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Annual Report & Accounts 2011
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888 Holdings plc Annual Report & Accounts 2011
Welcome to 888 one of the world’s most
popular online gaming entertainment and
solutions providers.
888 is one of the world’s most popular online gaming entertainment companies
888 is a global gaming entertainment destination, with localised offerings providing
players the games they want in the language they speak with significant functionality
and interactivity.
The 888 gaming experience is now available in 19 languages to over 150 countries and
provides something for players of all abilities. Our highly sophisticated marketing suite of
tools identifies the best way to target people with the offering that will be of most interest
to them.
Dragonfish, 888’s standalone business to business arm, continues to offer clients a best in
class Total Gaming Services solution. The quality of the offering, coupled with a refocus of
this business has given us a strong position in which to enter newly regulating jurisdictions.
888 is a leader in corporate responsibility, with specialist websites dedicated to both
responsible gaming and corporate responsibility so that customers can play in a safe and
secure environment.
Enjoy casino
04
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888 Holdings plc Annual Report & Accounts 201021273-04 10/04/2012 Proof 20 350
300
250
200
150
100
50
0
80
70
60
50
40
30
20
10
0
www.888holdingsplc.com
Highlights
300
250
200
150
100
50
0
60
50
40
30
20
10
0
Revenue
Revenue — B2C
Revenue — B2B
331
262
50
40
30
20
10
0
284
222
150
120
90
60
30
0
47
40
Revenue — B2C
Casino
148
117
2010
2011
2010
2011
2010
2011
2010
2011
up 26%*
US$ million
up 28%
US$ million
up 16%
US$ million
up 27%
US$ million
Revenue — B2C
Poker
Revenue — B2C
Bingo
EBITDA1
Real money registered
customer accounts2
61
38
60
50
40
30
20
10
0
50
54
12
10
8
6
4
2
0
29
56
10.6
8.7
2010
2011
2010
2011
2010
2011
2010
2011
up 58%
US$ million
up 8%
US$ million
up 94%
US$ million
up 22%
million
* Percentages are calculated on actual figures.
1 Excluding share benefit charges of US$2.4 million (2010: US$2.3 million), goodwill impairment charges of US$20.7 million (H1 2010: nil) and restructuring costs of
US$4.9 million (2010: US$2.2 million).
2 Casino, Poker and Sport.
Contents
01 Highlights
02 Chairman’s Statement
04 Chief Executive’s Review
08 Enhanced Business Review
08 Financial Review
11 B2C
15 Dragonfish
17 Technological Infrastructure
18 Customer Support and Service
Regulation and General
19
Regulatory Developments
22
Corporate Social Responsibility/
Responsible Gaming
25 Risk Report
26 Board of Directors
27 Corporate Governance
31 Directors’ Remuneration Report
38 Directors’ Report
Independent Auditors’ Report
41
43 Consolidated Income Statement
44 Consolidated Statement of Comprehensive Income
45 Consolidated Balance Sheet
46 Consolidated Statement of Changes in Equity
47 Consolidated Statement of Cash Flows
48 Notes to the Consolidated Financial Statements
82 Company Balance Sheet
83 Company Statement of Changes in Equity
84 Company Statement of Cash Flows
85 Notes to the Company Financial Statements
87 Shareholder Information
11
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Chairman’s Statement
2011 has been a year of significant change, both for 888 as
We have refocused the business and, in doing so, created a
a business and in the ever-shifting landscape in which we
strong and sustainable base for long-term growth.
operate. Changes made to the focus of the business and
By continuing our customer-centric approach and offering
ongoing improvements to our market-leading offering,
innovative products and services that are both exciting and
have helped to increase player numbers, build revenues and
relevant, we expect to continue to be successful and deliver
produce this excellent set of results. European regulation
benefit to you, our shareholders.
continued apace and there are a number of exciting
initiatives in the United States seeking to regulate internet
poker at both a federal and a state level. Which route will
Financial Results
Group revenue increased significantly by 26% to US$331
be undertaken and exactly when this will happen remains
million (2010: US$262 million) driven in the main by the B2C
unclear, but the wheels are in motion and 888 is positioned
performance of casino and our stand out poker offering,
to take advantage of any and all outcomes.
Poker 6. EBITDA* was US$56 million (2010: US$29 million).
There were a number of changes to the Board and the
and cash equivalents of which US$45 million represented
senior management team in the period under review.
Gigi Levy stepped down as CEO in April and I would like
liabilities to customers. In February 2012 the Group prepaid
£20 million of the Wink deferred consideration to reduce
to thank Gigi for the contribution he made to the business
interest costs. This resulted in a balance of £3.8 million
As at 31 December 2011 the Group had US$82 million of cash
during his tenure. The Board invited Brian Mattingley, our
payable on 21 May 2012.
Deputy Chairman, to step into a more hands-on role within
the business to help provide more focus on key areas of
We will continue to review the dividend policy with a view
performance and deliver on our immediate objectives,
to reinstating payment of dividends as appropriate.
following the outstanding achievements of the Group and
his excellent performance during this period. I am delighted
that Brian Mattingley has, in March 2012, been appointed
B2C
As part of our strategic refocus we have concentrated on
as our full time Chief Executive Officer. I look forward to
our core product groups of Casino, Poker and Bingo.
continuing to work closely with him in his new role.
This includes focusing our attention on our B2C customers,
It was also appropriate to undertake a review of the
customer service, and a true value-for-money proposition.
business requirements in terms of personnel and restructure
This compelling offering, supported by highly successful
the senior management team. As part of that restructuring,
targeted marketing campaigns, has resulted in a strong
we appointed Itai Frieberger as Chief Operating Officer.
trading performance across our B2C division.
ensuring we deliver a ‘best in class’ product, excellence in
* Excluding share benefit charges of US$2.4 million (2010:
US$2.3 million), goodwill write off US$20.7 million (2010: nil)
and restructuring costs of US$4.9 million (2010: US$2.2 million).
Itai has a wealth of experience in the online world and
has spent the last seven years with 888 in various senior
management roles covering the full spectrum of disciplines
within our Company.
After the macroeconomic shocks of the previous financial
year and the business challenges that accompanied them,
the operating environment for 888 improved during 2011.
There were also a number of notable strategic achievements
which we believe will underpin our growth in the coming
years: the finding of suitability by the Nevada Gaming
Control Board and the Nevada Gaming Commission
in respect of our relationship with Caesars Interactive
Entertainment (Caesars), the significant upgrade to our
back office systems and the expansion of our agreement
with Caesars to enter the US market when regulation is
enacted. In addition the launch of Poker 6 which won
industry accolades fuelled tremendous growth in our
poker business.
2
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In July 2011, the Italian regulated market opened for Casino
following which we launched our own casino offering and
the Dragonfish-powered casinos of several customers in
that market.
Dragonfish continued to receive industry accolades and won
two of the most prestigious awards at the eGaming Review
B2B Awards: Poker software of the year and Bingo supplier
of the year.
Board
At the year end one of our Independent Non-Executive
Directors, Michael Constantine, retired from the Board.
I would like to express on behalf of the Board and all at
the Company our appreciation of Michael’s contribution
to 888 for over five years. We are actively seeking new
Non-Executive Directors with the experience and skill-set
to help the Group continue its next phase of growth.
Outlook
2012 is set to be a year of major opportunity for 888, with
the opening of several newly regulated markets across
Europe and the US potential. The Group intends to invest in
these markets in order to establish and build market share
and, whilst the impacts of regulatory changes are difficult
to predict, we believe that we have now created a great
platform for the future and are confident about the Group’s
full year prospects.
Poker has had an exceptional year, and since the launch of
our award-winning Poker 6 platform we have significantly
outperformed the industry. New player recruitment in Poker
has increased by 77% compared to last year and we now rank
4th in the global liquidity rankings.
Casino has also enjoyed a strong performance and this year
we have made a significant investment in our back office
systems. In July we launched into the newly regulated Italian
market and have already gained more than 5% market share.
We also developed an exciting new casino product, casino
50, which was launched in February 2012.
Whilst the bingo market is maturing we continue to focus
on our core strengths of product innovation and promotion
initiatives.
Dragonfish
This year has seen a change of approach as we have
worked on fewer deals concentrating on those which are
substantially revenue and profit enhancing.
Richard Kilsby
Chairman
In March 2011 we became the first ever foreign-based
internet gaming operator to come before the Nevada
Gaming Control Board and the Nevada Gaming Commission
when, following a year long process and public hearings,
they approved the suitability of our commercial relationship
with Caesars. This enabled us to continue working with
Caesars, one of America’s pre-eminent gaming groups, in
the UK. Since the year end we have announced an extension
of the Caesars agreement to cover the US. This is the first
strand of our US online strategy and gives us a strong
platform to develop the US and sign with further potential
partners. We are amongst the first applicants for the new
class of licence in Nevada as an internet gaming service
provider.
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Introduction
We have enjoyed a highly successful year of trading driven
by continuous improvements in our offering, and renewed
focus on our core strengths, resulting in a 26% increase in
Group revenue to US$331 million (2010: US$262 million).
First, we will concentrate on our core product groups,
which are Casino, Poker, Bingo, and to a lesser extent Sport,
where we depend upon partners to operate a sportsbook
in a highly competitive market. These products will be
delivered via our B2C offering and through our Dragonfish
to B2B clients.
2011 was about going back to basics and I have reiterated
in this statement our refocused strategy.
From a financial perspective we delivered a record
performance: EBITDA* reached US$56 million (2010:
US$29 million) with our EBITDA* margin increasing to
16.8% (2010: 10.9%). As at 31 December 2011 the Group had
Second, we will continue to focus our attention on our B2C
customers, ensuring we deliver a ‘best in class’ product,
excellence in customer service, and a real value-for-money
proposition. Our back-office is a key asset of the Company
and truly world class, ensuring maximum returns on
investment from our marketing and customer recruitment
US$82 million of cash and cash equivalents of which US$45
campaigns, monitoring and improving lifetime value of
million represented liabilities to customers. On 23 February
2012 the Group prepaid £20 million of the Wink deferred
consideration to reduce interest costs. This resulted in a
balance of £3.8 million payable on 21 May 2012.
our customers whilst fulfilling high standards of social and
corporate responsibility. Moreover this is done using world
class fraud detection, player monitoring and excellent CRM
practices. We will continue to develop this key asset as it is
a true competitive advantage that benefits both customers
As online gaming evolves, 888 continues to innovate and
and clients alike.
change with it. By providing players of all ability with
a compelling offering, and promoting the offering with
targeted marketing campaigns, we have grown our active
B2C casino and poker customer numbers to almost half
a million — an increase of 69% since Q4 2010. Further
Third, we have appraised our Dragonfish B2B contracts and
where they were sub optimal, renegotiated or terminated
them. We will continue to develop a pipeline of new
opportunities which will be fewer but have a greater positive
improvements are in the pipeline, and potential significant
impact on our revenues and profit.
regulatory opportunities, leaving us very well positioned for
the future.
Strategy
As I set out in our interim results last August, following a
review of the business we reaffirmed our commitment to
maximising revenues and taking the company forward.
This strategy is made up of a number of key strands.
Fourthly, we will work to improve margins, by maximising
operational efficiencies and driving volume and where
necessary cutting costs. There was some impact on the 2011
results but we have yet to see the full benefit of savings
made to head count and other operational efficiencies. It is
our short-term goal to return to levels of margin achieved in
2009, and then to further improve on these.
* Excluding share benefit charges of US$2.4 million (2010:
US$2.3 million), goodwill write off US$20.7 million (2010: nil)
and restructuring costs of US$4.9 million (2010: US$2.2 million).
4
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Finally, it is a clear strategic imperative that we concentrate
on locally regulated markets. We view these markets in three
specific categories which have individual characteristics:
●● Implementational — For example, in Italy and France,
where regulation has been introduced and we have
already commenced trading.
●● Formational — As in Spain where governments have
announced regulation and are working towards a
framework. Here we will decide on a trading strategy,
start dialogue with local partners either for B2C or B2B
tie- ups, and lobby governments in an attempt to assist
in shaping the framework.
●● Developmental — Where there is a strong indication
that at some time in the near future, the market will
open. Here we talk to local enterprise with a view to
forming partnerships with whom we can jointly explore
opportunities and attempt to influence the regulatory
framework; currently we are focusing primarily on
the USA.
B2C
The B2C offering remains our core area, and the bedrock of
the success of the business. Performance across the offering
has been excellent in 2011, with revenue up 28% to US$284
million (2010: US$222 million), as a result of our focused
investment in order to provide the best possible customer
experience, and improved and targeted marketing. We have
pursued a volume-led strategy, aimed at attracting a large
number of players through providing an entertaining and
accessible platform on which customers enjoy playing. The
strategy has lead to Customer lifetime value preserved over
time with retention programmes performing well, so that
churn rate is lower than it has been in the past.
2011 was a phenomenal year for 888’s poker business with
revenue increasing 58% to US$61 million (2010: US$38
million). Our Poker 6 platform has transformed our poker
network and we have risen from 13th to 4th in the global
liquidity rankings in little over 12 months. In Q4 alone the
number of active poker customers increased by 58%.
We have already delivered against and realised the benefit
of this renewed focus. Our focus on driving key product
areas has significantly increased player sign-ups leading
to significant growth in volumes. We will continue to focus
on maximizing the potential of our existing core offering
augmented with innovations in both product and customer
interaction and service.
The Poker 6 network is carefully managed. We aim to attract
players in to enjoy the game which has a more recreational
feel with players placing smaller initial stakes. We have
worked hard over the last year on the software suite which
is dedicated to targeted marketing — almost targeting
players individually with specific incentives and promotions,
and we are now reaping the benefits of that investment.
In Casino this ‘smart marketing’ also worked for us, with
revenues up 27% to US$148 million (2010: US$117 million).
The success of Casino has been driven both by the highly
successful marketing campaigns and significant back-
office improvements. Our efforts were recognised with 888
winning Best Online Casino of the Year at the ICE Totally
Gaming Awards.
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As I said above a key focus for us is newly regulated
The most significant step this year was the Nevada Gaming
markets. Our fully localised Casino helps penetration into
Control Board and the Nevada Gaming Commission
new markets. We launched into the Italian market in July,
voting unanimously to grant a finding of suitability of
with more than 30 games, and with the introduction of the
the commercial agreement between Caesars Interactive
first live casino in Italy — Live Dealer on 888. Initial trading
Entertainment and Dragonfish. This finding, which was
has been encouraging and we have already achieved more
the result of a rigorous and lengthy process of scrutiny,
than 5% market share.
underlines the integrity, sophistication and professionalism
that the Company maintains as its core tenets of its
We have just launched a new Casino offering, a state-of-
business model.
the-art platform similar to Poker 6, with a number of new
features, and we will continue to invest in functionality,
After the period ended we announced an extension of our
customisation and localisation of features such as payment
agreement with Caesars into the US — the first strand of
methods.
our US strategy. Dragonfish is now in a very strong position
to explore the potential of the US market. We have a strong
Bingo is becoming a mature market but we continue to
hold our own. We added 15 new Instant Games on our
platform to roll out our cutting edge, turnkey solution to
other potential partners as the market opens.
Bingo platform including a number of global brands. We
will continue to invest in new features such as progressive
jackpots, new games and Mini Games to keep the platform
People
It’s not just the offering that makes 888 stand out, it is our
refreshed and relevant.
people. I am a true believer in teamwork and we have a
fantastic team of people working at 888. There is no doubt
888sport, while relatively small, is an important part of the
we have some of the most gifted technological staff in
customer offering, particularly around significant sporting
the industry. I would like to take this opportunity to thank
events which in 2012 will be dominated by the London
everyone for their hard work this year. The more I get to
Olympics and football’s Euro 2012.
Dragonfish
This year we undertook a widespread appraisal of the
Dragonfish business — reviewing existing contracts and
evaluating the right deals to pursue. Revenue was up 16%
at US$47 million (2010: US$40 million). As a result we
know the employees, the more impressed I am with their
enthusiasm and commitment to the business. It is their
drive, innovation and effectiveness that has helped deliver
such a successful year.
Regulation
Regulation of online gaming continued to present both
also have a more profitable B2B business by successfully
opportunities and challenges to the Group during 2011,
renegotiating and terminating suboptimal contracts.
and this is likely to be the case during 2012. A growing
number of jurisdictions (most notably in Europe) have
adopted legislation regulating the Group’s business, often
in widely divergent manners. While regulation in various
jurisdictions has the effect of providing legal certainty,
contributing to stability and bolstering the long-term
value of the Group’s various markets, it is also inevitably
accompanied by the burden of local taxation and costly
compliance requirements. The Group continues to remain
actively engaged in regulatory developments worldwide and
continues to seek opportunities for growth presented by
regulation while facing the accompanying challenges.
6
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Two notable regulatory developments that are likely to
have a significant impact on the Group during 2012 are the
possible reform of the UK online gaming regime (with the
imposition of UK gaming duty on foreign operators) and the
emergence of a US online poker market (initially in Nevada,
where the Group continues to pioneer the developing online
market). 888 is investing effort to averting or minimise the
potentially adverse impact of a UK reform, taking all steps to
maximise the benefit of the potential for growth presented
by a regulated US online poker market.
While market liberalisation offers new growth opportunities
Responsible Gaming
As a global leader in online gaming entertainment, 888 is
for regulated businesses such as ours it also means
investment in marketing to position the brand and acquire
committed to a pro-active policy of corporate and social
customers. We will continue to invest in regulated markets
responsibility. Conducting our business responsibly is
fundamental to our future success and the sustainability
to secure our future for the long term.
of our business. Our values place the community and
We continue to exceed our customers’ expectations both
the customer at the centre of our endeavours. We are
in terms of offering and service. We will continue to pursue
constantly exploring new and innovative ways to create
our strategy of focusing on recreational players and as well
a caring, responsible gaming environment and to ensure
as major product enhancements during the year, such as
under age, addictive or other inappropriate customers
the launch of our new Casino offering, we will focus on the
are unable to access our gaming sites. We work closely
continuous improvement of the customer experience at
with organisations such as GamCare and Gambling
every point.
Therapy to enhance the training of our customers support
representatives.
Current Trading and Outlook
2011 marked a new chapter in 888’s history. We have
realigned the business to focus on its core strengths under
a team that is steeped in online gaming. We are more than
ready to take advantage of liberalisation in the industry and
we are well positioned to achieve first mover advantage.
We have a unique position in the US to allow the launch of a
real money offering promptly in either federal or state based
once regulation is finalized by gaming authorities.
Our markets are changing and evolving and we are moving fast
to ensure we continue to innovate and expand our horizons.
Brian Mattingley*
Chief Executive
* Brian Mattingley was appointed CEO on 27 March 2012.
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FInanCIal REvIEw
Financial Summary
Revenue
B2C
Casino
Poker
Bingo
Emerging Offering
Total B2C
B2B
Revenue
Operating Expenses2,3
Gaming taxes and duties
Research and Development Expenses3
Selling and Marketing Expenses
Administrative Expenses3,4
EBITDA3,4
Exchange Losses and Net Finance Costs
Depreciation and Amortisation
Impairment Charges
Release of Contingent Consideration
Profit Before Tax3,5
Year ended
Year ended
31 December
20111
$ million
31 December
20101
$ million
148.0
60.6
54.0
21.6
284.2
46.9
331.1
108.6
7.3
29.9
102.3
27.5
55.6
(13.1)
(13.0)
(20.7)
4.2
13.0
116.9
38.4
50.1
16.2
221.7
40.4
262.1
97.2
1.4
21.8
91.5
21.6
28.6
(1.2)
(12.3)
—
—
15.1
1 Figures may not cast due to rounding.
2 Excluding depreciation of US$9.0 million (2010: US$8.5 million) and amortisation of US$4.0 million (2010: US$3.8 million).
3 Excluding restructuring costs totalling US$4.9 million (2010: US$2.2 million) US$1.0 million from operating expenses and US$3.9 million from
administrative expenses (2010: US$1.2 million from operating expenses, US$0.6 million from research and development and US$0.4 million from
administrative expenses).
4 Excluding share benefit charges of US$2.4 million (2010: US$2.3 million) and impairment charges of US$20.7 million (2010: nil).
5 Excluding share benefit charges of US$2.4 million (2010: US$2.3 million).
888’s Financial position remains strong with cash and cash
equivalents at year end at US$82 million, out of which
US$45 million represented liabilities to customers. At the
year end the Group still had a deferred consideration liability
of US$37 million relating to the Wink Bingo acquisition. On
23 February 2012 the Group paid ahead of contractual due
date £20 million of this liability resulting in a balance of £3.8
million payable on 21 May 2012.
FInanCIal RESulTS
General
888 delivered record financial performance in 2011: total
revenue increased 26% to US$331 million (2010: US$262
million), EBITDA1 increased 94% to US$56 million (2010:
$29 million) and EBITDA1 margin expanded to 16.8% (2010:
10.9%). Profit before tax2 was US$13 million (2010: US$15
million) and basic earnings per share1 was 8.7¢ (2010: 3.7¢).
Net cash generated from operating activities was US$79
million (2010: US$16 million).
1 Excluding share benefit charges of US$2.4 million (2010: US$2.3
million), goodwill impairment charges of US$20.7 million (2010: nil)
and restructuring costs of US$4.9 million (2010: US$2.2 million).
2 Excluding share benefit charges of US$2.4 million (2010: US$2.3 million)
and restructuring costs of US$4.9 million (2010: US$2.2 million).
8
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Geographical Segmentation
888’s turnover by geography is set out in the table below.
Growth was achieved in each of the geographies and UK
still remains our largest market with 46% of total revenues
(2010: 49%). Revenue generated in Europe excluding UK has
also increased this year by 28% driven primarily by poker
and casino.
Revenue by geographical market:
UK
Europe (excluding UK)
Americas
Rest of world
Total Revenue
Year ended 31 December,
Revenue
2011
US$'000
153,090
124,187
26,488
27,385
331,150
2010
US$'000
127,371
96,759
17,110
20,873
262,113
Expenses
Over the last twelve months, we have continued to invest in
technological platform and in product adaptation to
our platforms and our offering as well as investing in newly
regulated markets. Nevertheless this expense remained at a
regulated markets.
stable ratio to revenue, at 9.0% (2010: 8.3%).
Operating expenses1, which include mainly employment
costs and volume-driven expenses such as chargebacks and
Gaming duties incurred during the year were US$7 million
(2010: US$1 million), primarily in respect of the activities in
payment service providers’ commissions, totalled $109 million
Spain during the second half of the year and Italy from Q4.
(2010: US$97 million) representing a lower proportion to
revenue of 33% compared to 37% in 2010. Chargebacks ratio
Marketing expenses during the year were US$102 million
remained stable at 1.0% (2010: 1.1%) and PSP commissions
(2010: US$92 million). This was a result of an increased
ratio increased slightly to 5.9% (2010: 5.5%) as a result of the
number of high-profile campaigns aimed to drive record
inclusion of the Mytopia business for the entire year which
numbers of players to our new offerings. Despite the
incurs a higher cost proportion than the core business.
increase in marketing spend, marketing ratio reduced to 31%
in 2011 compared to 35% in 2010, demonstrating enhanced
Research and development expenses increased in 2011
marketing efficiency.
to $30 million (2010: $22 million) as we invested in our
1 Excluding depreciation of US$9 million (2010: US$8.5 million), amortisation of US$4 million (2010: US$ 3.8 million) and restructuring costs of
US$1 million (2010: US$1.2 million).
9
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In 2011, the Group continued to focus on attracting and
retaining customers and optimising the recruitment channel
to cost. During the year, 888’s marketing team recruited
more than 330,000 new Casino and Poker first time
EBITDa
EBITDA2 reached a record US$56 million (2010: US$29
million) representing an increase of 94%. EBITDA2 margin
increased significantly to 16.8% from 10.9% in 2010.
depositors (“FTDs”).
Administrative expenses1 increased to US$28 million (2010:
US$22 million). This increase is primarily associated with
professional expenses arising from regulated markets and
the refocusing of the B2B business.
Impairment Review — Mytopia
Given the financial performance of Mytopia, the social
games development business acquired in 2010, a prudent
accounting decision was taken to fully impair the Mytopia
goodwill which has resulted in a full impairment charge of
US$20.7 million.
