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Annual Report & Accounts 2012
888 Holdings plc Annual Report & Accounts 2012
888 is one of the world’s most
popular online gaming entertainment
companies.
888’s trusted online brand offers localised
us to gain significant market share as new
products providing players the games they
geographies are regulated. The ability to have
want in the language they speak with high
such success in newly regulated jurisdictions
functionality and interactivity, in a safe and
in turn makes us an in-demand business to
secure environment.
business provider.
With more than 1,600 people in seven
different countries, we provide our leading
online gaming experience in a total of 19
languages to over 150 countries and offer
something for players of all abilities and
requirements. Our highly sophisticated
business analytics identify the best way to
target people with the offering that will be
of most interest to them, and our market
leading technology allows us to enter new
markets quickly and effectively, helping
888 is a leader in corporate social
responsibility, with specialist websites
dedicated to both responsible gaming and
corporate responsibility so that customers
can play in a safe and secure environment.
We continue to exceed our customers’
expectations both in terms of offer and
customer service so that we can continue to
grow the business organically and deliver
value for our shareholders.
Contents
01 Highlights
02 Chairman’s Statement
03 Chief Executive’s Review
08 Enhanced Business Review
08 Financial Review
11 Operational Review
17 Regulation and General
Regulatory Developments
21 Corporate Social Responsibility/
Responsible Gaming
23 Risk Report
25 Board of Directors
26 Corporate Governance
30 Directors’ Remuneration Report
39 Directors’ Report
42 Independent Auditors’ Report
44 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
80 Company Balance Sheet
81 Company Statement of Changes in Equity
82 Company Statement of Cash Flows
83 Notes to the Company Financial Statements
85 Shareholder Information
200
150
100
50
0
50
40
30
20
10
0
01
Highlights
Revenue
Revenue
376
331
25
20
15
10
5
0
200
150
100
50
0
Revenue — B2C
Revenue - B2C
100
Revenue — B2B
Revenue - B2B
Revenue — B2C Casino
330
80
47
46
165
148
284
60
40
20
0
2011
2012
2011
2012
2011
2012
2011
2012
up 13%
US$ million
up 16%
US$ million
down 2%
US$ million
up 12%
US$ million
Revenue — B2C
Poker
Revenue — Poker
40
88
35
Adjusted EBITDA1
67
Adjusted EBITDA1
Margin
EBITDA
17.8
16.8
Real money
Profit Before Tax
registered customer
accounts2
13.1
10.6
56
30
25
20
15
10
61
2011
2012
30
25
20
15
10
5
0
up 44%
US$ million
2011
5
2012
0
2011
2012
2011
2012
-5
up 20%
-10
-15
-20
US$ million
per cent
up 23%
million
1 As defined in the table set out on page 8.
2 Casino, Poker and Sport.
www.888holdingsplc.com
02
Chairman’s Statement
2012 has been a record year for 888. We are delighted to
report an increase in profit after tax from US$2 million in
2011 to US$35 million in 2012. The success of our customer
offering and targeted marketing is overcoming a backdrop
of global economic uncertainty and helping us capitalise
on the ever changing regulatory landscape.
We have made significant progress in driving the business
forward, building on the change in strategic direction
set in train last year. I am delighted that in March, Brian
Mattingley agreed to take the Chief Executive Officer
position. Brian has been a member of the 888 Board
since the IPO and has an excellent knowledge of both the
business and the wider industry.
Brian, supported by our senior management team has
overseen a year in which we reinstated the dividend,
successfully re-launched in the newly regulated Spanish
market — quickly achieving the number 2 position —
launched a new casino front end, expanded our mobile
platform, and established a strong US-facing position, to
name but a few highlights.
One of our core strengths is offering our customers
exactly what they want, and our ability to do this has
been demonstrably successful with growth across most
of our business lines. Another competitive advantage is
the quality and capabilities of our technological platform,
which allows us to tailor our marketing to individuals and
to target our products in an efficient manner. We have
continued to focus on new regulatory horizons, and the
success of our poker offering in Spain shows the benefit of
being ready for a new market opening. We are well placed
to repeat this success as other markets regulate.
Financial Results and Dividend
We have achieved record results this year. The benefits
of continued product development and cost-effective
customer acquisition have resulted in a significant increase
in the Group revenue to US$376 million, a 13% uplift (2011:
US$331 million). Adjusted EBITDA* was US$67 million
(2011: US$56 million). As at 31 December 2012 the Group
had US$82 million of cash and cash equivalents and
US$49 million liabilities to customers.
Given the strength of our financial performance the
Board took the decision to restore dividend payments at
the half year and an interim dividend of 2.5¢ per share
was paid. Taking into account the strong performance
of the business and lack of dividend in 2011 the Board is
recommending a final dividend comprising 4.5¢ per share
(which together with the interim dividend equals 7.0¢ per
* As defined in the table set out on page 8.
share in accordance with our pay-out policy set out at the
time of our 2005 flotation) and an additional one-off 2.0¢ per
share, bringing the total for the year to 9.0¢ per share.
People
The record performance that we have achieved this year
would not be possible without our staff. Across the world,
1,600 people strive to make our strategy come to life and
it is their commitment, passion and ambition that results in
the ultimate success of our business.
Outlook
We have the right strategy and are executing it well. As
we did with Spain we have invested in and prepared the
platform in readiness for US entry and, following very
positive recent regulatory movements in New Jersey and
Nevada, we look forward to an exciting future.
Richard Kilsby
Chairman
888 Holdings plc Annual Report & Accounts 2012 03
Combining these disciplines and bringing our analytical
strengths to bear at all stages has led to improved
new product development, followed up by targeted,
personalised and data driven marketing and CRM
campaigns, all of which in turn lead to maximising player
lifetime value. This concentrated focus on our core strong
analytics and marketing capabilities, has maximised their
benefits across the business. It is these fundamental
competencies together with our exceptional product
platform and back office capabilities that have enabled us
to successfully compete with and surpass our competition.
Chief Executive’s Review
Introduction
I am delighted that, in the first year of my tenure as
Chief Executive, the Group has delivered its strongest
performance to date in our B2C line of business and a solid
performance in B2B. This excellent performance has been
driven by the successful development of our products,
including the launch of Casino 50, our focus on customer
acquisition and retention, and the continued delivery of
superior customer service and a value for money offer.
Implicit in our strategy was the desire to improve
margins, therefore we are delighted to have made further
improvements in the year, particularly as we have incurred
higher gaming duties compared to the previous year
and we have continued to invest in our business. As we
entered regulated markets we committed US$131 million
to marketing spend which resulted in marketing ratio to
revenue of 35%, slightly higher than that of last year, 31%.
Most importantly, we have delivered an adjusted EBITDA1
of US$67 million, a 20% increase on last year. This
represents an Adjusted EBITDA1 margin increase from
16.8% to 17.8%. At the year end, we had US$82 million of
cash, of which US$32 million was available for general
corporate purposes, having during the year paid US$11
million of retroactive duties to the Spanish government
and settled for US$37 million the final consideration on the
Wink Bingo acquisition.
Given the strong cash generation during the year the
Board of Directors reinstated the dividend at the half year,
declaring an interim dividend of 2.5¢ per share that was
paid on 18 October 2012. Taking into account the strong
performance of the business and lack of dividend in 2011
the Board is recommending a final dividend comprising
4.5¢ per share (which together with the interim dividend
equals 7.0¢ per share in accordance with our pay-out
policy set out at the time of our 2005 flotation) and an
additional one-off 2.0¢ per share, bringing the total for the
year to 9.0¢ per share.
2011 was about going back to basics, and 2012 has focused
strongly on preserving and enhancing our technical edge.
Structurally, the Group is now managed into two business
lines, B2C and B2B, whereas B2C is further managed
in product groups (for example, Poker/Casino) rather
than by service areas (for example, marketing), which
has enhanced our focus and allowed us to utilise our
technological and analytical strength through a unified
approach to product growth.
1 As defined in the table set out on page 8.
www.888holdingsplc.com 04
Chief Executive’s Review
Building on our Strengths
Despite the evolving challenges of the market place
in which we operate, our strategic direction remains
constant.
Our strategy in terms of the customer proposition is clear
— high quality products with precision targeted marketing
to attract higher volumes of lower spend, more casual
gamers, all of which is supported by exceptional customer
service.
Early in 2012, we launched Casino 50, our new casino
front end. This is a revolutionary multi-software platform,
delivering, compared to previously, a much more exciting
and interactive experience to our customers. It has been
received well by players, and we are now beginning to see
the fruits of our labour. Our Poker business continues to
grow, with record breaking revenues of US$88 million and
a 31% increase in active players compared to last year. We
remain in the top 5 in terms of global liquidity, as reported
by PokerScout. This product group is our star performer
and we deservedly won the highly regarded eGaming
Review Poker Operator of the Year award in November.
Within our technology infrastructure, we have created
an in-house games studio, designed to develop our
own “home bred” slots games. We have launched ten of
these slots games during the year of which Elm Street,
with stunning graphics, was the most popular. This
demonstrates the company’s desire to distance itself
from other operators and provides a unique offering to
our customers in an area in which we control all of the
elements required for our on-going success.
The Bingo sector remains challenging and this now
mature market has become highly competitive. However,
we remain one of the largest networks in the UK, holding
our own against highly aggressive competitors, and we
will continue to drive this offering and further integrate
the platform into the Group’s state of the art back office,
allowing all the benefits of that to flow through to our
bingo offering. In December we announced an agreement
with Facebook to launch real-money products the first of
which is Bingo Appy, offering 90 ball, 75 ball and 5 line
bingo including a wide range of slots and instant games.
To date we are seeing strong customer interest, but it
is too early to predict the ultimate success of this new
market.
Sport remains an important part of our product suite
and one which continues to offer opportunities. Targeted
marketing has helped to increase revenue year on year and
we have seen success in our mobile strategy, with 30% of
revenue generated through our dedicated 888Sport app.
We are working closely with our partners and assessing
options through which we can provide 888Sport with a
genuine competitive edge. A strategic review is underway
that will ascertain the best way of fulfilling this aim.
During the year we have made significant progress in
newly regulated markets. In the summer we saw the
opening of the Spanish market, albeit three months later
than was planned, given the delayed introduction of the
new regime. We had adapted our software well in advance
of licensing, and following the retroactive duty payment
we were granted our license on 1 June. After effectively
and efficiently migrating customers to the regulated
environment we quickly built market share, with our poker
offer becoming number two in the Spanish market with
888poker.es delivering more than 20% market share. This
was achieved by calculated marketing investment, and
further shows the strength of our management capabilities
in understanding new markets, underpinned by the
efficiency of our customer acquisition strategy.
Proving just what an opportunity regulation can provide
for 888, the end result is that poker revenue generated
since regulation is more than double that pre-regulation,
even with the deduction of gaming duty. We are
encouraged by this market, and we will invest in order to
grow this significant business.
888 Holdings plc Annual Report & Accounts 2012 05
The Italian market has also proved to be successful.
Initially launching a brand new Casino offering, designed
specifically for Italy, in the second half of 2011 with
cautious marketing spend, the launch achieved very
pleasing results. The decision by the Italian regulator to
allow slots from December 2012 has bolstered our offering
and allowed us to introduce our unique games, alongside
the traditional Casino products. This has resulted in player
numbers more than doubling compared to December 2011.
In Dragonfish, we have now completed the rationalisation
of smaller unprofitable licensees and hence revenue
decreased marginally by 2%. Removing the burden of
unprofitable contracts has helped us focus on our core
strengths, concentrating our efforts on attracting large
scale clients to our platform. In addition we have signed
12 new bingo skins. This approach has also released the
resources to enable us to focus on the anticipated opening
of the US market.
We currently operate Caesars Interactive Entertainment’s
(CIE) World Series of Poker online poker brand in the
UK, a collaboration which received the approval of the
Nevada Gaming Control Board and included a finding by
the Control Board of suitability for 888. In January 2012
we announced a deal extending our relationship with
Caesars that will see Dragonfish power a selection of CIE’s
established and recognised poker brands including the
“WSOP” in the US, once online gaming is permitted under
the new regulatory regime.
This non-exclusive agreement marked the first strand in our
US online strategy and indicated the strong platform that
we can use to sign with further potential US partners. Our
objective in respect of the US is to become one of, if not the,
largest providers of online operations and services in this
market. We have a three part strategy, a business to business
strategy where we are platform, software and back office
providers, taking a revenue share; a strategic alliance where
we partner with a supplier which allows us to reach regional
casino outlets; and most importantly, a strong B2C offer
where we bring all of 888’s talents, expertise and strengths
to bear on penetrating this exciting market.
In terms of contracts signed to-date, the CIE deal is
the traditional B2B revenue share operation where we
supply the technology and the services with our partner
supplying their expertise and funds on marketing. Having
land-based partnerships will be the key to unlocking
access to regulated US states and it is worth remembering
that Caesars operates casinos in Nevada, New Jersey and
California. All of these are likely to offer online gaming
upon the potential liberalisation of the market.
In July we announced an alliance with WMS Gaming Inc.,
which is one of the world’s largest slot and games design
operators with in excess of 250 secondary and tertiary
casino customers. As one of the biggest suppliers of slot
machines to hundreds of land based casinos in the US,
this deal will enable WMS to offer an online product to all
its customers utilising our state of the art poker platform.
The agreement will give the Group a competitive edge and
allow the launch of a real money offering concurrent with
the finalisation of either Federal or State based regulation.
After the year end, we completed the last strand of
our three part strategy, by entering into a joint venture
agreement with global investment firm Avenue Capital
Group, to launch and operate a comprehensive B2C
gaming offering into the US. Avenue Capital Group has
interests in various terrestrial casinos and entertainment
companies making them an ideal partner for 888. The
agreement will provide significant investment in marketing
to take advantage of the regulating US gaming market,
www.888holdingsplc.com 06
Chief Executive’s Review
and we are enormously excited by the opportunities.
A number of states are currently providing positive
indications, with New Jersey legislators passing a bill
legalising online gaming, while the Nevada Gaming Control
Board recommended to the Nevada Gaming Commission
the approval of the licensing of 888 as an Interactive
Gaming Service Provider. The Commission hearing will be
held on 21 March 2013.
As the first non-US online operator to be recommended
we are very well positioned in the US and the business
foundations are now set. We are leveraging our existing
infrastructure to penetrate the largest gaming market in
the world and we are only waiting for the regulator to
allow us to start working.
In parallel with our focus on building significant market
share in regulated jurisdictions we have directed resources
into the development of our mobile offering. 2012 was the
year that the prevalence of smartphones and tablets finally
led to the long-awaited coming of age of mobile gaming,
and we can expect leadership in mobile to be a significant
revenue and customer acquisition generator. The company
has a devoted team concentrating on mobile applications
and now has a comprehensive product offering across
all major platforms, including both Apple and Android,
tablets and smartphones. All applications are witnessing
strong growth in usage, and we are confident that this
medium will be earnings enhancing.
Our social gaming business has now been fully integrated
into 888’s technological architecture, and the team is now
working alongside our excellent product developers. It
is clear that social networks are becoming an integrated
part of online gaming however and, while it still remains a
nascent industry, it is one in which we are well positioned
to remain ahead of the curve. We will continue to review
our product suite, and capitalise on opportunities such as
Facebook real-money gaming and we expect to continue
to progress in this area.
Regulation
Regulation of online gaming continued to be a key area
of interest to 888 during 2012, as always, presenting both
opportunities and challenges. During 2012 we acquired
two new online gaming licenses — in Spain and in the
German state of Schleswig-Holstein, adding to a growing
list of local licenses held by the group. At the same time,
the group remains committed to obtaining local licenses
applicable to its operations in various jurisdictions of
choice, presenting the potential for commercial growth.
As 2012 drew to an end, 888 was approaching the final
stages of the Nevada licensing process, a lengthy exercise
commenced in 2011. On 7 March 2013, the Nevada Gaming
Control Board recommended to the Nevada Gaming
Commission the approval of the licensing of 888 as an
Interactive Gaming Service Provider and in connection
therewith the licensing of its key executives and controlling
shareholders. The Commission hearing will be held on
21 March 2013, and 888 is on the cusp of becoming one
of the first international online gaming operators to
commence operations in a US jurisdiction under a local
license. In February 2013, New Jersey legislators passed a
bill legalising online gaming, allowing land-based casinos
in the state to apply for licences to offer casino and poker.
This is expected to be enforced by the end of the year. With
partnerships already in place, this positions 888 well. Other
US jurisdictions are on the brink of introducing legislation to
allow for the licensing of online gaming within their territories,
developments that present tremendous opportunities for
growth.
888 Holdings plc Annual Report & Accounts 2012 07
2012 saw a list of European jurisdictions either
adopting new gaming laws, or being in the process
of reforming their regulatory landscape. Though the
European Commission has renewed its call for greater
harmonisation between EU Member States in this area,
regulatory regimes within the EU remain largely divergent,
posing challenges for the Group. Naturally, the growing
abundance of local licensing requirements is inevitably
accompanied by the burdens of local taxation and costly
compliance requirements. We continue to remain actively
engaged in regulatory developments worldwide and seek
the opportunities for growth presented by regulation while
continuing to face the accompanying challenges.
A notable development likely to have a particularly
profound impact on 888 in future years is the Bill
presented in late 2012 by the United Kingdom
Government, aiming to bring foreign operators under the
licensing umbrella of the UK Gambling Commission, as
well as exposing those operators to UK Gaming Duty. We
will continue to closely follow developments on this front
during 2013, taking measures to minimise the adverse
impact that UK gaming reform could have.
Responsible Gaming
888 is dedicated to providing its customers with a
responsible gaming environment. Hand in glove with
our stated goal of providing our players with the most
entertaining gaming offering experience is our firm
commitment to help prevent compulsive usage and
underage access of our gaming products. We have long
been recognised as a market leader in this area, and
continue to introduce innovative new measures to ensure
that our products are used in a responsible way by the
right people. More information could be found at our
dedicated website, www.888responsible.com.
2013 Focus
We see 2013 as a year of tremendous opportunity. We will
continue to invest in our infrastructure, our product offer
and in regulated markets.
We see high growth potential in Spain, where we intend to
build on our strong position as we increase our marketing
spend without diminishing its analytical, cost-effective,
targeting. The introduction of live roulette and potentially
slots will also provide growth opportunities, as witnessed
by the introduction of slots in Italy at the end of 2012
which provided a catalyst for further growth in this
important market.
We see our Spanish success as the blueprint for entry into
other newly regulating markets. In the United States, where
we are preparing for launch following positive regulatory
changes, we will continue to invest in our technological
platform, the cornerstone of our offer. In addition to being
recommended for a licence in Nevada, we have been invited
to apply for a licence in New Jersey, where a bill legalising
online poker and casino has been passed.
In Poker we will continue to develop the platform and
continue to create variation in the games available to our
customers. Casino 50 continues to evolve, and we intend to
remain at the top of the tree in terms of customer lifetime
value. In Bingo we will develop more skins and expand
our offer to ensure maximum coverage is achieved. Sport
is already undergoing a strategic review and we intend to
work with our existing and possibly new partners to ensure
we optimise its true potential and have the ability to expand
our brand into new regulated markets. Social media will
continue to be an area in which we expand, and we will
carefully monitor the success of these ventures.
All of these projects will undoubtedly require investment,
alongside our intention to continue to invest in our technology
and marketing expertise. This investment together with strong
marketing campaigns and a push into new regulated markets,
will have a short-term impact on margin growth. We remain
focused on our strategy and believe that any incremental
expenditure on our core business will ensure future growth
and improved market share for all our brands.
Despite success to date, we do not believe we have yet got
close to reaching full potential with our mobile offering.
There is a significant opportunity as we increase the
breadth and quality of our dedicated apps and roll them
out across the app stores, while also making certain that
the performance of our traditional products is maximised
on whatever medium our players favour.
Outlook
We are well placed for the future and believe we have the
right products, the right technology, and best in breed
analytical marketing to provide sustained growth and
increased market share. We also have a highly talented and
dedicated workforce, and I would like to thank our staff for
helping us achieve these excellent results. We are confident
of delivering further value to our shareholders in the future.
Brian Mattingley
Chief Executive Officer
13 March 2013
www.888holdingsplc.com 08
Enhanced Business Review
FInAnCIAl REvIEw
Financial Summary
Revenue
B2C
Casino
Poker
Bingo
Emerging Offering
Total B2C
B2B
Revenue
Operating Expenses2,3
Gaming duties4
Research and Development Expenses
Selling and Marketing Expenses
Administrative Expenses3,5,6
Adjusted EBITDA
Net Finance income (expenses)7
Depreciation and Amortisation
Adjusted Profit Before Tax3,4,5,6,8
Adjusted Earnings Per Share3,4,5,6,8
Year ended
31 December
20121
US$ million
Year ended
31 December
20111
US$ million
Change
165.5
87.5
51.8
25.0
329.8
46.0
375.8
113.5
11.5
27.2
131.2
25.6
66.8
1.9
(14.8)
53.9
13.9¢
148.0
60.6
54.0
21.6
284.2
47.0
331.2
108.6
7.3
29.9
102.3
27.5
55.6
(13.1)
(13.0)
29.5
7.4¢
12%
44%
(4%)
16%
16%
(2%)
13%
20%
82%
88%
Reconciliation of Operating Profit to Adjusted
EBITDA
Operating profit
Depreciation
Amortisation
Restructuring costs
Retroactive duties and
associated charges
Share benefit charges
Impairment charges
Adjusted EBITDA
Year ended
31 December
20121
US$ million
36.9
9.2
5.6
—
Year ended
31 December
20111
US$ million
14.6
9.0
4.0
4.9
11.1
1.7
2.2
66.8
—
2.4
20.7
55.6
General
888 delivered another record performance in 2012
with a revenue increase of 13% to US$376 million (2011:
US$331 million), particularly impressive given the strong
comparatives to the prior year. Growth was driven by our
B2C line of business with a 16% revenue increase, in turn led
by strong Poker growth of 44% and Casino at 12%. At the
same time B2B almost maintained its prior year revenue with
a 2% decrease.
1 Totals may not sum due to rounding.
2 Excluding depreciation of US$9.2 million (2011: US$9.0 million) and amortisation of
US$5.6 million (2011: US$4.0 million).
3 Excluding restructuring costs of nil (2011: US$4.9 million out of which US$1.0 million related to
Operating expenses and US$3.9 million to Administrative expenses).
4 Excluding retroactive duties and associated charges of US$11.1 million (2011: nil).
5 Excluding share benefit charges of US$1.7 million (2011: US$2.4 million).
6 Excluding impairment charges of US$2.2 million (2011: US$20.7 million).
7 Comprising Finance income equal to US$4.6 million (2011: US$0.2 million) net of
Finance expenses equal to US$2.7 million (2011: US$13.3 million).
