the above schemes will be recognised and spread over the vesting period of the shares or options based
on the fair value of the shares or options at the date at grant, adjusted for changes in vesting conditions at each balance sheet
date. This charge has no cash impact.
Share benefit charges
Charges in respect of share and option awards granted this year
Charges in respect of share and option awards granted in previous years
Charge for the year
Year ended
31 December
2007
US$’000
Year ended
31 December
2006
US$’000
1,756
6,044
7,800
2,527
6,302
8,829
20 Related party transactions
During the year the Group paid US$290,401 (2006: US$212,464) in respect of rent and office expenses to companies of which
Mr John Anderson is a Director. At 31 December 2007 the amount owed to those companies was US$nil (2006: US$nil).
Remuneration paid to the Directors in the year totalled US$4,328,000 (2006: US$9,258,000).
Share benefit charge in respect of awards granted to the Directors totalled US$3,163,000 (2006: US$4,544,000).
70
888 Holdings Public Limited Company
21 Commitments
Lease commitments
Future minimum lease commitments under property operating leases for the year ended 31 December 2007 are as follows:
Leases expiring within
One year
Two to five years
31 December
2007
US$’000
31 December
2006
US$’000
2,278
7,533
9,811
3,060
8,204
11,264
The amount paid in the year was US$2,745,000 (2006: US$2,620,000).
Lease commitments on the Group’s property are shown to the date of the first break clause.
22 Financial risk management
The Group is exposed through its operations to risks that arise from use of its financial instruments. Policies and procedures for
managing these risks are set by the Board following recommendations from the Chief Financial Officer. The Board reviews the
effectiveness of these procedures and, if required, approves specific policies and procedures in order to mitigate these risks.
The main financial instruments used by the Group, on which financial risk arise, are as follows:
•
•
•
•
•
•
Cash and cash equivalents
Restricted cash
Trade and other receivables
Available for sale financial assets
Trade and other payables
Member deposits
Detailed analysis of these financial instruments is as follows:
Financial assets
Trade receivables
Other receivables
Cash and cash equivalents
Restricted cash
Available for sale financial asset
31 December
2007
US$’000
31 December
2006
US$’000
13,430
6,100
103,505
803
654
124,492
6,189
3,480
106,811
7,545
–
124,025
In accordance with IFRS 7 with the exception of available for sale assets, all financial assets are classified as loans and
receivables.
Financial liabilities
Trade payables
Other payables and accrued expenses
Deferred acquisition liability
Member deposits
31 December
2007
US$’000
31 December
2006
US$’000
5,297
31,467
25,145
26,414
88,323
3,111
23,804
–
22,671
49,586
In accordance with IFRS 7 all financial liabilities are held at amortised cost.
At 31 December 2007 and 2006, the fair value and the book value of the Group’s financial assets and liabilities were materially the
same.
Annual Report & Accounts 2007
71
notes to the consolIdAted fInAncIAl stAtements
contInued
22 Financial risk management continued
Capital
The Capital employed by the Group is comprised of equity attributable to shareholders. The primary objective of the Group is
maximising shareholders’ value which, from the capital perspective, is achieved by maintaining the capital structure most suited
to the Group’s size, strategy, and underlying business risk. Other than disclosed elsewhere in note 22 there are no demands or
restrictions on the Group’s capital.
The main financial risk areas are as follows:
Credit risk
Trade receivables
The Group’s credit risk is primarily attributable to trade receivables who are the Group’s payment service providers (“PSP”).
These are third party companies that facilitate deposits and withdrawal of funds to and from the members’ virtual wallet with the
Group. These are mainly intermediaries that transact on behalf of the main credit card companies.
The risk is that a PSP would fail to discharge its obligation with regard to the balance owed to the Group.
The Group reduces this credit risk by:
•
•
•
•
•
monitoring those balances on a regular basis;
arranging for the shortest possible cash settlements intervals;
replacing rolling reserve requirements, where they exist, with a Letter of Credit by a reputable financial institution;
ensuring a new PSP is contracted following various due diligence and ”Know Your Customer” procedures; and
ensuring policies are in place to reduce dependency on specific PSPs.