Share Benefit Charges
Share benefit charges were US$2.9 million (2010: US$2.3
million). The increase was primarily a result of US$0.5 million
of accelerated share benefit charges arising on termination
following the departure of the former Chief executive on 30
April 2011.
Finance Income
Given the low interest rate environment net interest income
was US$0.2 million (2010: US$0.2 million).
Finance Expenses
Finance expenses during the year totalled US$13.3 million
(2010: US$1.5 million). This amount comprises (a) US$3.7
Taxation
The tax charge for 2011 was US$3.9 million (2010: US$2.7
million) reflecting the Group’s efficient tax position. Out
of this amount US$0.9 million (2010: nil) was payable in
respect of the new corporation tax in Gibraltar.
Earnings Per Share
Basic earnings per share was 0.6¢ in 2011 (2010: 2.3¢).
Adjusted basic earnings per share excluding share benefit
charges, restructuring costs, impairment charges and release
of contingent consideration better reflects the underlying
performance of the business and assists in providing a
clearer view of the performance of the Group. Adjusted basic
earnings per share was 7.4¢ in 2011 (2010: 3.6¢).
Dividend
Given our cash requirements we did not pay a dividend
in 2011. However we will continue to review the dividend
policy with a view to reinstate payment of dividends as
appropriate.
Cash Flow
The Group’s profitability during the year was matched
by strong cash generation with net cash generated from
operating activities reaching US$79 million (2010: US$16
million). This surplus cash was used primarily to pay Wink
and Mytopia earn-outs at US$ 40 million and US$6 million
million (2010: nil) interest paid to the Wink bingo vendors
respectively.
in relation to the deferred consideration, (b) US$3.7 million
(2010: US$1.1 million) a non cash charge representing the
difference between the discounted present value and future
Balance Sheet
The Group’s cash position as at 31 December 2011 was
nominal value of the Wink deferred consideration, (c) US$1.6
US$82 million (31 December 2010: US$62 million). Liabilities
million (2010: nil) representing fair value adjustment in
respect of the open forward contract entered into in 2011
in order to hedge the Sterling denominated Wink deferred
owed to customers were US$45 million (2010: US$35
million). This increase reflects the natural healthy growth
of the business in terms of customer numbers and revenue
consideration following the March 2011 agreement and (d)
during 2011.
US$4.3 million (2010: US$0.3 million) representing the result
of closing forward contracts entered into during the year
aimed to hedge costs which are not denominated in US$
(such as ILS, Euro and Sterling) and revaluation of various
balance sheet assets which are not denominated in US$.
1 Excluding restructuring costs of US$3.9 million (2010: US$0.4
2 Excluding share benefit charges of US$2.4 million (2010: US$2.3
million), share benefit charges of US$ 2.4 million (2010: US$2.3
million) and impairment charges of US$ 20.7 million (2010: nil).
million), goodwill write off US$20.7 million (2010: nil) and
restructuring costs of US$4.9 million (2010: US$2.2 million).
10
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B2C
888 is a global gaming entertainment destination, with
localised offerings providing players the games they want in
the language they speak. The 888 gaming experience is now
available in a total of 19 languages to over 150 countries.
Casino
888’s casino offering is a significant growth driver for the
business, and has benefited from ongoing improvements
in the customer experience and successful marketing to
deliver record results.
Our focus has been on player acquisition, and we have been
very successful in this area. By continuing to offer the best
possible online gaming experience, we aim to continue to
drive record player numbers and revenues, while building
brand loyalty and successfully increasing lifetime value as
we go forward.
A key way to build this loyalty is by ensuring that the 888
offering remains at the forefront of the online gaming
experience. To do so means continuously providing new
content and innovative ways of playing the games that
customers want.
The ever-growing portfolio of top notch games offered was
bolstered through the addition of more than two dozen
third party games to our suite of casino products. Dedicated
teams were built to make integration more streamlined as
we start to release more games into the market.
Itai Friberger
Chief Operating Officer
Optimisation of the Live platform has seen the introduction of
additional tables for high rollers and VIPs, more types of games
(London Roulette with UK dealers, Venetian Roulette with
Italian dealers, Auto roulette) and an enhanced user interface.
A key focus continues to be newly regulated markets, and
our fully localised casino helps penetration into these new
markets. In August, 888 launched in the Italian market, with
more than 30 games that passed certification by the Italian
regulator. The introduction of Live Dealer on 888.it was
the first live casino in Italy. Following increased marketing
spend in Italy, 888 now enjoys market share of over 5%.
In 2012, 888 will look to build on this position in Italy, while
also opening in Spain, which has the potential to be a
significant market, and a licence has also been applied for to
offer online gaming in the smaller Danish market.
The first quarter of 2012 saw the launch of our revamped
casino offering, Casino 50, which reconstructs the casino
platform to provide an industry leading casino product.
Utilising state-of-the-art web and design technology, the
new 888casino software is simpler and faster than ever
before. From easy tab-based navigation, to opening multiple
games in parallel, 888casino provides a sleek, smooth
transition which now includes a higher screen resolution
and allows a perfect platform for crisp, vibrant graphics
and clear wide & HD screen viewing. With personalisation
at the heart of the new design, 888casino allows players to
create the lobby of their choice and create shortcuts to their
favourite games. The intuitive features of the new 888casino
adapt to each individual player, allowing players to play
online casino ‘their way’.
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In addition, 888 has also entered into the mobile gaming
We are continually improving our poker offering, and during
sector with the launch of our first Android application
the year, we introduced some additional innovative features.
for 888roulette, and further mobile opportunities are in
These included PokerCam, a feature that allow players to
development.
interact via webcam while playing on the 888poker tables,
and more social features, such as Team-Play and Private
The success of the 888casino platform was publicly
Games (where players can personalize their own private
acknowledged, with 888 winning Best Online Casino
poker games and invite their friends to join the game).
of the Year at the ICE Totally Gaming Awards.
Poker
The success of 888poker was recognised at awards
ceremonies, with 888 being awarded the 2011 Poker
Operator of the Year at the eGaming Review Awards,
and 888poker being named Best Online Gaming Product
of the Year at the ICE Totally Gaming Awards.
Bingo
Poker has had an exceptional year, achieving significant
growth despite a declining online poker market through
effectively pursuing our strategy of focusing on recreational
players. The launch of Poker 6 in June 2010 has been
transformational, and we have reaped the rewards across 2011.
888’s poker offering is now an accepted industry leader.
It has been a challenging year for 888bingo. The market is
With an intuitive usability that targets the casual player,
maturing and is highly competitive. Nonetheless, we saw
and innovative features that appeal to a broad demographic,
year on year improvement, as 888 continues to provide
the increase in number of active customers in 888poker led
our customers with a first class offering, including regular
the industry in 2011. With 318,000 active customers in Q4,
promotions, attractive prizes and a host of interactive features.
this has moved 888poker up to fourth, from thirteenth,
in the public liquidity rankings.
Instant games remain a key revenue stream, dramatically
enhancing the gaming experience, customer retention and
This surge in activity has been the result of constant
yield. These were embellished throughout 2011 with more than
investment in our poker strategy to build a platform that
a dozen new Instant Games launched on the Bingo platform.
appeals to players of all abilities. 888 has developed a
Games include brands such as ‘Roland Rat’, progressive
diverse network in which players can enjoy the game
jackpots games and Mini Games.
regardless of skill level and offers customized promotions
and communications targeted for every stage of a
Other notable features introduced throughout the year
player's journey. This leads to higher player retention and,
included enhanced ‘Invite a Friend’ capabilities — whereby
in turn, increased lifetime value. Poker 6 is a technically
friends from Facebook, Gmail, Hotmail and social networks
sophisticated product that can manage a host of activities:
can be invited to join games — and Side Bets — enabling bingo
matching marketing campaigns; monitoring product
players to place a bet on an event that will happen during
performance and delivering bespoke customer interfaces.
a Bingo game.
12
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We will continue to launch innovative new products,
and look for new ways to bring new customers to the
business. In partnership with Endemol, Big Brother Bingo
was exclusively launched in the UK at the end of 2011 to
take advantage of the high-profile Celebrity Big Brother
series. The performance of this product has been very
encouraging, with promotions for exclusive Big Brother
prizes including behind-the-scenes access, task props & VIP
passes to eviction nights attracting new customer numbers.
Sport
888sports is a small percentage of our total business, but
is nevertheless important for our customers, particularly at
the time of significant sporting events, and we will continue
to invest in this offering in order to drive more revenue and
improve margins.
In 2011, the focus was on retaining those high value
customers that have been acquired during recent high-
profile events, and in promoting Casino and Poker to our
888sports customers via the ability to share wallet across
888’s core platforms.
Following prominent and successful marketing campaigns,
the business grew year on year — this is especially pleasing
as 2010 saw the impact of the FIFA World Cup. With both
the London Olympics and football’s Euro 2012 taking place
in the summer and offering significant opportunity for
growth, marketing activities are being prepared to take
advantage of these major events.
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13
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Marketing and Promotions
The 888 offering provides something for players of all
abilities and requirements, and our marketing suite identifies
the best way to target people with the offering that will be
of most interest to them.
A significant area of investment in 2011 was in back-office
systems. 888’s marketing suite is now amongst the best
in the business, and allows us to better target offers and
promotions. This helped boost conversion ratios and
allowed marketing campaigns to be more focused. In turn,
campaigns such as Free Spin and Millionaire were highly
successful.
888poker is a different type of destination, and the
communication of this has been integral to the surge in
numbers over 2011. Our marketing campaigns reflect the
focus of our offering, with our Poker advertising targeted
at the casual player and emphasising the enjoyment factor.
Shane Warne continues to successfully front our campaigns
in several parts of the world, and has helped us to begin
to build on an Ambassador-led marketing strategy as we
enter into new markets. Using prominent sports players and
celebrities rather than professional poker players as the face
of our campaigns presents our brand to a larger audience
and reinforces 888poker as a recreational, fun destination.
Our advertisement campaigns and marketing in 2012
will continue to build on the positioning slogan, ‘We Play
Different’, as we continue to offer players an entertaining
poker experience that is unique from our competitors' and
enjoyable for all players.
In 2011, 888casino executed a very successful marketing
campaign across several markets, focusing on 365 spins
to win a million dollar jackpot. To continue to capitalise
on this success, campaigns in 2012 will continue to build
strong brand awareness of 888casino as a leading casino
where players can win big and have fun. With the support
of innovative, personalised software and a continually
improving customer communication protocol, customer
acquisition from these campaigns should see optimum
conversion with increased player values and retention.
Consistent with our strategy, we continued to invest heavily
in marketing. Marketing spend in 2011 was larger in absolute
terms than in 2010, but equalled only 31% of revenue
compared to 35% in 2010. As our marketing improves and
becomes more intelligent and targeted, we are achieving dollar
for dollar growth in terms of marketing spend year on year.
14
Customer Relationship Management
Strong customer relationships are the bedrock of our
success. Whilst eye-catching promotions help to drive
customer acquisition, customer retention comes from
engendering loyalty through building bonds with players.
This leads to people playing more games, more often, for
more time.
888’s ongoing commitment to localisation strengthens
relationships worldwide through speaking to people in their
language and culture, while the market-leading usage of
social features and interactivity with players strengthens
brand loyalty.
As the back-office suite improves, and allows all players to
use a personalised product, with promotions targeted to
their requirements, churn rate has reduced across 2011.
Search Engine Optimisation (‘SEO’)
The specialist Search and Web Optimisation Technologies
(‘SWOT’) team continue to give 888’s websites prominence
on worldwide search engines, maximising the impact of the
product offering. Successful use of SWOT has helped to
drive players to 888 brands, helping customer acquisition
and ongoing growth.
2012 Focus
We will continue to focus on our core strengths, and build
on the excellent results achieved in 2011. Following the
success of Poker 6, our new Casino offering has significant
potential, and we will invest across our product line in order
to provide players with cutting-edge games and innovative
ways in which to play them.
Targeted marketing campaigns will support our products,
with the aim of attracting and retaining customers, growing
lifetime value and reducing churn rate. We will also explore
innovative avenues and ways to play on 888 gaming
platforms in order to drive growth.
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Dragonfish
Dragonfish, 888’s standalone-business to business arm,
continues to offer clients a best in class Total Gaming
Dragonfish further undertook a widespread appraisal of all
its contracts, and looked to renegotiate or terminate deals
that did not have the desired effect on the bottom line. The
pipeline of new opportunities continues to develop towards
deals that are more enhancing to revenue and profit.
Services solution. The quality of the offering, coupled with
The strength of the offering, coupled with increased
a renewed focus has given us a strong position in which to
marketing efforts by our partners, helped drive revenue up
enter newly regulating jurisdictions.
16% to a record US$47 million.
In 2011, Dragonfish successfully launched CasinoFlex in Italy
We were delighted to see Dragonfish’s position as a leading
in conjunction with some of the most popular established
B2B provider recognised through the awarding of two of the
online Italian brands, and focused on future regulated US
most prestigious awards at the eGaming Review 2011 B2B
markets by entering discussions with major US partners. In
Awards — Poker Software of the Year and Bingo Supplier
January 2012, Dragonfish extended its deal with Caesars
Interactive Entertainment to include the US.
of the Year.
FREEDOM TO ENTER
NEW MARKETS
CUSTOMISABLE ONLINE GAMING SOLUTIONS.
OPTIMISE YOUR OFFERING, EXPAND YOUR BUSINESS
RUOY ROF TLIUB
DLROW ENILNO
Have you cracked the regulated market yet?
With a breadth of offering unique to Dragonfish, you’ll
be able to pick from our Total Gaming Services to create
your own bespoke solution.
You can combine any number of our products and
services to complement your own, from as little as one
gaming product with no back office to a full managed
service. Just choose from our Games & Technology,
Marketing, Operations and ePayments assets, or go
for the full white label solution.
Whatever your needs, Dragonfish provides you
with flexible gaming solutions to help you capture
regulated markets.
We’re ready for your online world. The question is,
are you?
Dragonfish. Total Gaming Services.
www.dragonfishtech.com • sales@dragonfishtech.com
Technology
Operations
Marketing
ePayments
Casino
Poker
Bingo
Sport
Quickplay
The Total Gaming Services Offering
New entrants to the online gaming market require
diverse gaming content delivered over a high performing
technology platform, operational expertise and, above all,
knowledge of how to leverage their assets and target the
gaming consumer.
The state-of-the-art Poker 6 platform provides a contemporary
look and feel for poker clients, with enhanced usability,
functionality and playability on the tables. The platform is
a proven success, and has been a driving force behind the
exceptional performance of 888’s global poker offering.
The casino offering continues to reflect 888’s 14 years
of experience as a leading online casino operator. This
enables Dragonfish to provide a suite of games that
helps its partners’ casino brands appeal to beginners and
experts alike through the provision of a vast range of
games, a user-friendly casino lobby with intuitive buttons
for communicating promotions, tutorials, 24/7 customer
help, wins and bonuses. In 2011, the successful launch of
the CasinoFlex modular product specifically designed for
regulated markets, allowed partners to choose to operate
their own back-office under their own licence.
The bingo platform achieved an important milestone in
2011, with the launch of the BingoFlex Modular Platform
providing full integration with partners’ back-office systems.
The new platform enables the offering of individual platform
components to potential partners, and thus significantly
strengthens the Bingo sales proposition by creating a
broader spectrum of potential partners.
15
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Enhanced Business Review
Each of our products is tailored for individual markets, and
888 is well placed to continue harnessing the many
can take advantage of multi-platform compatibility.
opportunities that the changing regulatory environment
With the launch of our exciting new Casino 50 platform, the
operator was demonstrated in March 2011, with the Nevada
product offering to clients will remain at the forefront of the
Gaming Control Board and the Nevada Gaming Commission
will bring. Our reputation as a trusted, leading international
online gaming experience.
suitability finding for the commercial relationship between
Caesars Interactive Entertainment and Dragonfish. This, the
Our proprietary back-office services continue to be a core
first deal ever approved between a state-licenced gaming
part of our proposition. Our partners enjoy the benefits of
company and a foreign-based Internet gaming operator,
our industry-leading payment solutions and optimisation
was a significant development enabling us to continue to
services, Fraud and Risk Management, Business Analytics,
work with Caesars to offer support for its UK product.
CRM services and multi-lingual proactive and reactive
customer operations.
Regulated Markets
Choosing the right partner is critical for success in
regulated markets, and Dragonfish offers flexible best-
The partnership with Caesars already covered a real-money
World Series of Poker Casino offering to the UK market and
a World Series of Poker Free Play Poker site in the United
States.
of-breed solutions that have been rigorously tested to
More significantly, in January 2012, the partnership was
meet the regulatory requirements across the international
extended into the United States. The first strand of 888’s
jurisdictions, such as Italy and Spain. We have developed
US strategy, the agreement will allow the launch of a real
a methodology which drives our solutions for regulated
money offering as soon as either Federal or state based
markets: tracking the new laws through drafting and
regulation is finalised, upon licencing by gaming authorities.
publication, adapting, testing and certifying our products
and operations in parallel to the first new licences being
Dragonfish is in pole position for the US market, and we
issued. We also have the strength and depth to spread
have a strong platform on which to roll out our cutting
our focus across multiple jurisdictions so we maintain our
edge, turnkey solutions to other potential partners as the
leading position in all the largest markets as the regulations
market opens.
take effect. This means that Dragonfish licencees are first
in line to receive their eGaming licences in newly regulated
Another notable market in which Dragonfish is well
territories.
positioned is Italy. Following certification of 888 products
by the Amministrazione Autonoma dei Monopoli di Stato
We have also adapted our products to meet the new
(AAMS), the Italian regulatory authority, we launched
tax requirements of each market. We provide integral
our Casino offering into the Italian market in August. The
tax-compliant acquisition and retention tools, bonuses
Dragonfish Italian casino offering includes both Download
and cross-selling that maximise cost-effectiveness for
and No-Download (Instant Play) clients, with a customized
our partners while increasing the Lifetime Values of their
and enhanced proposition presenting the Italian player with
players.
the most compelling and engaging gaming experience in
Our track record is second to none and we have already
clocked up invaluable experience launching hundreds of
brands on our regulated gaming solutions.
the regulated market.
2012 Focus
Dragonfish will continue to focus on leveraging new
opportunities in significant newly regulating markets,
focusing on utilising the compelling offering to sign
agreements that will enhance revenue and profit.
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TECHnOlOGICal InFRaSTRuCTuRE
888’s success is built on the strength of its technological
infrastructure, which provides the platform for the cutting-
edge innovation for which we are renowned. The cutting-
edge offering provided for our players, including the ground-
breaking Poker 6, is all a result of the behind-the-scenes
Other notable improvements to 888’s back-office systems
in 2011 included:
●● Unified Offering Infrastructure: During 2011, B2C casino,
poker and sport brands were transferred to the new
unified offering infrastructure, which includes support
expertise that is at the heart of 888.
of the new bonus structure.
The right technology for regulated markets
Having the right technology is crucial to operating in newly
regulated markets, as the platform must be tailored to
conform to all specific requirements. During H2 2011, 888
In addition, the “My Account” site was launched, which
includes tabs on bonuses and personal details to ensure
that all customers are able to easily manage their 888
accounts. More content will be added to this site during
launched a regulated Casino offering in Italy, both for B2C
2012.
(888.it) and for B2B partners. In Q4, our platform was
adjusted to support Gibraltar AML regulation for the .com
brands.
The ability to quickly make changes to our platform, while
also ensuring that the customer experience remains at the
cutting edge of online gaming, stands us in good stead to
gain market share as new geographies are regulated. Based
on the changes we made to our gaming systems to comply
with Italian regulations, in 2012 we will adjust the platform in
order to launch in Spain.
Subject to successful conclusion of the licencing process
in Nevada, tentatively expected in 2012, we are perfectly
●● Gaming Infrastructure Improvements: In order to support
the growing load on our gaming infrastructure caused
by the significant increase in player numbers, steps were
taken in order to improve performance and enable a
more robust and stable platform.
●● Registration Process Improvements: Optimising the
usability of the registration process can be a major boost
to 888, through maximizing the number of deposits
made from visitors to the site. In 2011, we introduced an
enhanced registration form with, amongst other things,
an improved look and feel, more meaningful validations,
and new password length requirements for increased
positioned with the required infrastructure and platform
security.
changes in order to launch.
●● Real Time Segmentation (Queue Manager
Improvements): During 2011, we added new abilities to
the Queue Manager tool including the ability to retrieve
population data based on data mining models, and
the ability to perform automatic actions (in addition to
manual actions that are already supported).
●● Affiliate System Improvements: A number of
improvements to 888's internal Affiliates System were
introduced during 2011, supporting the growing number
of affiliates, enhancing reporting capabilities and
optimising the billing process.
The right technology for our customers
The record numbers of concurrent users on 888 sites in 2011
demonstrate the robustness of our platform. Preparations
to serve these incoming users began in Q2, and over the
course of 2011 the data center was redesigned to improve
the availability of the network infrastructure in the server
room and allow for faster installations of new hardware.
The networking hardware was also reconfigured to improve
availability and network stability. This was done smoothly and
ensured that all IT operating parameters were maintained.
The backup software and hardware were also upgraded to
support the increasing size of data, reduce backup window
time frame and improve data retention. The updated systems
and procedures were awarded level 1 PCI Certification in the
yearly audit performed by the Qualified Security Assessors.
The successful updating of systems meant all service
level agreement performance parameters were met and
surpassed.
17
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Enhanced Business Review
unique Casino Games
An essential part of 888’s strategy is its focus on the player
experience. To fulfil this goal a new robust gaming platform
— the Generic Gaming Platform or GGP was introduced.
888’s GGP offers a simple way to develop or integrate
Casino games. It is built over existing infrastructure and
back-office systems and contains a number of games
engines: core Casino games (like Blackjack and Roulette)
as well as unique Video Slots. 888 plans to utilise this
platform to offer unique games in parallel to the already
well-established games integration channel via the 888
Integration Platform.
During 2011, a new French Roulette and American Roulette
was launched over the GGP and we are planning to add a
number of additional games and unique features during 2012.
GGP supports Flash games, and also new technologies such
as HTML5. This enables 888Casino to deliver and integrate
games easily on mobile platforms.
ePayments
The comprehensive Total Payment Services offering
includes payment processing tailored for local markets,
fully managed fraud detection and prevention services, and
customer support.
The ability for players to deposit and withdraw in their local
currency via their preferred payment option is key to 888’s
personalisation and localisation of the products offered. In
2011 we introduced new currencies and seven new payment
options in key countries.
Fraud prevention was also bolstered through the addition
of major tools including 3D Secure Code (offered as Verified
by Visa and MasterCard SecureCode to Visa and MasterCard
card users respectively), and the payment platform was
amended to be compliant with those jurisdictions in which
a new regulatory regime was introduced.
Introducing new features and capabilities in the payment
platform helped us to better convert customers in the
cashier. These capabilities allow much shorter login time to
the system from all over the world, and much more effective
and reliable ways to process payments.
18
CuSTOMER SuPPORT anD SERvICE
Customer Relationship Management
Strong customer relationships are the bedrock of 888’s
success, and the Group remains committed to its goal
of providing the best customer support and service in the
global online gaming industry.
First class customer support is offered for each of the
Group’s brands and White Labels via telephone, e-mail
and chat to customers around the world, in 10 different
languages. 888’s ongoing commitment to localisation
strengthens relationships worldwide, through speaking to
people in their language and cultural context, while the
market-leading usage of social features and interactivity
with players strengthens brand loyalty.
The launch of 888.it, a tailor-made product for the newly
regulated Italian market, in August 2011, marked a milestone
for 888. To support this venture, a wholly new customer
support team was recruited and trained to, for the first time,
handle all aspects of the operation; successfully establishing
a range of new processes and procedures.
In 2011, 888’s support teams, on average, converted 20%
of all incoming phone calls and 10% of relevant incoming
chats to deposits; maintaining this convenient service to
players and continuing to benefit the business. We see
the forthcoming expansion of live telephone and chat
deposit capabilities to our Bingo customers as exciting new
developments. This feature was launched as a pilot project
at the end of 2011 and is expected to boost revenues and
open new marketing opportunities.