8 Excluding movement in contingent and deferred consideration of US$2.0 million
(2011: US$4.2 million).
888 Holdings plc Annual Report & Accounts 2012
09
Adjusted EBITDA increased 20% to US$67 million (2011:
US$56 million), Adjusted EBITDA margin increased to
17.8% (2011: 16.8%) despite the payment of additional US$4
million gaming duties in regulated markets. Adjusted Profit
before tax1 increased 82% to US$54 million (2011: US$30
million) and Adjusted Earnings per share1 increased 88% to
13.9¢ (2011: 7.4¢). There was also strong operational cash
generation of US$71 million (2011: US$79 million).
During the period the Group completed the settlement of
the deferred consideration payable in respect of the Wink
acquisition. The Group financial position remains strong with
cash and cash equivalents at year end at US$82 million with
no debt.
Geographical Segmentation
888’s turnover by geography is set out in the table below.
Revenue by geographical market:
UK
Europe (excluding UK)
Americas
Rest of world
Total Revenue
Year ended 31 December
Revenue
2012
US$ million
161.8
142.1
38.2
33.7
375.8
Growth on
prior year
6%
14%
44%
23%
13%
Growth was achieved in all geographical segments with
the UK at 6%, Europe (excluding the UK) at 14%, Americas
at 44% and rest of the world at 23%. The regulated
European markets account for over 80% of our revenue,
with success in Spain and Italy boosting the percentage of
our revenue obtained from regulated markets.
Expenses
Over the last twelve months, we have made significant
investment in regulated and regulating markets as well as
in our technology and product innovation.
Operating expenses1, which include mainly employee
related costs, chargebacks, returned e-cheques and
payment service providers (“PSP”) commissions, totalled
US$114 million (2011: US$109 million) representing a
lower proportion to revenues of 30% (2011: 33%). Staff
costs2 remained stable in absolute terms. Chargebacks3
ratio remained stable at 0.9% (2011: 1.0%) as did PSP
commissions ratio at 6.0% (2011: 5.9%).
1 As defined in table set out on page 8.
2 See detail in note 5 to the financial statements.
3 See detail in note 4 to the financial statements
Gaming duties, in respect of statutory payments
levied in regulated markets reached US$12 million (2011:
US$7 million) (excluding US$11.1 million back dated duties
imposed in Spain). The increase in gaming duties is driven
by revenue expansion in Spain and Italy and due to the
fact that gaming duties were levied in Spain only since
June 2011.
Research and development expenses, net of software
costs capitalised associated with our focus on preparing
the platforms for the US market, regulated markets and on
developing the mobile platform, were US$27 million (2011:
US$30 million).
Marketing expenses during the year reached a record
US$131 million (2011: US$102 million) reflecting investment
in the launch into regulated markets in Spain and Italy. This
has resulted in an increase of marketing ratio to revenue to
35% (2011: 31%).
Administrative expenses1 decreased to US$26 million
(2011: US$28 million) reflecting reduced level of expenses
associated with professional costs arising from regulated
markets and the refocusing of the B2B business.
Share Benefit Charges
Share benefit charges were US$1.7 million (2011: US$2.4
million) the decrease is primarily as a result of the Group
selective equity award policy since 2010.
Finance Income (expenses)
Net Finance income1 was US$1.9 million (2011: expense
of US$13.1 million). Most of the difference is attributable
to Wink related charges in 2011 and the fair value of
operational hedging instruments in 2012.
www.888holdingsplc.com 10
FInAnCIAl REvIEw
Adjusted EBITDA
Adjusted EBITDA reached a record US$67 million (2011:
US$56 million) again compared to a strong performance
last year. Adjusted EBITDA margin was 17.8% (2011: 16.8%).
Taxation
The tax charge for 2012 was US$5.4 million (2011: US$3.9
million) representing stable tax expense even though
profit has increased significantly.
Earnings Per Share
Basic earnings per share was 10.2¢ (2011: 0.6¢).
Adjusted basic earnings per share1 was 13.9¢ (2011: 7.4¢).
We believe adjusted basic earnings per share excluding
impairment charges, retroactive duties and associated
charges, restructuring costs, share benefit charges and
movement in contingent and deferred consideration better
reflects the underlying business and assists in providing a
clearer view of the performance of the Group.
Dividend
Given the strong cash generation during the year the
Board of Directors reinstated the dividend at the half year,
declaring an interim dividend of 2.5¢ per share that was
paid on 18 October 2012. Taking into account the strong
performance of the business and lack of dividend in 2011,
the Board is recommending a final dividend comprising
4.5¢ per share (which together with the interim dividend
equals 7.0¢ per share in accordance with our pay-out policy
set out at the time of our 2005 flotation) and an additional
on-off 2.0¢ per share, bringing the total for the year to 9.0¢
per share.
Cash Flow
The Group continues to generate substantial amounts
of free cash with net cash generated from operating
activities, after payment of retroactive duties and
associated charges, reaching US$71 million
(2011: US$79 million).
Balance Sheet
The Group’s balance sheet remains strong, with no debt
and ample liquid resources. The Group’s cash position as
at 31 December 2012 was US$82 million (31 December
2011: US$76 million).
Balances owed to customers were US$49 million (2011:
US$45 million).
1 As defined in the table set out on page 8.
888 Holdings plc Annual Report & Accounts 2012 11
OPERATIOnAl REvIEw
Growth Through Technological Innovation
Technology remains at the heart of 888, and it is our more
than decade long history of building best in class back
office systems and experience in online marketing that
provides us with a real competitive advantage. With our
own technology team, product development and dedicated
marketing departments driven by advanced modelling and
analytics working together under one roof, we control all of
the ingredients required for our success. 888 is uniquely well
placed to target investment and marketing spend through
basing investment decisions on real-time comprehensive
data analysis, thereby maximising return on investment.
Our powerful analytical tools drive the success of our
products from development to marketing, and also help
to provide the successful platform on which we are able to
launch in newly regulated markets with impressive results.
Each time that we launch a new offering into a new market,
it is built on top of our proven platform, providing an
excellent base for growth, with our technological systems
allowing us to extract more from our investment and take
advantage of a very powerful tool in online gaming.
888 will continue to invest in technology to produce best in class
multi-regulation, multi-product and multi-platform offerings.
Continuing Innovation
An online gaming destination is successful through offering
customers precisely what they want in an innovative and
dynamic environment that encourages repeat visits. The
enormous success of Poker 6 was the result of analysing
customer requirements and providing the casual player
an attractive offering of an inviting environment in which
to enjoy the game with a more recreational feel, allowing
players to place smaller initial stakes.
Following these successful changes to our poker product,
the first quarter of 2012 saw the launch of our revamped
casino offering, Casino 50, which reconstructed the
casino platform to provide an industry leading casino
product. The multi-software platform delivers a much
more exciting and interactive experience to our customers.
Utilising state-of-the-art web and design technology, the
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 adapts to each individual player, allowing
players to engage online casino ‘their way’.
www.888holdingsplc.com our B2C divisions, we have proven back office capabilities,
and this allows us to be selective with our pipeline and
look for those deals that will have a significant bottom line
impact.
Dragonfish’s leading position in Bingo is not something
that we take for granted. Despite the increasingly mature
market and high levels of competition, our net gaming
revenue in this area remains robust. This is the result of
continuing innovation of the Bingo platform, supported
by investment and product improvement, adding better
bonus management systems, and a wealth of new instant
games — both those developed by 888games and cherry-
picked best of breed external ones. As with all of our
products, we have also maximised the performance of our
Bingo offering on HTML5 and mobile devices.
12
OPERATIOnAl REvIEw
Casino 50, fully localised with multi-currency support
and available in 18 languages, offers a huge range of
online casino games including unique and innovative slot
games with branded themes and progressive jackpot as
well as new versions of Blackjack and Roulette which are
appealing for card & table players.
These unique and innovative slots are designed and
created by 888’s in-house game studio, developed within
our technological infrastructure. 888casino now offers
over 200 games across multiple platforms including
download, no download, tablets, mobile and more. Casino
50 has been received well by our customer base, and we
have begun to see the fruits of our labour as revenues and
first time depositors have increased, with the Casino also
achieving one of the highest player life-time values in the
industry.
Poker 6 continues to evolve and grow, with the modern,
innovative and fun environment now providing a 1-click lobby
as well as the opportunity to play via webcams, with a unique
“Play with Friends” option giving the chance to do exactly that.
The success of 888poker received prestigious external
recognition, with 888 being awarded the 2012 Poker
Operator of the Year at the eGaming Review - Annual
Operator Awards.
Bingo continues to be a challenging and very competitive
market, but we are proud to remain the number one online
bingo platform worldwide, and we continue to ensure that the
platform is fresh and relevant. The no download (Flash) Bingo
application has proved popular, and over 100 available Instant
Games boost player life-time value. Fully localised for a wide
variety of languages and currencies, the platform has been
created to ensure that it provides a turnkey solution for brands
and companies looking to enter the Bingo market. Graphics,
themes, animations, room introductions and the games
themselves are easily adaptable and ideal for a third party
operator to customise. The fact that 888 powers 25 networks
and well over 100 skins, with thousands of active players on
each network is the successful testimony to our approach.
888Sport remains an important part of the portfolio, and this
area of the business is still growing, with particular success
in increasing the prominence of mobile betting through
launching apps across a comprehensive range of products.
As a result, the percentage of revenues in Sport resulting
from mobile devices reached 30% at the end of the year.
Continuing success in our B2C divisions will attract
interesting B2B opportunities for Dragonfish. Our focus
is on quality contracts, and a widespread appraisal of all
of our relationships was completed in 2012, resulting in a
healthier bottom line. As can be seen from the growth in
888 Holdings plc Annual Report & Accounts 2012 13
Platform of Choice for
Regulated Markets
Dragonfish is also a key component of our regulated
market strategy. Our best in breed B2C offering and
investment in building the best possible platform for
operation in new jurisdictions provides a strong incentive
for companies to partner with Dragonfish in order to gain
a foothold in newly regulating territories. An example of
this is the CasinoFlex platform which offers Dragonfish’s
partners download and instant-play games along with
the popular Live Casino product, seamlessly integrated
into one complete gaming package, as well as providing
comprehensive back office support.
Our success in Spain has not gone unnoticed and we have
received a number of enquiries. The market is only now
starting to show meaningful partnership potential and,
consistent with our strategy for Dragonfish, we will only
sign deals where there is a good economic rationale for so
doing. Dragonfish remains active in looking for significant
opportunities that arise in countries that are looking to
regulate online gaming. The largest of these opportunities
is clearly the United States.
Investment in the platform means that Dragonfish is ideally
placed once the US market opens, and strategic deals have
already been signed — with more still to come. We operate
Caesars Interactive Entertainment’s (CIE) World Series of
Poker online poker brand in the UK, a collaboration which
received the approval of the Nevada Gaming Control
Board (which included a finding of suitability for 888 by
the Control Board). In addition, Dragonfish will power a
selection of CIE’s established and recognised poker brands
including the “WSOP” in the US, once online gaming is
permitted under a new regulatory regime.
Following on from this a strategic agreement was signed
with gaming content and slots supplier WMS Gaming
Inc., the quoted US group which is a major supplier of
electronic games content and slot machines to the land
based gaming industry. Under the deal 888 will provide an
online poker platform to WMS who will then market and
distribute it to their land based casino customers. Initially
the deal will involve play for fun but when the regulatory
environment allows real money will be offered. Whilst
the true value of these deals will only be realised if online
poker legislation develops positively, they reflect our
growing presence in the US market and the very strong
position that we have there.
Success in new Markets
888 receives over 50% of revenue from regulated markets,
with no other individual territory accounting for anywhere
near 10% of the total revenue. This is a strong position
from which to build and, as more territories regulate, it is
a key priority of 888 to obtain and then build a significant
market share. We had tremendous success in Spain
in 2012, and how we did this is indicative of our wider
strategy.
Prior to the opening of the market we adapted the
software to meet the licensing requirements and, just as
importantly, to provide an excellent gaming environment
to attract the recreational Spanish player. On 1 June
2012 we were awarded a Spanish eGaming licence. After
effectively and efficiently migrating customers to the
regulated environment we quickly built market share,
with our poker offer becoming number two in the Spanish
market with more than 20% market share for 888poker.es.
This was done without significant marketing investment,
showing the efficiency of our customer acquisition.
Revenue from poker in Spain is now double that earned
from the pre-regulation market.
The Italian market has also proved to be successful.
Initially launching a brand new Casino offering, designed
specifically for Italy, player numbers almost doubled in the
first half of 2012, and bets rose 70%. Having adapted our
poker software, this was launched in the second half of the
year, and the decision by the Italian regulator to allow slots
from December bolstered our offering and allowed us to
introduce our unique games such as Deal or No Deal and
Big Brother. We will continue to analyse player trends in
Spain and Italy, ensuring that our offering and marketing
remain at the cutting edge.
www.888holdingsplc.com 14
OPERATIOnAl REvIEw
We will also maintain our focus on being in the best possible
position to take advantage of regulatory movements in the
US, positioning 888 to become one of, if not the, largest
providers of online operations and services in that market.
Already, considerable work has been done to make certain
that we have the best possible product ready for launch in the
US, and our Dragonfish deals with CIE and WMS show that we
are ideally placed to maximise B2B opportunities. We await
any regulatory movements with considerable excitement.
new Platforms
After a number of false dawns, the irresistible rise of the
smart phone and the increasing ubiquity of tablets meant
that 2012 was the year that the mobile market truly took
off as a significant revenue and customer acquisition
generator. The rise in mobile usage has led us to redefine
our marketing strategy, with a strand of our marketing
devoted specifically to the mobile consumer.
What works on PC does not necessary work on mobile,
and 888 has a devoted team concentrating on mobile
applications. Benefitting as we do from having all
technological development teams under one roof, all
products are based on the same base 888 platform, allowing
us to use all core functionality from our market leading
traditional offering and only needing to invest once in the
platform prior to utilising it across all consumer devices. All
product groups are now available as apps on both Apple
and Android, tablets and smartphones. All applications are
witnessing growth in usage, and we are confident that this
medium will be earnings enhancing as we move forward.
We will continue to invest in this area in order to
develop the best possible applications, for all regulated
jurisdictions, and maximise the performance of our
product range across all mobile devices. The 888sport app
is now responsible for 30% of our Sport revenue, and we
expect growth in mobile usage across all areas to carry on
at pace in 2013.
While still a nascent industry, social networks are
becoming an integral part of online gaming. 888 has
been a pioneer in offering social aspects as part of the
user experience in our traditional gaming offerings, and
exploring social gaming itself.
An important step was made in December with the signing
of an agreement with Facebook to launch real-money
products over the world’s most popular social network.
The agreement allows 888 to offer bingo, casino and
slot games through the Facebook platform in the UK.
Developed by 888, the first app to launch was Bingo Appy,
which has made an encouraging start. A casino offering
including slots and other popular games will be launched
in the first half of 2013.
Business Analytics
The successes detailed above are based upon 888’s
technological strength and the efficient utilisation of this
technology, directed by extensive analytics data. 888
operates as a technology marketing company, controlling
all the required ingredients to our success, pushing the
envelope with our product offering and marketing by
using advanced modelling and analytics. They all feed one
another. The fact that we have all three under the same
roof makes us very effective.
The goals of our industry leading business analytics are
simple — to maximise customer recruitment, increase
customer lifetime value and minimise the cost per
customer acquisition, thereby optimising return or
marketing investment.
Having more than fourteen years’ experience in online
gaming, and the best customer care application in the
industry, 888 has at its disposal more than a decade of
precious data. A highly trained and experienced team of
research quantitative professionals are able to use this to
boost the effectiveness of products, games, marketing
campaigns, advertisements and payment systems.
Prior to any product launches our in-house teams carry
out extensive testing, with data analysis results indicating
where sites can be improved and providing the best
possible gaming experience. It was this testing and
analysis that formed the bedrock of the success of Poker
6, creating precisely the product that the market lacked
and giving the recreational gamer the Poker experience
that they had been missing. The launch of a new product
is of course not the end of the analysis, and every part of
every page is studied to make sure that it provides the
right experience to the player and the maximum possible
888 Holdings plc Annual Report & Accounts 2012 15
value to 888. Poker 6 and Casino 50 are never considered
finished products, but will continue to evolve to match
consumer tastes.
Alongside product optimisation, the analysis of marketing
campaigns is also of key importance to 888. With
more than a hundred million dollars spent each year
on marketing it is absolutely crucial to the success of
the business that this money is spent wisely. Due to our
exceptional analytics our spending is very surgical — we
have the data and ability to be able to decide exactly
where we want to spend our money, making us a lot
more effective. At any given time we track and analyse
hundreds of online and offline campaigns, thousands of
active affiliates, and the performance of all products. This
dynamic real time analysis allows the instant judging of
marketing spend — from significant TV advertisements to
single banner advertisements. If a new banner advert is
launched that is not performing as hoped, it can be seen
immediately and be tweaked or replaced. Thousands of
promotional activities are designed and analysed, with
the most profitable ones then recurring most often, being
improved continuously.
As well as analysing marketing campaigns, customer
behaviours are themselves analysed at every step of the
playing lifecycle with 888, helping our customer relationship
management (CRM) be amongst the best in the business.
Our data mining capabilities help to predict a player’s
lifetime value within a short period of joining 888. These
predictions, based on robust statistical modelling of millions
of customers, help 888 to identify player characteristics and
segment them according to churn type. Players are then
targeted according to a tailored marketing plan from the
CRM department, offering each individual the specific offers
and experiences that will be most likely to appeal to them.
Combining data analytics with great marketing ideas
therefore helps us to have a highly personalised
relationship with customers, maximising the customer
experience and lifetime value. Our customer engagement
platform cherry-picks the most suitable client
communications through analysing individual responses to
them, be they regular newsletters, tailored advertisements,
or one off promotional emails.
Our analytical data also allows the early identification of
high-rollers. From the very beginning of their customer
lifecycle this strong core of long term, dedicated
customers, is provided with 888’s exceptional VIP service.
This service encompasses both on and offline activities,
including 888 hosted exclusive activities at major sporting
events and 5 star experiences.
The ongoing work of our business analytics team will make
certain that all new products, marketing campaigns, and
individual games will have the maximum benefit as we
move into 2013.
ePayment and Fraud
In order to maximise revenue and convert browsers into
players, it is important that payment processing is fast,
easy to use and available in the format and currency
customers desire. 888’s leading payment processing
capabilities support 22 languages and a wide variety
of currencies, while more than 50 payment methods
are supported. While it is vital that payment is as quick
and easy as possible, we take our duty as a responsible
operator very seriously and take comprehensive steps to
minimise fraud.
888 has multiple acquiring relations with Tier 1 banks,
level 1 Payment Card Industry compliance, and Visa and
Mastercard accreditation. 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.
Customer Support and Service
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 8 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.es, a tailor-made offering for the
newly regulated Spanish market, in June 2012, marked an
additional milestone for the Group. To support this venture
a wholly new customer support team was recruited and
trained to handle all aspects of the operation, successfully
establishing a range of new processes and procedures.
With a well thought-out strategy, excellent migration and
penetration plan, 888.es rapidly reached a significant
market share in one of Europe’s most important strategic
markets.
www.888holdingsplc.com 16
OPERATIOnAl REvIEw
In 2012 888’s support teams converted a significant
proportion of all incoming phone calls and relevant
incoming chats to deposits; continuing to provide a
convenient service to players and contributing to business
growth. The expansion of live telephone and chat deposit
capabilities to our Bingo offering proved to be highly
successful, enabling the business to take advantage of new
marketing opportunities and boost revenues.
The Telemarketing and Proactive Chat Department
continued to deliver excellent performance as measured
by the deposits generated by interaction with customers.
Using compelling incentives and offering additional
services to customers at critical conversion points, the
Department increased its performance for the fourth
successive year in all three key metrics — efficiency,
productivity and revenue generated.
The optimisation and expansion of 888’s Online Web Self-
Service tool to regulated markets, 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.
The successful establishment of the WINK Bingo Operation
in Antigua in May 2012, completed within a very tight
timeline and to budget, was a major boost for the Group’s
customer service. Growth was prominent across most of our
business lines in 2012 and with this a substantial, business
critical, increase in active players. Achieved with little to
no disruption for our customer base, the new operation
allowed us to handle the significant increase in the volume
of incoming queries into our support centres in 2012.
The main Gibraltar contact centre focuses on providing
support for 888’s principal markets in Europe, Asia Pacific
and Latin America, while the Antiguan contact centre
focuses on supporting the English speaking markets
in Europe, Australia, Asia Pacific and Canada. The fully
established contact centre in Romania is providing mainly
telemarketing and proactive chat activities in several
languages for 888 and Dragonfish.
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 2012.
Throughout the year, we further improved the handling
of customer interactions by prioritising inbound queries
according to customer status and specified business
priorities. In addition, the Department increased its social
media presence and expanded the use of RightNow
capabilities, adding alerts and various automated reminder
protocols to enhance the customer experience.
Customer Satisfaction
888 continues to monitor customer satisfaction at key
points throughout their lifetime cycle in order to assist
stakeholders in the group to identify and understand
habits and expectations of loyal players, as well as to
design service initiatives and ongoing refresher training
based on the results.
In 2012, the customary annual study conducted to
benchmark 888’s service level within its primary markets
included English, German, Spanish and Italian speaking
casino and poker players, as well as English speaking sport
customers. 888 is pleased that, for the fourth year running,
respondents from our main language markets gave
their highest rating to the level of professionalism of our
support representatives. The 2012 study, for the first time,
also included our English speaking Bingo B2C and B2B
players and provided invaluable insight into this segment
of the industry.
Review forums, customer surveys and feedback analysis
assisted the Department in the continual evaluation and
refinement of the Online Help content. Enhancements of
the visual representations of supplied information reduced
text based materials, adapting to customer needs and
increasing user satisfaction.
888 Holdings plc Annual Report & Accounts 2012 17
REGulATIOn AnD GEnERAl REGulATORy DEvElOPMEnTS
As a business operating in a highly regulated environment
and deeply committed to conducting its business in a
lawful and compliant manner, 888 is heavily impacted by
regulatory changes relevant to its business operations.
Technological developments in online gaming have often
preceded regulatory reform, and recent years have seen a
constant effort by various jurisdictions around the world
to bring laws governing gaming up to date to reflect
present technology. The most significant developments in
recent years have occurred in European jurisdictions, but
similar evolution is now occurring in the United States and
elsewhere around the world. The group continues to be
an active and vocal supporter of the regulation of online
gaming, and invests significant efforts in facing the various
challenges posed by the ever growing and complex
mosaic of divergent regulatory regimes relevant to its
business worldwide. The following paragraphs summarize
the main relevant regulatory developments of 2012.