The Group believes that based on the above and on extensive past experience, it is not required to provide for any potential bad
debts arising from a PSP failing to discharge its obligation.
None of the balances owed by the various PSPs are overdue or impaired.
An additional credit risk the Group faces relates to members disputing charges made to their credit cards (“chargebacks”) or any
other funding method they have used in respect of the services provided by the Group. Members may fail to fulfil their obligation
to pay which will result in funds not being collected. These chargebacks and uncollected deposits (or returned e-cheques), when
occurring will be deducted at source by the PSPs from any amount due to the Group. As such the Group provides for these
eventualities by way of a provision based on analysis of past transactions and estimated trends. This provision is netted off from
the trade receivables balance and at 31 December 2007 was US$845,000 (2006: US$500,000).
The Group’s inhouse Fraud and Risk Management department carefully monitors deposits and withdrawals by following
prevention and verification procedures using internally developed bespoke systems integrated with commercially available third
party measures.
Cash and cash equivalents
The Group controls its cash position out of its Gibraltar headquarters. Subsidiaries in its other locations (Israel, Antigua and
London) maintain minimum cash balances which are deemed required for their operations.
Cash settlement proceeds from PSPs as described above, are paid into bank accounts controlled by the finance
function in Gibraltar.
The Group segregates funds due to members and holds these funds in separate bank accounts. These funds are not used to
fund activity other than that directly related to members.
The Group maintains its funds with highly reputable financial institutions and will not hold funds with financial institutions with a
credit rating lower than A (based on Standard & Poor’s rating).
The Group maintains its cash reserve in highly liquid deposits and regularly monitors rates in order to maximise yield.
Restricted cash
The Group may be required to deposit cash collateral to secure a letter of credit that substitutes reserves required to be held by a
PSP. Such deposit will be with a reputable financial institution instead of with the individual PSP. This decreases the cash balance
with the PSP and therefore exposure. As at 31 December 2006, most of the restricted cash was of this nature. During the year
2007, the Group was able to substantially reduce those requirements and as at 31 December 2007, restricted cash is mainly
attributed to a deposit in respect of the Group’s obligation with the developer of the offices of its subsidiary in Israel.
72
888 Holdings Public Limited Company
22 Financial risk management continued
The Group’s maximum exposure to credit risk by type of financial instrument is summarised below:
Trade receivables
Other receivables
Cash and cash equivalents
Restricted cash
Available for sale financial asset
31 December 2007
31 December 2006
Carrying
value
US$’000
13,430
6,100
103,505
803
654
124,492
Maximum
exposure
US$’000
13,430
6,100
103,505
803
654
124,492
Carrying
value
US$’000
6,189
3,480
106,811
7,545
–
124,025
Maximum
exposure
US$’000
6,189
3,480
106,811
7,545
–
124,025
Liquidity risk
Liquidity risk exists in the case where the Group will encounter difficulties in meeting its financial obligations as they become due.
The Group monitors its liquidity in order to ensure that sufficient liquid resources are available to allow it to meet its obligations.
In the case of the Group’s liability to its members, the Group maintains these deposits in separate bank accounts which are not
used for its day to day operations.
As at 31 December 2007, the Group had a deferred acquisition liability of US$25,145,000 in respect of the acquisition of the
online Bingo Business of Globalcom Limited. The Group maintains sufficient funds to meet this liability which is due between
April and May 2008. In addition the Group has assured that cash earmarked to fund its final dividend payment for 2007, is in
place.
The Group expects to have sufficient liquidity to meet all of its financial obligations under all reasonably expected circumstances
and will not need to resort to any debt borrowing.