The Telemarketing and Proactive Chat Department
continued to deliver excellent performance as measured
by the deposits generated by interaction with customers.
The Department has increased its performance for the
third successive year in all three key metrics — efficiency,
productivity and revenue generated.
The implementation of an easy-to-use newly customised
layout, and improved design of the Online Web Self-Service
tool, along with the continual evaluation and refinement
of content, resulted in an increased usage of this tool by
customers. Improvements helped to reduce customer
issues while increasing people’s ability to find answers to
their queries themselves, enabling 888 to further reduce its
operational expenditure, improve agent efficiency and more
effectively manage its resources.
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As a result of well-received amendments to our offering,
Review forums, customer surveys and feedback analysis
the overall volume of queries coming in to our support
assisted in the continual evaluation and refinement of the
centres decreased by 6% in 2011. This result is especially
Online Help content. In 2012, we plan to enhance the visual
pleasing as it was achieved despite the significant increase
representations of supplied information to reduce textual
in active casino and poker customers and despite a 20%
materials, adapting to customer needs and increasing
increase in B2B Bingo contact volumes.
user satisfaction.
Total contact volumes handled at our Support
Centres — all B2C/B2B Brands and languages:
2010 contacts handled via phone, e-mail and chat: 960,095
REGulaTIOn anD GEnERal REGulaTORy
DEvElOPMEnTS
The regulatory framework governing online gaming in
2011 contacts handled via phone, e-mail and chat:
900,741
different countries around the world remains as dynamic
and rapidly evolving as ever. While some jurisdictions
The main Gibraltar contact centre focuses on providing
have moved to curtail the activities of online gaming
support for 888’s principal markets in Europe, Asia Pacific
sites, many others (including many European jurisdictions
and Latin America, while the Antiguan contact centre focuses
on supporting the English speaking markets in Europe,
and even some US states) are currently contemplating
liberalisation and regulation of the industry, and several have
Australia, Asia Pacific and Canada. The fully established
already taken this route. The Group remains committed to
contact centre in Romania is providing mainly telemarketing
monitoring closely and addressing regulatory changes as
and proactive chat activities in several languages for 888
they occur, and to fostering, so far as possible, the trend
and Dragonfish.
towards liberalisation and regulation of online gaming
throughout the world.
Support teams in all operational locations aim to close the
majority of issues during the first contact, as exemplified in
the Service Level Achievement reached in 2011. Throughout
Eu
As the hopes for pan-European harmonization of online
the year, we further improved the handling of customer
gaming laws waned during 2011, a growing number of EU
interactions by prioritising inbound queries according to
Member States have introduced (or are in the process of
customer statuses and specified business priorities.
introducing) local legislation governing the offering of online
Customer Satisfaction
888 monitors customer satisfaction at key points
gaming. Several EU Member States are either contemplating
or have already put in place, a liberalised (or partially
liberalised) gaming regime: The UK, France, Italy, Spain,
throughout their lifetime cycle in order to assist
Denmark, Belgium, Estonia, Greece, Hungary, Romania and
stakeholders in the Group to identify and understand habits
others have already adopted a regulatory regime governing
and expectations of loyal players, as well as to design
online gaming. Other EU Member States, including Ireland,
service initiatives and ongoing refresher training based on
Germany, Bulgaria, the Netherlands, and Sweden are also
the results.
considering (or are already in the process of) revising their
gaming laws, possibly to include liberalization of the online
In 2011, the customary annual study conducted to
gaming market. The proliferation of varying regulatory
benchmark 888’s service level within its primary markets
regimes throughout the EU Internal Market has inevitably
included English, German and Spanish speaking casino and
resulted in increased regulatory constraints and compliance
poker players, as well as English speaking sport customers.
challenges impacting the Group’s European business.
888 is pleased that, for the third year running, respondents
from our main language markets gave their highest rating to
In March 2011, the European Commission published a long-
the level of professionalism of our support representatives.
awaited Green Paper on online gaming. The Green Paper
launched a public consultation between EU Member States,
The survey also sought insight into customer awareness and
EU institutions and other stakeholders regarding the legal
usage of the Online Self-Help facility available to English,
and technical challenges arising from the activities of both
German and Spanish customers. In 2011, 80% of respondents
“lawful” and “unlawful” online gambling operations.
were aware of the Online Web Self-Service tool vs. 73% in
2010. 71% of customers who are aware of the tool reported
using it.
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www.888holdingsplc.com21273-04 04/04/2012 Proof 17 Enhanced Business Review
In this context, rather than strongly advocating
The regulation of online gaming in Germany continued to be
harmonization of gaming laws across the EU Internal Market,
characterized by legal ambiguity and chaos during 2011 and
the Paper notes the existence of the two regulatory models
early 2012. The Inter-State Gambling Treaty, struck down
adopted by EU Member States — a liberalized licencing
in 2010 by the European Court of Justice, was scheduled
model and the restrictive national monopoly model. As
to expire at the end of 2011. At that time, 15 of the German
with the declaration adopted in late 2010 by the EU Council
federal states (Lander) (not including the state of Schleswig-
of Ministers, the Green Paper recognizes that the online
Holstein) extended the treaty by six months to allow for
gaming market has not been the subject of pan-European
the adoption of a new treaty (expected to introduce a very
regulation, indicating that this state of affairs is unlikely to
limited online sports-betting regime, allowing for no more
change in the immediate future. The Green Paper highlights
than 20 licencees). The new treaty awaits the approval
the need to identify ways in which cooperation between
of the individual states’ parliaments. In a letter issued by
national regulatory authorities at EU level will assist Member
the European Commission in March 2012, the Commission
States in achieving more effectively the objectives of their
expressed serious doubts over the compliance of the new
gambling policy, in line with the principles of the EU internal
draft treaty with EU law, echoing criticism voiced regarding
market. 888 responded to the Green Paper consultation
process by filing a detailed position paper supporting pan-
the previous treaties on earlier drafts of the new treaty. The
EC indicated that it stood to the Lander to demonstrate how
European regulation of the industry.
the proposed treaty could be considered compliant with EU
law (or risk having it struck down as the previous treaty had
The end of 2011 saw France evaluating the online gaming
been). This position by the EC is likely to further contribute
regime put in place by a 2010 law (which introduced
to the legal uncertainty already characterizing the German
a licencing regime for online poker, sports betting and
gaming market.
horserace wagering). It remains unclear whether and to
what extent this evaluation will lead to amendments of the
In contrast, the German state of Schleswig-Holstein
French legal regime, possibly including further liberalization
introduced its own regulatory and licencing regime for
of the market, or changes to the tax structure.
online casino games (including poker, but excluding
Also in 2011, Denmark launched the regulatory regime
games remain under state monopoly). Despite granting
established under a 2010 law (after a state aid claim against
certain advantages to the incumbent land-based gambling
this regime was rejected by the European Commission).
operators, the Schleswig-Holstein regime was generally
Under this new regime, the 888 Group has been issued an
approved by the European Commission. The licencing
online gaming licence by the Danish Gambling Commission.
process for online gaming operators was scheduled to begin
roulette, baccarat and blackjack) and online betting (lottery
Spain also adopted a new regulatory and licencing regime
for online gambling during 2011, and issued a time-restricted
in March 2012, but has been delayed, as secondary legislation
specifying the technical requirements is yet to be enacted.
call for applications by the end of the year. Following
There remains a certain degree of legal uncertainty
national general elections, issuance of licences has been
surrounding the ability of Schleswig-Holstein licencees
postponed to 2012, and an overall review of the 2011 regime
to accept players from throughout Germany. While the
by the new administration cannot be ruled out. Until
Schleswig-Holstein law does not prohibit the acceptance
such time, the Group’s Spanish business continues to be
of players nation-wide, and while strong legal arguments
governed by an interim regime put in place by the 2011 law.
are available to support the right of Schleswig-Holstein
Italy, where the Group holds an online gambling concession,
introduced new legislation in 2011, expanding the scope of
licencable online activities, and significantly easing access to
licencees to operate in such a manner, the issue is likely to
be the subject of legal debate once the Schleswig-Holstein
regime has been fully launched.
the market by EU-based operators. The Group has updated
As part of a broader austerity package, and with the
its Italian licence concession in accordance with this new
undisguised aim of generating significant tax revenue from
legislation. Further expansion of the licencable online
activities may occur during 2012.
online gaming, Greece adopted a regulatory and licencing
regime governing online gaming regime during 2011.
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The new Greek legislation (which has not yet been fully
Several legislative initiatives at state level seek to regulate intra-
launched) has come under severe criticism due to its
state online gaming (including in New Jersey, Iowa, Connecticut,
incompatibility with EU law. This is primarily due to the
Massachusetts, California, Ohio and Washington D.C.).
fact that applicants for an online gaming licence must be
established in Greece, locate their gaming infrastructure
These initiatives come after the State of Nevada implemented,
and store data in Greece and conduct payment processing
during 2011, a new regime governing intra-state interactive
in Greece. The law also subjects applicants to retroactive
poker. The newly introduced Nevada regime allows licenced
taxation.
terrestrial gaming operators to offer online poker to patrons in
Nevada, including through partnership with online operators
Belgium’s licencing regime for online gaming activities
in possession of an appropriate service provider licence.
became effective on February 2012 after a year of “temporary
The Group has already applied for a licence as an interactive
test permits” granted to selected operators. Belgian licences
gaming service provider and manufacturer in Nevada.
may only be issued to terrestrial operators already operating
In so doing, the Group continues to pioneer the Nevada online
a casino or gaming arcade. In addition, servers containing
gaming market.
(as a minimum) the data pertaining to Belgian operations,
are to be located in Belgium. For these reasons, the European
Early in 2012, the New Jersey state legislature began debating
Commission has declared the Belgian regulatory regime
a bill seeking to allow the offering of online gaming by Atlantic
to be incompatible with EU law.
City licencees, possibly through partnerships with established
online operators.
Hungary also amended its gambling law during 2011
introducing a limited regulatory regime governing online
Similar bills are being debated by the state legislatures of
gaming. The implementation of these new regulatory regimes
California, Iowa, Mississippi and Hawaii. Under the California
awaits publication of secondary legislation, and is anticipated
bill, terrestrial licencees and Indian tribes could obtain an
during 2012.
online poker licence, pursuant to which they could operate
through partnership with online operators (subject to the
In August 2011, Romania adopted secondary legislation
condition that such operators did not accept wagers from
necessary to implement the online gaming portion of its
the United States after 31 December 2006). Similar bills have
2010 gaming legislation. Though formally in force, the regime
been proposed in Iowa and Mississippi. In Hawaii a proposed
established by this legislation has not yet been practically
bill seeks to establish a single state online gaming operator
implemented by the Romanian authorities and it is presently
(monopoly).
unclear when such implementation will commence.
uK
Following a review of the current online gaming licencing
Other US jurisdictions, including Illinois, Maryland and New
York, are considering launching online platforms for the sale
of lottery products. These developments could all present
regime, the DCMS is considering reforming the existing regime.
potential business opportunities for the Group, which could act
In March 2012, the Chancellor of the Exchequer formally
as service provider to licencees and lottery corporations in the
announced a consultation process aimed at introducing
various states.
legislation (in the form of a new Finance Act) which would
subject all online operators accepting UK customers to UK
Federal legislation governing online gaming (most likely online
gaming duty (presently at 15% of Gross Gaming Revenue).
poker, initially) remains a possibility in 2012. Late 2011 saw
The announcement explicitly refers to December 2014 as the
consensus between Senator Harry Reid (longtime supporter
target date for implementation of the aforementioned reform,
of online poker legislation) and Senator Jon Kyl (who has
which would require a change of primary legislation.
traditionally objected to federal legislation condoning online
uSa
Late in 2011, the US Department of Justice released a
poker). This newly formed alliance greatly increases the
odds in favour of federal legislation regulating online gaming,
though the complex political landscape resulting from the
memorandum reversing the Department’s long-standing
position regarding the scope of the Wire Act. The Department
2012 general election may impact the likelihood of such
development during 2012.
of Justice concluded that the Wire Act does not apply to non-
sports betting, and hence does not prohibit the intra-state sale
online of lottery tickets by licenced state lotteries.
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www.888holdingsplc.com21273-04 04/04/2012 Proof 17 Corporate Social Responsibility
As a global leader in online gaming entertainment, 888 is
committed to a pro-active policy of corporate and social
responsibility that reflects the high professional and ethical
standards we have set for ourselves.
Conducting our business responsibly is fundamental to the
Community
Community Involvement
888 is committed to supporting both the various local
communities in which it operates and also the broader
global community. Our community investment program
includes cash donations and long-standing community
future success of 888 and the sustainability of the business.
involvement in our key areas across the world.
At 888, we understand that our responsible approach is
both the correct way to do business and one that enhances
our credibility, thereby supporting the development of the
business.
Our philosophy
We aim to contribute to the global community in which
we operate:
●● We sponsor and participate in activities in the
neighbourhoods in which we live and work.
●● We create collaborative and rewarding work
In addition, 888 employees are actively involved with the
local community. In the first part of the year, employees
in the Gibraltar office volunteered to raise money for the
Alzheimer's foundation.
Our employees in the Israel office also continue with their
long-standing relationship with the national Derech Haetgar
charity which focuses on enhancing the education of
disadvantaged teenagers. The program allows volunteers
to assist with homework and studies by combining fun and
educational indoor and outdoor activities and workshops
environments where new ideas can flourish and
according to various public festivals.
employees can grow.
●● We encourage responsible gaming practices to avoid
the dangers of problem gambling, and we have taken
rigorous steps at all our online sites to prevent under-
age gambling.
Our values
At 888 we place the community and the customer at the
centre of all our endeavours. We are constantly looking at
new and innovative ways to create a caring, responsible
gaming environment and to ensure that minors are unable
to access our games. For any customers who suspect they
have a problem, our Director of Responsible Gaming and
our well-trained staff provide individual assistance that is
As has been the case for the past few years, employees
in Israel also joined the “Day of Good Will” national
volunteering organization and for the third year, 888
employees dedicate this day to host Sudanese kids for
a day of fun activities.
Charity and our customers
The annual 888 Charity Weekend was hosted on 9-12
December 2011. For the fifth consecutive year, 888.com
donated 8% of the house profits during the entire weekend
from across the business — casino, poker, bingo & sport.
The charity donations were shared between three well know
and deserving charities, Breast Cancer Care U.K., Bliss and
considerate, supportive, and helpful.
Sport Relief.
As well as this general promotion, during the 888 Charity
Weekend individual brands allowed players to contribute
more through promotions like 888casino’s Santastic video
slot, 888poker’s Charity Challenge and 888ladies £200
Good Cause.
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888 Holdings plc Annual Report & Accounts 201121273-04 04/04/2012 Proof 17
Environment
As an online business 888’s activities have a relatively small
impact on the environment, but 888 continues to develop its
Protecting Customers
●● As a responsible, regulated gaming company we
comply with both the GamCare and the eCOGRA
commitment to environmental issues:
guidelines.
●● Green IT: Recycling IT: all 888’s redundant IT equipment
is now recycled. Virtualisation (VDI project): More than
●● GamCare is the leading authority on the provision of
counselling, advice and practical help in addressing the
social impact of gambling in the UK.
120 stations were transformed from a PC to the VDI
●● eCOGRA ensures that approved online casinos are
system, enabling us to use less hardware.
properly and transparently monitored to provide player
●● Energy consumption: Alongside these projects we
protection.
continuously monitor our energy consumption to help
●● Our site has links to helping agencies and we have
us ensure we are being as energy efficient as possible.
placed many safeguards for those who need help with
●● Recycling: We recycle as much as possible. Paper,
bottles and cans are collected from all of our sites.
●● Water: We use only ecological detergents in our offices
and use water saving devices in all our locations.
●● Travel: To minimise the impact of travel on the
environment we encourage employees to either cycle
controlling their gaming.
●● Self-assessment test: For gamblers who are worried
about their gambling habits and want to know more
about the signs of compulsive gambling,
●● Controlling deposit limits: Should clients feel the need
to they can control their gambling by self limiting the
to work and, in certain locations, provide buses for
amounts they deposit per day, per week or per month.
commuters. We also continue to invest in state-of-the-
●● Self exclusion: A customer can request to be self
art technology to help meetings occur remotely.
excluded for a chosen period, due to different concerns.
Responsible gaming
We are constantly creating new and innovative ways to
Based on internal studies we decided to increase time
periods available for clients to cool off. Clients can
choose from six different exclusion periods from one
create a caring, responsible gaming environment and to
day to six months. During this period, 888 blocks the
ensure children are unable to access our gaming sites.
account and no promotional e-mails are sent to the
client.
888 aims to provide responsible adults with the best
online gaming entertainment experience. However, we
In 2011, 888’s Director of CSR and Responsible Gaming
acknowledge that gaming poses a potential danger to a
worked with Gambling Therapy and GamCare, aiming
small minority of people. We continuously train our staff
to enhance the training of our customer support
in how to provide a safe gaming experience. Our training
representatives in order to help them identify potential
program incorporates methods and techniques to help our
compulsive players’ profiles and the most effective way
employees to recognise and take appropriate actions if they
that they can be helped before a problem arises.
identify compulsive or underage gambling.
Protecting minors
Under-age gambling on our sites is prohibited and 888
takes the prevention of under-age gaming extremely
seriously.
Our offering is not designed to attract minors. We make
every effort to prevent minors from playing on our sites
and use sophisticated verification systems as well as a third
party verification supplier to identify and track minors if
they log into our software. The verification process today
consists of two verification systems, both 192.com and URU.
We train our staff to be highly sensitive to the possibility of
underage gambling and make sure we suspend any account
suspected to be an under-age account.
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888responsible
Since 2007 a dedicated website, www.888responsible.
Employee Care at 888
888 values its employees’ opinions and conducts regular
com, has been available, providing information regarding
pulse checks to gain an understanding regarding employees’
all aspects of responsible gaming. The site is available in
working experiences. This year we conducted an online
English, French, Spanish and German.
staff opinion survey which included some of the following
This year we upgraded and expanded the site so that
‘888 management’. The survey findings proved high levels of
the content reflects our holistic CSR approach, while the
employee satisfaction and provided excellent guidelines for
topics: ‘me as an employee’, ‘my manager’, ‘my team’ and
updated platform allows for greater flexibility in content
ongoing efforts.
changes as well as supporting more languages.
united nations Global Compact (unGC)
During 2009 888 entered into in the United Nations
Global Compact.
The UNGC is the largest global initiative to promote the
learning and Development
At 888 we invest in our employees’ professional
development with regular and ongoing training and
development programs. This year a number of new learning
opportunities were devised and offered to our employees;
including an internal learning program: ‘Up2Date with
social responsibility of businesses. It is a voluntary initiative,
888’, teaching about our various products and offerings;
which brings together thousands of businesses across
a new training initiative for our sales team in Antigua
more than 100 sectors worldwide. Representatives confirm
which included new online marketing methods as well as
their commitment to the UNGC in order to promote ten
a number of leadership developmental courses including
universally accepted principles in the field of human rights,
a new program for General Managers in our Israel office
workplace standards and anti-corruption.
and a supervisory skills program for Team Leaders in our
We believe that the activities of 888 are in line with the
Gibraltar office.
principles of the Global Compact, and it therefore seemed
All 888 employees receive feedback about their work
appropriate that we should publicly declare our support and
performance during the annual talking@888 process. This
ensure greater exposure to a wider public. By joining the
year we incorporated an interactive feedback scheme, which
UN Global Compact we are now in line with an established
allowed managers to collect feedback online from different
and globally recognised policy framework of environmental,
stakeholders across the business, including employee’s
social, and governance policies and practices.
colleagues and indirect managers. A Company-wide grading
scale was utilized to allocate scores and feedback sessions
were then carried out.
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888 Holdings plc Annual Report & Accounts 201121273-04 04/04/2012 Proof 17
Risk Report
The Group operates in a dynamic business environment.
segmentation is also used to isolate and protect the Group’s
In addition to the day-to-day commercial risks faced by
networks and restrict malicious activities. The IT environment
most enterprises, the online gaming industry faces particular
is audited by independent auditors, such as PCI DSS security
challenges in respect of Regulatory risk, Reputational risk,
audit and eCOGRA audit. These audits ensure proper IT
Information Technology risk and Taxation risk, each of which
procedures and a high level of security. In order to ensure
is detailed below.
Regulatory risk
The regulatory framework of online gaming is dynamic
systems are protected properly and effectively, external
security scans and assessments are carried out in a timely
manner. The Group has a redundant storage solution to
ensure storage availability and performance. All critical data
and complex. Change in the regulatory regime in a specific
is replicated to another storage device for disaster recovery
jurisdiction could have a material adverse effect on business
purposes and all data is stored off-site on a daily basis.
volume and financial performance in that jurisdiction.
A detailed regulatory review is set out in the Regulation and
In order to minimise dependence on telecommunication
General Regulatory Developments section above. The Group
service providers, the Group invests in network infrastructure
manages its regulatory risk by routinely consulting with legal
advisors in the jurisdictions where its services are offered or
redundancies whilst regularly reviewing its service providers.
The Group has two internet service providers in Gibraltar in
are accessible, where necessary obtaining formal legal opinions
order to minimise reliance on one provider.
from local counsel. Furthermore, the Group obtains frequent
and routine updates regarding changes in the law that may
As a part of its monitoring system, the Group deploys set
be applicable to its operations, working with local counsel to
user experience tests which measure performance from
assess the impact of any changes on its operations. The Group
different locations around the world. Network-related
constantly adapts and moderates its services to comply with
performance issues are addressed by rerouting traffic using
legal and regulatory requirements. Finally, the Group blocks
different routes or providers. 888 operates a 24/7 Network
players from certain ‘blocked jurisdictions’ at various stages
Operations Centre (NOC). The NOC’s role is to conduct
and using various technological methods.
real time monitoring of production activities using state-
Reputational risk
Under-age and problem gaming are inherent risks
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
associated with the online gaming industry. The Group
usability experience.
devotes considerable resources to putting in place
prevention measures coupled with strict internal procedures
The IT environment tracks changes, incidents and SLA
designed to prevent under-aged players from accessing
KPIs in order to ensure that client experience is consistent
its real money sites. In addition, the Group promotes a
and well managed. As part of these procedures, capacity
safe and responsible gaming environment to its customers
planning takes place and infrastructure is built accordingly.
supplemented by its corporate culture. The Group has a
System-wide availability and business-level availability is
dedicated Director of CSR & Responsible Gaming tasked
measured and logged in the IT information systems.
with the responsibility of implementing such policies.
Further details about the Group’s responsible gaming
initiatives are set out in previous pages.
Information Technology risks
As a leading online business, the Group’s IT systems
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
are critical to its operation. The Group is reliant on the
worldwide, certain jurisdictions may seek to tax the
performance of these systems.
Group’s activity which could have a material adverse
effect on the amount of tax payable by the Group or on
Cutting-edge technologies and procedures are implemented
customers’ behaviour. Furthermore, jurisdictions in which
throughout the Group’s technology operations and designed
online gambling is regulated may impose gaming duties on
to protect its networks from malicious attacks and other
licenced operators. The Group actively monitors taxation
such risks. These measures include traffic filtering, anti-
risk in the relevant jurisdictions and takes such steps as it
DDoS (Distributed Denial of Service) devices and Anti-Virus
considers necessary to minimize such risks.
protection from leading vendors. Physical and logical network
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www.888holdingsplc.com21273-04 04/04/2012 Proof 17
Board of Directors
Richard Kilsby
Non-executive Chairman
Chairman of 10 Tech Holdings Limited, Non-executive
Director of Swiftstake Technologies Limited and Non-
Richard Kilsby has been Chairman since March 2006,
executive Director of Probability (Gibraltar) Limited which
having previously been Deputy Chairman of the Group
is a wholly owned subsidiary of Probability Plc. Previously,
from August 2005. Since 2002, he has held several Board
he was a Board member of Ladbrokes plc from 1990 to
and management positions in various private and venture
1996. Age 63.
capital funded companies. In 2004, he acted as independent
monitor for the SEC and USA Department of Justice in
connection with Adecco. From 1999 to 2002, he was Chief
amos Pickel
Independent Non-executive Director
Executive of Trade Point and subsequently Executive
Amos Pickel was appointed in March 2006. Formerly the
Vice-Chairman of virt-x plc. From 1995 to 1998, he was an
Chief Executive Officer of Atlas Management Company
Executive Director of the London Stock Exchange, prior to
Limited and Chief Executive Officer and member of the
which he was a Managing Director for Bankers Trust from
Board of Directors of Red Sea Hotels Ltd. Previously a
1992 to 1995. He was also Vice-Chairman of Charterhouse
Non-executive Director of Gresham Hotel Group Plc, he is
Bank from 1988 to 1992, and spent the early part of his
career with Price Waterhouse (now PwC) where he was
a non-practising solicitor holding a Masters in Law from
New York University and an LLB. from Tel Aviv University.
a partner from 1984 to 1988. Age 60.