European Jurisdictions
As the hopes for pan-European harmonisation of online
gaming laws waned during 2012, a growing number of
EU Member States have introduced (or are in the process
of introducing) local legislation governing the offering
of online 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, Denmark, Belgium, Estonia, Greece, Hungary,
Romania, Bulgaria and others have already adopted a
regulatory regime governing online gaming. Other EU
Member States, including Ireland, the Czech Republic,
the Netherlands, and Sweden are also considering (or
are already in the process of) revising their gaming laws,
possibly to include liberalisation of the online gaming
market. The proliferation of varying regulatory regimes
throughout the EU Internal Market has inevitably resulted
in increased regulatory constraints and compliance
challenges impacting the Group’s European business.
In June 2012 the group was issued an online gaming
license by the Spanish gaming Directorate and launched
its licensed casino and poker offering in that jurisdiction.
The Spanish authorities have announced their intention to
expand the scope of gaming variants available to licensed
operators during 2013.
Italy, where the group holds an online gambling
concession, introduced new legislation in 2012 expanding
the scope of licensable online activities to include online
slots. The group has updated its Italian licence concession
in accordance with this new legislation and launched the
new games in December 2012.
During 2012, Germany adopted a new Inter-State
Gambling Treaty and introduced federal duty on sports
betting, applicable to all operators accepting sports
wagers in Germany. The regulation of online gaming
itself in Germany continued to be characterised by legal
ambiguity and chaos during 2012. Despite harsh criticism
by the EC, the new Inter-State Gambling Treaty was signed
and approved by the German federal states, entered into
force in July 2012, and introduced a very limited online
sports-betting regime, allowing for no more than 20
licencees and echoed the online gaming ban contained
in the previous treaty. Towards the end of 2012, various
German courts expressed doubts regarding the validity
and enforceability of the new treaty, and litigation on this
matter is expected to carry into 2013.
Conversely, the German state of Schleswig-Holstein
introduced its own regulatory and licensing regime for
online casino games and sports betting. Despite having
received a large number of applications for licensure under
this legislation, a change of government in that state
was followed by an announcement indicating the new
administration’s desire to repeal the law and align the state
with the treaty adopted by the other German states. Due
to legal difficulties and delays in the repeal of the existing
law, the Schleswig-Holstein regulator ultimately issued
licenses to qualified applicants, first for sports betting only,
and later for casino licenses. The group was issued both a
sports betting license and an online casino license by the
Schleswig-Holstein authorities during 2012. However, there
remains a certain degree of legal uncertainty surrounding
the ability of Schleswig-Holstein licensees to accept
players throughout Germany under that license. While the
Schleswig-Holstein law does not prohibit the acceptance
of players nation-wide, and while strong legal arguments
are available to support the right of Schleswig-Holstein
licensees 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. It is however noteworthy
that the issuance of online gaming and betting licenses by
Schleswig-Holstein has exacerbated doubts regarding the
validity of the Inter State Gaming Treaty (as expressed in
comments made by various German courts in the latter
half of 2012).
www.888holdingsplc.com 18
REGulATIOn AnD GEnERAl REGulATORy DEvElOPMEnTS
In early 2013, the Parliament of Schleswig-Holstein, with a
single vote majority, repealed the state’s Gaming Act, and
voted to join the other 15 States’ Inter-State Gaming Treaty
(though the licenses already issued under the repealed Act
will remain in force for the duration of their 6-year term).
Concurrently, the German Federal Court of Justice, noting
doubts regarding the compatibility of the current German
regulatory regime with EU law, referred the matter for
adjudication by the European Court of Justice. In practical
terms, this ruling makes it unlikely that lower German
courts will take a more definitive approach regarding the
validity of the regime until the issue has been ruled on by
the ECJ, and the vagueness regarding the validity of the
current regime is likely to persevere for quite some time.
The end of 2012 saw the UK evaluating its online gaming
regime. On 3 December 2012, the UK Department for
Culture, Media and Sport (DCMS) published a draft bill
to amend the 2005 Gambling Act. The bill proposes
subjecting online gaming operators whose services
are accessible in the UK to the licensing requirements
applicable to UK-based operators, while abolishing the
right of EU/EEA based operators to advertise their
services in the UK without a UK gaming license. Under
the current regime, only operators whose online gaming
equipment is physically located in the UK are required
to obtain a UK gaming license; furthermore, operators
licensed in the EU/EEA or in a white-listed jurisdiction,
such as Gibraltar, 888’s home jurisdiction, are legally
allowed to advertise their services in the UK. The new
bill proposes abolishing these two provisions by stating
that “remote gambling” that is “capable of being used”
in the UK, may only be conducted under a UK gaming
license; similarly, such “remote gambling” may only be
advertised in the UK if it is conducted in accordance with
a UK gaming license. The bill has been placed before
Parliament, where the ordinary legislative process will
commence. The proposal indicates a timeline for the
reform which is commensurate with the 2013 budget
and implementation of the new regime is anticipated in
December 2014. The group is presently assessing the legal
impact such a change could have on its interaction with
customers in the UK.
As part of a broader austerity package, and with the
undisguised aim of generating significant tax revenue
from online gaming, Greece adopted a regulatory and
licencing regime governing online gaming regime during
2011. The 2011 Greek legislation (which has not yet been
enacted) has come under severe criticism due to its
incompatibility with EU law. This is primarily due to the
fact that applicants for an online gaming licence must be
established in Greece, locate their gaming infrastructure
and store data in Greece and conduct payment
processing in Greece. The law also subjects applicants
to retroactive taxation. In late 2012, and as part of the
Greek Government’s plans to privatise the state owned
betting monopoly (OPAP), the Government granted OPAP
a 10-year monopoly on sports betting and a 20-year
monopoly on VLT operations. Consecutively, the Greek
Gaming Commission announced its intention to generate
a blacklist of unlicensed operators active in the Greek
market; however, due to severe criticism of this move, the
blacklisting process has been indefinitely put on hold. In
early 2013, the ECJ ruled that the monopoly granted under
Greek law to OPAP may be in breach of EU law, returning
the matter to the Greek courts for final determination. A
final ruling invalidating OPAP’s monopoly could have a
profound impact on the regulatory regime applicable to
gaming (both online and land-based) in Greece.
Belgium’s licensing regime for online gaming activities
became effective in early 2012 after a year of “temporary
test permits” granted to selected operators. Belgian online
gaming licences may only be issued to terrestrial operators
already operating a casino or gaming arcade. In addition,
servers containing (as a minimum) the data pertaining
to Belgian operations, are to be located in Belgium. For
these reasons, the European Commission has declared the
Belgian regulatory regime to be incompatible with EU law.
Both Hungary and Romania amended their gambling laws
during 2011 and introduced limited regulatory regimes
governing online gaming. The implementation of these
new regulatory regimes was delayed in anticipation of the
publication of necessary secondary legislation. Neither
regime was launched during 2012, and both jurisdictions
have indicated that they intend to reform the 2011 laws to
accommodate a more liberalized licensing approach.
Bulgaria adopted a new gaming law, including a liberal
licensing regime for online gaming, which came into
effect in mid-2012. Regulations to implement the online
gaming aspects of the bill are anticipated in early 2013, at
which time the licensing process under the new law will
commence.
The newly elected government of The Netherlands has
announced its intention to continue efforts by the previous
administration towards liberalisation of the country’s
regulatory regime applicable to online gaming. In late
2012 an agreement was reached with the Dutch lottery
monopoly, securing the latter’s support for liberalisation
of the online market as part of a broader reform of
gaming laws. The Group maintained close contact with
the Dutch authorities during 2012, providing information
and making proposals with regard to the anticipated
reform based on its experience from other regulated
markets. The Group will continue to engage with the
888 Holdings plc Annual Report & Accounts 2012 19
Dutch Gaming Administration during 2013, with the hope
that the anticipated reform will accommodate a vibrant
and commercially viable online gaming market in the
Netherlands.
Also in late 2012, the authorities of the Czech Republic
announced their intention to redraft a bill aimed at
reforming the country’s gaming laws (after a previous
version was rejected by the European Commission). The
Group remains hopeful that these efforts will result in
liberalisation of the Czech gaming market, allowing the
Group to obtain a license in this jurisdiction as well.
The Government of Sweden has also announced that it
is drafting legislation to liberalise the country’s online
gaming market (currently reserved to the local lottery
monopolists).
Developments also occurred on the pan-European
level. Following the public consultation launched by the
European Commission’s (“EC”) Green Paper on online
gaming in 2011, the European Union Internal Market and
Services Commissioner released in October 2012 an
action plan on the regulation of Europe’s online gambling
industry. Falling short of proposing harmonisation of the
laws governing online gaming throughout the Internal
Market, the action plan includes a series of initiatives
planned for the following two years and aims at clarifying
the regulatory landscape governing online gambling and
encouraging cooperation between EU Member States.
Most notably, the Commission has proposed the adoption
of a comprehensive set of common principles aimed at
creating a safer online gaming market in the EU. The
action plan lists the following five priority areas: (1)
compliance of national regulatory frameworks with EU law;
(2) enhancing administrative cooperation; (3) protecting
consumers and citizens; (4) preventing fraud and money
laundering; and (5) safeguarding the integrity of sports
and preventing match-fixing. To promote the above, the
Commission has stated it will establish an expert group to
facilitate exchanges of experience on regulation between
Member States. 888 submitted a position paper in the
context of the consultation process, also addressing the
issues above, where the group already has well developed
and robust policies and systems in place. The Commission
has also planned to send requests for information to
Member States against whom complaints were registered
and infringement actions were commenced since 2008 in
order to obtain an update on the latest developments in
national legislation.
uSA
Federal legislation governing online gaming (most likely
online poker, initially) remains the less likely possibility in
2013. Late 2012 saw consensus between Senator Harry
Reid (long time supporter of online poker legislation)
and Senator Jon Kyl (who has traditionally objected to
federal legislation condoning online poker) who together
proposed a draft bill to regulate online poker on a federal
level. However, the year ended without the bill having
been formally introduced to Congress. It is yet to be seen
whether Senator Kyl’s retirement from the US Senate
in early 2013 will affect the likelihood of a new federal
online poker bill, and whether the newly elected US
administration will pursue initiatives aimed at regulating
online gaming on the federal level. As noted below, various
US states have embarked on independent initiatives to
regulate online gaming within their territories, and the
possibility of inter-state compacts is not to be ruled out.
The Group remains hopeful that these developments at
state level will ultimately encourage federal legislation
aimed at regulation of the industry on a national level.
The end of 2011 saw publication of the US Department of
Justice’s memorandum reversing the Department’s long-
standing position regarding the scope of the Wire Act.
The Department’s conclusion 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 licensed
state lotteries, motivated public discussions and legislative
initiatives in various US jurisdictions, with the aim of
regulating intra-state online gaming.
The State of Nevada implemented, during 2011, a new
regime governing intra-state interactive poker. The newly
introduced Nevada regime allows licensed terrestrial
gaming operators to offer online poker to patrons in
Nevada, including through partnership with online
operators in possession of an appropriate service provider
licence. On 7 March 2013, the Nevada Gaming Control
Board recommended to the Nevada Gaming Commission
the approval of the licensing of 888 as an Interactive
Gaming Service Provider, manufacturer and distributor,
and in connection therewith the licensing of its key
executives and controlling shareholders. The Commission
hearing will be held on 21 March 2013. By securing the
Board recommendation the Group continues to pioneer
the Nevada online gaming market. Furthermore, a bill
passed by the Nevada legislature in early 2013 could pave
the way for Nevada to compact with other jurisdictions
towards cooperation (and possibly – pooled liquidity) in
connection with Interactive Gaming, a development the
group strongly supports and will continue to assess as
developments occur.
www.888holdingsplc.com 20
REGulATIOn AnD GEnERAl REGulATORy DEvElOPMEnTS
Other Developments
Several Canadian provinces continued to examine
possibilities for the regulation of online gaming at the
provincial level, through the existing lottery corporations.
The most significant development occurred in the province
of Ontario, which published a tender seeking potential
partners to operate an online gaming platform on behalf
of the Ontario Lottery and Gaming Corporation.
In Australia, a proposal was published in late 2012
recommending that the government embark on a 5-year
online poker “trial”. Resistance within the Australian
Parliament remains vocal, and the likelihood of significant
change prior to national elections late in 2013 seems
unlikely.
Finally, the massive growth in social-network based
gaming in recent years has prompted interest and
attention from various regulators. While some
spokespersons have specifically called for this industry
to be brought under the scope of real-money gaming
regulation, other regulators (most notably the UK
Gambling Commission) have called on the industry to
“self regulate” in a responsible manner, so as to mitigate
any potential adverse impacts of social gaming on
vulnerable audiences (primarily minors). The growing
importance of social gaming to the industry at large,
and to the Group in particular, renders this an important
focal point for 888 in 2013.
Late in December 2012 the New Jersey legislature voted
in favour of a bill that would authorise Atlantic City casino
licensees to offer casino games via the internet to players
located in the borders of the state. The new bill only
allows intra-state Internet gaming, but it provides that
inter-state gaming may occur in the future. Unlike other
US jurisdictions whose online gaming laws are restricted
to specific gaming variants, the law passed by the New
Jersey legislature would allow licensees to offer online the
full range of gaming services available under state law, to
customers within the state. At the close of 2012, the bill
awaited approval by the Governor (a previous similar bill
was vetoed by the Governor in 2011). Governor Christie
conditionally vetoed the bill in early 2013, and in February
2013 the bill was amended to reflect the Governor’s
conditional veto and was subsequently signed into law
by the Governor. Following passage of the law, the NJ
regulator will adopt regulations to develop the regulatory
framework and is expected to issue licenses during 2013.
Other states also made initial steps towards regulating
intra-state online gaming. In June 2012, a bill authorising
Internet gaming within the state borders of Delaware
was signed by the Governor. The new law allows for an
Internet lottery to be offered and administered through
the Delaware Lottery. Internet table games and video
lottery games will also be offered via a website or
websites branded and promoted by the state’s three
racetrack casinos, sharing one technology platform. Sale
of Internet ticket games, meanwhile, will be conducted
by the Delaware Lottery Office. The new law only allows
intra-state Internet gaming, but it provides that inter-state
gaming may occur in the future.
Also in December 2012, California Senator Wright
introduced an Internet gaming bill which would legalise
intra-state Internet poker. This bill is identical to a previous
version introduced by the same senator in early 2012
which had been withdrawn due to anticipated political
difficulties.
Bills introducing online gaming regimes in Hawaii, Iowa,
Illinois, Connecticut, Mississippi, Pennsylvania, Ohio and
Washington D.C. failed to pass.
Other US jurisdictions, including Maryland and New
York, are considering joining Illinois — the first US
state to launch online lottery services — by launching
online platforms for the sale of lottery products. These
developments could all present potential business
opportunities for the Group, which could act as a service
provider to licensees and lottery corporations in the
various states.
888 Holdings plc Annual Report & Accounts 2012 21
Corporate Social Responsibility
As a global leader in online gaming entertainment, 888
is committed to a standard 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 future success of 888 and the sustainability of the
business. 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.
Community
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 charitable donations and long standing
community involvement in our key areas across the world.
888’s Annual Charity Weekend resulted in a donation of
US$24,000 to Bliss, the UK charity working to provide the
best possible care and support for all premature and sick
babies and their families.
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 have taken rigorous steps at all
our online sites to prevent underage activity.
Responsible gaming
Our values place the community and the customer at the
center of all our endeavours. We are constantly creating
new and innovative ways to create a caring, responsible
gaming environment and to ensure children are unable to
access our gaming sites.
For any customers who suspect they have a problem,
our Director of Responsible Gaming and our well-trained
staff provides individual assistance that is considerate,
supportive, and helpful.
Environment
As an online businesses 888’s activities have a relatively
small impact on the environment, but 888 continues to
develop its commitment to environmental issues:
● Energy consumption: We continuously monitor our
energy consumption to help us ensure we are being as
energy efficient as possible.
● Recycling: We recycle as much as possible. Paper,
bottles and cans are collected from all of our sites. All
888’s redundant IT equipment is now recycled.
● 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
to work and, in certain locations, provide buses for
commuters. We also continue to invest in the state of
the art technology to help meetings occur remotely.
888 aims to provide responsible adults with the best
online gaming entertainment experience. However, we
acknowledge that gaming poses a potential danger to a
small minority of people. We continuously train all our staff
in how to provide a safe gaming experience. Our training
program incorporates methods and techniques to help our
employees recognise and take appropriate actions if they
identify compulsive or underage activity.
Protecting Customers
● As a responsible, regulated gaming company we
comply with both the GamCare and the eCOGRA
guidelines.
● GamCare is the leading authority on the provision of
counseling, advice and practical help in addressing the
social impact of gambling in the UK.
● eCOGRA ensures that approved online casinos are
properly and transparently monitored to provide player
protection.
● Our site has links to helping agencies and we have
placed many safeguards for those who need help with
controlling their gaming.
● Self-assessment test: For players who are worried
about their gaming habits and want to know more
about the signs of compulsive gambling,
www.888holdingsplc.com 22
Corporate Social Responsibility
● Controlling deposit limits: should clients feel the
need to, they can control their play pattern by self
limiting the amounts they deposit per day, per week
or per month.
● Self exclusion: A player can request to be self excluded
for a chosen period, due to different concerns. 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 1 day to 6 months.
During this period, 888 blocks the account and no
promotional e-mails are sent to the client.
Protecting minors
Underage activity on our sites is prohibited and 888 takes
the matter of underage 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 activity and make sure we suspend any
account suspected to be an underage account.
888responsible
Since 2007 a dedicated website, www.888responsible.com,
has been available, providing information regarding all
aspects of responsible gaming. The site is available in
English, French, Spanish and German.
888 Holdings plc Annual Report & Accounts 2012 Risk Report
The Group operates in a dynamic business environment.
In addition to the day-to-day commercial risks faced
by most enterprises such as fraud and theft, the online
gaming industry faces particular challenges in respect of
Regulatory risk, Reputational risk, Information Technology
risk and Taxation risk, each of which is detailed below.
Regulatory risk
The regulatory framework of online gaming is dynamic
and complex. Change in the regulatory regime in a
specific jurisdiction could have a material adverse
effect on business volume and financial performance in
that jurisdiction. In addition, a number of jurisdictions
have regulated online gaming, and in many of those
jurisdictions the Group holds licenses. However, in some
cases, lack of clarity in the regulations, or conflicting
legislative and regulatory developments, mean that the
Group may risk failing to obtain an appropriate license,
having existing licenses adversely affected, or being
subject to other regulatory sanctions. Furthermore, legal
and other action may be taken by incumbent gaming
providers in jurisdictions which are seeking to regulate
online gaming, in an attempt to frustrate the grant of
online gaming licenses to the Group. A detailed regulatory
review is set out in the Regulation and General Regulatory
Developments section above. The Group manages its
regulatory risk by routinely consulting with legal advisors
in the jurisdictions where its services are offered or
are accessible, where necessary obtaining formal legal
opinions from local counsel. Furthermore, the Group
obtains frequent and routine updates regarding changes in
the law that may be applicable to its operations, working
with local counsel to assess the impact of any changes
on its operations. The Group constantly adapts and
moderates its services to comply with legal and regulatory
requirements. Finally, the Group blocks players from
certain ‘blocked jurisdictions’ at various stages and using
various technological methods.
23
Reputational risk
Under-age and problem gaming are inherent risks
associated with the online gaming industry. The Group
devotes considerable resources to putting in place
prevention measures coupled with strict internal
procedures designed to prevent under-aged players from
accessing its real money sites. In addition, the Group
promotes a safe and responsible gaming environment to
its customers supplemented by its corporate culture. The
Group has a dedicated Director of CSR & Responsible
Gaming tasked with the responsibility of implementing
such policies. Further details about the Group’s responsible
gaming initiatives are set out in the previous pages.
Information Technology risks
As a leading online business, the Group’s IT systems
are critical to its operation. The Group is reliant on the
performance of these systems.
Cutting-edge technologies and procedures are
implemented throughout the Group’s technology
operations and designed to protect its networks from
malicious attacks and other such risks. These measures
include traffic filtering, anti-DDoS (Distributed Denial of
Service) devices and Anti-Virus protection from leading
vendors. Physical and logical network segmentation is
also used to isolate and protect the Group’s networks and
restrict malicious activities. The IT environment is audited
by independent auditors, such as PCI DSS security audit
and eCOGRA audit. These audits form part of the Group’s
approach to ensuring proper IT procedures and a high
level of security. In order to ensure systems are protected
properly and effectively, external security scans and
assessments are carried out in a timely manner. The Group
has a disaster recovery site to ensure full redundancy and
operation availability. All critical data is replicated to the
disaster recovery site and stored off-site on a daily basis.
In the event of loss of functionality of the Group’s main IT
systems, the business can be fully operated through the
resources available at the disaster recovery site.
In order to minimise dependence on telecommunication
service providers, the Group invests in network
infrastructure redundancies whilst regularly reviewing
its service providers. The Group has two internet service
providers in Gibraltar in order to minimise reliance on one
provider.
www.888holdingsplc.com 24
Risk Report
As a part of its monitoring system, the Group deploys set
user experience tests which measure performance from
different locations around the world. Network-related
performance issues are addressed by rerouting traffic
using different routes or providers. 888 operates a 24/7
Network Operations Centre (NOC). The NOC’s role is to
conduct real time monitoring of production activities using
state-of-the-art systems. These systems are designed to
identify and provide alerts regarding problems related to
systems, key business indicators and issues surrounding
customer usability experience.
The IT environment tracks changes, incidents and SLA
KPIs in order to ensure that client experience is consistent
and well managed. As part of these procedures, capacity
planning takes place and infrastructure is built accordingly.
System-wide availability and business-level availability is
measured and logged in the IT information 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
worldwide, certain jurisdictions may seek to tax the
Group’s activity which could have a material adverse
effect on the amount of tax payable by the Group or on
customers’ behaviour. Furthermore, jurisdictions in which
online gaming is regulated may impose gaming duties on
licenced operators. The Group actively monitors taxation
risk in the relevant jurisdictions and takes such steps as it
considers necessary to minimise such risks.
888 Holdings plc Annual Report & Accounts 2012 25
Board of Directors
Richard Kilsby
Non-executive Chairman
John Anderson
Independent Non-executive Director
John Anderson was the Chief Executive Officer of the
Group from September 2000 to December 2006. He is
currently Non-executive Chairman of Burford Holdings
plc and was Chief Executive Officer of Burford Holdings
plc from 1996 to 2000. He is Chairman of the Interactive
Gaming Council, Chairman of 10 Tech Holdings Limited,
Non-executive Director of Swiftstake Technologies Limited
and Non-executive Director of Probability (Gibraltar)
Limited which is a wholly owned subsidiary of Probability
Plc. Previously, he was a Board member of Ladbrokes plc
from 1990 to 1996. Age 64.