The following table details the contractual maturity analysis of the Group’s financial liabilities:
Trade
payables
US$’000
1,047
3,669
581
–
5,297
Trade
payables
US$’000
390
2,148
573
–
3,111
31 December 2007
Deferred
acquisition
liability
US$’000
–
–
25,145
–
25,145
31 December 2006
Deferred
acquisition
liability
US$’000
–
–
–
–
–
Other
payables1
US$’000
5,612
23,562
1,835
458
31,467
Other
payables1
US$’000
6,647
12,919
3,174
1,064
23,804
Member
deposits
US$’000
26,414
–
–
–
26,414
Member
deposits
US$’000
22,671
–
–
–
22,671
Total
US$’000
33,073
27,231
27,561
458
88,323
Total
US$’000
29,708
15,067
3,747
1,064
49,586
On demand
In three months
Between three months and one year
More than one year
1 Includes other payables, accrued expenses and provisions.
On demand
In three months
Between three months and one year
More than one year
1 Includes other payables, accrued expenses and provisions.
Annual Report & Accounts 2007
73
notes to the consolIdAted fInAncIAl stAtements
contInued
22 Financial risk management continued
Market risk
Interest rate risk
The Group’s exposure to interest rate risk is limited to the interest bearing deposits in which the Group invests surplus funds.
The Group’s policy is to invest surplus funds in low risk money market funds or on call over night facilities. The Group also
arranged with its principal bankers that excess funds are swept automatically across its accounts, every night, in order to
maximise availability of funds for investments.
Downside interest rate risk is minimal as the Group has no borrowings. A 0.5% movement in bank interest rates would not have
a significant impact on finance income for the year or the prior year.
Currency risk
The Group’s overall financial risk arising from exchange rate fluctuations is a result of a mis-match between receipts which are
denominated is US$ and expenses, part of which are denominated in foreign currencies, of which to be noted are the British
Pound Sterling (GBP), the Euro (EUR) and the New Israeli Shekel (ILS). The Group continually monitors the foreign currency risk
and takes steps to ensure that the net exposure is kept to an acceptable level, inter alia, by using foreign exchange forward
contracts designed to fix the economic impact of known liabilities. At 31 December 2007 and 31 December 2006, there were
no outstanding forward contracts. There were no significant fair value movements on these contracts during the year.
The Group further mitigates that risk by way of natural hedging whereby a certain portion of funds collected from the PSP are
settled in either GBP or EUR in order to fund its expenses denominated in these currencies.
74
888 Holdings Public Limited Company
23 Discontinued operations
As a result of the matters fully described in note 24, the Group incurred legal expenses in assessing the extent of any contingent
liability, if any.
(a) Consolidated income statement
Net Gaming Revenue
Operating expenses
Research and development expenses
Selling and marketing expenses
Administrative expenses
Operating (loss)/profit before reorganisation costs
Charges in respect of reorganisation costs
Operating (loss)/profit
Finance income
(Loss)/profit from discontinued operations
(b) Segment information
Business segments
Net Gaming Revenue
Result
Segment result
Unallocated corporate expenses
Operating loss
Net loss for the year
Net Gaming Revenue
Result
Segment result
Unallocated corporate expenses
Operating profit
Net profit for the year
Year ended
31 December
2007
US$’000
Year ended
31 December
2006
US$’000
–
–
–
–
552
(552)
–
(552)
–
(552)
132,907
28,086
–
33,283
7,284
68,287
4,033
64,254
–
64,254
Year ended 31 December 2007
Casino
US$’000
Poker
US$’000
Consolidated
US$’000
–
–
–
–
–
–
–
–
(552)
(552)
(552)
Year ended 31 December 2006
Casino
US$’000
Poker
US$’000
Consolidated
US$’000
71,972
60,935
132,907
40,186
37,678
77,864
13,610
64,254
64,254
Other than where amounts are allocated specifically to the Casino and Poker segments above, the expenses relate jointly to both
segments. Any allocation of these items would be arbitrary.