Since September 2010, he has been the Chairman of the
Board of Directors of Berggruen Residential Limited. Age 45.
Brian Mattingley
Chief Executive Officer
Brian Mattingley has been Chief Executive Officer since
Gigi levy
Non-executive Director
March 2012, having previously been Deputy Chairman of the
Gigi Levy was Chief Executive Officer of the Group from
Group and Senior Independent Non-executive Director since
January 2007 until 30 April 2011. Prior to his appointment,
March 2006. He joined the Board in August 2005. He was
Gigi worked for Amdocs, one of the world’s largest software
previously Chief Executive of Gala Regional Developments
providers and systems integrators in the telecoms market
Limited until 2005. From 1997 to 2003 he was Group
(NYSE: DOX), most recently as Division President managing
Finance and Strategy Director of Gala Group Plc, prior to
Amdocs’ activity in Europe (except Eastern Europe),
which he was Chief Executive of Ritz Bingo Limited. He has
Central and Latin America. Before joining Amdocs,
held senior executive positions with Kingfisher Plc and Dee
Gigi held several interim management and consulting roles
Corporation Plc. Age 60.
aviad Kobrine
Chief Financial Officer
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
Aviad Kobrine has been Chief Financial Officer of the
an MBA from the Kellogg School of Management
Group since June 2005, and was appointed to the Board in
at Northwestern University. Age 40.
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
Michael Constantine
Independent Non-executive Director
to that, he was a senior associate with Slaughter and May.
Michael Constantine was appointed in August 2005.
He holds a Masters in Finance from the London Business
From 1996 to 1998, he was Deputy Superintendent of the
School (Distinction), a BA in Economics and an LLB from
Turks and Caicos Islands Financial Services Commission,
Tel Aviv University. Age 48.
John anderson
Non-executive Director
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 Licencees at the
Gibraltar Financial Services Commission, latterly Acting
John Anderson was the Chief Executive Officer of the Group
Commissioner. He is a Chartered Accountant and for many
from September 2000 to December 2006. He is currently
years a partner in the firm of Spain Brothers & Company.
Non-executive Chairman of Burford Holdings plc and was
He served in the Royal Naval Reserve, reaching the rank
Chief Executive Officer of Burford Holdings plc from 1996
of Commander. Mr Constantine stepped down from the
to 2000. He is Chairman of the Interactive Gaming Council,
Board as of 31 December 2011. Age 73.
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Corporate Governance
888 Holdings plc is admitted to the UK Official List and its
Directors, Michael Constantine, stepped down from the
shares are traded on the London Stock Exchange under
Board as of December 31, 2011. The biographical details of
a Premium Listing. As such, despite being incorporated in
all of the Directors are given on page 26. The Company
Gibraltar, the UK Corporate Governance Code (the ‘Code’)
is actively seeking new Non-executive Directors with the
applies to the Company.
experience and skill-set to help the Group continue its next
phase of growth.
Statement of Compliance
The Board remained committed to high standards of
corporate governance which it considers to be central to the
Strategic approach
The Board focuses upon the Group’s long-term objectives,
effective management of the business and to maintaining
strategic and policy issues and formally and transparently
the confidence of investors. During the year, the Board
considers the management of key risks facing the Group,
considers that it and the Group have complied with all
as well as determining the nature and extent of significant
relevant provisions of the UK Corporate Governance Code.
risks it will take in achieving its strategic objectives,
Business Model
A discussion of the basis on which the Company generates
systems and reviewing annually the effectiveness of the
Company’s risk management and internal control systems.
and preserves value over the longer term, together with
The Board is responsible for acquisitions and divestments,
its strategy for delivering its objectives, is set out in the
major capital expenditure projects and considering Group
Chairman’s Statement and Chief Executive’s review on
budgets and dividend policy. The Board also determines
maintaining sound risk management and internal control
pages 2 to 7.
The Board
The Directors consider it essential that the Company should
key appointments. The Board receives regular updates
on shareholders’ views. The Board has established a
calendar of business. This covers the financial calendar,
strategic planning, annual budgets and performance self-
be both led and controlled by an effective Board.
assessments, as well as the conduct of standing business.
Composition
During 2011, the Board consisted of seven Directors as
The calendar forms the basis for effective integration of
business activities as between the Board and its principal
Committees (see page 29), which individually consider their
follows: three independent Non-executive Directors, two
own operating frameworks against the Board’s business
Non-independent Non-executive Directors, a Non-executive
programme. The Board intends to establish a formal process
Chairman, and one Executive Director, being the Chief
for the annual evaluation of its performance, its committees
Financial Officer. One of the former Executive Directors,
and individual Directors. The evaluation process is to cover
Gigi Levy, stepped down from his role as Chief Executive
a range of issues such as Board processes, Board roles and
Officer as of 30 April 2011 but has remained on the Board as
responsibilities, Board agendas and committee processes.
a Non-executive Director. From that date Brian Mattingley
Whilst no evaluation was carried out in 2011, the Board
took on certain Chairman duties. Brian Mattingley was
intends to carry out such an evaluation in 2012. The Board
appointed full-time Chief Executive Officer in March 2012.
plans to meet six times a year. During 2011, the Board
Following such appointment, the composition of the various
met five times. Set out below are details of the Directors’
committees on which Mr Mattingley was a member is under
attendance record at Board and Committee meetings
review. In addition, one of the independent Non-executive
in 2011.
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Corporate Governance
Total held in year
Richard Kilsby
Gigi Levy
Aviad Kobrine
John Anderson
Michael Constantine*
Brian Mattingley
Amos Pickel
Total number of meetings held during the year ended
December 2011 and the number of meetings
attended by each Director
Audit
Remuneration
Nominations
Board
committee
committee
committee
4
2
5
4
5
5
4
n/a
n/a
n/a
n/a
3
3
3
n/a
n/a
n/a
n/a
3
3
3
1
n/a
n/a
n/a
1
1
n/a
* Michael Constantine stepped down from the Board with effect from 31 December 2011.
The Chairman has responsibility for ensuring that agendas
undertakings to ensure compliance within their business
for Board meetings are set in advance. Board papers are
operations with the Board’s formal schedule of matters
issued to Directors sufficiently in advance of meetings to
reserved to it for decision or approval.
facilitate both informed debate and timely decisions.
non-executive review and performance
appraisal
The Chairman holds meetings at least once per year with
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, leadership of
the Non-executive Directors without the Executive Directors
the Board in achieving a culture of constructive challenge
being present. Led by the Senior Independent Director, the
by Non-executives, regularly agreeing and reviewing each
Non-executive Directors meet once per year without the
Director’s training and development needs, and supporting
Chairman present in order to appraise the performance of
key external relationships.
the Chairman. The Directors have wide-ranging business
experience, and no individual, or group of individuals,
dominates the Board’s decision making.
Other issues
All Directors have access to the advice and services of the
Company Secretary and the Company’s nominated advisers,
The Board considers that Brian Mattingley and Amos Pickel
who are responsible for ensuring that Board procedures
satisfy the independence criteria of the Code in 2011. The
are followed. Directors are able to seek independent
Board is satisfied that, upon his appointment as Chairman,
professional advice, if required, at the Company’s expense
Richard Kilsby met the independence criteria of the Code.
provided that they have first notified their intention to do so.
The other significant commitments of the Chairman during
2011 are detailed in his biography on page 26. It is noted that
The appointment or removal of the Company Secretary is a
Mr Kilsby resigned as a Non-executive Director of Tullett
matter for the Board as a whole.
Prebon plc in 2011. The Board considers that Mr Kilsby’s
other commitments do not interfere with the discharge
The Board accepts that there should be a formal, rigorous
of his responsibilities to the Group and is satisfied that
and transparent procedure for the induction of new
he makes sufficient time available to serve the Company
Directors, which has been formulated with the guidance of
effectively.
the Nominations Committee.
Reserved powers and delegation
A schedule of matters reserved to the Board has been
The opportunity to hold office as Non-executive Directors of
other companies enables Directors of 888 to broaden their
adopted and its content is reviewed to align it with
experience and knowledge, which will benefit the Company.
operational needs and the Board’s preference to monitor
Executive Directors may be allowed to accept Non-
and, where appropriate, approve matters of substance to
executive appointments with the Board’s prior permission,
the Group as a whole. Senior Executives have given written
so long as these are not likely to lead to any conflict of
28
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interest. Executive Directors may be required to account for
of a new Chief Executive Officer of the Company. Brian
fees received from such other companies.
Mattingley was appointed Chief Executive Officer in March
2012. Michael Constantine stepped down from the Board
The Company has arranged insurance cover in respect of
as of 31 December 2011, and the Nominations Committee is
legal actions against its Directors. To the extent permitted by
presently considering appointment of a new Chair.
Gibraltar law, the Company also indemnifies the Directors.
Neither the insurance nor the indemnity provides cover
The Nominations Committee assists the Board in discharging
where a Director has acted fraudulently or dishonestly.
its responsibilities relating to the composition of the Board.
Re-election of Directors
All Directors are subject to reappointment by shareholders
on an annual basis.
audit Committee
The Audit Committee comprised three independent
Non-executive Directors: Brian Mattingley (Chair until
30 April 2011), Michael Constantine (Chair from 30 April
2011) and Amos Pickel. The Board is satisfied that both
Brian Mattingley and Michael Constantine have sufficient
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.
Remuneration Committee
During the year, the Company’s Remuneration Committee
recent and relevant financial experience to Chair the Audit
comprised three independent Non-executive Directors: Brian
Committee. Michael Constantine stepped down from the
Mattingley (Chair until 30 April 2011), Michael Constantine and
Board as of 31 December 2011, and the Audit Committee
Amos Pickel (Chair from 30 April 2011). Michael Constantine
is presently considering appointment of a new Chair.
stepped down from the Board as of 31 December 2011.
Normally, by invitation, the Chairman, Chief Executive
Officer and Chief Financial Officer and, where appropriate,
The Board has overall responsibility for determining the
representatives of the Company’s external auditors attend
framework of Executive remuneration and its cost. It is
the Audit Committee meetings.
required to take account of any recommendation made
by the Remuneration Committee in determining the
The Audit Committee’s terms of reference are available on
remuneration, benefits and employment packages of the
request to the Company Secretary and are included on the
Executive Directors and senior management and the fees
Company’s website, www.888holdingsplc.com.
of the Chairman.
In summary, the Audit Committee assists the Board in
The Directors’ Remuneration Report, which outlines the
discharging its responsibilities with regard to financial
Remuneration Committee’s work and details of Directors’
reporting, external and internal audits and controls, including
remuneration, is on pages 31 to 37. The Remuneration
reviewing 888’s annual financial statements, considering
Committee’s terms of reference are available on request to
the scope of annual audit and the extent of non-audit work
the Company Secretary and are included on the Company’s
undertaken by external auditors, approving 888’s internal
website, www.888holdingsplc.com.
audit programme, advising on the appointment of external
auditors and reviewing the effectiveness of internal control
systems.
Risk Management and Internal Control
The Directors acknowledge that they are responsible for the
Company’s system of internal control, for setting policy on
nominations Committee
During the year, the Nominations Committee comprised
internal control and risk management, and for reviewing the
effectiveness of internal control and risk management. It is
three independent Non-executive Directors: Michael
management’s role to implement Board policies on risk and
Constantine (Chair), Brian Mattingley and Amos Pickel,
control, including reporting. The system of internal control
as well as Richard Kilsby, Chairman. The Nominations
is designed to manage rather than eliminate the risk of
Committee met in 2011 to discuss, amongst other matters,
failure to achieve business objectives and can only provide
the departure of Gigi Levy from his position as Chief
reasonable, and not absolute, assurance against material
Executive Officer of the Company and the recruitment
misstatement or loss.
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Corporate Governance
The Board has delegated responsibility to the Audit
Committee to review the appropriateness and adequacy of
systems of internal control and risk management in relation
to the financial reporting process on an ongoing basis and
to make recommendations to the Board. The Company has
an Internal Auditor who reports to the Audit Committee.
Compliance with Statutory Provisions
As the Company is registered in Gibraltar, it is subject to
compliance with Gibraltar statutory requirements. The main
legislation relevant to companies in Gibraltar is the Gibraltar
Companies Act, which is based on the UK Companies Act
1929. The Company is in full compliance with the Gibraltar
The Company’s Internal Auditor resigned with effect from
Companies Act.
14 December 2011, and the Company is in the process of
appointing a suitable replacement.
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. Detailed
procedures exist throughout the Company’s operations and
compliance is monitored by operational management and
the Internal Auditor.
The Directors periodically review the effectiveness of the
Group’s systems of internal control and risk management.
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
Going Concern
After careful review of the Group’s budget for 2012,
its medium-term plans, liquid resources and all relevant
matters, 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 the financial statements.
The principal risks and uncertainties faced by the Group
are disclosed in the Risk Report above.
Corporate Social Responsibility Statement
The Group’s Chief Executive Officer is the Director
responsible for monitoring corporate 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 Corporate Social
with principal and institutional shareholders and sell-side
Responsibility report on pages 22 to 24.
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 Interim Management Statements, analysts’
conference calls and periodic road shows.
Diversity Policy
Diversity is important to us as we believe that only through
access to the most diverse pool of talent will we recruit and
retain the most talented individuals to serve our customers.
Presently, women comprise approximately 30% of the
Group’s senior management, and we actively seek to recruit
Shareholders are free to contact any Non-executive Director
and advance women into our top management.
to address any issues where contact with the Chairman and
Chief Financial Officer is inappropriate or where such contact
has failed to resolve the issue.
All shareholders are welcome to attend the 2012 Annual
General Meeting (scheduled to be held on 16 May 2012)
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.
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The Board has delegated responsibility to the Audit
Committee to review the appropriateness and adequacy of
systems of internal control and risk management in relation
to the financial reporting process on an ongoing basis and
to make recommendations to the Board. The Company has
an Internal Auditor who reports to the Audit Committee.
The Company’s Internal Auditor resigned with effect from
14 December 2011, and the Company is in the process of
appointing a suitable replacement.
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. Detailed
procedures exist throughout the Company’s operations and
compliance is monitored by operational management and
the Internal Auditor.
The Directors periodically review the effectiveness of the
Group’s systems of internal control and risk management.
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 Interim Management Statements, analysts’
conference calls and periodic road shows.
Shareholders are free to contact any Non-executive Director
to address any issues where contact with the Chairman and
Chief Financial Officer is inappropriate or where such contact
has failed to resolve the issue.
All shareholders are welcome to attend the 2012 Annual
General Meeting (scheduled to be held on 16 May 2012)
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.
Directors’ Remuneration Report
In accordance with the Listing Rules, the Company presents its
The Remuneration Committee is mindful that most of the Group’s
report on the remuneration of its Directors for the year ended
competitors are not UK listed companies and acknowledges
31 December 2011. The Company is incorporated in Gibraltar
the unique risk profile associated with online businesses of the
and, therefore, is not required to comply with the Directors’
nature of the Group’s, and takes these matters into account in
Remuneration Report requirements in Schedule 8 to the UK
determining appropriate remuneration levels. The components of
Large and Medium sized Companies and Groups (Accounts
the remuneration structure are set out below.
and Reports) Regulations 2008, but in order to comply with
the Listing Rules has prepared this Remuneration Report on
At least half of the total potential remuneration of the
the basis of those requirements, as appropriate.
Chief Executive Officer and the Chief Financial Officer
is represented by a variable element, dependent on the
The report sets out the structure and details of the
performance of the Group. The Remuneration Committee
remuneration of the Directors for the year ended 31 December
considers that these represent achievable and motivational
2011. It also describes the Board’s policy and approach to
levels of personal rewards commensurate with stipulated
the Principles of Good Governance relating to Directors’
levels of corporate performance.
remuneration. BDO LLP and BDO Limited have audited the
sections headed ‘Directors’ Remuneration Summary’ and
The Remuneration Committee is mandated by the Board
‘Directors’ Interests in Share Awards and Share Options’.
to satisfy itself that the level of the Directors’ and senior
management’s remuneration is appropriate, having
A resolution to approve the Directors’ Remuneration Report
regard to pay and conditions throughout the sectors in
is proposed, annually, to shareholders for approval.
which the Group operates. It will further satisfy itself that
This Remuneration Report will be put to shareholder vote at
such remuneration aligns with the risks and rewards to
the 2012 Annual General Meeting.
shareholders. In this context the Remuneration Committee
will regularly review individual and corporate performance
Remuneration Committee
During the year, the Remuneration Committee consisted
targets. In the current economic climate, executive
leadership is more important than ever. The Remuneration
solely of independent Non-executive Directors, Brian
Committee will continue to use careful and rigorous
Mattingley (Chair until 30 April 2011), Michael Constantine
judgement to match remuneration to achievements.
and Amos Pickel (Chair from 30 April 2011). Michael
Constantine stepped down from the Board as of
The Remuneration Committee applies a remuneration policy
31 December 2011. Details of attendances at Committee
which has at its core the following objectives:
meetings are contained in the statement on Corporate
Governance on page 28. The Remuneration Committee has
●● To align the interests of Executives with those of
formal terms of reference (which are available on request
shareholders.
in writing to the Company Secretary and on the Company’s
website, www.888holdingsplc.com).
●● To focus on top-line growth and margin improvement.
●● To link a significant proportion of remuneration to
financial and individual performance, both in the short
Independent advice
The Board intends that Executive remuneration policies be
term and long term.
●● To provide strong linkage between remuneration and
both formal and transparent. It further acknowledges the
performance.
importance of taking into consideration independent advice
●● To ensure total remuneration is market-competitive in
in setting remuneration policies and benefit levels. In 2011,
the industry and helps attract and retain Executives
the Remuneration Committee took advice from Compvision
of the highest calibre.
with regard to remuneration of Israeli Executives together
with a remuneration survey as well as from Hewitt New
Bridge Street with regard to acceleration of share awards.
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.
It is the Company’s policy to take into account the pay
and conditions of employees throughout the Group when
determining Directors’ remuneration. In this respect, the
Remuneration Committee takes note of both the average
pay and conditions of employees and the range thereof, and
gives substantial weight to the maintenance of a reasonable
proportionality between the Directors’ remuneration and
that of other employees of the Group.
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Directors’ Remuneration Report
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
fees are 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 Board meetings at the Group’s headquarters
in Gibraltar. The fees paid to each Non-executive Director
during 2011 are disclosed in the Directors’ remuneration
summary on page 35.
Resignation of Gigi levy as CEO
Mr Gigi Levy stepped down from his role as Chief Executive
Officer of the Company with effect from 30 April 2011.
In connection with the termination of his employment, the
Company agreed to make payments to Mr Levy totalling
$2,981,400 (comprising $2,368,000 in lieu of salary and
contractual benefits during Mr Levy’s notice period; $113,400
in lieu of pension contributions during his notice period; and
an ex gratia payment of $500,000). Of this amount, Mr Levy
has to date received $1,981,400. A further $1,000,000 will
be paid on 22 May 2012, provided that Mr Levy remains a
member of the Company’s Board of Directors on that date.
The Company also agreed to make a conditional payment
of $80,000 to Mr Levy on 22 May 2012, representing the
amount of salary which Mr Levy waived in respect of his
salary for 2010. The Company agreed to continue to provide
health insurance and life assurance cover to Mr Levy until
30 April 2012 and allowed Mr Levy to retain his company
car until 30 April 2012 (with the Company bearing the
costs of insuring, repairing and maintaining the car), and in
addition agreed to redeem Mr Levy’s accrued but untaken
leave days by way of a payment made on 11 April 2011 in the
amount of $45,000. In connection with Mr Levy’s unvested
awards under the 888 All-Employee Plan, the Remuneration
Committee exercised its discretion to treat Mr Levy as
a good leaver, such that his awards over 167,352 shares
granted on 8 April 2008 and over 10,500 shares granted on
14 January 2009 vested on 30 April 2011. The Remuneration
Committee also agreed that the award over 167,351 shares
made on 8 April 2008 should vest in accordance with the
terms of Mr Levy’s service agreement.
32
Following the termination of his employment Mr Levy
continued to provide services to the Company pursuant
to an agreement with effect from 1 May 2011 in return for
a monthly fee of $50,000. This arrangement terminated
on 31 October 2011.
Mr Levy agreed to remain as a Non-executive Director of
the Company after the termination of his employment. His
services as a Non-executive Director are made in return for
an annual fee of £66,000. This arrangement took effect on
and from 1 May 2011 and will continue for a period of three
years, provided that Mr Levy is re-elected at each Annual
General Meeting. Mr Levy is not eligible to receive a bonus or
to participate in the Company’s share incentive arrangements
in connection with his role as a Non-executive Director.
Special Indemnity for Certain Directors and
Key Personnel
In connection with the Group undergoing various
compliance and licencing procedures relating to its
contemplated business in the United States, it has
requested, and may in future request, that each of Brian
Mattingley, Aviad Kobrine and Itai Frieberger, and each
of their spouses, provide various personal information,
documentation, consents, indemnities and waivers to
various United States federal or state regulatory authorities.
In this respect, the Company has executed on 23 March
2012 in favour of each such disclosing party an undertaking,
pursuant to which such parties shall be indemnified
(including advancement of expenses) in the event of any
civil, criminal, administrative or investigative proceeding
arising from the aforementioned disclosures and related
documentation, provided the disclosing party acted in
good faith, in a manner reasonably believed to be in or not
opposed to the best interests of the Company, and had
no reasonable cause to believe the Indemnitee’s conduct
was unlawful. The undertaking is limited such that in no
event shall the Company be liable to any disclosing party
(taken together with such person’s spouse) in an aggregate
amount exceeding US$528,000.
Remuneration Structure
Base Salary and Benefits
The Executive Directors’ base salaries are subject to annual
review. Gigi Levy’s salary until his departure from office as
CEO in April 2011 was maintained at US$756,000 and Aviad
Kobrine’s salary was increased with inflation from April 2011
to GBP315,000. *Benefits provided to Aviad Kobrine include
a car allowance and health, disability and life insurance.
* Part of which is paid by the Company and part by Cassava
Enterprises (Gibraltar) Limited.
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annual Cash Bonus
Aviad Kobrine is entitled to an annual cash bonus of up
to 120% of annualised salary, subject to the achievement
of pre-determined targets. The Remuneration Committee
sets bonus targets and levels of eligibility each year.
For the 2011 financial year, the performance target was 20%
growth in revenue compared to 2010 and provided that
the EBITDA* margin for 2010 was maintained. The payout
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 maximum
bonus entitlement of 120%. The pre-determined targets
were achieved and Aviad Kobrine was entitled to his full
annual cash bonus. Having considered the extraordinary
achievements of the Group in 2011, the Remuneration
Committee considered that it was appropriate to make
an additional bonus payment such that the total bonus
payment payable will be 170% of annualised salary. 30% of
the bonus payment will be deferred and payable in January
2013 should Mr Kobrine still be employed by the Company
(and not in a notice period) on 1 January 2013.
Pensions
Aviad Kobrine is entitled to a cash payment in lieu of an
annual contribution to his personal pension scheme of 15%
of his base salary.
long-Term Incentives
The Company has two employee share incentive plans: (i)
the 888 All-Employee Share Plan, and (ii) the 888 Long-
term Incentive Plan. The Company currently only grants
awards under the 888 All-Employee Share Plan.