Amos Pickel
Independent Non-executive Director
Amos Pickel was appointed in March 2006. Formerly the
Chief Executive Officer of Atlas Management Company
Limited and Chief Executive Officer and member of the
Board of Directors of Red Sea Hotels Ltd. Previously a
Non-executive Director of Gresham Hotel Group Plc, he is
a non-practising solicitor holding a Masters in Law from
New York University and an LLB from Tel Aviv University.
Since September 2010, he has been the chairman of the
Board of Directors of Berggruen Residential Limited.
Age 46.
Richard Kilsby has been Chairman since March 2006,
having previously been Deputy Chairman of the Group
from August 2005. Since 2002, he has held several
Board and management positions in various private and
venture capital funded companies. In 2004, he acted as
independent monitor for the SEC and USA Department
of Justice in connection with Adecco. From 1999 to 2002,
he was Chief Executive of Trade Point and subsequently
Executive Vice-Chairman of virt-x plc. From 1995 to 1998, he
was an Executive Director of the London Stock Exchange,
prior to which he was a Managing Director for Bankers
Trust from 1992 to 1995. He was also Vice-Chairman of
Charterhouse Bank from 1988 to 1992, and spent the early
part of his career with Price Waterhouse (now PwC) where
he was a partner from 1984 to 1988. Age 61.
Brian Mattingley
Chief Executive Officer
Brian Mattingley has been Chief Executive Officer since
March 2012, having previously been Deputy Chairman
of the Group and Senior Independent Non-executive
Director since March 2006. He joined the Board in August
2005. He was previously Chief Executive of Gala Regional
Developments Limited until 2005. From 1997 to 2003 he
was Group Finance and Strategy Director of Gala Group
Plc, prior to which he was Chief Executive of Ritz Bingo
Limited. He has held senior executive positions with
Kingfisher Plc and Dee Corporation Plc. Age 61.
Aviad Kobrine
Chief Financial Officer
Aviad Kobrine has been Chief Financial Officer of the
Group since June 2005, and was appointed to the Board in
August 2005. From October 2004 he was a consultant to
888. Previously, he was a banker with the Media Telecoms
Investment Banking Group of Lehman Brothers and prior
to that, he was a senior associate with Slaughter and May.
He holds a Masters in Finance from the London Business
School (Distinction), a BA in Economics and an LLB from
Tel Aviv University. Age 49.
www.888holdingsplc.com 26
Corporate Governance
888 Holdings plc is admitted to the UK Official List and its
shares are traded on the London Stock Exchange under
a Premium Listing. As such, despite being incorporated in
Gibraltar, the UK Corporate Governance Code (the ‘Code’)
applies to the Company and is available at www.frc.org.uk.
A new edition of the Code was published in September 2012
and will apply to the 2013 reporting period.
Statement of Compliance
The Board remain committed to the principles of
corporate governance in the Code which it considers to
be central to the effective management of the business
and to maintaining the confidence of investors. This report
explains how the Company has applied the main principles
of the Code.
Business Model
A discussion of the basis on which the company generates
and preserves value over the longer term, together with
its strategy for delivering its objectives, is set out in the
Chairman’s Statement and Chief Executive’s review on
pages 2 to 7.
The Board
The Directors consider it essential that the Company
should be both led and controlled by an effective Board.
Composition
During 2012, the Board consisted of six Directors (five
Directors following Gigi Levy’s resignation from the Board
as of 31 May 2012), as follows: two independent Non-
executive Directors, one Non-independent Non-executive
Director (none following Gigi Levy’s resignation from
the Board as of 31 May 2012), a Non-executive Chairman,
and two Executive Directors, being the Chief Executive
Officer and Chief Financial Officer. Brian Mattingley was
appointed full-time Chief Executive Officer in March 2012.
Prior thereto, following Gigi Levy’s stepping down as Chief
Executive officer as of 30 April 2011, Mr Mattingley had
taken on certain executive duties. On 19 March 2012, the
Board confirmed that John Anderson could be treated as
independent, since 5 years had passed since he served
as Chief Executive Officer, and the other criteria under
Code provision B.1.1 and the Pensions Investment Research
Consultants (PIRC) guidelines were fulfilled, in that Mr
Anderson was considered independent and involved in
none of the relevant conflicts regardless of the materiality
thereof. The Board further resolved that its decision would
be identified in this Annual Report.
Brian Mattingley was previously the Senior Independent
Director and was appointed full-time Chief Executive
Officer in March 2012. As such, the Board is presently
in the process of appointing a new Senior Independent
Director. The role of the Senior Independent Director
is to provide a sounding board for the Chairman, to
evaluate the Chairman’s performance and lead the Board’s
succession planning, and to serve as an intermediary for
the other Directors where necessary.
The biographical details of all of the Directors are given
on page 25. The Company is actively seeking new Non-
executive Directors with the experience and skill-set to
help the Group continue its next phase of growth, and
intends to appoint at least one new Non-executive Director
during Q2, 2013. The service contracts of the present Non-
executive Directors were renewed for an additional three
year period on 1 March 2013. In doing so, the Company
rigorously reviewed the performance of its Non-executive
Directors, taking into account the need for progressive
refreshing of the Board.
Strategic approach
The Board focuses upon the Group’s long-term objectives,
strategic and policy issues and formally and transparently
considers the management of key risks facing the Group,
as well as determining the nature and extent of significant
risks it will take in achieving its strategic objectives,
maintaining sound risk management and internal control
systems and reviewing annually the effectiveness of
the company’s risk management and internal control
systems. The Board is responsible for acquisitions and
divestments, major capital expenditure projects and
considering Group budgets and dividend policy. The Board
also determines key appointments. The Board receives
regular updates on shareholders’ views. The Board has
an established calendar of business. This covers the
financial calendar, strategic planning, annual budgets and
performance self-assessments, as well as the conduct
of standing business. The calendar forms the basis for
effective integration of business activities as between the
Board and its principal Committees (see page 28), which
individually consider their own operating frameworks
against the Board’s business programme. The Board has
established a formal process for the annual evaluation of
its performance, its committees and individual Directors.
The evaluation process covers a range of issues such as
Board processes, Board roles and responsibilities, Board
agendas and committee processes. The internal Board
evaluation relating to performance in 2012 was carried
out in December 2012, and included evaluation of the
performance of the board as a whole as well as evaluation
of individual Directors and the Chairman. Pursuant to the
evaluation, the Board was satisfied that the Non-executive
Directors continue to be effective and to demonstrate
commitment to their role. The Board plans to meet six
times a year. During 2012, the Board met five times. Set
out below are details of the Directors’ attendance record
at Board and Committee meetings in 2012.
888 Holdings plc Annual Report & Accounts 2012 27
Total number of meetings held during the year ended
December 2012 and the number of meetings
attended by each Director
Remuneration
committee
1
n/a
n/a
n/a
1
1
n/a
Nominations
committee
1
n/a
n/a
n/a
1
1
n/a
Audit
committee
1
n/a
n/a
n/a
1
1
n/a
Board
5
5
5
5
5
5
0
Total held in year
Richard Kilsby
Brian Mattingley
Aviad Kobrine
John Anderson
Amos Pickel
Gigi Levy*
* Gigi Levy stepped down from the Board with effect from 31 May 2012.
The Chairman has responsibility for ensuring that agendas
for Board meetings are set in advance. Board papers are
issued to Directors sufficiently in advance of meetings to
facilitate both informed debate and timely decisions.
non-executive review and performance appraisal
The Chairman holds meetings at least once per year
with the Non-executive Directors without the Executive
Directors being present. The Non-executive Directors
meet once per year without the Chairman present in
order to appraise the performance of the Chairman and
taking into account the views of the Executive Directors.
It is part of the role of Senior Independent Director to
lead this process, presently the Board is in the process
of appointing a new Senior Independent Director. The
Directors have wide-ranging business experience, and no
individual, or group of individuals, dominates the Board’s
decision making.
The Board considers that John Anderson and Amos Pickel
satisfy the independence criteria of the Code in 2012. The
Board is satisfied that, upon his appointment as Chairman,
Richard Kilsby met the independence criteria of the Code.
The other significant commitments of the Chairman
during 2012 are detailed in his biography on page 25.
It is noted that Mr Kilsby resigned as a Non-executive
Director of Tullett Prebon plc in 2012. The Board considers
that Mr Kilsby’s other commitments do not interfere with
the discharge of his responsibilities to the Group and is
satisfied that he makes sufficient time available to serve
the Company effectively.
Reserved powers and delegation
A schedule of matters reserved to the Board has been
adopted and its content is reviewed to align it with
operational needs and the Board’s preference to monitor
and, where appropriate, approve matters of substance to
the Group as a whole. Senior executives have given written
undertakings to ensure compliance within their business
operations with the Board’s formal schedule of matters
reserved to it for decision or approval.
Division of responsibilities
The responsibilities of the Chairman are clearly and
formally defined, with the Chairman being responsible for
the effective operation of the Board as a whole, leadership
of the Board in achieving a culture of constructive
challenge by Non-executives, regularly agreeing and
reviewing each Director’s training and development needs,
and supporting key external relationships.
Other issues
All Directors have access to the advice and services of
the Company Secretary and the Company’s nominated
advisers, who are responsible for ensuring that Board
procedures are followed. Directors are able to seek
independent professional advice, if required, at the
Company’s expense provided that they have first notified
their intention to do so.
The appointment or removal of the Company Secretary is
a matter for the Board as a whole.
The Board accepts that there should be a formal, rigorous
and transparent procedure for the induction of new
Directors, which has been formulated with the guidance of
the Nominations Committee.
The opportunity to hold office as Non-executive Directors
of other companies enables Directors of 888 to broaden
their experience and knowledge, which will benefit the
Company. Executive Directors may be allowed to accept
non-executive appointments with the Board’s prior
permission, so long as these are not likely to lead to any
conflict of interest. Executive Directors may be required to
account for fees received from such other companies.
The Company has arranged insurance cover in respect of
legal actions against its Directors. To the extent permitted by
Gibraltar law, the Company also indemnifies the Directors.
www.888holdingsplc.com 28
Corporate Governance
Neither the insurance nor the indemnity provides cover
where a Director has acted fraudulently or dishonestly.
Re-election of Directors
All Directors are subject to reappointment by shareholders
on an annual basis.
Audit Committee
The Audit Committee comprised two independent
Non-executive Directors: Amos Pickel (Chair) and John
Anderson. The Board is satisfied that Amos Pickel has
sufficient recent and relevant financial experience to
Chair the Audit Committee. Normally, by invitation, the
Chairman, Chief Executive Officer and Chief Financial
Officer and, where appropriate, representatives of the
Company’s external auditors attend the Audit Committee
meetings.
The Audit Committee’s terms of reference are available on
request to the Company Secretary and are included on the
Company’s website, www.888holdingsplc.com.
In summary, the Audit Committee assists the Board in
discharging its responsibilities with regard to financial
reporting, external and internal audits and controls,
including reviewing 888’s annual financial statements,
considering the scope of annual audit and the extent
of non-audit work undertaken by external auditors,
approving 888’s internal audit programme, advising on
the appointment of external auditors and reviewing the
effectiveness of internal control systems.
The Audit Committee assesses the effectiveness of
the external audit process by establishing schedules
and agendas for regular meetings with the auditors,
supervising the audit function directly to ensure that the
auditors are independent and objective in their findings,
and working to ensure comprehensive audit coverage to
meet the risks and demands posed by the Company’s
business.
The appointment or reappointment of the external auditor
is put to the vote of each Annual General Meeting. Prior
thereto, the Audit Committee considers the auditor’s
performance during the year, and forms a view as to
whether to recommend that the present auditor be re-
appointed or an alternative be proposed.
BDO LLP and BDO Limited have been the Company’s
external auditors since 2003. Neither BDO LLP nor BDO
Limited provides any material non-audit services to the
Company. The Audit Committee seeks to ensure that the
Company’s auditors are objective and independent by
monitoring the appointment of the auditors for any non-
audit work involving fees above US$0.1 million.
nominations Committee
During the year, the Nominations Committee comprised
two independent Non-executive Directors: Amos Pickel
(Chair) and John Anderson. Brian Mattingley was
appointed Chief Executive Officer in March 2012.
The Nominations Committee assists the Board in
discharging its responsibilities relating to the composition
of the Board. The Nominations Committee is responsible
for reviewing, from time to time, the structure of the
Board, determining succession plans for the Chairman and
Chief Executive Officer, and identifying and recommending
suitable candidates for appointment as Directors. The
Nominations Committee’s terms of reference are available
on request to the Company Secretary and are included on
the Company’s website, www.888holdingsplc.com.
During 2012, the Nominations Committee took steps to
identify new Non-executive Directors, and it is intended to
appoint at least one new Non-executive Director during
Q2 2013. Furthermore, since the stepping down of the
Company’s previous Chief Executive Officer in April 2011,
the Nominations Committee led the search for a new Chief
Executive Officer with the assistance of an executive search
firm. Pending such recruitment, Brian Mattingley was asked
by the Board to become more involved in the day to day
operations of the Company. In March 2012, Brian was asked
to take on the role of Chief Executive Officer.
The Nominations Committee is also responsible for
implementing the Board’s policy on diversity within
the scope of its mandate, including setting measurable
objectives and monitoring progress on achieving such
objectives. In considering new Board appointments,
diversity is one of the criteria considered by the
Nominations Committee.
Remuneration Committee
During the year the Company’s Remuneration Committee
comprised two independent Non-executive Directors:
Amos Pickel (Chair) and John Anderson.
The Board has overall responsibility for determining the
framework of executive remuneration and its cost. It is
required to take account of any recommendation made
by the Remuneration Committee in determining the
remuneration, benefits and employment packages of the
Executive Directors and senior management and the fees
of the Chairman.
888 Holdings plc Annual Report & Accounts 2012 29
The Directors’ Remuneration Report, which outlines the
Remuneration Committee’s work and details of Directors’
remuneration, is on pages 30 to 38. The Remuneration
Committee’s terms of reference are available on request
to the Company Secretary and are included on the
Company’s website, www.888holdingsplc.com.
Risk Management and Internal Control
The Directors acknowledge that they are responsible
for the Company’s system of internal control, for setting
policy on internal control and risk management, and
for reviewing the effectiveness of internal control and
risk management. It is management’s role to implement
Board policies on risk and control, including reporting.
The system of internal control is designed to manage
rather than eliminate the risk of failure to achieve business
objectives and can only provide reasonable, and not
absolute, assurance against material misstatement or loss.
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. Deloitte Limited
(Gibraltar) was engaged in 2012 to carry out the Company’s
internal audit function, reporting to the Audit Committee.
During 2012, Deloitte prepared a comprehensive risk report
which was presented to the Board. Following consideration
thereof, an audit plan for the coming 5 years was prepared
and approved by the Board.
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 audit function.
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 2013 Annual
General Meeting (scheduled to be held on 8 May 2013)
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.
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 Companies Act.
Going Concern
After careful review of the Group’s budget for 2013, 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
Responsibility report on pages 21 to 22.
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
20% of the Group’s senior management, and we actively
seek to recruit and advance women into our top
management.
www.888holdingsplc.com 30
Directors’ Remuneration Report
letter to Shareholders
Dear Shareholders,
Over the course of 2012, the Remuneration Committee
has worked to develop the company’s remuneration policy
so as to ensure that it provides a remuneration structure
for our Directors that continues to be appropriate for our
business while reflecting best practice as set out in the
Financial Reporting Council’s UK Corporate Governance
Code and in UK institutional shareholders’ guidelines
on remuneration. Furthermore, we aimed to develop
a remuneration policy which anticipates upcoming
changes to the regulatory framework for reporting on
remuneration. The Committee has specifically focused
on aligning the Company’s remuneration policy with
Company strategy and its approach to risk, and on
rewarding success fairly, whilst avoiding paying more
than is necessary to properly attract, retain and motivate
Directors of appropriate calibre to the Company’s business.
The Committee believes that a transparent and consistent
remuneration policy clearly linking executive remuneration
to personal and company performance is the best way to
ensure alignment of executive incentives with shareholder
interests and to advance the long-term interests of the
company and its shareholders.
In this respect, the Remuneration Committee has set
clear performance criteria for calculation of the Executive
Directors’ annual bonus (if any), as well as for the
vesting of long-term equity based incentives. In line with
institutional shareholders’ guidelines, share awards made
commencing 1 January 2012 are consistently subject to cliff
vesting after three years from grant, as opposed to annual
vesting over a four year period as was the case previously.
We hope that you will find the Directors’ Remuneration
Report informative and would be happy to discuss any
feedback you may have.
Sincerely,
Amos Pickel
Chairman, Remuneration Committee
13 March 2013
Introduction
In accordance with the Listing Rules, the Company
presents its report on the remuneration of its Directors
for the year ended 31 December 2012. The Company is
incorporated in Gibraltar and, therefore, is not required
to comply with the Directors’ Remuneration Report
requirements in Schedule 8 to the UK Large and Medium
sized Companies and Groups (Accounts and Reports)
Regulations 2008, but has chosen to prepare this
Remuneration Report on the basis of those requirements,
as appropriate.
The report sets out the structure and details of the
remuneration of the Directors for the year ended 31 December
2012. It also describes the Board’s policy and approach to
the Principles of Good Governance relating to Directors’
remuneration contained in the UK Corporate Governance
Code. BDO LLP and BDO Limited have audited the sections
headed ‘Directors’ Remuneration Summary’ and ‘Directors’
Interests in Share Awards and Share Options’.
A resolution to approve the Directors’ Remuneration
Report is proposed, annually, to shareholders for approval.
This Remuneration Report will be put to shareholder vote
at the upcoming Annual General Meeting.
Remuneration Committee
The Remuneration Committee consisted solely of
independent Non-executive Directors, currently Amos
Pickel (Chair) and John Anderson. Since the Company
was a member of the FTSE Small Cap Index throughout
2012, it is not required to have more than two members
of its Remuneration Committee, however in any event the
Company continues to seek suitably experienced Non-
executive Directors to expand its Board and committee
membership. Details of attendances at Committee
meetings are contained in the statement on Corporate
Governance on pages 26 to 29.
The Remuneration Committee’s remit includes such
matters as:
● Determining and agreeing with the Board the
remuneration policy with regard to the Company’s
Chairman, Chief Executive Officer, Chief Financial
Officer and other members of the executive
management;
● Regularly reviewing the on-going appropriateness and
relevance of the Company’s remuneration policy;
● Setting and monitoring performance criteria for bonus
arrangements operated by the Group ensuring that
they represent achievable and motivating rewards
for appropriate levels of performance and, where
888 Holdings plc Annual Report & Accounts 2012 31
The Remuneration Committee is mandated by the Board
to satisfy itself that the level of the Directors’ and senior
management’s remuneration is appropriate, having regard
to pay and conditions throughout the sectors in which
the Group operates as well as pay and conditions of
employees throughout the Group. It further ensures that
such remuneration aligns with the risks and rewards to
shareholders. In this context, the Remuneration Committee
regularly reviews individual and corporate performance
targets and uses careful and rigorous judgment to match
remuneration to achievements.
The Remuneration Committee applies a remuneration
policy which has at its core the following objectives:
● To align the incentives of executives with the interests
of shareholders, including being mindful of employee
costs in light of the Company’s capital needs and return
to shareholders;
● 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
term and long term;
● To provide strong linkage between remuneration,
performance and delivery of Company strategy; and
● To ensure total remuneration is market-competitive in
the industry and helps attract and retain executives of
the highest calibre.
It is the Company’s policy to take into account the pay
and conditions of employees throughout the Group when
determining Directors’ remuneration. For this purpose,
the Remuneration Committee has available to it non-
personally identifiable information regarding pay and
conditions throughout the Group and ensures that Director
remuneration is not excessive or disproportionate when
taking into account the additional risks and responsibilities
taken on by Directors.
appropriate, are justifiable taking into account the
Company’s and its Group’s overall performance and the
corresponding return on shareholders’ investment in
the same period;
● Recommending to the Board the policy for and scope
of pension arrangements for the Executive Directors;
and
● In relation to the Company’s share option and share
award schemes, setting or recommending vesting
criteria which are appropriate in terms of the
Company’s performance and return on shareholders’
investment over the same period.
The formal terms of reference of the Remuneration
Committee are available on request in writing to the
Company Secretary and on the Company’s website,
www.888holdingsplc.com.
Independent Advice
The Board intends that executive remuneration policies
be both formal and transparent. It further acknowledges
the importance of taking into consideration independent
advice in setting remuneration policies and benefit
levels. In 2012, the Remuneration Committee took into
consideration advice received in the past from New Bridge
Street as well as latest available benchmarks published by
New Bridge Street.
Remuneration Policy
Executive Directors
Remuneration packages must be sufficient to attract,
retain and motivate Directors of the calibre appropriate
to a global business in a competitive environment. The
Remuneration Committee is mindful that most of the
Group’s competitors are not UK listed companies and
acknowledges the unique risk profile associated with
online businesses of the nature of the Group’s, and takes
these matters into account in determining appropriate
remuneration levels. The components of the remuneration
structure are set out below.
At least half of the total potential remuneration of the
Chief Executive Officer and the Chief Financial Officer
is represented by a variable element, dependent on the
performance of the Group. The Remuneration Committee
considers that these represent achievable and motivational
levels of personal rewards commensurate with stipulated
levels of corporate performance.
www.888holdingsplc.com 32
Directors’ Remuneration Report
Remuneration
Component
Base Salary, benefits
and pension1
Bonus
Purpose
Provide an attractive pay
and benefits package taking
into account the risks and
responsibilities of the role in
order to attract, retain and
motivate directors of suitable
calibre
Provide a challenging framework
to incentivise executive
performance and align executive
incentives to shareholder
interests
Share Awards
Encourage executives to
create long-term shareholder
value, aligned with the timing
of implementation of the
Company’s long-term strategy
Implementation
Base salary is reviewed annually taking into account
personal performance and market benchmarks. Benefits
provided to Brian Mattingley include the provision of
fully serviced accommodation and use of a Company
car; benefits provided to Aviad Kobrine include a car
allowance and health, disability and life insurance. Further
details are set out on page 33.
Maximum bonus award is 100% of base salary, calculated
on a linear scale based on adjusted like-for-like Adjusted
EBITDA growth, commencing with a 25% bonus
entitlement upon reaching a threshold of 5% year on year
Adjusted EBITDA growth and reaching full bonus payment
at 20% year on year Adjusted EBITDA growth. In addition,
a bonus is only payable where reported Adjusted EBITDA
is above budget for the year as approved by the Board.