Annual Report & Accounts 2007
75
notes to the consolIdAted fInAncIAl stAtements
contInued
23 Discontinued operations continued
Geographical segments
Net Gaming Revenue by geographical market
USA
(c) Profit from discontinued operations
Profit from discontinued operations is stated after charging:
Staff costs
Chargebacks and returned e-cheques
Payment service providers’ commissions
In note 23(c) total staff costs are included within the following expenditure categories:
Operating expenses
Administrative expenses
(d) Cash flows from discontinued operations
Net cash (used)/generated in operating activities
Net cash generated from investing activities
Net cash used in financing activities
Net increase in cash and cash equivalents
(e) Earnings per share
(Loss) profit from discontinued operations attributable to ordinary shareholders
Weighted average number of Ordinary Shares in issue
Weighted average number of dilutive Ordinary Shares
Basic (losses) earnings per share
Diluted (losses) earnings per share
76
888 Holdings Public Limited Company
Year ended
31 December
2007
US$’000
Year ended
31 December
2006
US$’000
–
–
132,907
132,907
Year ended
31 December
2007
US$’000
Year ended
31 December
2006
US$’000
–
–
–
6,638
15,465
5,821
2007
US$’000
2006
US$’000
–
–
–
5,842
796
6,638
Year ended
31 December
2007
US$’000
Year ended
31 December
2006
US$’000
(552)
–
–
(552)
53,506
2,244
(14,951)
40,799
Year ended
31 December
2007
US$’000
Year ended
31 December
2006
US$’000
(552)
338,873,328
64,254
337,223,724
346,069,425
341,834,214
(0.2)¢
(0.2)¢
19.1¢
18.8¢
24 Contingent liabilities
From time to time the Group is subject to legal claims and actions against it. The Group takes legal advice as to the likelihood of
success of such claims and actions.
Regulatory issues
As part of the Board’s ongoing regulatory compliance and operational risk assessment process, the Board continues to monitor
legal and regulatory developments, and their potential impact on the business, and continues to take appropriate advice in
respect of these developments.
Following the enactment of the UIGEA on 13 October 2006, the Group stopped taking any deposits from customers in the US
and barred such customers from wagering real-money on all of the Group’s sites.
Notwithstanding this, there remains a residual risk of an adverse impact arising from the Group having had customers in the US
prior to the enactment of the UIGEA. The Board is not able to identify reliably at this stage what if any liability may arise and
accordingly no provision has been made.
On 5 June 2007 the Group announced that it has initiated preliminary discussions with the United States Attorney’s Office for the
Southern District of New York. It is too early to assess any particular outcome of these discussions.
Annual Report & Accounts 2007
77
compAny bAlAnce sheet
At 31 december 2007
Assets
Non-current assets
Investments in subsidiaries
Financial assets
Current assets
Trade and other receivables
Cash and cash equivalents
Total assets
Equity and liabilities
Equity
Share capital
Available for sale reserve
Retained earnings
Total equity attributable to equity holders of the parent
Liabilities
Current liabilities
Trade and other payables
Total liabilities
Total equity and liabilities
31 December
2007
US$’000
31 December
2006
US$’000
Note
2
6
3
4
5
7
2,262
654
2,916
83,645
87,120
170,765
173,681
3,097
(105)
19,591
22,583
151,098
151,098
173,681
2,143
–
2,143
49,300
99,807
149,107
151,250
3,073
16,863
19,936
131,314
131,314
151,250
The financial statements on pages 78 to 82 were approved and authorised for issue by the Board of Directors on 8 April 2008
and were signed on Its behalf by:
Gigi Levy
Chief Executive Officer
Aviad Kobrine
Chief Financial Officer
The notes on pages 81 to 82 form part of these financial statements.
78
888 Holdings Public Limited Company
compAny stAtement of chAnges In equIty
for the yeAr ended 31 december 2007
Balance at 1 January 2006
Net profit for the year
Dividend paid
Issue of shares
Share benefit charges
Balance at 1 January 2007
Net profit for the year
Dividend paid
Issue of shares
Share benefit charges
Valuation (losses) of available for sale investments
Balance at 31 December 2007
The notes on pages 81 to 82 form part of these financial statements.
