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Annual Report & Accounts 2013
23124.04 10 April 2014 10:18 AM Proof 15
888 Holdings plc Annual Report & Accounts 2013
is one of the world’s most popular
online gaming entertainment companies.
888 is one of the world’s most popular online
gaming entertainment and solutions providers.
888’s trusted brand offers localised products that provide
players around the globe with the games they want, in the
languages they speak, with functionality and interactivity in a
safe and secure environment.
888 has been at the forefront of the online gaming industry
for more than 15 years. With a team of 1,600 highly skilled
and dedicated staff, we provide a first class online gaming
experience to customers in more than 100 countries. Our
industry-leading business analytics identify the best way to
deliver to customers the offering that will be of most interest
to them, and our best-in-class technology platform allows
us to enter new markets efficiently and successfully as new
geographies become regulated. Our ability to achieve such
success in newly regulated jurisdictions in turn means that
we are fast establishing ourselves as the partner of choice in
both regulated and newly regulating markets.
888 is a responsible business and we work hard to ensure
that our customers can enjoy our games in the safest and
most secure possible environment. We continue to innovate
and exceed our customers’ expectations, both in terms of the
offering and customer service, so that we can continue to
grow the business and deliver value for our shareholders.
23124.04 10 April 2014 10:18 AM Proof 15
Overview
Highlights
Revenue
Revenue — B2C
Revenue — B2B
Revenue —
B2C Casino
401
352
48
190
376
330
46
165
2012
2013
7%
US$ million
Revenue —
B2C Poker
94
2012
2013
2012
2013
2012
2013
7%
US$ million
5%
US$ million
15%
US$ million
Adjusted EBITDA1
Adjusted EBITDA1
Margin
Real money registered
customer accounts2
76
18.9
15.5
88
67
17.8
13.1
2012
2013
2012
2013
2012
2013
2012
2013
7%
US$ million
13%
US$ million
per cent
19%
million
Contents
Overview
01 Highlights
02 Chairman’s Statement
Strategic Report
03 Chief Executive’s Review
03 2013 Overview
03 Market Overview
03 Our Strategy
06 Operations: Delivering on
our plans
09 Financial Review and Key
Performance indicators
14 Regulation
16 Corporate Responsibility
19 Principal Risks and
Uncertainties
Governance
21 Board of Directors
22 Directors’ Report
26 Directors’ Statement of
Responsibilities
27 Corporate Governance
Statement
31 Audit Committee Report
34 Directors’ Remuneration
Report
Financials
49 Independent Auditors’
Report
53 Consolidated Income
Statement
53 Consolidated Statement of
Comprehensive Income
54 Consolidated Balance Sheet
55 Consolidated Statement of
Changes in Equity
56 Consolidated Statement of
Cash Flows
57 Notes to the Consolidated
Financial Statements
89 Company Balance Sheet
90 Company Statement of
Changes in Equity
Company Statement of Cash
Flows
91
92 Notes to the Company
Financial Statements
94 Shareholder Information
1 As defined in the table set out on page 9.
2 Casino, Poker and Sport.
Stock Code: 888
23124.04 10 April 2014 10:18 AM Proof 15
01
www.888holdingsplc.com
888 Holdings plc Annual Report & Accounts 2013
Chairman’s Statement
“Our goal is to deliver strong, sustainable, long
term earnings growth by maximising revenues
and expanding margins.”
Richard Kilsby Chairman
2013 was a year of strategic development for 888 as we
positioned ourselves to take advantage of significant
opportunities as new markets became regulated and opened
up to online gaming and high-growth mobile channels
developed. This was underpinned by excellent momentum
across our established business streams which delivered
another record performance driven by our excellent customer
offering and targeted marketing.
The global online gaming market has dynamic growth
characteristics, providing 888 with multiple development
opportunities given our ability to innovate, international reach
and industry leading technology platform. These enable
us to enter new markets quickly and effectively and focus
our marketing initiatives highly efficiently. In particular we
continued to innovate in mobile with significant increases in
revenue and new depositors achieved through this rapidly
growing channel.
We have entered newly regulated markets in the US and
continued to develop our successful operations in Spain
and Italy. During 2013 we completed a number of strategic
partnerships which position us strongly in the emerging US
regulated market. Our distinct approach gives us significant
financial firepower to take advantage of this opportunity and
we are encouraged by progress to date in Nevada, New Jersey
and Delaware.