Further details are set out on page 33.
Share awards or nil cost options are subject to 3 year cliff
vesting, with equally weighted dependence on EPS-based
and TSR-based metrics. The total grant allocation to each
Executive Director is equal to 100% of such Executive
Director’s salary converted into shares of the Company by
reference to the prevailing share price at the time of grant.
Further details are set out on pages 33 to 38.
1 Neither Executive Director is entitled to a pension from the Company; Aviad Kobrine receives a cash payment in lieu thereof in the amount of 15% of his
base salary.
Recruitment of new Directors
The Company is aware of its need to attract and retain
new Directors of suitable calibre to its business, and
determines the remuneration packages it offers by
taking into account the global nature and competitive
environment of its business.
Appointment of Brian Mattingley as CEO
Mr Mattingley was appointed as full-time Chief Executive
Officer of the Company on 27 March 2012, after having
taken on additional executive responsibilities during the
period following the departure of Gigi Levy on 30 April 2011.
Pursuant to his employment agreement with the Company,
Mr Mattingley is entitled to a base salary of £345,000
per annum, subject to annual review at which such base
salary may (at the Company’s discretion) be increased but
not decreased, with the first such review taking place on
1 January 2013. Furthermore, Mr Mattingley was entitled
to a one-off bonus upon signing of the agreement of
£310,000 as compensation for the additional executive
responsibilities taken and performance achieved in respect
of the period prior to his appointment as Chief Executive.
Mr Mattingley is eligible to participate in the Company’s
annual discretionary bonus plan, subject to the
performance criteria set out below under “Annual Cash
Bonus“ and a maximum bonus of 100% of salary.
Furthermore, Mr Mattingley was granted a phantom share
award which is normally capable of vesting on 27 March
2015. Further details of the phantom share award are set
out below under “Phantom Share Award”.
Mr Mattingley is further entitled to the provision of
accommodation in Gibraltar or Spain and company car
benefits as described below under “Benefits”.
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.
888 Holdings plc Annual Report & Accounts 2012 33
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 2012 are disclosed
in the Directors’ remuneration summary on page 36.
The performance criteria for payment of the annual cash
bonus are based on the growth of Adjusted EBITDA over
that reported in the previous year, with the removal of
exceptional items relating to the changing regulatory
environment to arrive at a like-for-like adjusted EBITDA.
The bonus is assessed on a sliding scale, such that where
adjusted EBITDA has grown by 5% compared to the
previous year, the Executive Director will be entitled to
25% of bonus entitlement, rising on a linear scale to 100%
entitlement where growth of 20% has been achieved.
Remuneration Structure
Base Salary and Benefits
The Executive Directors’ base salaries are subject to
annual review at the time of the Annual General Meeting
each year with effect from 1st January of the same year. In
reviewing salaries the Remuneration Committee takes into
account pay and conditions elsewhere across the Group,
relevant market data and benchmarking, and the individual
Director’s performance and experience. Benchmarking
is carried out on a total remuneration basis, and takes
account of pay levels for comparable roles at a range of
organisations of similar size and sector.
In 2012, Brian Mattingley’s salary was £345,000, and Aviad
Kobrine’s salary was £346,500*. In 2013, Brian Mattingley’s
salary will be £345,000 and Aviad Kobrine’s salary will be
£346,500*.
Benefits provided to Brian Mattingley include the provision
of accommodation in Gibraltar or Spain, and the use of a
company car at the Company’s expense.
Benefits provided to Aviad Kobrine include a car allowance
and health, disability and life insurance.
Annual Cash Bonus
Each of the Executive Directors is entitled to an annual
cash bonus up to a maximum of 100% of salary, which
becomes payable following the approval of the Group’s
annual results at the Annual General Meeting in accordance
with performance criteria which are designed to provide a
challenging framework to incentivise executive performance
and align executive incentives to shareholder interests.
No bonus is paid where growth is below 5%, and the bonus
is only paid where reported adjusted EBITDA is above
budget for the year as approved by the Board. Bonus
entitlement is limited to a maximum of 100% of base
salary.
In 2012, the Executive Directors achieved a cash bonus of
US$1.1 million, in light of the 2012 adjusted EBITDA of US$67
million, representing growth in adjusted EBITDA of 20%
compared to 2011, and which also exceeded the budgeted
Adjusted EBITDA for 2012.
Pensions
Brian Mattingley has no pension entitlement from the Company.
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 long-term incentive plans utilised by the Company
are aimed to encourage the Executive Directors to create
long-term shareholder value and to align executive
incentives to shareholder interests.
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 Aviad Kobrine
on 27 March 2012. Details of these awards and options are
set out on pages 36 to 37.
A phantom share award was granted to Brian Mattingley
on his appointment as CEO in 2012. Details of the phantom
share award are set out on page 35.
* Part of which is paid by the Company and part by Cassava Enterprises
(Gibraltar) Limited.
www.888holdingsplc.com 34
Directors’ Remuneration Report
888 All-Employee Share Plan
All employees, 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.
The following conditions applied to all share awards
under the 888 All-Employee Share plan to the Executive
Directors commencing 1 January 2012 and to an award
over 1,175,373 ordinary shares of the Company made to
Aviad Kobrine on 24 May 2011.
The Executive Directors are granted nil cost options on
an annual basis following the publication of the Group’s
annual results. The total grant allocation to each Executive
Director is equal to 100% of such Executive Director’s
salary converted into shares of the Company by reference
to the prevailing market value of a share at the time of
grant. The nil cost options are subject to 3 year cliff vesting
commencing from the beginning of the financial year in
which the award is granted, with 50% of such options
dependent upon the achievement of a performance
condition based on cumulative growth in Earnings Per
Share (EPS) over such three-year period, and the other
50% of such options dependent upon the achievement
of a performance condition based on cumulative growth
in Total Shareholder Return (TSR) over such three-year
period. With regard to the options subject to the EPS
performance condition, where the compound annual EPS
growth rate is between 5% and 20% adjusted on a like-
for-like basis, such options vest on a linear scale between
25% and 100% of the shares under the EPS element, with
an EPS growth rate of below 5% not allowing any vesting.
With regard to the options subject to the TSR performance
condition, where the Company’s annual TSR growth rate
is between the median of a peer group determined by the
Remuneration Committee and 10% above such median,
such options vest on a linear scale between 25% and 100%
of the shares under the TSR element, with a TSR growth
rate of below such median not allowing any vesting. The
peer group for the TSR performance condition determined
by the Remuneration Committee is presently as follows with
respect to awards made to date, however the Remuneration
Committee will reconsider the composition of such peer
group on an annual basis prior to the grant of any options:
● Bwin.Party Digital Entertainment PLC
● Sportech PLC
● Ladbrokes PLC
● Playtech Ltd.; and
● Paddy Power PLC
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 has regard to appropriate annual flow-
rates so as to ensure that these limits are not breached.
Employee Trusts
The Company established a Trust 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 Holdings plc Share Plan Trust currently holds
46,432 ordinary shares in the Company.
888 Holdings plc Annual Report & Accounts 2012 35
Phantom Share Award
Brian Mattingley was granted a phantom share award by
the Company pursuant to his employment agreement
dated 27 March 2012.
The phantom share award provides that Mr Mattingley will
be entitled to a one-time cash sum, on the vesting date of
27 March 2015 provided that he is in employment with the
Company at that time. The amount payable is calculated
on an incremental basis, based on the average share price
of the Company over a period of 20 dealing days prior to
the scheduled vesting date for the award. The minimum
amount payable is £250,000 and the maximum payable is
£5,500,000.
Specifically, where the Company’s average share price is
less than 50p in the 20 dealing days prior to the scheduled
vesting date, a minimum award amount of £250,000 is
payable. Where the share price is between 50p and 60p,
the award payable is calculated on a straight line basis
between £250,000 and £450,000. For each additional
10p above a share price of 60p up to £1, an incremental
amount of £200,000 is payable; for each additional 10p
above a share price of £1 and up to £1.20, an incremental
amount of £300,000 is payable; for each additional
10p above a share price of £1.20 and up to £1.60, an
incremental amount of £400,000 is payable; and for each
additional 10p above a share price of £1.60 up to £2.00,
an incremental amount of £500,000 is payable up to a
maximum payment of £5,500,000.
The phantom award will also vest if Mr Mattingley leaves
employment before the normal vesting date for any
reason unless he resigns or the Company dismisses him
summarily in accordance with the terms of his contract for
example for gross misconduct. The average share price
will normally be calculated by reference to the 20 day
period up to the date of the termination of employment.
However, if the Company has terminated Mr Mattingley’s
employment under notice, he may request the average
share price to be calculated either by reference to the
period up to the service of the notice or the normal
vesting date of 27 March 2015 as he chooses. If there
is a change of control, the average share price will be
calculated by reference to the period up to the change
of control.
The fair value of Mr Mattingley’s award at 31 December
2012 has been externally evaluated at £1.8 million, with the
Company recording a charge in the amount of £0.5 million
in its 2012 accounts in respect of the amount earned in
the year.
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
(if any) 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, and in the case of Brian Mattingley, a
phantom share award, during any unexpired part of the
notice period even if the employment is terminated by
making payment in lieu of notice. No other benefits upon
termination of employment are payable. An Executive
Director’s entitlement to share awards and share options
under the 888 All-Employee Plan on termination of
employment will be governed by the terms of that plan.
Brian Mattingley’s entitlements under his phantom share
award on termination of employment are described above.
Name
Brian Mattingley
Aviad Kobrine
Aviad Kobrine
Position
Chief Executive Officer
Chief Financial Officer
Chief Financial Officer
Contracting Party
The Company
The Company
Cassava Enterprises
(Gibraltar) Limited 1
Letter of Appointment Date
27/03/2012
14/09/2005
14/09/2005
1 Wholly owned subsidiary of the Company.
www.888holdingsplc.com 36
Directors’ Remuneration Report
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.
Name
Richard Kilsby
John Anderson
Amos Pickel
Gigi Levy1
Position
Chairman
Non-executive Director
Non-executive Director
Non-executive Director
Contracting Party
The Company
The Company
The Company
The Company
Letter of
Appointment Date
01/03/2013
01/03/2013
01/03/2013
30/04/2011
1 Mr Levy resigned as a Non-executive Director on 31 May 2012. Mr Levy was Chief Executive Officer of the Company until 30 April 2011.
Directors’ Remuneration Summary
The cash emoluments or fees receivable by the Directors for 2012 and 2011 are shown below:
Base
salary/
fees
US$ ’0001
Bonus
US$ ’0001
Benefits
US$ ’000
Pensions
Allowance
US$ ’0006
Compensation
for loss
of office
US$ ’000
Total
2012
US$ ’000
Total
2011
US$ ’000
Executive
Brian Mattingley3
Aviad Kobrine2
Non-executive
Richard Kilsby
John Anderson
Amos Pickel
Gigi Levy4
Michael Constantine5
Total
506
561
59
40
17
82
495
550
349
122
122
44
1,682
1,067
116
82
1,060
1,233
366
122
122
44
2,947
768
1,419
370
124
106
3,783
106
6,676
1 Where Directors’ remuneration is denominated in Sterling, amounts have been converted into US$ at the average rate of exchange for the relevant month
it was paid, save for the annual cash bonus which is converted into US$ at the year end exchange rate.
2 Part of Mr Kobrine’s remuneration is paid by one of his employers, Cassava Enterprises (Gibraltar) Limited, a wholly owned subsidiary of the Company.
3 Mr Mattingley was a Non-executive Director of the Company during 2011.
4 Mr Levy resigned as a Non-executive Director on 31 May 2012. Mr Levy was Chief Executive Officer of the Company until 30 April 2011.
5 Mr Constantine resigned as a Non-executive Director on 31 December 2011.
6 In 2011, the pension allowances amounted to US$34,000 for Gigi Levy and US$71,000 for Aviad Kobrine.
888 Holdings plc Annual Report & Accounts 2012 37
Directors’ Interests in Ordinary Shares
The notified beneficial interests of Executive and Non-executive Directors who were in office at 31 December 2012 in the
issued share capital of the Company are:
Executive
Brian Mattingley1
Aviad Kobrine
Non-executive
Richard Kilsby
John Anderson
Amos Pickel
Ordinary shares
31 December
2012
2011
142,857
443,183
142,857
443,183
114,285
588,869
100,000
114,285
588,869
100,000
1 Mr Mattingley was a Non-executive Director of the Company during 2011.
Directors’ Interests in Share Awards & Share Options
The number of shares subject to Share Awards or Share Options granted to the Executive Directors and outstanding as
at 31 December 2012 is set out below:
Earliest
exercise/
Vesting
date
Date
of award
Exercise
period
end date
Exercise
price
£
Awards
at
31/12/2011
Awarded
2012
Vested
in 2012
Market
price at
vesting
date
£
Market
price at
award
date
£
Lapsed
in
2012
Awards
at
31/12/2012
Aviad Kobrine
888 All-Employee
Share Plan1
888 All-Employee
Share Plan3
888 All-Employee
Share Plan1
888 All-Employee
Share Plan2
888 All-Employee
Share Plan2
15/01/2008 15/01/2012 15/01/2018
nil
42,500
42,500
0.45
1.42
15/01/2008 15/01/2012 15/01/2018
14/01/2009 13/01/2012 15/01/2019
nil
nil
7,500
7,126
7,500
7,126
0.45
0.45
1.42
1.00
24/05/2011 24/05/2012 24/05/2021
nil
235,075
235,075
0.71
0.34
—
—
—
—
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
27/03/2012 27/03/2015 28/03/2022
423,134
235,075
23,507
235,074
23,508
235,075
1,175,373
nil
nil
nil
nil
nil
nil
nil
nil
423,134
0.71
0.34
0.34
0.34
0.34
0.34
0.34
0.34
—
— 235,075
—
23,507
— 235,074
—
23,508
— 235,075
— 1,175,373
625,000
0.63
— 625,000
1 Awarded as a nil cost option.
2 Awarded as a nil cost option. Vesting subject to performance conditions, as described on page 34.
3 Awarded as a nil cost option. Grant made in lieu of waiver of a part of Mr Kobrine’s annual cash bonus.
www.888holdingsplc.com
38
Directors’ Remuneration Report
The closing price of one ordinary share was 119p at 31 December 2012. The highest closing price during 2012 was 120p
and the lowest was 42p.
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.
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 ending 31 December 2012. The Directors have chosen the FTSE 250 Index as the most
appropriate comparator index as the Company was a constituent member until October 2006, was reincluded in that
index from February 2008 until 2010 and was on the reserve list in 2012.
vAluE OF £100 STERlInG In 888 OvER 5 yEAR PERIOD EnDInG 31 DECEMBER 2012 v. FTSE 250 InDEX
140
120
100
80
60
40
20
0
8
0
0
2
/
1
/
1
8
0
0
2
/
4
/
1
8
0
0
2
/
7
/
1
8
0
0
2
/
0
1
/
1
9
0
0
2
/
1
/
1
9
0
0
2
/
4
/
1
9
0
0
2
/
7
/
1
9
0
0
2
/
0
1
/
1
0
1
0
2
/
1
/
1
0
1
0
2
/
4
/
1
0
1
0
2
/
7
/
1
0
1
0
2
/
0
1
/
1
1
1
0
2
/
1
/
1
1
1
0
2
/
4
/
1
1
1
0
2
/
7
/
1
1
1
0
2
/
0
1
/
1
2
1
0
2
/
1
/
1
2
1
0
2
/
4
/
1
2
1
0
2
/
7
/
1
2
1
0
2
/
0
1
/
1
888 Div reinvest
FTSE 250 index
Approval
This report was approved by the Board and signed on its behalf by:
Amos Pickel
Chairman, Remuneration Committee
13 March 2013
888 Holdings plc Annual Report & Accounts 2012
39
Directors’ Report
The Directors submit to the members their Annual
Report and Accounts of the Group for the year ended
31 December 2012. The report on Corporate Governance
and the Directors’ Remuneration Report on pages 26 to 38
form part of this Directors’ Report.
Principal Activities
During 2012 the Group’s principal activities were the
provision of online gaming entertainment to customers
and business partners. A review of the business and future
developments is given in the Chairman’s Statement on
page 2, the Chief Executive’s Review on pages 3 to 7 and
the Enhanced Business Review on pages 8 to 10.
The principal subsidiary undertakings are listed on
page 70.
Results
The Group’s Profit before tax for the financial year of
US$41 million is reported in the Consolidated Income
Statement on page 44. The Directors recommend a final
dividend comprising 4.5¢ per share (which together with
the interim dividend equals 7.0¢ per share in accordance
with our pay-out policy set out at the time of our 2005
flotation) and an additional one-off 2.0¢ per share,
bringing the total for the year to 9.0¢ per share.
Directors and their Interests
Biographical details of the current Board of Directors are
shown on page 25. The Directors who served during the
year are shown below. All Directors retire at each Annual
General Meeting and, being eligible, offer themselves for
re-election on an annual basis.
Richard Kilsby (first appointed 30 August 2005).
Brian Mattingley (first appointed 30 August 2005).
Aviad Kobrine (first appointed 30 August 2005).
John Anderson (first appointed 30 August 2005).
Amos Pickel (first appointed 14 March 2006).
Gigi Levy (first appointed 18 June 2006; resigned from the
Board as of 31 May 2012).
The beneficial and non-beneficial interests of the Directors
in shares of the Company are set out in the Directors’
Remuneration Report on pages 30 to 38.
Except as noted above, none of the Directors had any interests
in the shares of the Company or in any material contract or
arrangement with the Company or any of its subsidiaries.
Share Capital
Changes in the Company’s share capital during the financial
year are given in the Consolidated Statement of Changes
in Equity. As at 31 December 2012, the Company’s issued
share capital comprised 349,688,356 ordinary shares of GBP
£0.005 each. At the Annual General Meeting held in May 2012,
the Board was empowered to allot equity securities of the
Company for cash without application of pre-emptive rights
under the Company’s Articles, provided that such power is
limited: (a) to the allotment of equity securities in connection
with a rights issue in favour of Ordinary shareholders where
the equity securities respectively attributable to the interests
of all Ordinary shareholders are proportionate (as nearly as
may be) to the respective numbers of Ordinary Shares held
by them; and (b) to the allotment (otherwise than pursuant
to sub-paragraph (a) above) of equity securities up to an
aggregate nominal value of £86,941 (5% of the Company’s
Ordinary Share capital in issue as at 31 March 2012). This
authority expires at the conclusion of the next Annual General
Meeting of the Company.
Articles of Association
The Articles of Association of the Company can only be
amended by a special resolution at a general meeting of
shareholders.
Rights Attaching to Ordinary Shares
The rights and obligations attaching to ordinary shares are
set out in the Company’s Articles of Association. Holders of
ordinary shares are entitled to attend and speak at general
meetings of the Company, to appoint one or more proxies
and to exercise voting rights. Holders of ordinary shares
may receive a dividend and on liquidation may share in
the assets of the Company. Holders of ordinary shares are
entitled to receive the Company’s Annual Report. Subject
to meeting certain thresholds, holders of ordinary shares
may requisition a general meeting of the Company or the
proposal of resolutions at general meetings.
Deadlines for Exercising voting Rights
Electronic and paper proxy appointment and voting
instructions must be received by the Company’s Registrars
not later than 48 hours before a general meeting.
Restrictions on Transfer of Shares and limitations
on Holdings
There are no restrictions on transfer or limitations on the
holding of ordinary shares other than under restrictions
imposed by law or regulation (for example, insider trading
laws) or pursuant to the Company’s share dealing code.
Requirements of nevada Gaming Regulations
The Company has applied for licensing by the State of
Nevada. As an applicant and, if licensed, as a licensee, the
Company is subject to certain requirements under the Nevada
Gaming Control Act and to the licensing and regulatory
control of the Nevada State Gaming Control Board, and the
Nevada Gaming Commission.
The Company has applied for registration with the Nevada
Gaming Commission as a publicly traded corporation and its
subsidiaries have applied for licensure as manufacturers and
distributors of interactive gaming systems and as interactive
gaming service providers. Such licenses are not transferable.
The Nevada Gaming Commission may limit, condition, suspend
or revoke a license, registration, approval or finding of suitability
for any cause deemed reasonable by such licensing agency.
www.888holdingsplc.com 40
Directors’ Report
The Nevada Gaming Commission may also require anyone
having a material relationship or involvement with the
Company to be found suitable or licensed. For such time
as the Company is subject to the aforementioned legal
requirements and to the control of the Nevada State Gaming
Control Board and Nevada Gaming Commission, any person
who acquires more than 5% of any class of our voting
securities must report, within ten days, the acquisition to the
Nevada Gaming Commission. Any person who becomes a
beneficial owner of more than 10% of any class of our voting
securities is required to apply for a finding of suitability within
30 days after the Chairman of the Nevada State Gaming
Control Board mails written notice in accordance with NRS
463.643. Under certain circumstances, an “Institutional
Investor,” as such term is defined in the regulations of the
Nevada Gaming Commission, which acquires more than 10%
but not more than 25% of any class of our voting securities,
may apply to the Nevada Gaming Commission for a waiver of
such finding of suitability requirements.
The Nevada Gaming Commission may also, in its discretion,
require any other holders of our equity securities or any
holders of our debt securities to file applications, be
investigated and be found suitable to own our equity or debt
securities. The applicant security holder is required to pay all
costs of such investigation.
Any person who fails or refuses to apply for a finding of
suitability or a license within 30 days after being ordered
to do so by the Nevada Gaming Commission may be found
unsuitable based solely on such failure or refusal. The same
restrictions apply to a record owner if the record owner, when
requested, fails to identify the beneficial owner. Any security
holder found unsuitable and who holds, directly or indirectly,
any beneficial ownership of the common stock beyond such
period of time as may be prescribed by the Nevada Gaming
Commission may be guilty of a gross misdemeanor.
Changes in control through merger, consolidation, acquisition
of assets, management or consulting agreements or any form
of takeover cannot occur without prior investigation by the
Nevada State Gaming Control Board and approval by the
Nevada Gaming Commission.
Substantial Shareholdings
As at 31 December 2012 the Company had been notified of the following interests in 5% or more of its share capital
under DTR Rule 5 of the UK Listing Authority:
Shareholders
Principal Shareholder Trusts
E Shaked Shares Trust
O Shaked Shares Trust
Ben-Yitzhak Family Shares Trust
Other Substantial Shareholders
JPMorgan Asset Management (UK) Limited
Number of
shares
86,283,534
86,283,534
37,122,358
% issued
share
capital
24.70
24.70
10.62
17,485,763
5.00
No notifications pursuant to DTR Rule 5 have been
received by the Company between 31 December 2012 and
the date of this Annual Report.