Share capital
US$’000
3,068
–
–
5
–
3,073
–
–
24
–
–
3,097
Available for
sale reserve
US$’000
–
–
–
–
–
–
–
–
–
–
(105)
(105)
Retained
earnings
US$’000
24,047
12,650
(28,658)
(5)
8,829
16,863
31,157
(36,205)
(24)
7,800
–
19,591
Total
US$’000
27,115
12,650
(28,658)
–
8,829
19,936
31,157
(36,205)
–
7,800
(105)
22,583
Annual Report & Accounts 2007
79
compAny stAtement of cAsh flows
for the yeAr ended 31 december 2007
Year ended
31 December
2007
US$’000
Year ended
31 December
2007
US$’000
Year ended
31 December
2006
US$’000
Year ended
31 December
2006
US$’000
Cash flows from operating activities
Loss before income tax
Adjustments for
Interest received
Share benefit charges
Increase in amounts owed by subsidiaries
Increase in other accounts receivables
(Decrease)/increase in trade payables
Increase in amounts owed to subsidiaries
(Decrease)/increase in other accounts payables
Cash (used) generated from operations
Tax paid
Net cash generated from operating activities
Cash flows from investing activities
Increase in investments in subsidiaries
Interest received
Acquisition of available for sale assets
Dividends received
Net cash used in investing activities
Cash flows from financing activities
Dividends paid
Net cash used in financing activities
Net (decrease) increase in cash and cash equivalents
Cash and cash equivalents at the beginning of the year
Cash and cash equivalents at the end of the year
The notes on pages 81 to 82 form part of these financial statements.
(4,966)
(5,091)
7,800
(34,017)
(328)
(499)
21,977
(1,672)
(119)
5,091
(759)
36,205
(16,796)
(104)
(16,900)
(15,916)
(4,540)
8,829
(8,386)
(448)
110
78,496
609
(13)
4,540
–
28,658
58,754
(5)
58,749
40,418
33,185
(36,205)
(28,658)
(36,205)
(12,687)
99,807
87,120
(28,658)
63,276
36,531
99,807
80
888 Holdings Public Limited Company
notes to the compAny fInAncIAl stAtements
1 General information and accounting policies
A description of the Company, its activities and definitions are included in note 1 to the consolidated financial statements.
The Company has applied accounting policies identical to the Group’s accounting policies listed in note 2 to the consolidated
financial statements other than in relation to investments in its subsidiaries which are held at cost less any impairment provision
required.
Under Section 10(2) of the Gibraltar (Consolidated Accounts) Act 1999, the Company is exempt from the requirement to present
its own income statement.
2 Investments in subsidiaries
The Company’s subsidiaries are listed in note 18 to the consolidated financial statements and are held at cost less provision for
any impairment.
3 Trade and other receivables
Amounts due from subsidiaries
Other receivables and prepayments
4 Cash and cash equivalents
Cash and cash equivalents
Restricted cash
Restricted cash primarily relates to deposits held by banks for guarantees.
5 Share capital
The disclosures in note 16 to the consolidated financial statements are identical for the Company.
31 December
2007
US$’000
31 December
2006
US$’000
82,492
1,153
83,645
48,475
825
49,300
31 December
2007
US$’000
31 December
2006
US$’000
86,904
216
87,120
97,827
1,980
99,807
Annual Report & Accounts 2007
81
notes to the compAny fInAncIAl stAtements
contInued
6 Financial assets
The disclosures in note 12 to the consolidated financial statements are identical for the Company.
7 Trade and other payables
Trade payables
Amounts due to subsidiaries
Corporate tax
Other payables and accrued expenses
31 December
2007
US$’000
31 December
2006
US$’000
166
147,399
65
3,468
151,098
665
125,422
87
5,140
131,314
The carrying value of trade and other payables approximates to their fair value.
8 Financial risk management
The Company’s financial risk management objectives and policies are identical to those of the Group as disclosed in note 22 to
the consolidated financial statements.
9 Contingent liabilities
The disclosures in note 24 to the consolidated financial statements are identical for the Company.
10 Share based payment
The disclosures in note 19 to the consolidated financial statements are identical for the Company.
11 Related party transactions
During the year the Company received dividends from its subsidiaries totaling US$36,205,000 (2006: US$28,658,000) and paid
to its shareholders dividends totalling US$36,205,000 (2006: US$28,658,000).
Remuneration paid to Directors of the Company by its subsidiaries in the year totalled US$427,000 (2006: US$929,000).
Share benefit charges in respect of options and shares of the Company awarded to employees of subsidiaries totalled
US$174,000 (2006: US$4,136,000).
During the year subsidiaries of the Company participated in funding its costs which totalled US$5,690,000 (2006:
US$20,712,000).