Winning team
888 has world class talent with a team of more than 1,600
highly skilled and dedicated staff. They are the driving force
behind our success including the strong performance in 2013.
On behalf of the Board I would like to thank all my colleagues
for their excellent contribution and commitment to fulfilling
the ambitions we have for the business.
Financial results and dividend
2013 was another record year for 888. We increased revenue
to a record level of US$401 million, of which 88% was from
our B2C operations. We continued to make significant
investments in the future through product development and
cost-effective customer acquisition whilst increasing Adjusted
EBITDA* by 13% to US$76 million (2012: US$67 million) and
profit after tax by 41% to US$50 million (2012: US$35 million).
Our values
Our values and a strong culture are key to our success with
a responsible gaming environment for our customers at
the centre of all our endeavours. We continuously create
innovative ways (such as our sophisticated Observer System)
to ensure that all those who visit our site can do so with
confidence and safety, and that those for whom our games
are not intended are not drawn into a gaming environment.
888 was highly cash generative during the year holding
US$116 million of cash and cash equivalents as at 31 December
2013 (2012: US$82 million) with US$55 million liabilities to
customers (2012: US$49 million). At 31 December 2013,
888 had 15.5 million Casino, Poker and Sport real money
registered accounts, representing a 19% increase from 2012.
Given the strong financial performance of the Group, the
Board is recommending a final dividend of 4.0¢ per share
(which together with the interim dividend equals 7.0¢ per
share in accordance with our dividend policy) and an
additional one-off 7.0¢ per share, bringing the total for the
year to 14.0¢ per share (2012: 9.0¢ per share).
Outlook
888 has world class technology and products, a truly
international breadth of operations, and a dedicated and
expert team. These are our key strengths as we continue to
grow and unlock new market opportunities. I am confident we
have the right strategy to deliver a truly satisfying experience
for our customers and strong, sustainable, long term earnings
growth for our shareholders.
Richard Kilsby
Chairman
* As defined in the table set out on page 9.
02
23124.04 10 April 2014 10:18 AM Proof 15
888 Holdings plc Annual Report & Accounts 2013 Strategic Report
www.888holdingsplc.com
www.888holdingsplc.com
Chief Executive’s Review
“A record-breaking year for 888.”
Brian Mattingley Chief Executive Officer
2013 Overview
2013 was a very busy but also exceptionally rewarding year
for 888. I am delighted to report that we have delivered
record-breaking revenue; increased our profitability; remained
highly cash generative and delivered greater returns to our
shareholders through a 56% increase to the dividend.
Our operational achievements in 2013 are equally impressive.
We continued to deliver product innovation, ensuring that our
customers are provided with the most enjoyable games in the
safest possible environment. We made further developments
to our industry-leading “smart marketing” so that we are able
to attract more players to the 888 brand and increase their
lifetime value. We delivered excellent progress in our core
markets, continued to develop our offering in Italy and built
on momentum in Spain where we have quickly developed a
leading market position. We delivered another very strong
performance in Casino and made further market share gains
in Poker, advancing to number two in the PokerScout global
rankings at the year end.
All of this was achieved whilst devoting significant energy
and resources to preparing 888 for launch in the US market.
I am incredibly proud to say that 888 is the only operator
currently present in all three regulated states as we execute
our strategy in what is potentially the largest online gaming
market globally. This remarkable achievement is testament to
the strength of our product, technology and marketing but
also, and most crucially, the hard work, dedication and talent
of our team. I would like to take this opportunity to thank
each of them for their fantastic efforts during the year.
I am delighted with 888’s achievements in 2013 and look
forward to the year ahead with continued confidence.
Market Overview
The online gaming market is dynamic and fast-growing.
Growth over the coming years will continue to be driven by
a combination of customers responding to innovative games
that deliver a richer entertainment experience, the growing
use of mobile devices that improve accessibility, increased
confidence in secure low-cost payment mechanisms and an
expanding customer demographic, partly driven by regulatory
trends that are opening up more markets to online gaming.
It is forecast that the value of the global online gaming market
will be approximately €31.5 billion by 2015, representing a
CAGR of more than 9% from 2012*. This does not take account
of the additional opportunities being opened up in the United
States, which represents a potentially massive opportunity
for the industry. Nevada, Delaware and New Jersey were
regulated by the end of 2013 and other states are expected to
make significant progress towards regulation this coming year.
As regulation continues, analysts predict that the US could
become the largest online gaming market in the world.