Performance-dependent options and awards were granted
under the 888 All-Employee Share Plan to the Executive
Directors on 8 April 2008 and 24 May 2011. In addition, on 14
January 2009 an award was made to the Executive Directors in
lieu of their waiver of a part of their annual cash bonus. Details
of these awards and options are set out on pages 35 to 36.
Other than the award in lieu of cash bonus no equity awards
have been made to Executive Directors since April 2008.
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
for options) 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 such person 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 such person’s
annual base salary or such higher limit as the Remuneration
Committee may determine is appropriate in any individual
case. Awards vest over a fixed period of up to four years.
The Remuneration Committee may determine that the
vesting and release or exercise of share awards and options
under the 888 All-Employee Share Plan are subject to
performance conditions imposed at the time of grant.
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. As set out above, the
Company has given long-term incentive awards to Executive
Directors under the 888 All-Employee Share 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 ten year period for the 888 Long-term Incentive Plan,
and 10% of the issued ordinary share capital in any rolling
ten 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.
* Excluding share benefit charges, goodwill write off and restructuring costs.
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Employee Trusts
The Company 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 was
terminated on 17 August 2010. The 888 Holdings plc Share
Plan Trust currently holds 46,432 ordinary shares in the
Company.
Director appointments — Service Contracts
and Directors’ Fees
Executive Directors
It is the Company’s policy that 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. A Share
Award granted under the 888 All-Employee Share Plan
to Aviad Kobrine pursuant to his service agreement, on 15
January 2008, continues to vest during any unexpired part
of the notice period and he shall be treated as a ‘good leaver’
under the terms of the 888 All-Employee Share Plan where
his employment has been terminated by making a payment
in lieu of notice. Furthermore, certain Share Awards granted
under the 888 All-Employee Share Plan to Aviad Kobrine on
24 May 2011 are subject to accelerated vesting in the event his
employment with the Group is terminated other than for cause
prior to 24 May 2012. 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 Aviad Kobrine by the relevant provisions of his service
agreement) as set out above.
Name
Gigi Levy1
Aviad Kobrine
Chief Executive Officer
Chief Financial Officer
Aviad Kobrine
Chief Financial Officer
Position
Contracting Party
Service Contract Date
The Company
The Company
Cassava Enterprises
(Gibraltar) Limited2
18/6/2006
14/9/2005
14/9/2005
1 Mr Levy resigned as Chief Executive Officer of the Company as of 30 April 2011 and since such date has served as a Non-executive Director.
2 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 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, 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.
As set out above, Gigi Levy has served as a Non-executive Director since 1 May 2011, following the termination of his
employment as Chief Executive Officer of the Company.
Name
Richard Kilsby
Brian Mattingley1
John Anderson
Michael Constantine2
Amos Pickel
Gigi Levy3
Position
Chairman
Chief Executive Officer
Non-executive Director
Non-executive Director
Non-executive Director
Non-executive Director
Contracting Party
Letter of Appointment Date
The Company
The Company
The Company
The Company
The Company
The Company
14/3/2009
14/3/2009
14/3/2009
14/3/2009
14/3/2009
1 /5/2 0 1 1
1 Mr Mattingley became Chief Executive Officer on 27 March 2012.
2 Mr Constantine stepped down from the Board as of 31 December 2011.
3 Mr Levy resigned as Chief Executive Officer of the Company as of 30 April 2011 and since such date has served as a Non-executive Director.
34
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888 Holdings plc Annual Report & Accounts 201121273-04 04/04/2012 Proof 17
Directors’ Remuneration Summary
The cash emoluments or fees receivable by the Directors for 2011 are shown below:
Base salary/
fees
US$'0001
Bonus
US$'0001
Benefits
US$'0001
Pensions
Allowance
US$'0003
Compensation
for loss of
office
Total
2011
Total
2010
US$’000
US$'000
US$'000
597
474
353
286
106
124
106
46
41
17
833
482
34
71
3,106
3,783
1,419
370
768
106
124
106
958
510
357
136
102
119
102
2,046
1,315
104
105
3,106
6,676
2,284
Executive
Gigi Levy4
Aviad Kobrine2
Non-executive
Richard Kilsby
Brian Mattingley
Michael Constantine5
John Anderson
Amos Pickel
Total
1 Where Directors’ remuneration is denominated in sterling, amounts have been converted into US$ at the average rate of exchange for the
relevant month.
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 In 2010 Pension allowance amounted to US$103,000 for Gigi Levy and US$62,000 for Aviad Kobrine.
4 Mr Levy resigned as Chief Executive Officer of the Company as of 30 April 2011 and since such date has served as a Non-executive Director.
The figure for base salary/fees includes US$226,800 in respect of his salary to 30 April 2011, US$70,452 in respect of his fees as a Non-
executive Director and US$300,000 in respect of fees for services provided between 1 May 2011 and 31 October 2011.
5 Mr Constantine stepped down from the Board as of 31 December 2011.
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 Levy1
Aviad Kobrine
Non-executive
Richard Kilsby
Brian Mattingley2
Michael Constantine3
John Anderson
Amos Pickel
Ordinary shares
31 December
31 December
2011
2010
2,663,548
443,183
2,318,345
443,183
114,285
142,857
22,857
588,869
100,000
114,285
142,857
22,857
588,869
—
1 Mr Levy resigned as Chief Executive Officer of the Company as of 30 April 2011 and since such date has served as a Non-executive Director.
2 Mr Mattingley became Chief Executive Officer on 27 March 2012.
3 Mr Constantine stepped down from the Board as of 31 December 2011.
Unless otherwise stated, all interests were held beneficially.
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18:07
35
www.888holdingsplc.com21273-04 04/04/2012 Proof 17
Directors’ Remuneration Report
Directors’ Interests in Share awards and Share Options
The number of shares subject to Share Awards or Share Options granted to the Executive Directors and outstanding as at
31 December 2011 is set out below:
Earliest
exercise/
Exercise
Awards
at
Market
price at
Awards
at
Date
vesting
period
Exercise
31 Dec
Awarded
Vested
vesting
Lapsed
31 Dec
of award
date
end date
price
2010
2011
in 2011
date
in 2011
2011
Gigi Levy1
888 All-Employee
Share Plan2,4,5,6
8/4/2008
8/4/2011
8/4/2008
30/4/2011
888 All-Employee
Share Plan2,6
14/01/2009 30/04/2011
n/a
n/a
n/a
nil
nil
167,351
167,352
167,351
167,351
0.46p
0.38p
nil
10,500
10,500
0.38p
—
15/01/2008
Aviad Kobrine
888 All-Employee 15/01/2008 15/01/2012 15/01/2018
Share Plan3
15/01/2008 15/01/2011
15/01/2018
15/01/2018
15/01/2011
15/01/2008 15/01/2012 15/01/2018
14/01/2009 13/01/2012 14/01/2019
888 All-Employee
Share Plan3
888 All Employee 24/05/2011 24/05/2012 24/05/2021
Share Plan3
24/05/2011 24/05/2012 24/05/2021
24/05/2011 24/05/2013 24/05/2021
24/05/2011 24/05/2013 24/05/2021
24/05/2011 24/05/2014 24/05/2021
24/05/2011 24/05/2014 24/05/2021
24/05/2011 24/05/2015 24/05/2021
24/05/2011 24/05/2014 24/05/2021
888 All-Employee
Share Plan3,4,5
nil
nil
nil
nil
nil
nil
nil
nil
nil
nil
nil
nil
nil
42,500
42,500
7,500
7,500
7,126
42,500
0.55p
7,500
0.55p
235,075
423,134
235,075
23,507
235,074
23,508
235,075
1,175,373
42,500
7,500
7,126
235,075
423,134
235,075
23,507
235,074
235,508
235,075
1,175,373
All awards were made through the 888 All-Employee Share Plan during the year.
1 Date of appointment, being 18 June 2006, for Gigi Levy. Mr Levy resigned as CEO of the Company as of 30 April 2011 and since such date has
served as a Non-executive Director.
2 Awarded as a share award.
3 Awarded as a nil cost option.
4 Vesting subject to performance conditions, as described on pages 33 and 34.
5 The performance conditions were partly or not met with respect to the portion of the award capable of vesting in 2011.
6 In connection with Mr Levy’s unvested awards under the 888 All-Employee Plan, the Remuneration Committee exercised its discretion to treat
Mr Levy as a good leaver, such that his awards over 167,352 shares granted on 8 April 2008 and over 10,500 shares granted on January 2009
vested on 30 April 2011. The Remuneration Committee also agreed that the award over 167,351 shares made on 8 April 2008 should vest in
accordance with the terms of Mr Levy’s service agreement.
The closing price of one ordinary share was 43p at 31 December 2011. The highest closing price during 2011 was 63.25p
and the lowest was 28.5p.
No Director was materially interested during the year in any contract which was significant in relation to the business
of the Company.
The parts of the Directors’ Remuneration Report from Directors’ Remuneration Summary to this point have been
audited in accordance with Schedule 8 to the Large and Medium-sized Companies and Groups (Accounts and Reports)
Regulations 2008.
36
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888 Holdings plc Annual Report & Accounts 201121273-04 04/04/2012 Proof 17
Total shareholder return
The chart below shows the value of an investment of £100 sterling in the Company’s shares and in the FTSE 250 Index over a
five year period ended 31 December 2011. The Directors have chosen the FTSE 250 Index as the most appropriate comparator
index. The Company has been a member of this index at various times over the past six years.
VALUE of £100 STERLING IN 888 oVER fIVE YEAR PERIoD ENDED 31 DECEmBER 2011 V. fTSE 250 INDEx
160
140
120
100
80
60
40
20
0
7
0
0
2
/
2
/
1
7
0
0
2
/
2
/
4
7
0
0
2
/
2
/
7
7
0
0
2
/
2
/
0
1
8
0
0
2
/
2
/
1
8
0
0
2
/
2
/
4
8
0
0
2
/
2
/
7
8
0
0
2
/
2
/
0
1
9
0
0
2
/
2
/
1
9
0
0
2
/
2
/
4
9
0
0
2
/
2
/
7
9
0
0
2
/
2
/
0
1
0
1
0
2
/
2
/
1
0
1
0
2
/
2
/
4
0
1
0
2
/
2
/
7
0
1
0
2
/
2
/
0
1
1
1
0
2
/
2
/
1
1
1
0
2
/
2
/
4
1
1
0
2
/
2
/
7
1
1
0
2
/
2
/
0
1
888
FTSE All Share
approval
This report was approved by the Board and signed on its behalf by:
amos Pickel
Chairman of the Remuneration Committee
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Directors’ Report
The Directors submit to the members their Annual Report
Except as noted above, none of the Directors had any
and Accounts of the Group for the year ended 31 December
interests in the shares of the Company or in any material
2011. The report on Corporate Governance and the Directors’
contract or arrangement with the Company or any of its
Remuneration Report on pages 27 and 31 respectively, form
subsidiaries.
part of this Directors’ Report.
Principal activities
During 2011 the Group’s principal activities were the
Share Capital
Changes in the Company’s share capital during the financial
year are given in the Consolidated Statement of Changes in
provision of online gaming entertainment to customers and
Equity. As at 31 December 2011, the Company’s issued share
business partners. A review of the business is given in the
capital comprised 347,687,468 ordinary shares of 0.005p
Chairman’s Statement on pages 2 to 3, the Chief Executive’s
each.
Review on pages 4 to 7 and the Enhanced Business Review
on pages 8 to 21.
The principal subsidiary undertakings are listed on page 73.
Results
The Group’s Profit before tax for the financial year
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
(excluding impairment charges of US$ 20.7 million, release
may receive a dividend and on liquidation may share in
of contingent consideration of US$4.2 million, share benefit
the assets of the Company. Holders of ordinary shares are
charges of US$2.4 million and restructuring costs of US$4.9
entitled to receive the Company’s Annual Report. Subject
million) of US$29.6 million is reported in the Consolidated
to meeting certain thresholds, holders of ordinary shares
Income Statement on page 43. The Directors do not
may requisition a General Meeting of the Company or the
recommend a dividend in respect of the financial year.
proposal of resolutions at General Meetings.
Directors and their Interests
Biographical details of the current Board of Directors are
Deadlines for Exercising voting Rights
Electronic and paper proxy appointment and voting
shown on page 26. The Directors who served during the
instructions must be received by the Company’s registrars
year are shown below. All Directors retire at each Annual
not later than 48 hours before a General Meeting.
General Meeting and, being eligible, offer themselves for re-
election on an annual basis.
Richard Kilsby (first appointed 30 August 2005).
Restrictions on Transfer of Shares and
limitations on Holdings
There are no restrictions on transfer or limitations on the
Gigi Levy (first appointed 18 June 2006).
holding of ordinary shares other than under restrictions
Aviad Kobrine (first appointed 30 August 2005).
imposed by law or regulation (for example, insider trading
Brian Mattingley (first appointed 30 August 2005).
laws) or pursuant to the Company’s share dealing code.
John Anderson (first appointed 30 August 2005).
Michael Constantine (first appointed 30 August 2005;
retired from the Board as of December 31, 2011).
Substantial Shareholdings
As at 31 December 2011 the Company had been notified of
Amos Pickel (first appointed 14 March 2006).
the following interests in 3% or more of its share capital:
The beneficial and non-beneficial interests of the Directors
in shares of the Company are set out in the Directors’
Remuneration Report on pages 31 to 37.
Principal Shareholder Trust
E Shaked Shares Trust
O Shaked Shares Trust
Ben-Yitzhak Family Shares Trust
38
Number
% issued
of shares
share capital
86,283,534
86,283,534
37,122,358
24.82
24.82
10.68
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888 Holdings plc Annual Report & Accounts 201121273-04 04/04/2012 Proof 17
Shareholder agreements and Consent
Requirements
There are no known arrangements under which financial rights
Change of Control
Other than the Group’s gaming licences where change of
control is subject to prior consent, and the Wink earn out
are held by a person other than the holder of the shares.
amendment announced in March 2011, there are no material
contracts to which the Group is a party which would allow
A Relationship Agreement governing the relationship
the counterparty to terminate or alter those contractual
between the above Principal Shareholder Trusts and
arrangements in the event of a change of control of the Group.
the Company was entered into in connection with
the Company’s flotation. The Relationship Agreement
provides that all transactions between the Group and the
Charitable Contributions
Contributions for charitable purposes were made during
Principal Shareholder Trusts will be on a normal business
the year amounting to US$198,726 (2010: US$223,075).
basis, that the Group will be allowed to carry on business
independently of them and that the Principal Shareholder
Trusts will not cause the Company to contravene the
Directors’ Responsibility Statement
The Directors are responsible for keeping proper accounting
Combined Code unless required by law or as contemplated
in the Relationship Agreement. It further provides that
records which disclose with reasonable accuracy at any
time the financial position of the Company, for safeguarding
each of the Principal Shareholder Trusts will not solicit
the assets, for taking reasonable steps for the prevention
Group employees without consent, that only Independent
and detection of fraud and other irregularities and for the
Directors can vote on proposals to amend the Relationship
preparation of a Directors’ report which complies with the
Agreement, that the Principal Shareholder Trusts will consult
Gibraltar Companies (Accounts) Act 1999, the Gibraltar
the Group prior to disposing of a significant number of
Companies (Consolidated Accounts) Act 1999 and the
shares in order to maintain an orderly market and shall
Gibraltar Companies Act.
not disclose confidential information unless required to
do so by law or relevant regulation or having first received
Financial statements are published on the Group’s website
the Company’s consent. The Relationship Agreement also
in accordance with legislation in the UK governing the
includes restrictions on the Principal Shareholder Trusts
preparation and dissemination of financial statements,
power to appoint Directors and includes obligations on the
which may vary from legislation in other jurisdictions.
trusts to ensure that the majority of the Board, excluding the
The maintenance and integrity of the Group’s website is the
Chairman, is independent. The Principal Shareholder Trusts
responsibility of the Directors. The Directors’ responsibility
can nominate a Non-executive Director for appointment
also extends to the ongoing integrity of the financial
to the Board. In the event that this right is exercised
statements contained therein.
and it results in fewer than half the Board (excluding the
Chairman of the Board) being Independent Directors,
The Directors are responsible for preparing the annual
such appointment shall only become effective upon the
report and the financial statements. The Directors are
appointment to the Board of an additional Independent
required to prepare financial statements for the Group
Director acceptable to the Nominations Committee.
in accordance with International Financial Reporting
Such restrictions and obligations apply in respect of the
Standards (IFRSs) and have also chosen to prepare financial
E Shaked Shares Trust and O Shaked Shares Trust whilst
statements for the Company in accordance with IFRSs.
they collectively hold not less than 7.5% of the issued share
capital of 888, and in respect of the Ben-Yitzhak Family
Shares Trust whilst it individually holds not less than 7.5%
of the issued share capital of 888.
Corporate Governance
The corporate governance statement is on pages 27 to 30
and is incorporated in this Directors’ Report by reference.
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Group and Parent Company Financial
Statements
Company law requires the Directors to prepare financial
auditors
A resolution for the reappointment of BDO LLP and BDO
Limited as auditors of the Company will be proposed at the
statements in accordance with the Gibraltar Companies
2012 Annual General Meeting.
(Accounts) Act 1999, the Gibraltar Companies (Consolidated
Accounts) Act 1999 and the Gibraltar Companies Act.
During the year ended 31 December 2011 BDO LLP were
International Accounting Standard 1 requires that financial
preparing financial statements as required pursuant to
statements present fairly for each financial year the Group
the Listing Rules of the UK Listing Authority. BDO Limited
and Company’s financial position, financial performance
have been appointed to act as auditors for the purposes
and cash flows. This requires the faithful representation of
of issuing an audit report pursuant to Section 10 of the
the effects of transactions, other events and conditions in
Gibraltar Companies (Accounts) Act 1999 to be filed with
accordance with the definitions and recognition criteria
the Gibraltar Companies Registry. On behalf of the Board:
appointed auditors for the purposes of the Company
Brian Mattingley
Chief Executive Officer
27 March 2012
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.
We confirm, to the best of our knowledge:
(a) The financial statements, prepared in accordance
with International Financial Reporting Standards as
adopted by the EU, give a true and fair view of the
assets, liabilities, financial position and profit or loss
of the Group and the undertakings included in the
consolidation taken as a whole; and
(b) The Enhanced Business Review, includes a fair review of
the development and performance of the business and
the position of the Group and the undertakings included
in the consolidation taken as a whole, together with a
description of the principal risks and uncertainties that
they face.
40
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888 Holdings plc Annual Report & Accounts 201121273-04 04/04/2012 Proof 17
Independent auditors’ Report to the members of
888 Holdings plc
We have audited the financial statements of 888 Holdings
We report to you our opinion as to whether the financial
plc for the year ended 31 December 2011 which comprise
statements give a true and fair view and whether the
the Consolidated income statement, the Consolidated
financial statements have been properly prepared in
and Company balance sheets, the Consolidated and
accordance with the Gibraltar Companies (Consolidated
Company statements of changes in equity, the Consolidated
Accounts) Act 1999, the Gibraltar Companies (Accounts)
statement of comprehensive income, the Consolidated and
Act 1999 and the Gibraltar Companies Act 1930 (as
Company statements of cash flows and the related notes.
amended), and the part of the Remuneration Report to be
The financial reporting framework that has been applied
audited has been properly prepared in accordance with
in their preparation is applicable law and International
Section 421 of the UK Companies Act 2006. We also report
Financial Reporting Standards (IFRSs) as adopted by the
to you whether in our opinion, the information disclosed
European Union.
in the Directors’ Report is consistent with the financial
statements, if the Company has not kept proper accounting
This report is made solely to the Company’s members, as a
records, if we have not received all the information and
body, in accordance with our engagement letter. Our audit
explanations we require for our audit, or if information
work has been undertaken so that we might state to the
Company’s members those matters we are required to state
specified by the Listing Rules and Gibraltar legislation
regarding Directors’ remuneration and other transactions is
to them in an Auditors' report and for no other purpose.
not disclosed.
To the fullest extent permitted by law, we do not accept or
assume responsibility to anyone other than the Company
and the Company’s members as a body, for our audit work,
Scope of the audit of the financial statements
A description of the scope of an audit of financial
for this report, or for the opinions we have formed.
statements is provided on the APB’s website at www.frc.org.
Respective responsibilities of Directors and
auditors
As explained more fully in the statement of Directors’
responsibilities, the Directors are responsible for
the preparation of the financial statements and for
being satisfied that they give a true and fair view. Our
uk/apb/scope/private.cfm.
Opinion on financial statements
In our opinion:
●● The financial statements give a true and fair view of the
state of the Group’s and the Company’s affairs as
responsibility is to audit and express an opinion on the
31 December 2011 and of the Group’s profit for the year
financial statements in accordance with applicable law and
then ended.
International Standards on Auditing (UK and Ireland). Those
●● The Group and Parent Company financial statements
standards require us to comply with the Auditing Practices
have been properly prepared in accordance with IFRSs
Board’s (APBs) Ethical Standards for Auditors.
as adopted by the European Union.
888 Holdings plc has complied with the requirements of
●● The financial statements have been properly prepared in
accordance with the Gibraltar Companies (Consolidated
rules 9.8.6 and 9.8.8 of the Listing Rules of the UK Financial
Accounts) Act 1999, the Gibraltar Companies
Services Authority and in accordance with Section 421 of
(Accounts) Act 1999 and the Gibraltar Companies Act
the UK Companies Act 2006 in preparing its Annual Report,
1930 (as amended).
as if it was incorporated in the United Kingdom. As auditors,
●● The part of the Directors’ Remuneration Report to be
we have agreed that our responsibilities in relation to the
audited has been properly prepared in accordance with
Annual Report will be those as set out below.
Section 421 of the Companies Act 2006.
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888 Holdings plc
Opinion on other matters prescribed by legal
and regulatory requirements
In our opinion information given in the Directors’ Report
for the financial year ended 31 December 2011 for which
the financial statements are prepared is consistent with the
financial statements.
Matters on which we are required to report by
exception
We have nothing to report in respect of the following:
Under Gibraltar legal and regulatory requirements we are
required to report to you if, in our opinion:
●● 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 law regarding Directors’ remuneration and
other transactions is not disclosed.
Under the Listing Rules we are required to review:
●● The Directors’ statement, in relation to going concern;
●● The part of the corporate governance statement
relating to the Company’s compliance with the nine
provisions of the UK Corporate Governance Code
specified for our review; and
●● Certain elements of the report to shareholders by the
Board of Directors’ remuneration.
BDO LLP
Chartered Accountants
55 Baker Street
London
W1U 7EU
27 March 2012
Desiree McHard (Statutory auditor)
For and on behalf of
BDO Limited
Registered Auditors
PO Box 1200
Regal House
Queensway
Gibraltar
27 March 2012
BDO LLP is a limited liability partnership registered in
England and Wales (with registered number OC305127).
BDO Limited, a Gibraltar limited company, is registered in
Gibraltar with company number 52200.
42
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21273-04 04/04/2012 Proof 17888 Holdings plc Annual Report & Accounts 2011 Consolidated Income Statement
For the year ended 31 December 2011
Revenue
Operating expenses
Gaming taxes and duties
Research and development expenses
Selling and marketing expenses
Note
3
Administrative expenses (including goodwill impairment of $20.7 million, 2010: nil)
4
Operating profit before impairment charges, restructuring costs and share benefit charges
Impairment charges
Restructuring costs
Share benefit charges
Operating profit
Finance income
Finance expenses
Release of contingent consideration
Share of post-tax profit of equity accounted joint ventures
Profit before tax before impairment charges, release of contingent consideration,
restructuring costs and share benefit charges
Impairment charges
Release of contingent consideration
Restructuring costs
Share benefit charges
Profit before tax
Taxation
Profit after tax for the year attributable to equity holders of the parent
5
7
21
14
12
12
24
8
Year ended
Year ended
31 December
31 December
2011
2010
US$’000
US$’000
331,150
122,634
7,319
29,908
102,262
54,441
42,582
20,673
4,949
2,374
14,586
233
(13,281)
4,225
84
29,618
20,673
(4,225)
4,949
2,374
5,847
3,912
1,935
262,113
110,696
1,449
22,356
91,501
24,301
16,338
—
2,219
2,309
11,810
197
(1,462)
—
19
15,092
—
—
2,219
2,309
10,564
2,701
7,863
Earnings per share
Basic
Diluted
The notes on pages 48 to 81 form part of these financial statements.