At 31 December 2007, the Company owed to its subsidiaries US$64,907,000 (2006: US$76,947,000).
82
888 Holdings Public Limited Company
shAreholder InformAtIon
Group websites
A range of shareholder information is available in the Investor
Relations area of the Group’s website, www.888holdingsplc.
com, including:
•
•
•
Latest information on the Group’s share price
Information on the Group’s financial performance
News and events
The following websites can be also accessed through the
Group’s main web portal www.888.com or are available
directly.
Casino
888’s Casino games are offered through its Casino-on-Net
and Reef Club Casino offerings.
•
www.Casino-on-Net.com
•
www.ReefClubCasino.com
Poker
888’s Poker offering is through Pacific Poker.
•
www.PacificPoker.com
Bingo
888’s Bingo offering is through 888ladies.
•
www.888ladies.com
888.it
The Group’s sports offering for the Italian market.
•
www.888.it
Backgammon
888’s Backgammon offering is through 888backgammon.
•
www.888.com/backgammon
Betmate
Offers access to a betting exchange for non-USA members
only, including sporting and non-sporting betting.
•
www.Betmate.com
888.tv
A portal for skill games allowing members to download games,
open accounts and play tournaments.
•
www.888.tv
888.info
Allows members to practice their gaming skills for fun through
a number of key Casino and Poker games.
•
www.888.info
888responsible
The Group’s dedicated site focusing on responsible gaming.
•
www.888responsible.com
Shareholder services
All enquiries relating to Ordinary Shares, Depository interests,
dividends and changes of address should be directed to the
Group’s Transfer Agent:
Capita Registrars
The Registry
34 Beckenham Road
Beckenham
Kent
BR3 4TU
Tel: 0870 162 3100
www.capitaregistrars.com
Further Information
For further information please contact:
Company Secretary
888 Holdings Public Limited Company
Suite 601/701
Europort
Europort Road
Gibraltar
info@888holdingsplc.com
Principal Bankers
The Royal Bank of Scotland plc
280 Bishopsgate
London
EC2M 4RB
Solicitors
Freshfields Bruckhaus Deringer
65 Fleet Street
London
EC4Y 1HS
Hassans
57/63 Line Wall Road
Gibraltar
Auditors
BDO Stoy Hayward LLP
Chartered Accountants
55 Baker Street
London
W1U 7EU
BDO Orion Limited
Registered Auditors
Montagu Pavilion
8-10 Queensway
Gibraltar
Incorporated in Gibraltar with registered number 90099
Annual Report & Accounts 2007
83
notes
84
888 Holdings Public Limited Company
H I G H L I G H T S
2 0 0 7
NGR1, 2
Casino NGR1, 2
Poker NGR1, 2
UP
36%
UP
33%
UP
18%
2007: US$213 million
2006: US$157 million
2007: US$118 million
2006: US$89 million
2007: US$81 million
2006: US$68 million
EBITDA3, 4
Profit before tax2, 3
UP
177%
2007: US$45 million
2006: US$16 million
UP
106%
2007: US$46 million
2006: US$22 million
CONTENTS
IFC Highlights
2 888 Brands
4 Chairman’s Statement
6 Chief Executive Officer’s Review
10 Enhanced Business Review
31 Risk Report
32 Board of Directors
33 Corporate Governance
37 Remuneration Report
45 Directors’ Report
48
50 Consolidated Income Statement
Independent Auditors’ Report
1 Net Gaming Revenue (“NGR”)
2 Continuing operations relates to all non-US facing operations (see note 2 to the financial statements).
3 Excluding share benefit charges of US$7.8 million (2006: US$8.8 million).
4 Excluding exchange gain of US$1.1 million (2006: US$4.7 million).
51 Consolidated Balance Sheet
52
Consolidated Statement of Changes
in Equity
53 Consolidated Statement of Cash Flows
54
Notes to the Consolidated
Financial Statements
78 Company Balance Sheet
79
80 Company Statement of Cash Flows
81
Company Statement of Changes in Equity
Notes to the Company
Financial Statements
83 Shareholder Information
l
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