In more mature markets such as the United Kingdom,
we anticipate that there will be further consolidation
given the advantages of scale, brand and technology
that larger operators can employ in a more competitive
environment. This trend will be reinforced by the planned
introduction of a Point of Consumption Tax in the UK, due to
take effect from December 2014.
Online mobile gaming (on portable devices such as tablets
and smartphones) is growing strongly reflecting consumers’
increasing comfort using their mobile phones and tablets for
a wide range of products and services including banking and
shopping. Mobile devices will account for a much greater
proportion of revenue as customers complement or replace
their PC-based experience.
Our Strategy
888 is one of the world’s most popular online gaming
entertainment and solutions providers. We have been at the
forefront of the industry for more than 15 years by providing
customers with market leading products that are localised to
enable players to enjoy the games they want, in the languages
they speak, in a safe and secure environment.
The Group is structured into two business lines: B2C, with our
market leading 888 brands’ and B2B, conducted as Dragonfish
business. This structure allows the Group to leverage its
technological, product, marketing and analytical strengths
across B2C and B2B. This maximises their benefits and allows
888 to compete successfully with and surpass our competition
in both established and newer markets.
* Value of online gaming market in terms of gross win.
Source: H2 Gambling Capital 2014
03
23124.04 10 April 2014 10:18 AM Proof 15
Stock Code: 888www.888holdingsplc.com
Chief Executive’s Review
There are clear opportunities in our global markets. We are
well placed to deliver growth across all areas of our business,
generating value for our shareholders as the well-established
trend towards more international regulation continues and
new technologies evolve. Our strategy to achieve this is made
up of five key pillars:
Growth and Development Of Our Core Products
We are focused on the growth and development of our core
product groups which are Casino, Poker, Bingo and, to a lesser
extent, Sport, where we work with a partner. These products
are delivered via our B2C offering under 888’s own brands
and to our B2B clients, through Dragonfish.
“Best-In-Class” B2C Offer
Our B2C offering remains our core area and the bedrock of
the success of the business. We continue to invest in and
focus on ensuring that we deliver an unsurpassed customer
experience by developing best-in-class products, maintaining
excellence in customer service and ensuring we deliver a real
value-for-money proposition to our customers. This, together
with our advanced modelling and analytics competencies that
underpin our product development and CRM functions, helps
us achieve our objectives: to increase customer numbers,
further develop brand loyalty and enhance customer lifetime
value.
Partner Of Choice through Dragonfish — Our B2B Offer
Dragonfish is 888’s B2B arm which offers clients best in class
Total Gaming Services solutions that are tested vigorously to
meet the regulatory requirements of the different jurisdictions
where they are delivered. The quality of our offering, driven
by our continuous investment in developing leading gaming
platforms, means that we are fast establishing ourselves as
the partner of choice in both regulated and newly regulating
markets. This has been evidenced by the key strategic deals
we have signed in 2013 alongside the deal we signed with
Caesars Interactive Entertainment in 2012 enabling 888 to
become the only online gaming operator with a presence in all
three regulated US states.
Driving Margin Growth through Operational Efficiencies
We remain focused on improving our margins by maximising
operational efficiencies and driving volume. 2013 saw
us continue to deliver progress in this area with further
operational efficiencies driven across the business resulting in
our Adjusted EBITDA margin improving to 18.9% (2012: 17.8%).
Expansion in Regulated Markets
We are focused on developing our presence in locally
regulated markets. A key advantage of having our own
technology, product development, marketing, analytics and
CRM teams working closely together is that it allows us to
control the key drivers for our success. This ensures that we
have the agility and skills to successfully and efficiently launch
in newly regulated markets.
2013 has seen us build further momentum in the European
markets of the UK, Spain and Italy and we are delighted
with the progress we have continued to make, building
strong market positions, especially in Spain. We classify the
regulation of markets into three categories:
04
23124.04 10 April 2014 10:18 AM Proof 15
888 Holdings plc Annual Report & Accounts 2013 Strategic Report
Developmental — These are Jurisdictions where there is a
strong indication that at some time in the near future the
market will open. Here we talk to local industry participants
with a view to forming partnerships to jointly explore
opportunities. The US continues to be a primary focus
for us and we believe our strong position in those states
already regulated, combined with our focused strategy
and established partnerships, position us well to take full
advantage of the opportunities as regulation develops.
Formational — These are markets where governments have
announced regulation and are working towards a framework.