Shareholder Agreements and Consent
Requirements
There are no known arrangements under which financial rights
are held by a person other than the holder of the shares.
A Relationship Agreement governing the relationship
between the above Principal Shareholder Trusts and
the Company was entered into in connection with
the Company’s flotation. The Relationship Agreement
provides that all transactions between the Group and the
Principal Shareholder Trusts will be on a normal business
basis, that the Group will be allowed to carry on business
independently of them and that the Principal Shareholder
Trusts will not cause the Company to contravene the
Code unless required by law or as contemplated in the
Relationship Agreement. It further provides that each
of the Principal Shareholder Trusts will not solicit Group
employees without consent, that only Independent
Directors can vote on proposals to amend the Relationship
Agreement, that the Principal Shareholder Trusts will
consult the Group prior to disposing of a significant number
of shares in order to maintain an orderly market and shall
not disclose confidential information unless required to
do so by law or relevant regulation or having first received
the Company’s consent. The Relationship Agreement also
includes restrictions on the Principal Shareholder Trusts
power to appoint Directors and includes obligations
on the trusts to ensure that the majority of the Board,
excluding the Chairman, is independent. The Principal
Shareholder Trusts can nominate a Non-executive Director
for appointment to the Board. In the event that this right
is exercised and it results in fewer than half the Board
(excluding the Chairman of the Board) being Independent
Directors, such appointment shall only become effective
upon the appointment to the Board of an additional
888 Holdings plc Annual Report & Accounts 2012 41
Independent Director acceptable to the Nominations
Committee. Such restrictions and obligations apply in
respect of the E Shaked Shares Trust and O Shaked Shares
Trust whilst 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.
Change of Control
Other than the Group’s gaming licences where change of
control is subject to prior consent, there are no material
contracts to which the Group is a party which would allow
the counterparty to terminate or alter those contractual
arrangements in the event of a change of control of the Group.
Charitable Contributions
Contributions for charitable purposes were made during the
year amounting to US$0.2 million (2011: US$0.2 million).
Directors’ Responsibility Statement
The Directors are responsible for keeping proper
accounting records which disclose with reasonable
accuracy at any time the financial position of the Company,
for safeguarding the assets, for taking reasonable steps
for the prevention and detection of fraud and other
irregularities and for the preparation of a Directors’ report
which complies with the Gibraltar Companies (Accounts)
Act 1999, the Gibraltar Companies (Consolidated Accounts)
Act 1999 and the Gibraltar Companies Act.
Financial statements are published on the Group’s website
in accordance with legislation in the UK governing the
preparation and dissemination of financial statements,
which may vary from legislation in other jurisdictions. The
maintenance and integrity of the Group’s website is the
responsibility of the Directors. The Directors’ responsibility
also extends to the ongoing integrity of the financial
statements contained therein.
The Directors are responsible for preparing the annual
report and the financial statements. The Directors are
required to prepare financial statements for the Group
in accordance with International Financial Reporting
Standards (IFRSs) and have also chosen to prepare financial
statements for the Company in accordance with IFRSs.
Corporate Governance
The corporate governance statement is on pages 26 to 29
and is incorporated in this Directors’ Report by reference.
Group and Parent Company Financial Statements
Company law requires the Directors to prepare
financial statements in accordance with the Gibraltar
Companies (Accounts) Act 1999, the Gibraltar Companies
(Consolidated Accounts) Act 1999 and the Gibraltar
Companies Act.
International Accounting Standard 1 requires that financial
statements present fairly for each financial year the Group
and Company’s financial position, financial performance
and cash flows. This requires the faithful representation of
the effects of transactions, other events and conditions in
accordance with the definitions and recognition criteria
for assets, liabilities, income and expenses set out in the
International Accounting Standards Board’s ‘Framework for
the preparation and presentation of financial statements’.
In virtually all circumstances, a fair presentation will be
achieved by compliance with all applicable IFRSs. A fair
presentation also requires the Directors to:
● Consistently select and apply appropriate accounting
policies;
● Present information, including accounting policies, in a
manner that provides relevant, reliable, comparable
and understandable information; and
● Provide additional disclosures when compliance with the
specific requirements in IFRSs is insufficient to
enable members to understand the impact of particular
transactions, other events and conditions on the entity’s
financial position and financial performance.
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.
Auditors
A resolution for the reappointment of BDO LLP and BDO
Limited as auditors of the Company will be proposed at
the 2013 Annual General Meeting.
During the year ended 31 December 2012 BDO LLP were
appointed auditors for the purposes of the Company
preparing financial statements as required pursuant to
the Listing Rules of the UK Listing Authority. BDO Limited
have been appointed to act as auditors for the purposes
of issuing an audit report pursuant to Section 10 of the
Gibraltar Companies (Accounts) Act 1999 to be filed with
the Gibraltar Companies Registry.
On behalf of the Board:
Brian Mattingley
Chief Executive
13 March 2013
www.888holdingsplc.com 42
Independent Auditors’ Report to the
Members of 888 Holdings plc
We have audited the financial statements of 888 Holdings
plc for the year ended 31 December 2012 which comprise
the Consolidated income statement, the Consolidated and
Company balance sheets, the Consolidated and Company
statements of changes in equity, the Consolidated
statement of comprehensive income, the Consolidated and
Company statements of cash flows and the related notes.
The financial reporting framework that has been applied
in their preparation is applicable law and International
Financial Reporting Standards (IFRSs) as adopted by the
European Union.
This report is made solely to the Company’s members, as a
body, in accordance with our engagement letters. Our audit
work has been undertaken so that we might state to the
Company’s members those matters we are required to state
to them in an Auditors’ report and for no other purpose.
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,
for this report, or for the opinions we have formed.
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
responsibility is to audit and express an opinion on the
financial statements in accordance with applicable law
and International Standards on Auditing (UK and Ireland).
Those standards require us to comply with the Auditing
Practices Board’s (APB’s) Ethical Standards for Auditors.
888 Holdings plc has complied with the requirements
of rules 9.8.6 and 9.8.8 of the Listing Rules of the UK
Financial Services Authority (the “Listing Rules”) and
in accordance with Section 421 of the UK Companies
Act 2006 in preparing its Annual Report, as if it was
incorporated in the United Kingdom. As auditors, we have
agreed that our responsibilities in relation to the Annual
Report will be those as set out below.
We report to you our opinion as to whether the financial
statements give a true and fair view and whether the
financial statements have been properly prepared in
accordance with the Gibraltar Companies (Consolidated
Accounts) Act 1999, the Gibraltar Companies (Accounts)
Act 1999 and the Gibraltar Companies Act 1930 (as
amended), and the part of the Remuneration Report to
be audited has been properly prepared in accordance
with Section 421 of the UK Companies Act 2006. We also
report to you whether in our opinion, the information
disclosed in the Directors’ Report is consistent with
the financial statements, if the Company has not kept
proper accounting records, if we have not received all the
information and explanations we require for our audit, or
if information specified by the Listing Rules and Gibraltar
legislation regarding Directors’ remuneration and other
transactions is not disclosed.
Scope of the audit of the financial statements
A description of the scope of an audit of financial
statements is provided on the APB’s website at
www.frc.org.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
31 December 2012 and of the Group’s profit for the year
then ended;
● The Group and Parent company financial statements
have been properly prepared in accordance with IFRSs
as adopted by the European Union;
● The financial statements have been properly
prepared in accordance with the Gibraltar Companies
(Consolidated Accounts) Act 1999, the Gibraltar
Companies (Accounts) Act 1999 and the Gibraltar
Companies Act 1930 (as amended);
● The part of the Directors’ Remuneration Report to be
audited has been properly prepared in accordance with
Section 421 of the UK Companies Act 2006.
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 2012 for which
the financial statements are prepared is consistent with
the financial statements.
888 Holdings plc Annual Report & Accounts 2012 43
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 the Company on directors’ remuneration.
BDO llP
Chartered Accountants
55 Baker Street
London
W1U 7EU
13 March 2013
Christian Summerfield (Statutory Auditor)
For and on behalf of
BDO Limited
Registered Auditors
Regal House
Queensway
PO Box 1200
Gibraltar
13 March 2013
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.
www.888holdingsplc.com 44
Consolidated Income Statement
For the year ended 31 December 2012
Revenue
Operating expenses
Gaming duties
Research and development expenses
Selling and marketing expenses
Administrative expenses
Operating profit before impairment charges, retroactive duties and associated
charges, restructuring costs and share benefit charges
Impairment charges
Retroactive duties and associated charges
Restructuring costs
Share benefit charges
Operating profit
Finance income
Finance expenses
Movement in contingent and deferred consideration
Share of post-tax profit of equity accounted joint ventures
Profit before tax
Taxation
Profit after tax for the year attributable to equity holders of the parent
Earnings per share
Basic
Diluted
Note
3
Year ended 31 December
2011
US$ million
331.2
122.6
7.3
29.9
102.3
54.5
2012
US$ million
375.8
128.3
22.6
27.2
131.2
29.6
51.9
(2.2)
(11.1)
—
(1.7)
36.9
4.6
(2.7)
2.0
—
40.8
5.4
35.4
42.6
(20.7)
—
(4.9)
(2.4)
14.6
0.2
(13.3)
4.2
0.1
5.8
3.9
1.9
4
6
6
21
13
7
Note
8
Year ended 31 December
2012
US $
10.2¢
10.1¢
2011
US $
0.6¢
0.6¢
Consolidated Statement of Comprehensive Income
For the year ended 31 December 2012
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 79 form part of these financial statements.
31 December
2012
US$ million
35.4
(0.7)
34.7
2011
US$ million
1.9
(0.4)
1.5
Note
5
888 Holdings plc Annual Report & Accounts 2012 Consolidated Balance Sheet
At 31 December 2012
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
Short term investments
Trade and other receivables
Total assets
Equity and liabilities
Equity attributable to equity holders of the parent
Share capital
Share premium
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
Share benefit charges — cash settled
Total liabilities
Total equity and liabilities
45
31 December
2012
US$ million
2011
US$ million
Note
11
12
13
14
15
16
17
18
19
20
22
21
24
147.7
18.3
—
0.2
0.4
166.6
81.5
3.5
33.0
118.0
284.6
3.2
0.1
144.9
148.2
85.4
49.5
0.7
135.6
0.8
136.4
284.6
141.9
17.1
1.2
0.2
0.4
160.8
75.9
6.0
26.4
108.3
269.1
3.2
0.1
118.0
121.3
65.5
44.9
37.4
147.8
—
147.8
269.1
The financial statements on pages 44 to 47 were approved and authorised for issue by the Board of Directors on 13
March 2013 and were signed on its behalf by:
Brian Mattingley
Chief Executive Officer
Aviad Kobrine
Chief Financial Officer
The notes on pages 48 to 79 form part of these financial statements.
www.888holdingsplc.com
46
Consolidated Statement of Changes in Equity
For the year ended 31 December 2012
Balance at 1 January 2011
Equity settled Share benefit charges
Equity settled Share benefit charges
(included within restructuring costs)
Issue of shares (see note 19)
Profit after tax for the year attributable to equity holders of the parent
Other comprehensive income for the year
Balance at 1 January 2012
Dividend paid
Equity settled Share benefit charges
Issue of shares (see note 19)
Profit after tax for the year attributable to equity holders of the parent
Other comprehensive income for the year
Balance at 31 December 2012
Share
capital
US$ million
3.2
—
Share
premium
US$ million
0.1
—
Retained
earnings
US$ million
113.6
2.4
Total
US$ million
116.9
2.4
—
—
—
—
3.2
—
—
—
—
3.2
—
—
—
—
0.1
—
—
—
—
0.1
0.5
—
1.9
(0.4)
118.0
(8.7)
0.9
—
35.4
(0.7)
144.9
0.5
—
1.9
(0.4)
121.3
(8.7)
0.9
—
35.4
(0.7)
148.2
The following describes the nature and purpose of each reserve within equity.
Share capital — represents the nominal value of shares allotted, called-up and fully paid.
Share premium — represents the amount subscribed for share capital in excess of nominal value.
Retained earnings — represents the cumulative net gains and losses recognised in the consolidated statement of
comprehensive income.
The notes on pages 48 to 79 form part of these financial statements.
888 Holdings plc Annual Report & Accounts 2012 47
Consolidated Statement of Cash Flows
For the year ended 31 December 2012
2012
US$ million
Year ended 31 December
2011
US$ million
2012
US$ million
2011
US$ million
Cash flows from operating activities
Profit before income tax
Adjustments for:
Impairment charges
Depreciation
Amortisation
Interest received
Interest expense
Foreign exchange differences on deferred consideration
Fair value movements on Foreign exchange derivatives
Share of post-tax profit of equity accounted joint venture
Movement in contingent and deferred consideration
Share benefit charges
Increase in trade receivables
(Increase) decrease in other accounts receivables
Increase in customer deposits
Increase in trade and other payables
Cash generated from operations
Income tax paid
Net cash generated from operating activities
Cash flows from investing activities
Consideration paid on acquisitions (See note 21)
Purchase of property, plant and equipment
Decrease (increase) in short term investments
Interest received
Acquisition of intangible assets
Internally generated intangible assets
Net cash used in investing activities
Cash flows from financing activities
Interest paid
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 79 form part of these financial statements.
40.8
2.2
9.2
5.6
(0.3)
1.1
0.5
(3.3)
—
(2.0)
1.7
55.5
(2.9)
(0.4)
4.6
18.9
75.7
(5.0)
(36.7)
(10.6)
2.5
0.3
(0.3)
(10.5)
(1.1)
(8.7)
5.8
20.7
9.0
4.0
(0.2)
7.4
1.7
1.6
(0.1)
(4.2)
2.9
48.6
(4.9)
2.8
10.2
26.4
83.1
(4.4)
70.7
78.7
(46.1)
(4.5)
(5.1)
0.2
(0.2)
(4.1)
(3.7)
—
(59.8)
(3.7)
15.2
60.7
75.9
(55.3)
(9.8)
5.6
75.9
81.5
www.888holdingsplc.com 48
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 re-domiciled 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
The Group
Subsidiaries
Related parties
888 Holdings Public Limited Company.
888 Holdings Public Limited Company and its subsidiaries.
Companies over which the Company has control (as defined in International Accounting
Standard 27 ‘Consolidated and Separate Financial Statements’ and whose accounts are
consolidated with those of the Company).
As defined in International Accounting Standard 24 — ‘Related Party Disclosures’.
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, without any material change.
The financial statements are presented in US Dollars (US$ million) because that is the currency the Group primarily
operates in.
The consolidated financial statements comply with the Gibraltar Companies (Accounts) Act 1999, the Gibraltar
Companies (Consolidated Accounts) Act 1999 and the Gibraltar Companies Act.
The following standards and interpretations, issued by the IASB or the International Financial Reporting
Interpretations Committee (IFRIC) have been adopted by the Group with no significant impact on its consolidated
results or financial position.
Amendments to IAS 12 — Deferred Tax: Recovery of Underlying Assets.
Amendments to IFRS 7 — Disclosures: Transfers of Financial Assets.
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 2012. 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).
IFRS 10 — Consolidated Financial Statements (effective for accounting periods beginning on or after 1 January
2014).
888 Holdings plc Annual Report & Accounts 2012 49
2
Significant accounting policies continued
IFRS 11 — Joint Arrangements (effective for accounting periods beginning on or after 1 January 2014).
IFRS 12 — Disclosure of Interests in Other Entities (effective for accounting periods beginning on or after 1 January 2014).
IFRS 13 — Fair Value Measurement (effective for accounting periods beginning on or after 1 January 2013).
IAS 27 — Separate Financial Statements (effective for accounting periods beginning on or after 1 January 2014).
IAS 28 — Investments in Associates and Joint Ventures (effective for accounting periods beginning on or after
1 January 2014).
IAS 19 — Employee Benefits (effective for accounting periods beginning on or after 1 January 2013).
Amendments to IFRS 7 — Disclosures Offsetting Financial Assets and Financial Liabilities (effective for accounting
periods beginning on or after 1 January 2013).
Amendments to IFRS 10, IFRS 11 and IFRS 12 — Consolidated Financial Statements, Joint Arrangements and
Disclosure of Interests in Other Entities (effective for accounting periods beginning on or after 1 January 2013).
These amendments have 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).
IFRS 9 — Financial Instruments (effective for accounting periods beginning on or after 1 January 2015). This
amendment has not yet been endorsed for use in the EU.
Improvements to IFRSs. This annual improvement project clarifies the requirements of IFRSs and eliminates
inconsistencies within and between standards. The relevant changes included amendments to IFRS 1 ‘First-time
adoption of International Financial Reporting Standards’, IAS 1 ‘Presentation of financial statements’, IAS 16
‘Property, plant and equipment’, IAS 32 ‘ Financial instruments’ and IAS 12 ‘Income taxes’. These amendments have
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.
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
Contingent liabilities and regulatory compliance
Note
7
21
11
11
24
28
Presentation of accounts
Following a review of the financial statements, the following amendment has been made to the consolidated
balance sheet presentation. Cash deposits in accounts with restricted access, primarily in respect of regulated
market requirements, have been included as short terms investments and the comparatives adjusted accordingly.
The new presentation has no effect on net assets nor on the reported profit and loss and therefore a comparative
prior year balance sheet for 31 December 2010 has not been presented.
The effect on the comparative cash flow has been to increase the cash used in investing activities by US$5.1 million,
and therefore reduce the increase in cash and cash equivalents for the year by the same amount.
www.888holdingsplc.com 50
notes to the Consolidated Financial Statements
2
Significant accounting policies continued
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.
Revenue
Revenue is recognised provided 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 after
deduction of certain bonuses granted to customers and is measured at the fair value of the consideration received
or receivable.
Revenue consists of income from online activities and that generated from processing customers’ cross currency
deposits and withdrawals, which is allocated to each reporting segment. Revenue from online activities comprises:
Casino and Bingo
Casino and Bingo online gaming revenue is represented by the difference between the amounts of bets placed by
customers less amounts won.
Where the Group is using a third-party platform and is not deemed to be the principal the recognised income is the
net revenue share earned from that activity.
Poker
Poker online gaming revenue represents the commission charged from each poker hand in ring games and entry
fees for participation in Poker tournaments. In Poker tournaments entry fee revenue is recognised when the
tournament has concluded.
Emerging Offerings
Revenue from Emerging Offerings is mainly comprised of Sportbook, Social games and third party platform based
activity.
●
●
●
Sportsbook online gaming revenue comprises net house win adjusted for the fair value of open betting
positions.
Social games revenue comprises the Group’s share from the sale of virtual goods to customers playing
the Group’s games.
Revenue derived from using third-party platforms represents the Group’s net revenue share from that activity.
B2B
Where the Group is considered to be the principal, income is recognised as the gross revenue generated from use
of the Group’s platform in online gaming activities with the partners’ share of the revenue charged to operating
expenses. In other cases income is recognised as the Group share of the net revenue generated from use of the
Group’s platform.
Recoupable advances received are carried at cost less recouped amounts and are treated as deferred income
within current liabilities and released as they are earned in line with the policy above.
888 Holdings plc Annual Report & Accounts 2012 51
2
Significant accounting policies continued
Operating expenses
Operating expenses consists primarily of staff costs, payment service providers’ commissions, chargebacks,
commission and royalties payable to third parties, all of which are recognised on an accruals basis, and depreciation
and amortisation.
Administrative expenses
Administrative expenses consist primarily of staff costs, corporate professional expenses, all of which are
recognised on an accruals basis, and impairment charges.
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).
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 amortised 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.
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 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 amortised over either the life of the licence, or up to
20 years, whichever is the shorter period. Previously certain licences were deemed to have an indefinite life. This
refinement of policy has no material impact on the financial statements.
www.888holdingsplc.com 52
notes to the Consolidated Financial Statements
2
Significant accounting policies continued
Goodwill
Goodwill represents the excess of the cost of a business combination over the Company’s 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 charged immediately as an expense.
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
Leasehold improvements
33%
7-15%
15%
Over the shorter of the term of the lease or useful lives
Impairment of non-financial assets
Impairment tests on goodwill 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).
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 recognised 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.
888 Holdings plc Annual Report & Accounts 2012 53
2
Significant accounting policies continued
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, and any charge or reversal of previous impairments is
taken to the consolidated income statement.
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.
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 2 fair value measurement instruments and are 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 2 inputs are inputs other than quoted prices included within level 1 that are either
directly or indirectly observable for the asset or liability.
Short term investments
Short term investments are non-derivative financial assets with fixed or determinable payments that are not quoted
on an active market. They are initially recognised at fair value, plus transaction costs directly attributable to their
acquisition. They are subsequently carried at amortised cost using the effective interest rate method, less any
provisions for impairment.
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 comprise 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 progressive provision for jackpots. These amounts are repayable 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.
www.888holdingsplc.com 54
notes to the Consolidated Financial Statements
2
Significant accounting policies continued
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
●
Equity settled
Where the Company grants its employees or contractors shares, or 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.
Market performance conditions are taken into account in determining the fair value at the date of grant.
●
Cash-settled
For transactions treated as cash settled share based payment transactions, the Company recognises the services
received, and a liability to pay for those services, as the employees render service.
Until the liability is settled, the Company remeasures the fair value of the liability at each reporting date and at the
date of settlement, with any changes in fair value charged or credited to the income statement for the period.
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.
888 Holdings plc Annual Report & Accounts 2012 55
2
Significant accounting policies continued
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.
3
Segment information
Business Segments
Casino
US$ million
165.5
Revenue
Result
Segment result before
impairments
Impairments
Segment result
Unallocated corporate
expenses1
Operating profit
Financial income
Financial expenses
Movement in contingent
and deferred consideration
Share of post-tax profit
of equity accounted joint
ventures
Taxation
Profit for the year
Assets
Unallocated corporate
assets
Total assets
Liabilities
Segment liabilities
Unallocated corporate
liabilities
Total liabilities
Year ended 31 December 2012
B2C
B2B Consolidated
Poker
US$ million
87.5
Bingo
US$ million
51.8
Emerging
offering
US$ million
25.0
Total
B2C
US$ million
329.8
US$ million
46.0
US$ million
375.8
157.3
(0.6)
156.7
26.7
(1.6)
25.1
184.0
(2.2)
181.8
144.9
36.9
4.6
(2.7)
2.0
—
(5.4)
35.4
284.6
284.6
46.5
3.0
49.5
86.9
136.4
1
Including share benefit charges of US$1.7 million charged to administrative expenses.
www.888holdingsplc.com
56
notes to the Consolidated Financial Statements
3
Segment information continued
Casino
US$ million
148.0
Revenue
Result
Segment result before
impairments
Impairments
Segment result
Unallocated corporate
expenses1
Operating profit
Financial income
Financial expenses
Movement in contingent
and deferred consideration
Share of post-tax profit
of equity accounted joint
ventures
Taxation
Profit for the year
Assets
Unallocated corporate
assets
Total assets
Liabilities
Segment liabilities
Unallocated corporate
liabilities
Total liabilities
Year ended 31 December 2011
B2C
B2B Consolidated
Poker
US$ million
60.6
Bingo
US$ million
54.0
Emerging
offering
US$ million
21.6
Total
B2C
US$ million
284.2
US$ million
47.0
US$ million
331.2
152.0
(20.7)
131.3
27.8
—
27.8
179.8
(20.7)
159.1
144.5
14.6
0.2
(13.3)
4.2
0.1
(3.9)
1.9
269.1
269.1
39.1
5.9
45.0
102.8
147.8
1
Including share benefit charges of US$2.4 million charged to administrative expenses and restructuring costs of US$4.9 million.