Year ended
Year ended
31 December
31 December
2011
US$’000
2010
US$’000
0.6¢
0.6¢
2.3¢
2.3¢
Note
9
43
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www.888holdingsplc.com21273-04 04/04/2012 Proof 17 Consolidated Statement of Comprehensive Income
For the year ended 31 December 2011
Profit for the year
Actuarial losses on defined benefit pension plan
Total comprehensive income for the year attributable to equity holders of the parent
The notes on pages 48 to 81 form part of these financial statements.
31 December
31 December
2011
2010
US$’000
US$’000
1,935
(443)
1,492
7,863
(366)
7,497
44
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21273-04 04/04/2012 Proof 17888 Holdings plc Annual Report & Accounts 2011 Consolidated Balance Sheet
At 31 December 2011
Assets
Non-current assets
Intangible assets
Property, plant and equipment
Investment in equity accounted joint venture
Available for sale investment
Deferred taxes
Current assets
Cash and cash equivalents
Trade and other receivables
Total assets
Equity and liabilities
Equity attributable to equity holders of the parent
Share capital
Share premium
Capital Redemption Reserve
Retained earnings
Total equity attributable to equity holders of the parent
Liabilities
Current liabilities
Trade and other payables
Customer deposits
Contingent and deferred consideration
Non-current liabilities
Contingent and deferred consideration
Total liabilities
Total equity and liabilities
31 December
31 December
2011
2010
Note
US$’000
US$’000
12
13
14
15
16
17
18
19
20
22
21
21
141,900
17,059
1,243
175
435
162,291
21,547
1,297
175
586
160,812
185,896
81,852
26,468
108,320
269,132
3,163
65
24
118,067
121,319
65,462
44,954
37,397
147,813
—
147,813
269,132
61,520
24,344
85,864
271,760
3,145
65
24
113,716
116,950
37,814
34,725
78,033
150,572
4,238
154,810
271,760
The financial statements on pages 43 to 47 were approved and authorized for issue by the Board of Directors on 27 March
2012 and were signed on its behalf by:
Brian mattingley
Chief Executive Officer
Aviad Kobrine
Chief Financial Officer
The notes on pages 48 to 81 form part of these financial statements.
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45
www.888holdingsplc.com21273-04 04/04/2012 Proof 17 Consolidated Statement of Changes in Equity
For the year ended 31 December 2011
Balance at 1 January 2010
Dividend paid
Share buy-back
Share benefit charges
Issue of shares
Total comprehensive income for the year
Balance at 1 January 2011
Share benefit charges
Share benefit charges (included within restructuring
costs)
Issue of shares
Total comprehensive income for the year
Balance at 31 December 2011
Share
capital
US$’000
3,152
Capital
Share
Redemption
premium
US$’000
65
Reserve
US$’000
—
—
(24)
—
17
—
3,145
—
—
18
—
3,163
—
—
—
—
—
65
—
—
—
—
65
—
24
—
—
—
24
—
—
—
—
24
Retained
earnings
US$’000
117,883
(10,491)
(3,465)
2,309
(17)
7,497
113,716
2,374
503
(18)
1,492
118,067
Total
US$’000
121,100
(10,491)
(3,465)
2,309
—
7,497
116,950
2,374
503
—
1,492
121,319
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.
Share premium — represents the amount subscribed for share capital in excess of nominal value.
Capital redemption reserve — represents amounts transferred from the share capital reserve following the buy-back
and cancellation of equity shares.
Retained earnings — represents the cumulative net gains and losses recognized in the consolidated statement
of comprehensive income.
The notes on pages 48 to 81 form part of these financial statements.
46
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21273-04 04/04/2012 Proof 17888 Holdings plc Annual Report & Accounts 2011 Consolidated Statement of Cash Flows
For the year ended 31 December 2011
Cash flows from operating activities:
Profit before income tax
Adjustments for:
Impairment charges
Depreciation
Amortization
Interest received
Interest expense
Foreign exchange differences on deferred consideration
Share of post-tax profit of equity accounted joint venture
Release of contingent consideration
Share benefit charges
(Increase) decrease in trade receivables
Decrease (increase) in other accounts receivables
Decrease (increase) in trade payables
Increase (decrease) in customer deposits
Increase in other accounts payables
Cash generated from operations
Income tax paid
Year ended 31 December
Year ended 31 December
2011
2011
2010
2010
US$’000
US$’000
US$’000
US$’000
5,847
20,673
9,039
3,998
(221)
7,411
1,739
(84)
(4,225)
2,877
47,054
(4,865)
2,741
23,128
10,229
4,794
83,081
(4,341)
—
—
—
—
—
—
—
—
—
—
—
10,564
—
8,480
3,796
(197)
481
660
(19)
—
2,309
26,074
1,050
(3,393)
(1,060)
(2,845)
48
19,874
(3,659)
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
Net cash generated from operating activities
78,740
16,215
Cash flows from investing activities
Acquisition of assets comprising the Mytopia social games
development studio (see note 21)
Consideration paid for the online Wink bingo business (see note 21)
Purchase of property, plant and equipment
Investment in equity accounted joint ventures
Available-for-sale investments
Interest received
Acquisition of intangible assets
Internally generated intangible assets
Net cash used in investing activities
Cash flows from financing activities
Interest paid
Share buy back
Dividends paid
Net cash used in financing activities
Net increase (decrease) 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 48 to 81 form part of these financial statements.
(6,000)
(40,080)
(4,575)
—
—
221
(201)
(4,079)
(3,694)
—
—
(12,320)
—
(8,610)
(1,131)
(175)
197
(341)
(5,870)
—
—
—
—
—
—
—
—
(54,714)
(28,250)
—
(3,465)
(10,491)
(3,694)
20,332
61,520
81,852
—
—
—
(13,956)
(25,991)
87,511
61,520
47
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www.888holdingsplc.com21273-04 04/04/2012 Proof 17 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 is the owner of innovative proprietary software solutions providing a range of virtual online gaming services
over the internet including Casino, Poker, Bingo, Sport and games to end users and also provides these services through
its business to business independent unit Dragonfish to business partners. In addition, the Group provides payment
services, customer support and online advertising.
Definitions
In these financial statements:
The Company
888 Holdings Public Limited Company.
The Group
888 Holdings Public Limited Company and its subsidiaries.
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).
Related parties As defined in International Accounting Standard 24 — ‘Related Party Disclosures’.
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 financial statements continue to be prepared on a going concern basis as explained in the Corporate Governance
Report on page 30.
The consolidated financial statements comply with the Gibraltar Companies (Consolidated Accounts) Act 1999, the
Gibraltar Companies (Accounts) Act 1999 and the Gibraltar Companies Act 1930 (as amended).
The following standards and interpretations, issued by the IASB or the International Financial Reporting Interpretations
Committee (IFRIC), are effective from 1 January 2011 (current financial year) and have been adopted by the Group with
no significant impact on its consolidated results or financial position.
48
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Revised IAS 24 — Related Party Disclosures (effective for accounting periods beginning on or after 1 January 2011).
Amendments to IFRIC 14 (IAS 19) — Limit on a Defined Benefit Asset Minimum Funding Requirements and their
Interaction (effective for accounting periods beginning on or after 1 January 2011).
Improvements to IFRSs. This annual improvement project clarifies the requirements of IFRSs and eliminate inconsistencies
within and between standards. The relevant changes included amendments to IFRS 3 — Business Combinations,
IFRS 7 — Financial Instruments: Disclosures, and IAS 1 — Presentation of financial statements.
The following standards and interpretations issued by the IASB or IFRIC have not been adopted by the Group as they
were not effective for the year 2011. The Group is currently assessing the impact of these standards and interpretations will
have on the presentation of, and recognition in, its consolidated results in future periods.
Amendments to IAS 1 — Presentation of items of Other Comprehensive Income (effective for accounting periods
beginning on or after 1 July 2012). This amendment has not yet been endorsed for use in the EU.
Amendments to IAS 12 — Deferred Tax: Recovery of Underlying Assets (effective for accounting periods beginning on or
after 1 January 2012). This amendment has not yet been endorsed for use in the EU.
Amendments to IAS 19 — Employee Benefits (effective for accounting periods beginning on or after 1 January 2013).
This amendment has not yet been endorsed for use in the EU.
Amendments to IAS 28 — Investments in Associates and Joint Ventures (effective for accounting periods beginning on or
after 1 January 2013). This amendment has not yet been endorsed for use in the EU.
Amendments to IAS 32 — Offsetting Financial Assets and Financial Liabilities (effective for accounting periods beginning
on or after 1 January 2014). This amendment has not yet been endorsed for use in the EU.
IFRS 10 — Consolidated Financial Statements (effective for accounting periods beginning on or after 1 January 2013).
IFRS 10 has not yet been endorsed for use in the EU. It will supersede the consolidation requirements of IAS 27
Consolidated and separate financial statements, and SIC-12 Consolidation — Special Purpose Entities.
IFRS 9 — Financial Instruments (effective for accounting periods beginning on or after 1 January 2015). IFRS 9 has not yet
been endorsed for use in the EU.
IFRS 11 — Joint Arrangements (effective for accounting periods beginning on or after 1 January 2013). IFRS 11 has not
yet been endorsed for use in the EU. It will supersede IAS 31 Interests in Joint Ventures and SIC-13 — Jointly Controlled
entities — Non-monetary Contributions by Ventures.
IFRS 12 — Disclosure of Interests in Other Entities (effective for accounting periods beginning on or after 1 January 2013).
IFRS 12 has not yet been endorsed for use in the EU.
IFRS 13 — Fair Value Measurement (effective for accounting periods beginning on or after 1 January 2013). IFRS 13 has not
yet been endorsed for use in the EU.
The preparation of consolidated financial statements under IFRS requires the Group to make estimates and judgments
that affect the application of policies and reported amounts. Estimates and judgments 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.
49
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2 Significant accounting policies continued
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
Contingent consideration
Intangible assets
Impairment of Goodwill and intangible assets
Share-based payments
Regulatory compliance and contingent liabilities
Note
8
21
12
12
24
28
Presentation of accounts
Following a review of the financial statements, the following amendments have been made to the consolidated statement
of income. In light of the increased regulated markets in which the Group operates, the Directors believe it helpful to
separately disclose those gaming duties and taxes not directly related to profit. Accordingly, these amounts have been
separately disclosed on the face of the consolidated Income Statement under the heading “gaming taxes and duties”,
and the comparatives amended accordingly. Foreign exchange gains and losses arising on foreign currency denominated
assets and liabilities, and settlement of forward foreign exchange contracts are now included in finance income and
finance charges as they relate to financing decisions made by the Group. Previously they were included in administrative
expenses. The comparative figures, whilst immaterial, have been amended accordingly.
A comparative prior year balance sheet for 31 December 2009 has not been presented as the new presentation has no
effect on the reported profit or loss, nor on net assets.
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.
50
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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 transactions occurred.
Revenue consists of revenue from online gaming and revenue generated from processing customers’ cross currency
deposits and withdrawals. It comprises:
Casino and Bingo
Winnings which are represented by the differences between the amounts of bets placed by customers less amounts
won by customers.
Poker
Ring games: Rake, which is the commission charged from each winning hand played.
Tournaments: Entry fees charged for participation in Poker tournaments are recognised when the tournament
has concluded.
Emerging offerings
Revenue from Emerging Offerings mainly comprise winnings from Sportsbook activity and revenue from social games.
Casino and Bingo winnings, and revenues from the Poker business and Emerging Offerings are stated after deduction
of certain bonuses granted to customers.
B2B
In the case of white label activity, revenue is the net commission charged.
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 financial
income or financial expenses as appropriate.
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) assets and liabilities for each balance sheet presented are translated at the closing rate at the date of that balance
sheet; and
(ii)
income and expenses for each income statement are translated at an average exchange rate (unless this average
is not a reasonable approximation of the cumulative effect of the rates prevailing on the transaction dates, in which
case income and expenses are translated at the dates of the transactions).
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51
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2 Significant accounting policies continued
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. It is accounted for using the balance sheet liability method. 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. Such assets and liabilities are not recognised if the temporary differences arise from goodwill or from the initial
recognition (other than in a business combination) of other assets and liabilities in a transaction that affects neither the
taxable profit nor the accounting profit. 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.
Intangible assets
Acquisitions
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 amortized over the useful economic life of the
assets. This has ranged between three months to four years for acquisitions to date.
The exception is acquisitions of trade names, which have an indefinite useful economic life and therefore an annual
impairment test is conducted.
Intangible assets are reviewed annually for evidence of impairment. Any impairment in carrying value is charged to the
consolidated income statement.
Internally generated intangible assets
Expenditure incurred on development activities is capitalised only when the expenditure will lead to new or substantially
improved products or processes, the products or processes are technically and commercially feasible and the Group has
sufficient resources to complete development. All other development expenditure is expensed. Subsequent expenditure on
capitalised intangible assets is capitalised only where it clearly increases the economic benefits to be derived from the asset
to which it relates. The Group estimates the useful life of these assets as between three and five years, except for certain
licence costs which are considered to have indefinite useful life and 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 transferred, liabilities
assumed and equity instruments issued, plus, for acquisitions completed prior to 1 January 2010, any direct costs
associated with the 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.
For business combinations completed prior to 1 January 2010 changes in the estimated value of contingent consideration
post acquisition are treated as an adjustment to cost and therefore change the carrying value of goodwill. For business
combinations completed after that date changes in the fair value of the contingent consideration are charged or credited
to the income statement. In addition, for those business combinations completed after 1 January 2010, the direct costs of
acquisition are treated immediately as an expense.
52
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Property, plant and equipment
Property, plant and equipment is stated at historic cost less accumulated depreciation. Assets are assessed at each
balance sheet date for indications of impairment.
Depreciation is calculated using the straight-line method, at annual rates estimated to write off the cost of the assets
less their estimated residual values over their expected useful lives. The annual depreciation rates are as follows:
IT equipment
Office furniture and equipment
Motor vehicles
33%
7–15%
15%
Leasehold improvements
Over the shorter of the term of the lease or useful lives
Impairment of non-financial assets
Impairment tests on goodwill and other intangible assets with indefinite useful economic lives are undertaken annually
on 31 December, and where applicable an impairment loss is recognised immediately in the income statement. 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.
Investment in equity accounted joint ventures
Jointly controlled entities (JCE) are those entities over whose activities the Group has joint control, established by
contractual agreement and requiring unanimous consent for strategic financial and operating decisions.
JCEs are accounted for using the equity method (equity accounted investees) and are recognized initially at cost.
The Group’s share of post-acquisition profits and losses is recognised in the consolidated income statement, except that losses
in excess of the Group’s investment in the JCEs are not recognised unless there is an obligation to make good those losses.
Profits and losses arising on transactions between the Group and its JCEs are recognised only to the extent of unrelated
investors’ interests in the JCE. The investor’s share in the JCEs profits and losses resulting from these transactions is
eliminated against the carrying value of the JCEs.
Any premium paid for a JCE above the fair value of the Group’s share of the identifiable assets, liabilities and contingent
liabilities acquired is capitalised and included in the carrying amount of the JCE. Where there is objective evidence that
the investment in a JCE has been impaired the carrying amount of the investment is tested for impairment in the same
way as other non-financial assets.
Trade receivables
Trade receivables are recognised at fair value and carried at amortised cost and principally comprise amounts due from
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 there is objective evidence that the full amount may not
be collected.
53
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2 Significant accounting policies continued
Derivative financial instruments
The Group enters into contracts for derivative financial instruments such as forward currency contracts to hedge risks
associated with foreign exchange rates. Such derivative financial instruments are measured at fair value under IAS 39 and
comprise level two fair value measurement instrument and carried in the statement of financial position as assets when
the fair value is positive and as liabilities when the fair value is negative. Any gains or losses arising from changes in the fair
values of derivatives are recorded immediately in the consolidated income statement.
A fair value measurement hierarchy is based on the inputs to valuation techniques used to measure fair value to increase
consistency and comparability. The inputs are categorised into three levels, with the highest priority given to unadjusted
quoted prices in active markets for identical assets or liabilities and the lowest priority given to unobservable inputs. Level
two inputs are inputs other than quoted prices included within level one that are either directly or indirectly observable for
the asset or liability.
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 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.
Liabilities to customers
Liabilities to customers comprises the amounts that are credited to customers’ bankroll (the Group’s electronic ‘wallet’),
including provision for bonuses granted by the Group, less management fees and charges applied to customer accounts,
along with full provision for 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 asset
categories and comprise principally the Group’s investments in entities not qualifying as joint ventures or 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. On disposal of an available-for-sale asset
any balance within equity is transferred to the income statement.
Chargebacks
The cost of chargebacks is included in operating expenses.
54
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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
Segments are reported in a manner consistent with the internal reporting provided to the chief operating decision maker.
The chief operating decision maker has been identified as the management team comprising the Chief Executive Officer
and the Chief Financial Officer. These segments are:
●● B2C (Business to Customer) Casino, Poker, Bingo and Emerging Offering which mainly comprises 888’s Sportsbook,
Live dealer offering and games, Mytopia social games; and
●● B2B (Business to Business) which offers Total Gaming Services under the Dragonfish trading brand. Dragonfish
offers to its business partners use of technology, software, operations, e-payments and advances marketing services,
through the provision of offline/online marketing, management of affiliates, SEO, CRM and business analytics.
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, nil priced options 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.
Severance pay schemes
Severance scheme surpluses and deficits are measured at:
●● The fair value of plan assets at the reporting date; less
●● Plan liabilities calculated using the projected unit credit method discounted to its present value using yields available
for the appropriate government bonds that have maturity dates appropriately to the terms of the liabilities; plus
●● Unrecognised past service costs.
Any difference between the expected return on assets and that actually achieved, and any changes in liabilities over the
year due to changes in assumptions or experience within the scheme, are recognised in other comprehensive income in
the period in which they arise.
financial guarantee contracts
Where the Group enters into financial guarantee contracts the Group considers these to be insurance contracts and
accounts for them as such. The Group treats the guarantee as a contingent liability until such time as it becomes probable
that the Group will be required to make payments under the guarantee.
55
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3 Segment information
Business Segments
Year Ended 31 December, 2011
B2C
B2B Consolidated
Casino
Poker
Bingo
US$’000
US$’000
US$’000
Emerging
offering
US$’000
Revenue
148,034
60,620
53,957
21,592
Total
B2C
US$’000
284,203
US$’000
46,947
US$’000
331,150
Result
Segment result before
impairments
Impairments
Segment result
Unallocated corporate
expenses1
Operating profit
Financial expenses, net
Release of contingent
consideration
Share of post-tax profit
of equity accounted
joint ventures
Tax expense
Profit for the year
Assets
Unallocated corporate
assets
Total assets
Liabilities
Segment Liabilities
Unallocated corporate
liabilities
Total liabilities
151,973
(20,673)
131,300
27,782
—
27,782
179,755
(20,673)
159,082
144,496
14,586
(13,048)
4,225
84
(3,912)
1,935
269,132
269,132
39,062
5,888
44,950
102,863
147,813
1 Including share benefit charges of US$2,374,000 and restructuring costs of US$4,949,000.
56
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Year Ended 31 December, 2010
B2C
B2B
Consolidated
Casino
Poker
Bingo
US$’000
US$’000
US$’000
116,922
38,407
50,140
Emerging
offering
US$’000
16,206
Total
B2C
US$’000
221,675
US$’000
40,438
US$’000
262,113
114,470
22,993
137,463
125,653
11,810
(1,265)
19
(2,701)
7,863
271,760
271,760
29,142
5,547
34,689
120,121
154,810
Revenue
Result
Segment result
Unallocated corporate
expenses1
Operating profit
Financial expenses, net
Share of post-tax profit
of equity accounted
joint ventures
Tax expense
Profit for the year
Assets
Unallocated corporate
assets
Total assets
Liabilities
Segment Liabilities
Unallocated corporate
liabilities
Total liabilities
1 Including share benefit charges of US$2,309,000 and restructuring costs of US$2,219,000.
Other than where amounts are allocated specifically to the B2C and B2B segments above, the expenses, assets and
liabilities relate jointly to all segments. These amounts are not discretely analysed between the two operating segments as
any allocation would be arbitrary.
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3 Segment information continued
Geographical information
The Group’s performance can also be reviewed by considering the geographical markets and geographical locations
within which the Group operates. This information is outlined below:
Revenue by geographical market1
UK
Europe (excluding UK)
Americas
Rest of world
Revenue
1 Allocation of geographical segments is based on Net Revenue Commission received by the Group.
Assets by geographical location
Year ended
Year ended
31 December
31 December
Revenue
Revenue
2011
US$’000
153,090
124,187
26,488
27,385
331,150
2010
US$’000
127,371
96,759
17,110
20,873
262,113
Carrying amount of segment
Additions to property, plant
assets by location
and equipment
Year ended
Year ended
Year ended
Year ended
31 December
31 December
31 December
31 December
2011
US$’000
228,469
40,663
269,132
2010
US$’000
229,954
41,806
271,760
2011
2010
US$’000
US$’000
3,299
1,276
4,575
7,365
1,700
9,065
Year ended
Year ended
31 December
31 December
2011
2010
US$’000
US$’000
2,374
52,067
54,441
2,309
21,992
24,301
Europe (including UK)
Rest of World
4 Administrative expenses
Share benefit charges — all equity-settled
Other administrative expenses
Administrative expenses
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21273-04 04/04/2012 Proof 17888 Holdings plc Annual Report & Accounts 2011 5 operating profit
Operating profit is stated after charging:
Staff costs (see note 6)
Audit fees
Other fees paid to auditors in respect of taxation services
Depreciation (within operating expenses)
Amortisation (within operating expenses)
Chargebacks
Payment service providers’ commissions
Restructuring costs1
Share benefit charges — all equity-settled
Goodwill impairment (within administrative expenses — see note 12)
Year ended
Year ended
31 December
31 December
2011
2010
US$’000
US$’000
86,831
74,854
474
12
9,039
3,998
3,379
18,769
4,949
2,374
20,673
402
11
8,480
3,796
2,987
13,882
2,219
2,309
—
1 Following the departure of the former CEO on 30 April 2011, the Group has restructured its management team resulting in aggregated
terminated staff and related costs of US$4,949,000 for the year ended 31 December 2011 of which US$3,909,000 are in relation to the
former CEO. Total costs include $503,000 in respect of accelerated share benefit charges arising on termination.
During 2010 the Group initiated measures designed to reduce its overheads and increase operational efficiency. These measures mainly
affected employment costs and included redundancies across the Group’s locations. Costs associated with these redundancies are
reflected in the restructuring cost line for the year ended 31 December 2010.
6 Employee benefits
Staff cost including Executive Directors’ remuneration comprises the following elements:
Wages and salaries
Social security
Pension costs
Staff costs capitalized in respect of internally generated assets
2011
US$’000
82,060
3,092
4,932
90,084
(3,253)
86,831
2010
US$’000
71,673
2,898
4,521
79,092
(4,238)
74,854
In the income statement total staff costs, excluding share benefit charge of US$2,374,000 (2010: US$2,309,000), are
included within the following expenditure categories:
Operating expenses
Research and development expenses
Administrative expenses
2011
2010
US$’000
US$’000
49,133
19,567
18,131
86,831
48,525
14,483
11,846
74,854
59
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notes to the Consolidated Financial Statements
6 Employee benefits continued
Average headcount number of employees by category:
Operation
Research and development
Administration
2011
593
217
119
929
2010
632
179
126
937
At 31 December 2011 the Group employed 932 (2010: 928) staff.
Severance pay liability — Israel
The Group’s employees in Israel are eligible to receive certain benefits from the Group in certain defined circumstances.
As such the Group operates a defined benefit severance pay plan which requires contributions to be made to separately
administrated funds.
The method used to determine the current service cost and the present value of the defined benefit obligation, according
to IAS 19 ‘Employee Benefits’ is the Projected Unit Credit actuarial cost method. Actuarial gains and losses are recognised
by the Group using the equity method.