Here we decide on a trading strategy, start dialogue with
local partners either for B2C or B2B tie-ups, and engage with
regulators and governments to assist in shaping the industry
framework.
Implementational — These are markets where regulation
has been introduced and we have already commenced
trading. In 2013, we made excellent further progress and built
strong positions in both Spain and Italy, both of which have
recently regulated. In the second half of 2013, we commenced
operations in Nevada, Delaware and New Jersey in the US and
have made good progress at this early stage.
US Development — Strategy and Current Alliances
The US market is a demanding environment with strict
regulatory requirements that vary from state to state;
however, the opportunities are potentially vast.
Our successful launch in the regulated US market to date is
testament to our product, technology and marketing as well
as the hard work, dedication and talent of our team who have
been able to meet the complex regulatory requirements in
each state to pressing deadlines. We have developed close
working relationships with the various regulatory bodies in
the US and these relationships, along with the experience
and skills we have developed to date, mean that we are well
positioned to exploit the US opportunity as further states
open up to online gaming.
In March 2013, 888 completed a major step in its US strategy
by entering into a joint venture agreement with global
investment firm Avenue Capital Group, through one of its
affiliates, to form AAPN Holdings LLC. AAPN Holdings was
formed for the purposes of collaborating and capitalising on
888’s and Avenue’s respective strengths and competencies
in order to carry out legalised Internet based gambling
operations in the United States. Pursuant to the agreement,
Avenue committed to finance AAPN and its affiliates, while
888 committed to provide its operational expertise, services
and software. In November 2013, one of 888’s subsidiaries
received an authorization from the regulators in the State
of New Jersey that enabled it to begin provision of Internet
based gambling services in New Jersey, branded with the
888Poker and 888Casino brands, under the authority of the
regulatory licence issued to Caesars Interactive Entertainment.
Our joint venture agreement crucially allows our US
operations to make a positive contribution to Group
revenue from the moment we launched, limiting our capital
requirements and giving 888 the flexibility and financial
capability to launch in more markets globally as they regulate.
23124.04 10 April 2014 10:18 AM Proof 15
05
Stock Code: 888www.888holdingsplc.com Operations: Delivering on our plans
Success driven by Technology Leadership
Technology leadership remains the foundation of and driver
for 888’s continued growth and success. Our best-in-breed
platform combined with industry-leading back office systems
and unique expertise in online marketing, all underpinned
by state-of-the-art analytics developed over more than
15 years, delivers a powerful competitive advantage. Our
technical edge and strong analytical capabilities together
drive the success of our products from initial development
right through to marketing and customer service. As a result
we are able to focus our resources on individual customers
to ensure they enjoy the best possible customer experience
whilst growing their lifetime value to 888. We have continued
to enhance our comprehensive analytical tools over time
including the development and addition of new features
to our CRM armoury, allowing our marketing spend to be
increasingly effective and resulting in positive customer
conversion and retention trends.
Our consistency and leadership was recognised at the 2013
Egaming Review Operator Awards when 888 was the winner
in the prestigious Poker Operator of the Year, Casino Operator
of the Year and Best Operator of the Year categories. This was
the third consecutive year 888 has won the Poker Operator
of the Year award; a notable achievement that is testament
to the strength of our platform and our relentless focus on
continuous improvement and innovation.
Continuous Innovation
Innovation is central to 888’s business and we have continued
to invest in and develop our technology to maintain the
delivery of best-in-class multi-regulation, multi-product and
multi-platform offerings.
Successful online gaming destinations offer customers safe,
enjoyable and innovative environments in which to play.
As online gaming evolves, 888 is focused on innovating
and developing at the fore of the industry to ensure that
our players continue to be provided with the compelling
and dynamic games that we are known for, thus enhancing
customer satisfaction and ultimately encouraging repeat
visits.
As well as delivering continuous improvements across our
core product verticals, a key area of focus this year has been
888’s mobile offering. The increasing use of smartphones and
tablet devices has resulted in mobile becoming one of the
major engines of growth in online gaming. The rapid rate of
adoption and growth in players across this channel presents
unique challenges and opportunities for the industry as
operators develop their understandings of customer habits
and profiles on this relatively immature platform.
888 has been quick to recognise the transformational nature
of mobile for the online gaming industry. In 2013 we focused
significant resources and investment on developing our
products and understanding of this increasingly important
channel. This has included the launch of new iOS and Android
Poker and Casino apps during the course of the year along
with a new and improved mobile Bingo product which has
shown good customer traction.