Other than where amounts are allocated specifically to the B2C and B2B segments above, the expenses, assets
and liabilities relate jointly to all segments. These amounts are not discretely analysed between the two operating
segments as any allocation would be arbitrary.
Geographical information
The Group’s performance can also be reviewed by considering the geographical markets and geographical
locations within which the Group operates. This information is outlined below:
888 Holdings plc Annual Report & Accounts 2012 57
2012
Year ended 31 December
2011
US$ million US$ million
153.1
124.2
26.5
27.4
331.2
161.8
142.1
38.2
33.7
375.8
Year ended 31 December
Carrying amount of
segment assets by location
Additions to property,
plant and equipment
2012
US$ million
226.6
9.5
48.5
284.6
2011
US$ million
228.5
—
40.6
269.1
2012
US$ million
5.4
2.5
2.7
10.6
2011
US$ million
3.3
—
1.2
4.5
3
Segment information continued
Revenue by geographical market
UK
Europe (excluding UK)
Americas
Rest of world
Revenue
Assets by geographical location
Europe (including UK)
Americas
Rest of world
4 Operating profit
Operating profit is stated after charging:
Staff costs (see note 5)
Audit fees to BDO LLP
Audit fees to BDO Limited
Other fees paid to BDO LLP — other assurance related matters
Depreciation (within operating expenses)
Amortisation (within operating expenses)
Chargebacks
Payment service providers’ commissions
Retroactive taxes and associated charges
Restructuring costs1
Impairment costs (within administrative expenses — see notes 11 and 13)
Year ended 31 December
2012
US$ million
2011
US$ million
80.8
0.3
0.1
0.1
9.2
5.6
3.3
21.7
11.1
—
2.2
86.8
0.4
0.1
0.1
9.0
4.0
3.4
18.8
—
4.9
20.7
1 During 2011 the Group restructured its management team resulting in aggregated terminated staff and related costs of US$4.9 million for the year
ended 31 December 2011 of which US$3.9 million were in relation to the former CEO. Total costs included US$0.5 million in respect of accelerated
equity settled share benefit charges arising on termination.
www.888holdingsplc.com 58
notes to the Consolidated Financial Statements
5
Employee benefits
Staff cost including Executive Directors’ remuneration comprises the following elements:
Wages and salaries
Social security
Pension costs
Staff costs capitalised in respect of internally generated intangible assets
2012
US$ million
80.6
3.3
4.9
88.8
(8.0)
80.8
2011
US$ million
82.0
3.1
4.9
90.0
(3.2)
86.8
In the income statement total staff costs, excluding share benefit charge of US$1.7 million (2011: US$2.4 million), are
included within the following expenditure categories:
Operating expenses
Research and development expenses
Administrative expenses
Average headcount number of employees by category:
Operations
Research and development
Administration
2012
US$ million
48.4
15.0
17.4
80.8
2011
US$ million
49.1
19.6
18.1
86.8
2012
Number
671
224
115
1,010
2011
Number
593
217
119
929
At 31 December 2012 the Group employed 1,035 (2011: 932) staff.
Severance pay liability — Israel
The Group’s employees in Israel are eligible to receive certain benefits from the Group in specific 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
2012 and 2011, respectively:
Severance pay liability (within trade and other payables)
Income statement charge
Actuarial movements on severance pay liability (included in statement of comprehensive income)
2012
US$ million
1.0
2.8
0.7
2011
US$ million
0.6
3.0
0.4
888 Holdings plc Annual Report & Accounts 2012 59
Year ended 31 December
2012
US$ million
8.4
0.4
3.0
(1.7)
0.1
0.2
10.4
2011
US$ million
8.3
0.4
3.0
(2.4)
(0.3)
(0.6)
8.4
Year ended 31 December
2012
US$ million
9.0
0.4
2.8
(1.8)
0.8
0.2
11.4
2011
US$ million
8.6
0.3
3.1
(2.5)
0.1
(0.6)
9.0
Year ended 31 December
2011
US$ million
8.4
(9.0)
(0.6)
2010
US$ million
8.3
(8.6)
(0.3)
2009
US$ million
6.8
(7.0)
(0.2)
Year ended 31 December
2011
US$ million
(0.3)
(0.1)
(0.4)
2010
US$ million
0.2
(0.5)
(0.3)
2009
US$ million
0.9
(1.1)
(0.2)
2008
US$ million
4.2
(4.5)
(0.3)
2008
US$ million
0.2
(1.1)
(0.9)
5
Employee benefits continued
Movement in severance pay liability:
Severance pay plan assets
At beginning of year
Expected return
Contributions
Benefits paid
Actuarial gain (loss) on assets
Exchange differences
At end of year
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
2012
US$ million
10.4
(11.4)
(1.0)
Experience gains and losses on scheme assets and liabilities
On plan assets
On plan liabilities
2012
US$ million
0.1
(0.8)
(0.7)
Employees can determine individually into which type of investment their share of the plan assets are invested
therefore the Group is unable to accurately disclose the proportions of the plan assets invested in each class of
asset. Cumulative actuarial losses recognised in other comprehensive income amount to US$2.5 million (2011:
US$1.8 million).
www.888holdingsplc.com 60
notes to the Consolidated Financial Statements
5
Employee benefits continued
The main actuarial assumptions used in determining the fair value of the Group’s employee benefits plan are shown
below:
Discount rate (nominal)
Estimated increase in employee benefits costs
Voluntary termination rate
Estimated rate of return on assets
Inflation rates based on Israeli government bonds
6
Finance income and finance expenses
Finance income:
Interest income
Fair value movements on foreign exchange derivatives
Fair value movements of foreign exchange derivatives on deferred consideration
Finance income
Finance expenses:
Interest expense on deferred consideration
Unwinding of discount on contingent and deferred consideration
Fair value movements of foreign exchange derivatives on deferred consideration
Foreign exchange losses
Finance expenses
7
Taxation
Corporate taxes
Current tax
Deferred tax
Taxation expense
2012
%
3.80
3.82
70
4.34
2.28
2011
%
4.34
3.00
70
4.71
2.19
Year ended 31 December
2011
US$ million
0.2
—
—
0.2
2012
US$ million
0.4
3.3
0.9
4.6
Year ended 31 December
2012
US$ million
1.1
—
—
1.6
2.7
2011
US$ million
3.7
3.7
1.6
4.3
13.3
Year ended 31 December
2011
US$ million
3.7
0.2
3.9
2012
US$ million
5.4
—
5.4
888 Holdings plc Annual Report & Accounts 2012 7
Taxation continued
Profit before taxation
Tax at effective tax rate in Gibraltar (2012: 10%, 2011: 10%)
Effect of overseas taxation
Effect of deferred tax originating in overseas jurisdictions
Permanent disallowable expenditure
Non-taxed income
Adjustments to prior years tax charges
Total tax charge for the year
61
Year ended 31 December
2011
US$ million
5.8
0.6
2.2
(0.1)
3.2
(1.3)
(0.7)
3.9
2012
US$ million
40.8
4.1
2.3
0.1
1.7
(3.7)
0.9
5.4
Current tax is calculated with reference to the profit of the Company and its subsidiaries in their respective
countries of operation:
Gibraltar — 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 — The domestic corporate tax rate in Israel from 2012 is 25% (2011: 24%). The Company’s Israeli subsidiary had
entered into certain transfer pricing agreements with the Israeli Income Tax Commissioner, which were effective until
the end of 2010. The subsidiary has recently concluded an assessment agreement with respect to all tax years up to
2011, and the Directors have reasons to believe that the same principles will apply to the tax year 2012.
UK — 888’s subsidiary in the UK pays corporate tax in the UK at the applicable rate of 24% (2011: 26%).
8
Earnings per share
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 equity instruments granted, which are not included in the number of
shares for basic earnings per share. Certain equity instruments have been excluded from the calculation of diluted
EPS as their conditions of being issued were not deemed to satisfy the performance conditions at the end of the
performance period or it will not be advantageous for holders to exercise it into shares, in the case of options. The
number of equity instruments excluded from the diluted EPS calculation is 6,363,756 (2011: 4,870,226).
Profit from continuing operations attributable to ordinary shareholders (US$ million)
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
2012
35.4
Year ended 31 December
2011
1.9
348,880,677 346,385,511
3,597,516
351,545,970 349,983,027
0.6¢
0.6¢
10.2¢
10.1¢
2,665,293
www.888holdingsplc.com 62
notes to the Consolidated Financial Statements
8
Earnings per share continued
Adjusted earnings per share
The Directors believe that EPS excluding share benefit charges, restructuring costs, retroactive taxes and associated
charges, impairment charges and movement in contingent and deferred 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, retroactive taxes and
associated charges, impairment costs and movement in contingent and deferred consideration:
Profit from continuing operations attributable to ordinary shareholders
Share benefit charges (excluding share benefit charges within restructuring costs)
Restructuring costs
Retroactive taxes and associated charges
Movement in contingent and deferred consideration
Impairment charges
Profit excluding share benefit charges, restructuring costs, impairment charges, movement
in contingent and deferred consideration and retroactive taxes and associated charges
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 31 December
2011
US$ million
1.9
2.4
4.9
—
(4.2)
20.7
2012
US$ million
35.4
1.7
—
11.1
(2.0)
2.2
48.4
25.7
348,880,677 346,385,511
351,545,970 349,983,027
7.4¢
7.3¢
13.9¢
13.8¢
9 Dividend
Dividends paid
Year ended 31 December
2011
US$ million
—
2012
US$ million
8.7
An interim dividend of 2.5¢ per share was paid on 18 October 2012.
The Board of Directors will recommend to the shareholders a final divided in respect of the year ended 31 December
2012, comprising 4.5¢ per share and an additional one-off 2.0¢ per share, which will be recognised in the 2013
financial statements once approved.
10 Acquisitions
Acquisitions made during the year
Following commercial negotiations between the Group and one of its former B2B white label customers, the
Group acquired the former customer’s domain name and brands as at 1 January 2012 for cash consideration of
US$0.6 million, and contingent consideration based on a percentage of revenue receivable originally estimated
at US$0.9 million. All amounts, except for goodwill arising of US$0.3 million, have been attributed to intangible
assets acquired, comprising customer information and brands. At the year end the contingent consideration
payable has been increased by US$0.4 million. The acquisition is deemed immaterial in respect of IFRS 3 disclosure
requirements.
Acquisitions completed in prior years
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.
During the year 2012, the Group paid an amount of US$35.5 million and completed the settlement of the deferred
consideration payable in respect of the Wink acquisition. Following negotiations with the vendors the final amount
payable was reduced and as a result US$2.4 million was released to the consolidated Income Statement.
888 Holdings plc Annual Report & Accounts 2012 63
Acquired
intangible
assets
US$ million
Other
intangible
assets
US$ million
Total
US$ million
Goodwill
US$ million
145.8
—
145.8
—
0.3
146.1
—
20.7
—
20.7
—
—
20.7
125.4
125.1
145.8
9.0
0.2
9.2
—
1.5
10.7
5.5
—
1.5
7.0
—
1.7
8.7
2.0
2.2
3.5
16.1
4.1
20.2
10.5
—
30.7
3.1
—
2.5
5.6
0.9
3.9
10.4
20.3
14.6
13.0
170.9
4.3
175.2
10.5
1.8
187.5
8.6
20.7
4.0
33.3
0.9
5.6
39.8
147.7
141.9
162.3
Bingo
online
business
US$ million
125.1
—
—
125.1
-
125.1
Mytopia
social
games
US$ million
20.2
(20.2)
—
—
—
—
Other
US$ million
0.5
—
(0.5)
—
0.3
0.3
Total
Goodwill
US$ million
145.8
(20.2)
(0.5)
125.1
0.3
125.4
11
Intangible assets
Cost or valuation
At 1 January 2011
Additions
At 31 December 2011
Additions
Acquisitions
At 31 December 2012
Amortisation and impairments:
At 1 January 2011
Impairment
Amortisation charge for the year
At 31 December 2011
Impairment
Amortisation charge for the year
At 31 December 2012
Carrying amounts
At 31 December 2012
At 31 December 2011
At 31 December 2010
Analysis of goodwill by cash generating units:
Carrying value at 1 January 2011
Mytopia social games goodwill impairment
Internet domain name goodwill impairment
Carrying value at 1 January 2012
Acquisition of internet domain name and brands
Carrying value at 31 December 2012
Impairment
In accordance with IAS 36 and the Group’s stated accounting policy an impairment calculation is carried out
annually on the carrying amounts of goodwill and any other intangible assets that shows indication of impairment.
A review was carried out at 31 December 2012 to assess whether there was any indication that its other intangible
assets and property plant and equipment had been impaired. Where an impairment calculation was carried out,
the carrying value in use of the assets was determined by discounting the future cash flows of the relevant cash
generating unit to their present value.
www.888holdingsplc.com 64
notes to the Consolidated Financial Statements
11
Intangible assets continued
Goodwill
Bingo Online Business
Goodwill and intangible assets associated with the 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. Cash flow projections have been prepared covering the following five year
period. Underlying growth rates as shown in the table below have been applied to revenue and are based on past
experience and projections of future changes in the online gaming market.
Having applied conservative estimates, certain B2B contracts due to end in the next three years have not been
projected to be renewed and have been assumed to gradually decline over the period to contract end. The discount
rate that is considered by the Directors to be appropriate is the Group’s specific weighted average cost of capital
which also applies to the online Bingo cash generating units.
Key assumptions used
At 31 December 2012
At 31 December 2011
Discount
rate
applied1
10%
8%
Underlying
growth
rate year 1
2%
2%
Underlying
growth
rate
years 2-5
0%
0%
Underlying
growth
rate
year 6+
1%
1%
Operating
expenses2
increase
years 1-5
6%
6%
Operating
expenses2
increase
year 6+
1%
1%
1 The discount rate is recalculated every year by taking into account prevailing risk free rates, equity risk premium and company beta and having
regard to external data commenting upon the Weighted Average Cost Of Capital applied to the Group.
2 Operating expenses exclude marketing costs which were included in the projections throughout the period as a fixed percentage of revenues.
The Directors have concluded that there are no reasonably possible changes to key assumptions that would lead to
impairment in the Bingo goodwill and intangible assets.
Mytopia social games
The Group performed an impairment review during the year 2011 on the cash generating Mytopia social games unit
which was acquired in June 2010, which resulted in a full impairment charge of US$20.2 million against goodwill,
which was taken to administrative expenses in the consolidated Income statement for the year 2011 and was
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 and non-compete agreement, are being amortised over their estimated
useful economic lives of up to three years.
Other goodwill
Following an impairment review the Directors consider no other impairment needs to be recognised. In 2011 an impairment
review in respect of an internet domain name acquired in 2008 resulted in a full impairment charge of US$0.5 million.
Other Intangible assets
Licenses
During December 2012, the Group requested the French licence to be revoked given the impact of high gaming
duty rates imposed in France which ultimately rendered the offering of the Group’s online gaming services in that
jurisdiction not economically viable. As a consequence no future income arises from these assets and the Group
has made a full impairment charge of US$0.8 million in respect of the French licence costs and other intangible
assets of US$0.1 million.
Other intangible assets
No impairment tests were considered to be required at 31 December 2012 and the carrying value of other intangible
assets is considered to be appropriate.
888 Holdings plc Annual Report & Accounts 2012 65
12 Property, plant and equipment
Cost
At 1 January 2011
Additions
Disposals
At 31 December 2011
Additions
Disposals
At 31 December 2012
Accumulated depreciation
At 1 January 2011
Charge for the year
Disposals
At 31 December 2011
Charge for the year
Disposals
At 31 December 2012
Depreciated cost
At 31 December 2012
At 31 December 2011
At 31 December 2010
Office
furniture
and
equipment
US$ million
IT
equipment
US$ million
Motor
vehicles
US$ million
Leasehold
improve-
ments
US$ million
Total
US$ million
41.8
4.4
(5.6)
40.6
10.3
(0.4)
50.5
28.6
7.5
(5.6)
30.5
7.4
(0.2)
37.7
12.8
10.1
13.2
2.8
—
—
2.8
0.1
—
2.9
1.7
0.2
—
1.9
0.2
—
2.1
0.8
0.9
1.1
0.5
—
—
0.5
0.1
—
0.6
0.4
—
—
0.4
0.1
—
0.5
0.1
0.1
0.1
15.1
0.1
(1.9)
13.3
0.1
—
13.4
7.9
1.3
(1.9)
7.3
1.5
—
8.8
4.6
6.0
7.2
60.2
4.5
(7.5)
57.2
10.6
(0.4)
67.4
38.6
9.0
(7.5)
40.1
9.2
(0.2)
49.1
18.3
17.1
21.6
13
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 of
equity interest
2012
%
50%
Percentage of
equity interest
2011
%
50%
Country of
incorporation
Gibraltar
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 operated the network jointly.
High gaming duty rates imposed in France rendered the offering of the Group’s online gaming services in that
jurisdiction not economically viable. Accordingly during December 2012, 888 RM requested its local licence to be
revoked following which it was mutually agreed with PNL to terminate the joint venture.
Consequently the Group impaired the cost of its investment in the joint venture in the amount of US$1.3 million.
www.888holdingsplc.com 66
notes to the Consolidated Financial Statements
13
Investment in equity accounted joint ventures continued
Aggregated amounts relating to TSG are as follows:
Non-current assets
Current liabilities
Revenues
Expenses
Profit
Share of before tax profit of Joint Venture
Investment including loans in equity accounted Joint Venture
14 Financial Assets — Available for sale investments
Balance at the beginning and end of the year
2012
US$ million
2.3
2.2
0.2
(0.2)
—
—
—
2011
US$ million
2.3
2.2
1.7
(1.5)
0.2
0.1
1.2
Year ended 31 December
2012
US$ million
0.2
2011
US$ million
0.2
Available-for-sale assets comprise 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 2011 and 2012 were insignificant.
15 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
Hedging gains
16 Cash and cash equivalents
Cash and cash equivalents
Restricted cash
Year ended 31 December
2012
US$ million
0.4
0.6
(0.8)
0.2
0.3
(0.3)
0.4
2011
US$ million
0.3
0.1
(0.4)
0.1
0.3
—
0.4
31 December
2012
US$ million
78.1
3.4
81.5
2011
US$ million
74.1
1.8
75.9
Restricted cash represents customers’ funds held in designated accounts under regulated market licence
requirements.
888 Holdings plc Annual Report & Accounts 2012 17 Short term investments
Deposits
67
31 December
2012
US$ million
3.5
3.5
2011
US$ million
6.0
6.0
Short term investments primarily relates to deposits held by banks to support guarantees in respect of regulated
market licence requirements.
18 Trade and other receivables
Trade receivables1
Corporate tax
Fair value of derivative financial instruments2
Other receivables and prepayments1
31 December
2012
US$ million
20.1
3.5
3.3
6.1
33.0
2011
US$ million
17.2
1.8
—
7.4
26.4
1 The carrying value of trade receivables 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.
2 Derivative financial instruments are measured at fair value under IAS 39 and comprise level 2 fair value measurement instruments. Any gains or
losses arising from changes in the fair values of derivatives are recorded immediately in the consolidated income statement.
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
Authorised
31 December
2012
Number
2011
Number
426,387,500 426,387,500
2012
US$ million
3.9
2011
US$ million
3.9
Allotted, called up and fully paid
31 December
2012
Number
2011
Number
347,687,468 345,429,509
2,257,959
2,000,888
349,688,356 347,687,468
2012
US$ million
3.2
—
3.2
2011
US$ million
3.2
—
3.2
www.888holdingsplc.com 68
notes to the Consolidated Financial Statements
19 Share capital continued
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 24) during 2012 and 2011:
Issued during 2012
January 2012
April 2012
May 2012
June 2012
August 2012
October 2012
Shares issued during 2012
Issued during 2011
March 2011
May 2011
June 2011
August 2011
September 2011
October 2011
November 2011
December 2011
Shares issued during 2011
Ordinary
shares of
£0.005
each
76,816
362,612
1,106,071
194,988
161,468
98,933
2,000,888
Ordinary
shares of
£0.005
each
50,000
780,612
359,443
187,105
45,106
474,597
174,528
186,568
2,257,959
During 2012, the Company did not issue shares (2011: 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$3.2 million (2011: US$3.2 million) and is split into 349,688,356 (2011:
347,687,468) ordinary shares. The share capital in UK sterling (GBP) is £1.7 million (2011: £1.7 million) and translates
at an average exchange rate of US$1.82 (2011: US$1.86) to GBP.
20 Trade and other payables
Trade payables
Corporate taxes
Other payables, accrued expenses and deferred income
31 December
2012
US$ million
33.1
2.3
50.0
85.4
2011
US$ million
27.3
0.7
37.5
65.5
The carrying value of trade and other payables approximates to their fair value given the short maturity date of
these balances.
888 Holdings plc Annual Report & Accounts 2012 21 Contingent and deferred consideration
Deferred consideration re Wink acquisition
Other contingent consideration1
69
31 December
2012
US$ million
—
0.7
0.7
2011
US$ million
37.4
—
37.4
1 The Group has recognised contingent and deferred consideration on an acquisition in the period. Further details are given in note 10.