The following table summarises the employee benefits figures as included in the Group’s financial statements for 2011
and 2010, respectively:
Severance pay liability (within trade and other payables)
Income statement
Actuarial movements on severance pay liability
(included in statement of comprehensive income)
Movement in severance pay liability:
Severance pay plan assets
At beginning of year
Expected return
Contributions
Benefits paid
Actuarial gain on assets
Exchange differences
At end of year
60
2011
2010
US$’000
US$’000
601
3,044
273
2,548
443
366
Year ended
Year ended
31 December
31 December
2011
2010
US$’000
US$’000
8,279
407
3,030
(2,442)
(265)
(617)
8,392
6,784
359
2,630
(2,254)
181
579
8,279
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Severance pay plan liabilities
At beginning of year
Interest cost
Current service costs
Benefits paid
Actuarial loss on obligations
Exchange differences
At end of year
Severance pay plan trends
Plan assets
Plan liabilities
Severance pay liability
Year ended
Year ended
31 December
31 December
2011
2010
US$’000
US$’000
8,552
347
3,104
(2,533)
178
(655)
8,993
7,013
299
2,608
(2,380)
547
465
8,552
Year ended
Year ended
Year ended
Year ended
31 December
31 December
31 December
31 December
2011
2010
2009
2008
US$’000
US$’000
US$’000
US$’000
8,392
(8,993)
(601)
8,279
(8,552)
(273)
6,784
(7,013)
(229)
4,220
(4,496)
(276)
The main actuarial assumptions used in determining the fair value of the Group’s employee benefits plan are shown below:
Discount rate (nominal)
Estimated increase in employee benefits costs
Voluntary termination rate
Estimated rate of return on assets
2011
%
4.34
3
70
4.71
2010
%
4.71
3
70
5.06
The discount rates are based on Israeli government bonds and reflect inflation rates of 2.19% in 2011 (2010: 2.86%).
7 finance expenses
Interest expense
Interest expense on deferred consideration
Unwinding of discount on contingent and deferred consideration
Fair value movements on Foreign exchange derivatives
Foreign exchange losses
Finance expenses
Year ended
Year ended
31 December
31 December
2011
2010
US$’000
US$’000
—
3,694
3,692
1,572
4,323
13,281
19
—
1,122
—
321
1,462
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8 Taxation
Corporate taxes
Current tax
Deferred tax
Taxation expense
Profit before taxation
Tax at effective tax rate in Gibraltar (2011: 10%, 2010: nil)
Effect of overseas taxation
Effect of deferred tax originating in overseas jurisdictions
Permanent disallowable expenditure/(income)
Adjustments to prior years tax charges
Total tax charge for the year
Year ended
Year ended
31 December
31 December
2011
2010
US$’000
US$’000
3,761
151
3,912
2,490
211
2,701
Year ended
Year ended
31 December
31 December
2011
US$’000
5,847
585
2,159
(91)
1,954
(695)
3,912
2010
US$’000
10,564
—
2,490
211
—
—
2,701
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 were subject to the provisions of the Gibraltar
Companies (Taxation and Concessions) Act (the ‘CTCA’) as tax-exempt companies. 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
extended up to 31 December 2010. Commencing as of 1 January 2011, Gibraltar companies are subject to a corporate tax
rate of 10%. However, certain forms of income, including royalty income, are exempt from corporate tax.
Israel — 888 has entered into certain transfer pricing agreements with the Israeli Income Tax Commissioner. The agreement
in respect of its subsidiary, Random Logic Limited was effective until the end of 2010 and is currently being discussed.
Domestic corporate tax in Israel in 2011 is 24% (2010: 25%). Effective from 2012 the corporate tax rate will increase to 25%.
UK — 888’s subsidiary in the UK pays corporate tax in the UK at the applicable rate of 26% (2010: 28%).
62
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Basic earnings per share
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 average 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
1,305,779 (2010: 781,953).
Year ended
Year ended
31 December
2011
31 December
2010
US$’000
US$’000
Profit from continuing operations attributable to ordinary shareholders
Weighted average number of ordinary shares in issue
Effect of dilutive ordinary shares and share options
Weighted average number of dilutive ordinary shares
Basic
Diluted
1,935
7,863
346,385,511 345,709,869
2,620,010
349,983,027 348,329,879
2.3¢
3,597,516
0.6¢
0.6¢
2.3¢
Adjusted earnings per share
The Directors believe that EPS excluding share benefit charges, restructuring costs, impairment charges and write-back
of contingent consideration better reflects the underlying performance of the business and assists in providing a clearer
view of the performance of the Group.
Reconciliation of profit to profit excluding share benefit charges, restructuring costs, impairment costs and write-back
of contingent consideration:
Profit from continuing operations attributable to ordinary shareholders
Share benefit charges (excluding Share benefit charges within restructuring costs)
Restructuring costs
Release of contingent consideration
Impairment charges
Profit excluding share benefit charges, restructuring costs, impairment charges and
write-back of contingent consideration
Weighted average number of ordinary shares in issue
Weighted average number of dilutive ordinary shares
Adjusted basic earnings per share
Adjusted diluted earnings per share
Year ended
Year ended
31 December
31 December
2011
2010
US$’000
US$’000
1,935
2,374
4,949
(4,225)
20,673
7,863
2,309
2,219
—
—
25,706
12,391
346,385,511 345,709,869
349,983,027 348,329,879
3.6¢
7.4¢
7.3¢
3.6¢
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10 Dividend
Dividends paid
Year ended
Year ended
31 December
31 December
2011
2010
US$’000
US$’000
—
10,491
11 Acquisitions completed in prior years
mytopia social games
On 16 June 2010 the Group acquired the trade and assets comprising the Mytopia social games development studio
(“Mytopia”) from Real Dice Inc. for an all cash consideration.
In calculating the goodwill arising on acquisition, the fair value of the assets of Mytopia were valued by a professional
valuation firm and recognised in accordance with IFRS 3 (revised) and adjustments from book value were necessary.
These adjustments are summarized as follows:
Intangible assets
Assets
Book value on
fair value
acquisition
adjustments
fair value
US$’000
US$’000
US$’000
—
—
1,870
1,870
1,870
1,870
The fair value relates to the recognition of online bingo game application (US$830,000), software licence agreement
(US$410,000), non-compete agreement (US$540,000) and a service agreement (US$90,000) acquired as part of the
acquisition. The online bingo game application intangible asset is being amortised over its estimated useful economic life
of three years. The software licence agreement intangible asset is being amortised over its estimated useful economic life
of nine months. The non-compete agreement intangible asset is being amortised over its estimated useful economic life of
four years. The service agreement is being amortised over its estimated useful economic life of one year.
During the year the goodwill arising on acquisition of US$20,173,000 was tested for impairment and fully provided against.
Further details are given in note 12.
The Group paid US$6.0 million in February 2011 of contingent consideration in respect of the acquisition. The remaining
contingent consideration of US$5.1 million (before discounting) that was recognised on acquisition has been written back
in the year. Further details are given in note 21.
Wink online Bingo business
On 31 December 2009 the Group acquired the trade and assets comprising the Wink online Bingo business of Daub
Limited (‘Wink Bingo Business’) for an all cash consideration.
As noted in last year’s annual report the financial performance of the Wink business post acquisition led to increases in the
contingent consideration payable. In March 2011 the Group entered into an amendment agreement to fix the consideration
payable. Further details are given in note 21.
The unwinding of the discount element of the deferred consideration is charged to finance expenses in the Income
statement.
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Intangible assets
Cost or valuation
At 1 January 2010
Additions
Acquisitions
At 31 December 2010
Additions
At 31 December 2011
Amortisation and Impairments:
At 1 January 2010
Charge for the year
At 31 December 2010
Impairment in the year
Charge for the year
At 31 December 2011
Carrying amounts
At 31 December 2011
At 31 December 2010
At 31 December 2009
Analysis of goodwill by cash generating units:
Valuation at 1 January 2010
Acquisitions of Mytopia social games
Adjustment to the Wink bingo business contingent
consideration1
Valuation at 1 January 2011
Mytopia social games goodwill impairment
Internet domain name goodwill impairment
Valuation at 31 December 2011
Internally
generated
Acquired
intangible
intangible
assets
assets
Goodwill
Total
US$’000
US$’000
US$’000
US$’000
10,213
5,870
—
16,083
4,079
20,162
1,271
1,785
3,056
—
2,548
5,604
14,558
13,027
8,942
6,842
—
2,211
9,053
201
9,254
3,563
2,011
5,574
—
1,450
7,024
2,230
3,479
3,279
Bingo
online
business
US$’000
58,111
—
67,001
125,112
—
—
125,112
mytopia
social
games
US$’000
—
20,173
—
20,173
(20,173)
—
—
58,611
67,001
20,173
145,785
—
75,666
72,871
22,384
170,921
4,280
145,785
175,201
—
—
—
20,673
—
20,673
125,112
145,785
58,611
Internet
domain
name
US$’000
500
—
—
500
—
(500)
—
4,834
3,796
8,630
20,673
3,998
33,301
141,900
162,291
70,832
Total
Goodwill
US$’000
58,611
20,173
67,001
145,785
(20,173)
(500)
125,112
1 As a result of the financial performance of the Wink Bingo business since the commencement of the earn-out period on 1 April 2010 the
Board revised its estimate of the potential contingent consideration that would become payable to US$75.5 million in 2010. This estimate
was based on the assumption that the earn-out payment would reach its contractual cap. As the Wink Bingo acquisition was accounted
for under IFRS 3 (2004) the adjustment to contingent consideration was taken to goodwill. On 18 March 2011 the Group announced that
it had entered into an amendment agreement with the Wink Bingo vendors to reschedule the earn out payment payable in May 2011.
Further details are given in note 21.
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12
Intangible assets continued
Bingo Online Business
Intangible assets and goodwill associated with the cash generating online Bingo business unit relates to the acquisition
of the online Bingo business of Globalcom Limited during 2007 and the acquisition of the Wink Bingo business in 2009.
The income streams generated from the bingo business, comprising the B2C Bingo cash generating unit and the B2B cash
generating unit, have been treated together as the risks and rewards associated with those income streams are deemed to
be sufficiently similar.
At the year end, the carrying value-in-use was determined by discounting the expected future cash flows of the online
Bingo cash generating units, to their present value. The key assumptions for the value-in-use calculations were those
regarding discount rate and growth rates of the business. The Directors estimate discount rates that reflect the current
market assessment of the time value of money and risks appropriate to the online Bingo business. The discount rate that
is considered by the Directors to be appropriate is 8% (2010: 12%) being the Group’s specific weighted average cost of
capital which also applies to the online Bingo cash generating units.
Discount rate is re-calculated each year by taking into account prevailing risk free rates, equity risk premium and beta.
The result this year was a lower discount rate primarily due to a lower company beta.
In estimating the future cash flows the Group has used conservative estimates in respect of revenues generated and costs
incurred and therefore certain B2B contracts due to end in the next five years have not been projected to be renewed
and have been expected to decline gradually over the period to contract end. Growth rates of the online Bingo business
are based on past experience and projections of future changes in the online gaming market, taking into account external
sources of information such as analysts' research reports. These suggest that Bingo is expected to demonstrate year on
year growth. The Group has used lower growth rates in estimating the future cash flows conservatively reflecting the
current uncertainties about the medium-term global economic outlook. The Directors have used forecasts for the next
five years of the expected cash flows, of which the first year is based on the Group's current approved budget.
Excluding the effects of B2B contracts projected to come to an end over the five year period, an annual underlying growth
rate of 2% (2010: 7%) was used for 2012 mainly attributed to the stabilization in the Wink Bingo business revenues after
the earn out period ended on March 2011. For 2013-2016, no growth rate was assumed (2010: no growth). Following year
five, the Group extrapolates cash flows in perpetuity, using an estimated conservative growth rate of 1% (2010: 1%), which
is lower than the forecast long-term growth rate of the UK economy. Marketing costs associated with the Bingo cash
generating units were projected as a fixed percentage of revenues. All other operational costs are forecast as percentage
of revenue, such percentage increased conservatively by 6% (2010: 7%) in each of the five year periods to 2016, over and
above the level of growth in revenues and well above the actual level experienced in 2011.
The Directors are not aware at this time of any need to change their key assumptions on which they have based their
determination of the recoverable amount of the goodwill which would cause its carrying amount to exceed its recoverable
amount. In fact, although such movements are not expected to arise, neither a 1% decrease in the growth rate in each of
the next three years nor a 5% increase in the discount rate would have led to an impairment of the acquired intangible
assets and goodwill in the current year.
Mytopia social games
The Group has performed an impairment review during the year on the cash generating Mytopia social games unit which
was acquired in June 2010, and was affected by commercial disputes which arose during the year over two branded social
games which Mytopia was developing. This review compared carrying value to value in use and fair value less costs to
sell, adjusting the originally forecast revenue arising. Due to the overall reduced expectation of income growth from the
Mytopia business, it was determined that the recoverable amount of that business was US$957,000 based on an estimate
by management of fair value less costs to sell which has resulted in a full impairment charge of US$20,173,000 against
goodwill. Other assets acquired have not been impaired.
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12
Intangible assets continued
The impairment charge has been taken to administrative expenses in the consolidated Income statement and is included
within the B2C operating segment.
Other intangible assets associated with the cash generating Mytopia social games unit acquired during June 2010
including an online bingo game application, software licence agreement, non-compete agreement and a service
agreement, are being amortized over their estimated useful economic lives of up to four years.
At the previous year end, the carrying value-in-use was determined by discounting the expected future cash flows to their
present value. The key assumptions for the value-in-use calculations were those regarding discount rate, users’ life time
value, marketing spend and growth rates of the business.
In estimating the future cash flows the Directors used estimates in respect of revenues generated and costs incurred.
Growth rates of the Mytopia business were based on projections of future changes in the social games market, taking into
account external sources of information such as analysts’ research reports and publicly available information that analyzes
KPIs of various social networks game providers and the development of new games by Mytopia. Forecast revenues
assumed lower user’s life value compared to other major social games.
The Directors used forecasts for the following five years of the expected cash flows, of which the first year was based on
the Group’s 2011 budget. Revenue was forecast to grow between 2011 and 2014 assuming a compound quarterly growth
of 21%, and cost of sales was forecast at an average of 23% of revenue. Marketing costs were projected to increase by a
fixed compounded monthly percentage during 2012 to 2014 across all games. All other overhead costs (mainly wages)
were forecast in line with 2011 budget which, on an annualized basis assumed an increase of 50% over 2010 actual figures.
Thereafter these costs were assumes to increase by 3 % in each of 2012 to 2014. Following year five, the Group used a long
term growth rate of 2%. The Directors estimated discount rates of 18%.
Internet domain name
During 2008 the Group acquired an internet domain name based business which is used to generate traffic into the
Group’s various websites. Out of total consideration of US$513,000, an intangible asset of US$13,000 was recognized
whilst the remainder of US$500,000 was recognised as goodwill.
The Group has performed an impairment review at the year end, in respect of the carrying value-in-use of the internet
domain name. comparing carrying value to value in use and fair value less costs to sell, adjusting the originally forecast
revenue arising. Due to the overall reduced expectation of income growth from the internet domain, it was determined that
the recoverable amount of the internet domain was nil based on an estimate by management of fair value less costs to sell
which has resulted in a full impairment charge of US$500,000 against goodwill and US$13,000 against intangible assets.
Licences
In respect of certain licences costs amounting to US$3.7 million where the Group considers these to have an indefinite life,
the Group has conducted an impairment review at the period end, in respect of the carrying value-in-use of its licences
comparing carrying value to value in use and fair value less costs to sell. At the year end, the carrying value-in-use was
determined by discounting the expected future cash flows of the relevant cash generating unit (CGU), to its present
value. The key assumptions for the value-in-use calculations were those regarding discount rate and growth rates of the
business. The Directors estimate discount rates that reflect the current market assessment of the time value of money and
risks appropriate to the relevant CGU. The discount rate that is considered by the Directors to be appropriate is 8% being
the Group’s specific weighted average cost of capital.
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12
Intangible assets continued
The Group has used prudent growth of 3% in respect of revenue and conservative costs figures in assessing the expected
cash flows from the CGU. At 31 December 2011 no impairment needs to be recognised.
Internally generated intangible assets
The Group has put in place processes and procedures which enable it to ascertain technological feasibility before
development costs are incurred and therefore be in a position to capitalise costs incurred after that point. Such
expenditure is only capitalised when the development cost meets the definition of an intangible asset and the recognition
criteria as set out in IAS 38 ‘Intangible assets’.
The Group estimates the useful life of these assets as between three and five years. These assets are subject to
impairment test wherever events or changes in circumstances indicate their carrying amount may not be recoverable
on the same basis as described above for acquired intangible assets. At 31 December 2011 no impairment needs to be
recognised and the carrying value of internally generated assets is considered appropriate.
13 Property, plant and equipment
office
furniture
and
motor
Leasehold
IT equipment
equipment
vehicles
improvements
Total
US$’000
US$’000
US$’000
US$’000
US$’000
33,125
8,617
—
41,742
4,397
(5,600)
40,539
21,669
6,920
—
28,589
7,545
(5,601)
30,533
10,006
13,153
11,456
2,641
120
—
2,761
82
—
2,843
1,490
251
—
1,741
187
—
1,928
915
1,020
1,151
503
63
(35)
531
—
(21)
510
287
75
(13)
349
62
—
411
99
182
216
14,848
265
—
15,113
96
(1,895)
13,314
6,687
1,234
—
7,921
1,245
(1,891)
7,275
6,039
7,192
8,161
51,117
9,065
(35)
60,147
4,575
(7,516)
57,206
30,133
8,480
(13)
38,600
9,039
(7,492)
40,147
17,059
21,547
20,984
Cost
At 1 January 2010
Additions
Disposals
At 31 December 2010
Additions
Disposals
At 31 December 2011
Accumulated depreciation
At 1 January 2010
Charge for the year
Disposals
At 31 December 2010
Charge for the year
Disposals
At 31 December 2011
Depreciated cost
At 31 December 2011
At 31 December 2010
At 31 December 2009
68
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21273-04 04/04/2012 Proof 17888 Holdings plc Annual Report & Accounts 2011 14
Investment in equity accounted joint ventures
The following entity meets the definition of a Jointly controlled entity and has been equity accounted in the consolidated
financial statements:
Name
Technology Solutions (Gibraltar) Limited
Percentage
Percentage
of equity
of equity
interest
interest
Country of
incorporation
Gibraltar
2011
%
50%
2010
%
50%
On 6 October 2010 the Group entered into a Joint Venture Agreement (“JVA”) via 888 Regulated Markets Ltd. (“888 RM”),
a wholly owned subsidiary, with Prima Networks Ltd. (“PNL”) and Technology Solutions (Gibraltar) Ltd. (“TSG”), a Gibraltar
company jointly owned by 888 RM and PNL in equal parts.
The Group through 888 RM obtained in 2010 a licence to operate online poker games in France.
Under the terms of the JVA, 888 RM, PNL and TSG operate the network jointly, utilizing rights to use poker software
technology and related services required to make the Games available for use in the French poker networks of PNL
(licenced to TSG) and 888 RM and combining them into one French poker network sharing the liquidity of their respective
customers.
Aggregated amounts relating to TSG are as follows:
Current assets
Non-current assets
Current liabilities
Non-current liabilities
Revenues
Expenses
Profit
Share of before tax profit of Joint Venture
Investment including loans in equity accounted Joint Venture
15 financial Assets — Available-for-sale investments
Opening balance at the beginning of the year
Investments during the year
2011
2010
US$’000
US$’000
—
2,348
2,207
—
1,712
(1,544)
168
84
1,243
6
2,502
2,467
—
414
(376)
38
19
1,297
Year ended
Year ended
31 December
31 December
2011
2010
US$’000
US$’000
175
—
175
—
175
175
Available-for-sale assets comprised of unquoted securities. The fair value of these has been determined on the basis of
expected cash flows discounted using a rate based on the market interest rate and a premium specific to the unlisted
securities. Fair value movements for 2010 and 2011 were insignificant.
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16 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
Property, plant and equipment
Intangible assets
Provision for share benefit charges
Provision for vacation
Provision for convalescence
17 Cash and cash equivalents
Cash and cash equivalents
Restricted cash
Restricted cash primarily relates to deposits held by banks for guarantees
18 Trade and other receivables
Trade receivables
Corporate tax
Other receivables and prepayments
Year ended
Year ended
31 December
31 December
2011
2010
US$’000
US$’000
280
101
(408)
116
323
23
435
88
—
—
94
382
22
586
31 December
31 December
2011
US$’000
74,028
7,824
81,852
2010
US$’000
60,569
951
61,520
31 December
31 December
2011
2010
US$’000
US$’000
17,197
1,799
7,472
26,468
12,332
796
11,216
24,344
The carrying value of trade and other receivables approximates to their fair value as the credit risk has been addressed
as part of impairment provisioning and, due to the short-term nature of the receivables; they are not subject to ongoing
fluctuations in market rates.
70
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21273-04 04/04/2012 Proof 17888 Holdings plc Annual Report & Accounts 2011 19 Share capital
Share capital comprises the following:
Ordinary shares of £0.005 each
Ordinary shares of £0.005 each
Issue of ordinary shares of £0.005 each
Share buy back
Authorized
31 December
31 December
31 December
31 December
2011
2010
2011
2010
Number
Number
426,387,500 426,387,500
US$’000
US$’000
3,880
3,880
Allotted, called up and fully paid
31 December
31 December
31 December
31 December
2011
2010
2011
2010
Number
Number
345,429,509 346,534,097
2,190,090
2,257,959
(3,294,678)
347,687,468 345,429,509
—
US$’000
US$’000
3,145
18
—
3,163
3,152
17
(24)
3,145
The following tables include details on issue of ordinary shares of £0.005 each as part of the Group’s employee share
option plan (see note 23) during 2011 and 2010:
Issued during 2011
March 2011
May 2011
June 2011
August 2011
September 2011
October 2011
November 2011
December 2011
Issued during 2010
January 2010
March 2010
April 2010
May 2010
June 2010
July 2010
August 2010
September 2010
October 2010
ordinary
shares of
£0.005 each
50,000
780,612
359,443
187,105
45,106
474,597
174,528
186,568
ordinary
shares of
£0.005 each
255,812
88,884
613,110
145,055
421,905
125,884
231,653
279,306
28,481
During 2011, the Company did not issue shares (2010: nil) in respect of employees’ exercising market value options.
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$3,228,000 (2010: US$3,210,000) and is split into 347,687,468 (2010: 345,429,509)
ordinary shares. The share capital in UK sterling (GBP) is £1,738,437 (2010: £1,727,148) and translates at an average
exchange rate of US$1.86 (2010: US$1.86) to GBP.
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20 Trade and other payables
Trade payables
Corporate taxes
Other payables and accrued expenses
31 December
31 December
2011
2010
US$’000
US$’000
27,308
667
37,487
65,462
15,335
309
22,170
37,814
The carrying value of trade and other payables approximates to their fair value given the short maturity date of these
balances. Comparative amounts have been reclassified between trade and other payables following a review by
management.
21 Contingent and deferred consideration
Deferred (2010 contingent) consideration re Wink acquisition1
Contingent consideration re Mytopia acquisition2
31 December
31 December
2011
US$’000
37,397
—
37,397
2010
US$’000
72,046
10,225
82,271
1 On 18 March 2011 the Group announced that it had entered into an amendment agreement with the Wink Bingo vendors to reschedule
the earn out payment payable in May 2011. The earn out payment reached its maximum cap of £59.7 million out of which £11 million was
paid on 31 December 2009. Under the revised payment terms the Group made a payment out of its cash resources of £9.26 million on
18 March 2011, £9.26 million on 21 May 2011 and £6.173 million on 31 August 2011. On 23 February 2012 the Group paid an amount of £20.2
million resulting in a balance of £3.8 million payable on 21 May 2012 without a penalty. Payments after 21 May 2011 bear interest at 15% per
annum. The Group has implemented security over the assets comprising the Wink bingo business in favor of the vendors.