Contingent and deferred consideration — movements in the year
Contingent and deferred consideration at 1 January 2011
Paid in year — Capital amounts
Unwinding of discount
Movement in contingent and deferred consideration
Foreign exchange differences on deferred consideration
Contingent and deferred consideration at 31 December 2011
Other contingent and deferred consideration arising
on acquisitions
Paid in year — Capital amounts
Movement in contingent and deferred consideration
Foreign exchange differences on deferred consideration
Contingent and deferred consideration at the end of the year
Wink Bingo
business1
Mytopia
social
games
Others
Total
US$ million US$ million US$ million US$ million
82.3
(46.1)
3.7
(4.2)
1.7
37.4
72.1
(40.1)
3.7
—
1.7
37.4
10.2
(6.0)
—
(4.2)
—
—
—
—
—
—
—
—
—
(35.5)
(2.4)
0.5
—
—
—
—
—
—
1.5
(1.2)
0.4
—
0.7
1.5
(36.7)
(2.0)
0.5
0.7
1 During the year 2012, the Group paid an amount of US$35.5 million and completed the settlement of the deferred consideration payable in
respect of the Wink acquisition. Following negotiations with the vendors the final amount payable was reduced and as a result US$2.4 million was
released to the consolidated Income Statement.
22 liabilities to customers and progressive prize pools
Liabilities to customers
Progressive prize pools
31 December
2012
US$ million
44.1
5.4
49.5
2011
US$ million
40.0
4.9
44.9
www.888holdingsplc.com
70
notes to the Consolidated Financial Statements
23
Investments in significant subsidiaries
Percentage
of equity
interest
2012
%
Percentage
of equity
interest
2011
%
Nature of
business
Country of
incorporation
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
Gibraltar
UK
Gibraltar
Antigua
Israel
Gibraltar
Gibraltar
Gibraltar
Gibraltar
888 Regulated Markets Limited Malta
Virtual Marketing Services
Italia SRL
888 Spain Public Limited
Company
888 Virtual Limited
Italia
Gibraltar
Gibraltar
888 US Limited
Gibraltar
888 US INC.
AGN LLC
USA
USA
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100 Gaming website operator
100 Advertising services
100 Marketing acquisition
100 Customer call center operator
Research, development
and marketing support
100
100 Bingo business operator
General commercial
business activities
Development of social games —
Mytopia
Data hosting and
development services
Holder of French online
gaming licence
Holder of Italian online
gaming licence
Holder of Spanish online
gaming licence
100
100 Holder of group IP assets
Applied for internet gaming
service provider licence in the
state of Nevada
Provider of data hosting services
for the forthcoming US operations
Applied for internet gaming
service provider licence in the
state of Nevada
100
100
100
100
100
100
100
100
100
888 Holdings plc Annual Report & Accounts 2012 71
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 instalments over a fixed period of up to four
years. Certain of these awards are subject to performance conditions imposed by the Remuneration Committee at
the dates of grant, further details of which are given in the directors Remuneration Report on page 30.
Details of equity settled 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 lapsed during the year
Outstanding at the end of the year1,2
31 December, 2012
31 December, 2011
Weighted average
exercise price
Number
£1.41 3,645,044
(503,622)
£1.41
3,141,422
£1.41
Weighted average
exercise price
£1.38
£1.29
£1.41
Number
4,587,481
(942,437)
3,645,044
1 Of the total number of options outstanding at the end of the year, 2,923,109 had vested and were exercisable at the end of the year
(2011: 2,932,129).
2 The range of exercise prices for options outstanding at the end of the year is £1.02-£1.80 (2011: £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
2012
Number
6,368,292
2,134,719
(642,445)
2011
Number
4,441,138
5,091,457
(906,344)
(2,000,888) (2,257,959)
6,368,292
5,859,678
2012
£0.63
£0.72
18
2011
£0.34
£0.34
20
Shares granted for future vesting are valued at the share price at grant date which the Company considers
approximates to the fair value. The restrictions on the shares during the vesting period, primarily relating to non-
receipt of dividends, and any performance conditions attached are considered to have an immaterial effect on the
share option charge.
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 is recognised and spread over the vesting period of the
shares or options based on the fair value of the shares or options at the grant date, adjusted for changes in vesting
conditions at each balance sheet date. This charge has no cash impact.
www.888holdingsplc.com 72
notes to the Consolidated Financial Statements
24 Share-based payment continued
Cash-settled share-based payment
On 27 March 2012, the Company awarded its Chief Executive Officer a cash settled share-based award. The
phantom award will be fully vested in three years from the grant date, provided he remains in employment with the
Company on the third anniversary of the grant date. Under specific terms, the phantom award will also vest if he
leaves employment before the normal vesting date as detailed in the Directors remuneration report.
The amount payable is calculated on an incremental basis, based on the average share price of the Company over
a period of 20 dealing days prior to the scheduled vesting date for the award. The minimum amount payable is
£0.25 million and the maximum amount payable is £5.5 million if the share price is above £2.00.
valuation information
Option pricing model used
Share price at 31 December 2012
Remaining life until vesting
Risk-free interest rate
Standard deviation
Share benefit charges
Equity settled
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 4)
Equity settled charge for the year
Cash settled
Charges in respect of the phantom option awards granted this year
Total share benefit charges
31 December
2012
Monte Carlo
£1.19
2.24 years
0.37%
50.31%
2011
—
—
—
—
—
Year ended 31 December
2012
US$ million
2011
US$ million
—
0.9
0.9
—
0.9
0.8
1.7
0.6
1.8
2.4
0.5
2.9
—
2.9
888 Holdings plc Annual Report & Accounts 2012 73
25 Related party transactions
The aggregate amounts payable to the Directors as well as share-based charges are set out below:
Short term benefits1
Share benefit charges — equity settled1
Share benefit charges — cash settled
31 December
2012
US$ million
3.0
0.3
0.8
4.1
2011
US$ million
3.3
0.8
—
4.1
Further details on Directors’ remuneration are given in the Directors’ remuneration summary on page 36.
In addition, following the departure of the former CEO on 30 April 2011, the Group incurred aggregated termination and related costs of
1
US$3.9 million, of which US$3.4 million were in respect of short term benefits and US$0.5 million in respect of accelerated equity settled share
benefit charges.
26 Commitments
lease commitments
Future minimum lease commitments under property operating leases for the year ended 31 December 2012 are as
follows:
Leases expiring within
One year
Two to five years
Year ended 31 December
2012
US$ million
3.3
9.2
12.5
2011
US$ million
3.3
11.3
14.6
The amount paid in the year was US$3.5 million (2011: US$3.7 million).
Lease commitments on the Group’s property are shown to the date of the first break clause.
27 Financial risk management
The Group is exposed through its operations to risks that arise from use of its financial instruments. Policies and
procedures for managing these risks are set by the Board following recommendations from the Chief Financial
Officer. The Board reviews the effectiveness of these procedures and, if required, approves specific policies and
procedures in order to mitigate these risks.
The main financial instruments used by the Group, on which financial risk arises, are as follows:
●
●
●
●
●
●
●
Cash and cash equivalents;
Restricted cash;
Short term investments;
Trade and other receivables;
Trade and other payables;
Liabilities to customers;
Available for sale financial investments
www.888holdingsplc.com 74
notes to the Consolidated Financial Statements
27 Financial risk management continued
Detailed analysis of these financial instruments is as follows:
Financial assets
Trade receivables
Other receivables
Cash and cash equivalents
Restricted cash
Short term investment
Available for sale financial investments
31 December
2012
US$ million
20.1
6.5
78.1
3.4
3.5
0.2
111.8
2011
US$ million
17.2
5.0
74.1
1.8
6.0
0.2
104.3
In accordance with IAS 39, all financial assets are classified as loans and receivables except for available-for-sale
assets and US$3.3 million relating to forward currency contracts to hedge risks associated with foreign exchange
rates. Such derivative financial instruments are measured at fair value under IAS 39 and comprise level 2 fair value
measurement instruments.
Financial liabilities
Trade payables
Other payables and accrued expenses
Contingent and deferred consideration
Liabilities to customers
31 December
2012
US$ million
33.1
40.7
0.7
49.5
124.0
2011
US$ million
27.3
36.1
37.4
44.9
145.7
In accordance with IAS 39, all of the above financial liabilities are held at amortised cost, except for US$0.5 million
of contingent consideration arising on acquisitions which are recognised at fair value (2011: except for US$1.5
million relating to the forward currency contracts to hedge risks associated with foreign exchange transactions
recognised at fair value).
At 31 December 2012 and 2011, the fair value and the book value of the Group’s financial assets and liabilities were
materially the same.
Capital
The capital employed by the Group is composed of equity attributable to shareholders. The primary objective
of the Group is maximising shareholders’ value, which, from the capital perspective, is achieved by maintaining
the capital structure most suited to the Group’s size, strategy, and underlying business risk. Other than disclosed
elsewhere in note 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.
888 Holdings plc Annual Report & Accounts 2012 75
27 Financial risk management continued
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 (2011: 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 2012 was
US$1.1 million (2011: US$1.2 million).
The Group’s in-house Fraud and Risk Management department carefully monitors deposits and withdrawals by
following prevention and verification procedures using internally developed bespoke systems integrated with
commercially available third party measures.
Cash and cash equivalents
The Group controls its cash position out of its Gibraltar headquarters. Subsidiaries in its other main locations (Israel,
Antigua and London) maintain minimum cash balances which are deemed required for their operations.
Cash settlement proceeds from PSPs, as described above, are paid into bank accounts controlled by the Treasury
function.
The Group maintains its funds with highly reputable financial institutions and will not hold funds with financial
institutions with low credit rating.
The Group maintains its cash reserve in highly liquid deposits and regularly monitors rates in order to maximise
yield.
Restricted cash
Restricted cash represents customers’ funds held for payment service provider transactions in respect of regulated
markets.
www.888holdingsplc.com 76
notes to the Consolidated Financial Statements
27 Financial risk management continued
Short term investments
Short term investments primarily relates to deposits held by banks for guarantees in respect of regulated markets
licence applications.
The Group’s maximum exposure to credit risk by type of financial instrument is summarised below:
Trade receivables
Other receivables
Cash and cash equivalents
Restricted cash
Short term investment
Available for sale financial investments
31 December 2012
Carrying
value
US$ million
20.1
6.5
78.1
3.4
3.5
0.2
111.8
Maximum
exposure
US$ million
20.1
6.5
78.1
3.4
3.5
0.2
111.8
31 December 2011
Carrying
value
US$ million
17.2
5.0
74.1
1.8
6.0
0.2
104.3
Maximum
exposure
US$ million
17.2
5.0
74.1
1.8
6.0
0.2
104.3
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 3 months
Between 3 months and 1 year
More than 1 year
Trade
payables
US$ million
6.9
24.8
1.4
—
33.1
31 December 2012
Deferred and
contingent
consideration
US$ million
—
0.3
0.4
—
0.7
Liabilities to
customers
US$ million
49.5
—
—
—
49.5
Other
payables1
US$ million
2.1
33.3
4.5
0.8
40.7
Total
US$ million
58.5
58.4
6.3
0.8
124.0
1 Includes other payables, accrued expenses, derivative financial liabilities and provisions, and excludes deferred income.
888 Holdings plc Annual Report & Accounts 2012 27 Financial risk management continued
On demand
In 3 months
Between 3 months and 1 year
More than 1 year
Trade
payables
US$ million
8.5
17.1
1.5
0.2
27.3
31 December 2011
Deferred and
contingent
consideration
US$ million
—
—
37.4
—
37.4
Liabilities to
customers
US$ million
44.9
—
—
—
44.9
Other
payables1
US$ million
1.0
32.4
1.6
1.1
36.1
77
Total
US$ million
54.4
49.5
40.5
1.3
145.7
1
Includes other payables, accrued expenses and provisions.
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 overnight facilities. The
Group also arranges with its principal bankers that excess GBP funds are swept automatically across its accounts,
every night, in order to maximise availability of funds for investments.
Downside interest rate risk is minimal as the Group has no floating rates borrowings. Given current low interest
rates 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$0.3 million.
Currency risk
The Group’s financial risk arising from exchange rate fluctuations is mainly attributed to:
● Mismatch between Balance sheet Liabilities to customers which is predominantly denominated in US$ 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 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 2012 the Group had entered into Israeli shekel/US Dollar
outstanding forward contracts totaling US$81 million regarding 2013 operational business costs expected to be
incurred in Israeli shekels. In addition the Group had entered into US Dollar/ GB Pound as well as US Dollar/Euro
forward contracts totaling US$140 million regarding 2013 expected currency excess in GB Pound and Euro. The
total fair value of the forward contracts was US$ 3.3 million to be settled on a monthly basis throughout 2013. (2011:
the Group had entered into GB Pound/US Dollar outstanding forward contracts totaling US$32.4 million regarding
the Wink deferred liability whose fair value as at 31 December was US$1.5 million which had been settled during the
year 2012.
www.888holdingsplc.com 78
notes to the Consolidated Financial Statements
27 Financial risk management continued
The tables below detail the net financial position by currency at 31 December 2012 and 2011:
Cash and cash equivalent
Restricted cash
Receivables
Short term investments
Available for sale financial investments
Net monetary assets
Payables
Net monetary liabilities
Net financial position
Cash and cash equivalent
Restricted cash
Receivables
Short term investments
Available for sale financial investments
Net monetary assets
Payables
Net monetary liabilities
Net financial position
31 December, 2012
GBP
US$ million
16.9
—
9.9
—
—
26.8
(21.3)
(21.3)
5.5
EUR
US$ million
7.3
3.4
6.0
2.7
—
19.4
(17.3)
(17.3)
2.1
ILS
US$ million
7.4
—
4.9
0.8
—
13.1
(20.5)
(20.5)
(7.4)
USD
US$ million
44.9
—
3.6
—
0.2
48.7
(63.1)
(63.1)
(14.4)
Other
US$ million
1.6
—
2.2
—
—
3.8
(1.8)
(1.8)
2.0
Total
US$ million
78.1
3.4
26.6
3.5
0.2
111.8
(124.0)
(124.0)
(12.2)
31 December, 2011
GBP
US$ million
12.3
0.4
7.0
—
—
19.7
(60.2)
(60.2)
(40.5)
EUR
US$ million
9.7
1.2
6.4
5.2
—
22.5
(7.9)
(7.9)
14.6
ILS
US$ million
5.3
—
0.6
0.8
—
6.7
(13.8)
(13.8)
(7.1)
USD
US$ million
43.9
0.1
5.6
0.1
0.2
49.9
(63.5)
(63.5)
(13.6)
Other
US$ million
2.9
—
2.6
—
—
5.5
(0.3)
(0.3)
5.2
Total
US$ million
74.1
1.7
22.2
6.1
0.2
104.3
(145.7)
(145.7)
(41.4)
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:
10% Strengthening
10% Weakening
10% Strengthening
10% Weakening
Year ended 31 December, 2012
GBP
US$ million
(0.6)
0.6
EUR
US$ million
(0.2)
0.2
ILS
US$ million
0.7
(0.7)
Year ended 31 December, 2011
GBP
US$ million
4.1
(4.1)
EUR
US$ million
(1.5)
1.5
ILS
US$ million
0.7
(0.7)
888 Holdings plc Annual Report & Accounts 2012 79
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 and duties 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.
www.888holdingsplc.com 80
Company Balance Sheet
At 31 December 2012
Assets
Non-current assets
Investments in subsidiaries
Current assets
Trade and other receivables
Cash and cash equivalents
Total assets
Equity and liabilities
Equity
Share capital
Share premium
Retained earnings
Total equity attributable to equity holders of the parent
Liabilities
Current liabilities
Trade and other payables
Non-current liabilities
Share benefit charges — cash settled
Total liabilities
Total equity and liabilities
31 December
2012
US$ million
2011
US$ million
Note
2
3
4
5
23.4
23.4
225.5
17.6
243.1
266.5
3.2
0.1
32.5
35.8
22.8
22.8
146.3
16.4
162.7
185.5
3.2
0.1
(4.4)
(1.1)
6
229.9
186.6
0.8
230.7
266.5
—
186.6
185.5
The financial statements on pages 80 to 82 were approved and authorised for issue by the Board of Directors on
13 March 2013 and were signed on its behalf by:
Brian Mattingley
Chief Executive Officer
Aviad Kobrine
Chief Financial Officer
The notes on pages 83 to 84 form part of these financial statements.
888 Holdings plc Annual Report & Accounts 2012
81
Company Statement of Changes in Equity
At 31 December 2012
Balance at 1 January 2011
Issue of shares
Share benefit charges
Total comprehensive income for the year
Balance at 1 January 2012
Dividend paid
Issue of shares
Share benefit charges
Total comprehensive income for the year
Balance at 31 December 2012
Share
capital
US$ million
3.2
—
—
—
3.2
—
—
—
—
3.2
Share
premium
US$ million
0.1
—
—
—
0.1
—
—
—
—
0.1
Retained
earnings
US$ million
7.4
—
2.9
(14.6)
(4.3)
(8.7)
—
0.9
44.6
32.5
Total
US$ million
10.7
—
2.9
(14.6)
(1.0)
(8.7)
—
0.9
44.6
35.8
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.
Retained earnings — represents the cumulative net gains and losses recognised in the consolidated statement of
comprehensive income.
The notes on pages 83 and 84 form part of these financial statements.
www.888holdingsplc.com 82
Company Statement of Cash Flows
For the year ended 31 December 2012
Cash flows from operating activities:
Profit/(loss) before income tax
Adjustments for:
Interest received
Share benefit charges
Increase in amounts owed by subsidiaries
Decrease (increase) in other accounts receivables
Increase in trade payables
Increase in amounts owed to subsidiaries
(Decrease) increase 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
Net cash generated from investing activities
Cash flows from financing activities:
Dividends paid
Net cash used in financing activities
Net increase in cash and cash equivalents
Cash and cash equivalents at the beginning of the year
Cash and cash equivalents at the end of the year
The notes on pages 83 and 84 form part of these financial statements.
Year ended
31 December
2012
US$ million
2012
US$ million
Year ended
31 December
2011
US$ million
2011
US$ million
46.5
(0.1)
1.1
(78.9)
(0.3)
1.4
43.0
(1.9)
0.1
(8.7)
(13.7)
(0.1)
1.1
(11.4)
0.4
0.5
22.4
3.7
0.1
—
10.8
(1.0)
9.8
0.1
(8.7)
1.2
16.4
17.6
2.9
(0.3)
2.6
0.1
—
2.7
13.7
16.4
888 Holdings plc Annual Report & Accounts 2012 83
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 2012. The Company is currently assessing the impact this standard will have on the presentation of its results
in future periods.
IAS 27 Separate Financial Statements (effective for accounting periods beginning on or after 1 January 2014).
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 IFRS 2 ‘Share-based 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 IFRS 2. This amount was US$0.6 million in 2012 (2011: US$1.8 million).
3
Trade and other receivables
Amounts due from subsidiaries
Other receivables and prepayments
31 December
2012
US$ million
225.2
0.3
225.5
2011
US$ million
146.3
—
146.3
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
31 December
2012
US$ million
17.6
17.6
2011
US$ million
16.4
16.4
5
Share capital
The disclosures in note 19 to the consolidated financial statements are identical for the Company.
www.888holdingsplc.com 84
notes to the Company Financial Statements
6
Trade and other payables
Trade payables
Amounts due to subsidiaries
Corporate tax
Other payables and accrued expenses
31 December
2012
US$ million
1.9
222.3
1.6
4.1
229.9
2011
US$ million
0.6
179.3
0.7
6.0
186.6
7
8
9
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.
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.
Contingent liabilities
The disclosures in note 28 to the consolidated financial statements are identical for the Company.
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 totaling US$60 million and paid to its
shareholders dividends totaling US$8.7 million (2011: nil).
Share benefit charges in respect of options and shares of the Company awarded to employees of subsidiaries
totalled US$0.6 million (2011: US$1.8 million).
During the year subsidiaries of the Company participated in funding its costs which totalled US$11.2 million
(2011: US$15.1 million). At 31 December 2012, net amount owed by subsidiaries to the Company amounted to
US$2.9 million (2011: net amount owed by the Company to its subsidiaries US$33.1 million).
The aggregate benefits paid to the Directors of the Company by its subsidiaries set out below:
Short term benefits
31 December
2012
US$ million
0.2
2011
US$ million
0.3
888 Holdings plc Annual Report & Accounts 2012 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 also be accessed through
the Group’s main website www.888.com or are available
directly.
Casino
888’s Casino games are offered through its 888casino
and live casino
◗◗ www.888casino.com
◗◗ www.Casino-on-Net.com
◗◗ www.ReefClubCasino.com
Poker
888’s Poker offering is through 888poker
◗◗ www.888poker.com
◗◗ www.PacificPoker.com
Sportsbook
888’s Sportsbook offering is through 888sport
◗◗ www.888sport.com
85
Bingo
888’s Bingo offering is through 888ladies and Wink
◗◗ www.888ladies.com
◗◗ www.winkbingo.com
◗◗ www.poshbingo.co.uk
◗◗ www.tastybingo.com
◗◗ www.redbusbingo.com
◗◗ www.bingostreet.com
◗◗ www.bigbrotherbingo.com
◗◗ www.888bingo.com
Spain
888’s Spain Poker and Casino games are offered through
its Spanish regulated website
◗◗ www.888.es
◗◗ www.888poker.es
◗◗ www.888casino.es
Italy
888’s Italy Casino games are offered through its Italian
regulated website
◗◗ www.888.it
Games
888’s Games offering is through 888games
◗◗ www.888games.com
◗◗ www.888play.com
888responsible:
The Group’s dedicated site focusing on responsible
gaming
◗◗ www.888responsible.com
www.888holdingsplc.com 86
Shareholder notes
888 Holdings plc Annual Report & Accounts 2012 Shareholder notes
87
www.888holdingsplc.com 88
Shareholder notes
888 Holdings plc Annual Report & Accounts 2012 Shareholder Services
Solicitors
All enquiries relating to Ordinary Shares, Depository
Interests, dividends and changes of address should be
directed to the Group’s Transfer Agent:
Capita Registrars
The Registry
34 Beckenham Road
Beckenham
Kent
BR3 4TU
UK
Tel: 0870 162 3100
www.capitaregistrars.com
Further Information
For further information please contact:
info@888holdingsplc.com
Principal Bankers
Barclays Bank Plc
1 Churchill Place
London
E14 5HP
UK
The Royal Bank of Scotland plc
280 Bishopsgate
London
EC2M 4RB
UK
Freshfields Bruckhaus Deringer
65 Fleet Street
London
EC4Y 1HS
UK
UK
Hassans
57/63 Line Wall Road
Gibraltar
Company Secretary
Strait Secretaries limited
57/63 Line Wall Road
Gibraltar
Auditors
BDO llP
Chartered Accountants
55 Baker Street
London
W1U 7EU
UK
Registered Auditors
BDO limited
Regal House
Queensway
Gibraltar
Incorporated in Gibraltar with
registered number 90099
888 Holdings plc
Suite 601/701 Europort
Europort Road
Gibraltar
T: +350 20049800
F: +350 20048280
E: Info@888holdingsplc.com
www.888holdingsplc.com
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