2 On February 2011 the Group paid US$6.0 million due upon meeting certain milestones connected to the mobile and social networking
games. An estimated earn-out payment of US$5.1 million was supposed to be payable in cash during the second quarter of 2012 based
on achieving certain performance criteria during 2011. The subsequent financial performance has led to a release of that liability as the
performance criteria were not achieved.
Contingent and deferred consideration - movements in the year
Contingent and Deferred consideration at the beginning of the year
Paid in year — Capital amounts
Unwinding of discount
Release of contingent consideration
Foreign exchange differences on deferred consideration
Deferred consideration at the end of the year
Wink Bingo
mytopia
business
social games
US$’000
72,046
US$’000
10,225
Total
US$’000
82,271
(40,080)
(6,000)
(46,080)
3,692
—
1,739
37,397
—
(4,225)
—
—
3,692
(4,225)
1,739
37,397
72
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22 Liabilities to customers and progressive prize pools
Liabilities to customers
Progressive prize pools
31 December
31 December
2011
2010
US$’000
US$’000
40,016
4,938
44,954
30,630
4,095
34,725
23 Investments in significant subsidiaries
Percentage
Percentage
Name
Cassava Enterprises (Gibraltar) Limited
Virtual Marketing Services (UK) Limited
Virtual Marketing Services (Gibraltar) Limited
Dixie Operation Limited
Random Logic Limited
Brigend Limited
Fordart Limited
New Wave Virtual Ventures Limited
Virtual Internet Services Limited
Gisland Limited
888 Regulated Markets Limited
888 Denmark Limited
888 Spain Public LImited Company
888 Virtual Limited
Country of
incorporation
Gibraltar
UK
Gibraltar
Antigua
Israel
Gibraltar
Gibraltar
Gibraltar
Gibraltar
Gibraltar
Malta
Gibraltar
Gibraltar
Gibraltar
of equity
interest
2011
%
100
100
100
100
100
100
100
100
100
100
100
100
100
100
of equity
interest
2010
%
100
100
100
100
Nature of business
Gaming website operator
Advertising services
Marketing acquisition
Customer call center
operator
100
Research, development
100
100
and marketing
Bingo business operator
General commercial
business activities
100
Development of social
100
100
games — Mytopia.
General commercial
business activities
Provider of payments
service solutions; Holds
money transmission licence
100
Holder of French online
gaming licence
—
Holder of Danish online
gaming licence
— Applied for Spanish online
gaming licence
— Holder of Group IP assets
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24 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. 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 instilments 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:
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
31 December
2011
Weighted
average
31 December
2010
Weighted
average
exercise price
Number
exercise price
Number
£1.38
4,587,481
£1.38
6,027,789
—
£1.29
£1.41
—
(942,437)
3,645,044
—
£1.36
£1.38
—
(1,440,308)
4,587,481
1 Of the total number of options outstanding at the end of the year, 2,932,129 had vested and were exercisable at the end of the year
(2010: 2,836,040).
2 Range of exercise price for options outstanding at the end of the year is £1.02–£1.80 (2010: £1.02–£1.80).
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
Shares are granted at a nominal exercise price.
Valuation information — Shares granted
Weighted average share price at grant date
Weighted average share price at issue of shares
Average remaining life until vesting (Months)
31 December
31 December
2011
US$’000
4,441,138
5,091,457
2010
US$’000
7,182,929
1,689,103
(906,344)
(2,240,804)
(2,257,959)
(2,190,090)
6,368,292
4,441,138
2011
£0.34
£0.34
20
2010
£ 0.50
£ 0.66
15
Shares granted for future vesting are fair valued at the share price at grant date. The restrictions on the shares during
the vesting period, primarily relating to non-receipt of dividends, have an immaterial effect on this fair value estimate
at grant date.
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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
Charges in respect of share and option awards granted in previous years included within
restructuring charges (see note 5)
Charge for the year
25 Related party transactions
Year ended
Year ended
31 December
31 December
2011
2010
US$’000
US$’000
607
1,767
2,374
503
2,877
246
2,063
2,309
—
2,309
During the year the Group paid US$81,290 (2010: US$258,815) in respect of rent and office expenses to companies of
which Mr John Anderson was a Director. At 31 December 2011 the amount owed to those companies was nil (2010: nil).
Remuneration paid to the Directors in the year totalled US$6,676,000 (2010: US$2,284,000). Share benefit charge in
respect of awards granted to the Directors totalled US$1,055,000 (2010: US$348,380).
26 Commitments
Lease commitments
Future minimum lease commitments under property operating leases for the year ended 31 December 2011 are as follows:
Leases expiring within
One year
Two to five years
The amount paid in the year was US$3,714,000 (2010: US$3,060,000).
Lease commitments on the Group’s property are shown to the date of the first break clause.
Year ended
Year ended
31 December
31 December
2011
2010
US$’000
US$’000
3,278
11,357
14,635
2,937
12,956
15,893
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27 financial risk management
The Group is exposed through its operations to risks that arise from use of its financial instruments. Policies and
procedures for managing these risks are set by the Board following recommendations from the Chief Financial Officer.
The Board reviews the effectiveness of these procedures and, if required, approves specific policies and procedures
in order to mitigate these risks.
The main financial instruments used by the Group, on which financial risk arises, are as follows:
●● Cash and cash equivalents.
●● Restricted cash.
●● Trade and other receivables.
●● Trade and other payables.
●● Liabilities to customers.
●● Contingent consideration on acquisition.
●● Available-for-sale financial investments.
Detailed analysis of these financial instruments is as follows:
financial assets
Trade receivables
Other receivables
Cash and cash equivalents
Restricted cash
Available-for-sale financial investments
31 December
31 December
2011
2010
US$’000
US$’000
17,197
9,271
74,028
7,824
175
12,332
12,012
60,569
951
175
108,495
86,039
In accordance with IAS 39, with the exception of available-for-sale assets, all financial assets are classified as loans
and receivables.
financial liabilities
Trade payables
Other payables and accrued expenses
Contingent and deferred Consideration
Liabilities to customers
31 December
31 December
2011
2010
US$’000
US$’000
27,308
38,154
37,397
44,954
147,813
4,179
33,635
82,271
34,725
154,810
In accordance with IAS 39, all of the above financial liabilities are held at amortised cost, except for US$1,534,000 relating
to the forward currency contracts to hedge risks associated with foreign exchange rates. Such derivative financial
instruments are measured at fair value under IAS 39 and comprise level two fair value measurement instruments.
(2010: US$82,271,000 relating to the contingent consideration arising on acquisitions which are recognised at fair value).
At 31 December 2011 and 2010, the fair value and the book value of the Group’s financial assets and liabilities were
materially the same.
76
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27 financial risk management continued
Capital
The capital employed by the Group is composed of equity attributable to shareholders. The primary objective of the
Group is maximizing 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 28, 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 withdrawals of funds to and from customers’ 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 settlement intervals.
●● Replacing rolling reserve requirements, where they exist, with a Letter of Credit by a reputable financial institution.
●● Ensuring a new PSP is only contracted following various due diligence and ‘Know Your Customer’ procedures.
●● Ensuring policies are in place to reduce dependency on any specific PSP.
The Group believes that based on the above and on extensive past experience, the PSP receivables are of good credit
quality and there is no requirement to provide for any potential bad debts arising from a PSP failing to discharge its
obligation. None of the balances owed by the various PSP are overdue or impaired (2010: nil).
An additional credit risk the Group faces relates to customers 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. Customers may fail to fulfil
their obligation to pay which will result in funds not being collected. These chargebacks and uncollected deposits, 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. This provision is netted off from the trade
receivables balance and at 31 December 2011 was US$1,161,000 (2010: US$886,000).
The Group’s in-house Fraud and Risk Management department carefully monitors deposits and withdrawals by following
prevention and verification procedures using internally developed bespoke systems integrated with commercially available
third party measures.
Cash and cash equivalents
The Group controls its cash position out of its Gibraltar headquarters. Subsidiaries in its other locations (Israel, Antigua
and London) maintain minimum cash balances which are deemed required for their operations.
Cash settlement proceeds from PSPs, as described above, are paid into bank accounts controlled by the Treasury function.
The Group maintains its funds with highly reputable financial institutions and will not hold funds with financial institutions
with low credit rating.
The Group maintains its cash reserve in highly liquid deposits and regularly monitors rates in order to maximize yield.
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27 financial risk management continued
Restricted cash
Restricted cash is mainly attributed to a deposit in respect of the Spanish licence application.
The Group’s maximum exposure to credit risk by type of financial instrument is summarized below:
Trade receivables
Other receivables
Cash and cash equivalents
Restricted cash
Available for sale financial investments
31 December 2011
31 December 2010
Carrying
maximum
value
US$’000
exposure
US$’000
17,197
9,271
74,028
7,824
175
17,197
9,271
74,028
7,824
175
Carrying
value
US$’000
12,332
12,012
60,569
951
175
Maximum
exposure
US$’000
12,332
12,012
60,569
951
175
108,495
108,495
86,039
86,039
Liquidity risk
Liquidity risk exists in the case where the Group will encounter difficulties in meeting its financial obligations as they
become due.
The Group monitors its liquidity in order to ensure that sufficient liquid resources are available to allow it to meet its
obligations.
The following table details the contractual maturity analysis of the Group’s financial liabilities:
On demand
In three months
Between three months and one year
More than one year
31 December 2011
Trade
payables
US$’000
other
payables1
US$’000
Contingent
Liabilities to
consideration
customers
Total
US$’000
US$’000
US$’000
8,479
17,107
1,467
255
27,308
1,007
34,416
1,634
1,097
38,154
—
—
37,397
—
44,954
—
—
—
37,397
44,954
54,440
51,523
40,498
1,352
147,813
1 Includes other payables, accrued expenses, derivative financial liabilities and provisions.
31 December 2010
Trade
payables
US$’000
Other
payables1
US$’000
Contingent
Liabilities to
consideration
customers
Total
US$’000
US$’000
US$’000
1,857
2,068
254
—
4,179
7,356
24,621
662
996
33,635
—
34,725
5,987
72,046
4,238
82,271
—
—
—
34,725
43,938
32,676
72,962
5,234
154,810
On demand
In three months
Between three months and one year
More than one year
1 Includes other payables, accrued expenses and provisions.
78
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market risk
Interest rate risk
The Group’s exposure to interest rate risk is limited to the interest bearing deposits in which the Group invests surplus
funds.
The Group’s policy is to invest surplus funds in low risk money market funds or on call over night facilities. The Group also
arranges with its principal bankers that excess funds are swept automatically across its accounts, every night, in order to
maximize availability of funds for investments.
Downside interest rate risk is minimal as the Group has no floating rates borrowings. Given current low US$ interest rate
a 0.5% downward movement in bank interest rates would not have a significant impact on finance income for the year.
However, a 0.5% increase in interest rates would, based on the year-end deposits, increase annual profits by US$250,000.
Currency risk
The Group’s financial risk arising from exchange rate fluctuations is mainly attributed to:
●● Mismatch between Balance sheet Liabilities to customers which is predominantly denominated in US$ and the net
receipts from customers which are settled in the currency of the customer’s choice, of which sterling (GBP) and euros
(EUR) are significant.
●● Mismatch between reported revenue which is mainly generated in USD (the Group’s functional and reporting
currency) and significant portion of deposits which are settled in local currencies.
●● Expenses, the majority of which are denominated in foreign currencies including sterling (GBP), euro (EUR) and
New Israeli shekel (ILS).
●● The Wink Bingo deferred consideration is denominated in GBP. The Group entered into a specific forward contract in
order to fix the economic impact of the currency mismatch.
The Group continually monitors the foreign currency risk and takes steps, where practical, 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 2011 there were 20,000,000 GBP outstanding forward contracts regarding the Wink
deferred liability whose fair value is US$1,534,000 and with a remaining contractual life of five months.
The tables below detail the net financial position by currency at 31 December 2011 and 2010:
Cash and cash equivalent
Receivables
Available-for-sale financial
investments
Net monetary assets
Payables
Net monetary liabilities
Net financial position
GBP
EUR
ILS
USD
other
Total
US$’000
US$’000
US$’000
US$’000
US$’000
US$’000
31 December 2011
12,699
9,491
16,098
6,742
6,111
2,411
44,099
5,190
—
22,190
(62,905)
(62,905)
(40,715)
—
22,840
(8,483)
(8,483)
14,357
—
8,522
(15,161)
(15,161)
(6,639)
175
49,464
(60,912)
(60,912)
(11,448)
2,845
2,634
—
5,479
(352)
(352)
5,127
81,852
26,468
175
108,495
(147,813)
(147,813)
(39,318)
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www.888holdingsplc.com21273-04 04/04/2012 Proof 17 notes to the Consolidated Financial Statements
27 financial risk management continued
Cash and cash equivalent
Receivables
Available-for-sale financial
investments
Net monetary assets
Payables
Net monetary liabilities
Net financial position
31 December 2010
GBP
EUR
ILS
USD
Other
Total
US$’000
US$’000
US$’000
US$’000
US$’000
US$’000
11,820
10,779
—
22,599
(94,226)
(94,226)
(71,627)
9,430
4,631
—
14,061
(2,828)
(2,828)
11,233
5,706
1,454
—
7,160
(9,308)
(9,308)
(2,148)
31,496
5,863
175
37,534
(48,115)
(48,115)
(10,581)
3,068
1,617
—
4,685
(333)
(333)
4,352
61,520
24,344
175
86,039
(154,810)
(154,810)
(68,771)
Sensitivity analysis
The table below details the effect on profit before tax of a 10% strengthening (and weakening) in the US dollar exchange
rate at the balance sheet date for balance sheet items denominated in sterling, euros and new Israeli shekels:
Year ended 31 December 2011
GBP
4,071
EUR
1,436
(4,071)
(1,436)
Year ended 31 December 2010
GBP
7,163
(7,163)
EUR
1,123
(1,123)
ILS
664
(664)
ILS
215
(215)
10% Strengthening
10% Weakening
10% Strengthening
10% Weakening
80
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21273-04 04/04/2012 Proof 17888 Holdings plc Annual Report & Accounts 2011 28 Contingent liabilities and regulatory issues
(a) 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.
(b) Given the nature of the legal and regulatory landscape of the industry, from time-to-time the Group has received notices,
communications and legal actions from a small number of regulatory authorities and other parties in respect of its
activities. The Group has taken legal advice as to the manner in which it should respond and the likelihood of success
of such actions. Based on this advice and the nature of the actions, the Board is unable to quantify reliably any material
outflow of funds that may result, if any. Accordingly, no provisions have been made.
(c) The Group operates in numerous jurisdictions. Accordingly, the Group is filing tax returns, providing for and paying
all taxes it believes are due based on local tax laws, transfer pricing agreements and tax advice obtained. The Group
is periodically subject to audits and assessments by local taxing authorities. The Board is unable to quantify reliably
any exposure for additional taxes, if any, that may arise from the final settlement of such assessments. Accordingly no
additional provisions have been made.
29 Post balance sheet events
(a) As part of commercial negotiations between the Group and one of its B2B white label customers, the Group has acquired
the customer’s domain names and brands as at 1 January 2012. As a result the Group will be recognising the income within
its B2C business for 2012 rather than the net commission charged within B2B income as was the case for 2011. Based upon
the provisional estimates of fair value there is no material effect on the Group assets and liabilities.
(b) On 23 February 2012 the Group prepaid £20.2 million of the Wink deferred consideration to reduce interest costs.
This resulted in a balance of £3.8 million payable on 21 May 2012 without a penalty.
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www.888holdingsplc.com21273-04 04/04/2012 Proof 17 Company Balance Sheet
At 31 December 2011
Assets
Non-Current Assets
Investments in subsidiaries
Fixed assets
Current assets
Trade and other receivables
Cash and cash equivalents
Total assets
Equity and Liabilities
Equity
Share capital
Share premium
Retained earnings
Capital redemption reserve
Total equity attributable to equity holders of the parent
Liabilities
Current liabilities
Trade and other payables
Total liabilities
Total equity and liabilities
31 December
31 December
Note
2011
US$’000
2010
US$’000
2
3
4
5
6
22,782
11
22,793
146,287
16,386
162,673
185,466
3,163
65
(4,333)
24
(1,081)
20,956
5
20,961
135,339
13,674
149,013
169,974
3,145
65
7,454
24
10,688
186,547
186,547
185,466
159,286
159,286
169,974
The financial statements on pages 82 to 84 were approved and authorised for issue by the Board of Directors on 27 March
2012 and were signed on its behalf by:
Brian mattingley
Chief Executive Officer
Aviad Kobrine
Chief Financial Officer
The notes on pages 85 to 86 form part of these financial statements.
82
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21273-04 04/04/2012 Proof 17888 Holdings plc Annual Report & Accounts 2011 Company Statement of Changes in Equity
For the year ended 31 December 2011
Balance at 1 January 2010
Dividend paid
Issue of shares
Share benefit charges
Share buy back
Total comprehensive income for the year
Balance at 1 January 2011
Issue of shares
Share benefit charges
Total comprehensive income for the year
Balance at 31 December 2011
Capital
Share
Redemption
Share
capital
US$’000
3,152
Reserve
US$’000
—
premium
US$’000
65
Retained
earnings
US$’000
14,344
Total
US$’000
17,561
—
17
—
(24)
—
3,145
18
—
—
3,163
—
—
—
24
—
24
—
—
—
24
—
—
—
—
—
65
—
—
—
65
(10,491)
(10,491)
(17)
2,309
(3,465)
4,774
7,454
(18)
2,877
(14,646)
(4,333)
—
2,309
(3,465)
4,774
10,688
—
2,877
(14,646)
(1,081)
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.
Capital redemption reserve — represents amounts transferred from the share capital reserve following the buy back
and cancellation of equity shares.
Share premium — represents the amount subscribed for share capital in excess of nominal value.
Retained earnings — represents the cumulative net gains and losses recognised in the consolidated statement
of comprehensive income.
The notes on pages 85 and 86 form part of these financial statements.
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www.888holdingsplc.com21273-04 04/04/2012 Proof 17 Company Statement of Cash Flows
For the year ended 31 December 2011
Cash flows from operating activities:
Loss before income tax
Adjustments for
Interest received
Share benefit charges
Depreciation
Increase in amounts owed by subsidiaries
Decrease in other accounts receivables
Increase in trade payables
(Decrease) Increase in amounts owed to subsidiaries
Increase (decrease) in other accounts payables
Cash generated from (used in) operations
Tax paid
Net cash generated from (used in) operating activities
Cash flows from investing activities:
Interest received
Purchase of fixed assets
Dividends received
Net cash generated from investing activities
Cash flows from financing activities:
Dividends paid
Share buy back
Net cash used in financing activities
Net increase (decrease) 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 85 to 86 form part of these financial statements.
31 December
31 December
2011
US$’000
2011
US$’000
2010
2010
US$’000
US$’000
(13,679)
(59)
1,051
2
(11,369)
421
485
22,365
3,719
59
(8)
—
—
—
(5,810)
(63)
293
1
(11,047)
528
39
(11,035)
(1,702)
63
(6)
10,491
2,936
(275)
2,661
(28,796)
(50)
(28,846)
51
10,548
(10,491)
(3,465)
—
2,712
13,674
16,386
(13,956)
(32,254)
45,928
13,674
84
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21273-04 04/04/2012 Proof 17888 Holdings plc Annual Report & Accounts 2011 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.
The following standard issued by the IASB has not been adopted by the Company as this was not effective for the year
2011. The Company is currently assessing the impact this standard will have on the presentation of its results in future
periods.
IAS27 Separate Financial Statements (effective for accounting periods beginning on or after 1 January 2013). IAS27 has
not yet been endorsed for use in the EU.
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 23 to the consolidated financial statements and are held at cost less
provision for any impairment. The Group applies IFRIC 11 ‘Group and treasury share transactions’. Consequently, the Parent
Company recognises as a cost of investment the value of its own shares that it makes available for the purpose of granting
share options to employees or contractors of its subsidiaries. The movement on investment in subsidiaries in both years
was in respect of IFRIC 11. This amount was US$1,821,000 in 2011 (2010: US$2,015,000).
3 Trade and other receivables
Amounts due from subsidiaries
Other receivables and prepayments
Year ended
Year ended
31 December
31 December
2011
US$’000
146,271
16
146,287
2010
US$’000
134,902
437
135,339
The carrying value of trade and other receivables approximate to their fair value. None of the balances included within
trade and other receivables are past due or impaired. Amounts due from subsidiaries are payable on demand.
4 Cash and cash equivalents
Cash and cash equivalents
Year ended
Year ended
31 December
31 December
2011
2010
US$’000
US$’000
16,386
16,386
13,674
13,674
85
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www.888holdingsplc.com21273-04 04/04/2012 Proof 17 notes to the Company Financial Statements
5 Share capital
The disclosures in note 19 to the consolidated financial statements are identical for the Company.
6 Trade and other payables
Trade payables
Amounts due to subsidiaries
Corporate tax
Other payables and accrued expenses
Year ended
Year ended
31 December
31 December
2011
2010
US$’000
US$’000
546
179,324
667
6,010
61
156,959
190
2,076
186,547
159,286
The carrying value of trade and other payables approximate to their fair value. All balances included within trade and other
payables are repayable on demand.
7 financial risk management
The Company’s financial risk management objectives and policies are identical to those of the Group as disclosed in note
27 to the consolidated financial statements.
8 Contingent liabilities
The disclosures in note 28 to the consolidated financial statements are identical for the Company.
9 Share-based payment
The disclosures in note 24 to the consolidated financial statements are identical for the Company except that the charge
for the year is partly taken to investment in subsidiaries as set out in note 2.
10 Related party transactions
During the year the Company received dividends from its subsidiaries totalling nil (2010: US$10,491,000) and paid to its
shareholders dividends totalling nil (2010: US$10,491,000).
Remuneration paid to Directors of the Company by its subsidiaries in the year totalled US$271,488 (2010: US$127,938).
Share benefit charges in respect of options and shares of the Company awarded to employees of subsidiaries totalled
US$1,821,000 (2010: US$2,015,000).
During the year subsidiaries of the Company participated in funding its costs which totalled US$15,120,000 (2010:
US$8,379,000). At 31 December 2011, net amount owed by the Company to its subsidiaries US$33,054,000 (2010:
US$22,059,000).
86
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21273-04 04/04/2012 Proof 17888 Holdings plc Annual Report & Accounts 2011 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
Sportsbook
888’s Sportsbook offering is through 888sports
●● www.888sport.com
Bingo
888’s Bingo offering is through 888ladies and Wink
●● www.888ladies.com
●● www.winkbingo.com
Betmate:
888 Offers access to a betting exchange
●● www.Betmate.com
888.info:
Allows customers 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
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www.888holdingsplc.com21273-04 04/04/2012 Proof 17 Shareholder notes
88
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21273-04 04/04/2012 Proof 17888 Holdings plc Annual Report & Accounts 2011 Shareholder Services
All enquiries relating to Ordinary Shares, Depository
Auditors
BDO LLP
Interests, dividends and changes of address should be
Chartered Accountants
directed to the Group’s Transfer Agent:
55 Baker Street
London
W1U 7EU
UK
BDO Limited
Registered Auditors
Montagu Pavilion
8–10 Queensway
Gibraltar
Incorporated in Gibraltar with
registered number 90099
Capita Registrars
The Registry
34 Beckenham Road
Beckenham
Kent
BR3 4TU
UK
Tel: 0870 162 3100
www.capitaregistrars.com
Further Information
For further information please contact:
info@888holdingsplc.com
Principal Bankers
The Royal Bank of Scotland plc
280 Bishopsgate
London
EC2M 4RB
UK
Solicitors
Freshfields Bruckhaus Deringer
65 Fleet Street
London
EC4Y 1HS
UK
Hassans
57/63 Line Wall Road
Gibraltar
Company Secretary
Strait Secretaries Limited
57/63 Line Wall Road
Gibraltar
21273-04 888 Holdings Cover(20).indd 6
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06
www.888holdingsplc.com21273-04 10/04/2012 Proof 20 888 Holdings plc
Suite 601/701 Europort
Europort Road
Gibraltar
T: +350 20049800
F: +350 20048280
E: Info@888holdingsplc.com
www.888holdingsplc.com
01
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888 Holdings plc Annual Report & Accounts 201021273-04 10/04/2012 Proof 20