In 2012 we integrated our social gaming business into our
technological organisation with our team working alongside
our excellent product developers. We have continued to
review our product suite in 2013 and look at new ways to
develop this area of our customer offer.
06
Further details of our Research and Development activities
during the year are set out in the Directors’ Report on
page 25.
B2C
888 is a global gaming destination with core products in
Casino, Poker and Bingo as well as an emerging offering
in Sport. 888 has more than a dozen localised offerings
providing players in more than 100 countries with the games
they want in the languages they speak.
Casino
Casino has enjoyed another strong year across a variety of
markets, with particularly good growth generated across
Europe, notably in Italy, the United Kingdom and in Spain,
where we have maintained a market leading position. This
significant achievement in part reflects the momentum we
have continued to build during the course of the year around
Casino 50, our casino offering which was launched in the
first quarter of 2012. Our teams have continued to evolve and
refresh our offer, enhancing the customer experience, launching
new exclusive 888 developed slot games and supporting
the product with strong marketing campaigns. We have
remained highly focused on player acquisition and delivered
very effective results with active Casino players continuing to
increase against the prior year.
As well as increasing active customers we aim to further
enhance brand loyalty amongst our players, which ultimately
results in increased lifetime value. We have continued to make
progress against this objective this year, in part as a result of
the continuous development of our leading games portfolio
and content, aided by the capabilities of our in-house Games
Studio, ensuring that we remain at the fore of the online
gaming experience.
Poker
Poker delivered another strong performance with the number
of active players increasing more than 21% in Q4 against the
prior year. This impressive growth, achieved in what remains
a highly competitive market, is a result of the continued and
relentless execution of our stated poker strategy of focusing
on recreational players and providing them with a safe and
enjoyable ecosystem. Our poker product is an accepted
industry leader and we have continued to take market share
23124.04 10 April 2014 10:18 AM Proof 15
888 Holdings plc Annual Report & Accounts 2013 Strategic Report
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resulting in 888 rising from number four to number two in
the global poker liquidity rankings according to PokerScout
during the course of the year. This is an impressive achievement
that is testament to our ongoing and meticulous network
management in combination with our “smart marketing”
strategy. The increasing popularity of mobile has also
contributed to our strong Poker performance, with mobile
devices ideally suited to the preferences and playing habits
of our target recreational players. Overall, we have delivered
a good performance across territories with our leadership
position in the Spanish market being particularly pleasing.
Bingo
The Bingo market remains a highly competitive and mature
market that has proved to be challenging for operators over
the course of 2013. However, at the start of the year we took
proactive action and conducted a strategic review of this
segment along with extensive market research. As a result,
we have restructured the department into a fully integrated
product vertical, replicating the approach we have in Casino
and Poker, and have readdressed the whole look, shape and
feel of our Bingo customer experience through a number
of operational and technical improvements. Whilst Bingo
revenue for 2013 was 16% lower compared to the prior year,
we are delighted to have seen steady progress during the
second half of the year, with revenue in Q4 up 7% against Q3,
and feel confident that this improving trend will continue as
we enter 2014. The improvement has also in part been driven
by the re-launch of Bingo on mobile devices during the year
which has demonstrated tremendous growth both in terms
of player recruitment and generating deposits.
Sport
888sport remains a relatively small part of our business.
However, the sport market is important to our customers,
especially around major sporting events, and also acts as an
important acquisition tool enabling us to build our customer
base and migrate players across products.
We continue to recognise both the need to invest in our Sport
offering and the growth opportunity in this market. In May
we were delighted to announce that the Group had signed an
agreement with Kambi Sports Solutions, a leading sportsbook
supplier, to deliver a fully managed sportsbook solution to 888
under the 888sport brand. We have now integrated our sport
offering into our core platform, which allows us to leverage all
of our market-leading capabilities. The agreement with Kambi
has allowed us to offer a broader range of betting materials
and products for the UK and other markets through both
online and mobile channels. The improved 888sport offer was
launched during the spring supported by an exciting marketing
campaign and has delivered positive results with both margin
and revenue improvement.
www.888casino.com
B2B
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Dragonfish, our B2B offering, is a key component of our
regulated market strategy. Through our market leading B2C
offering we have built a reputation for developing the best
possible platform for operation and therefore an incentive
for companies to partner with Dragonfish in order to gain a
foothold in newly regulating territories.
2013 has seen solid growth in this area of the business with
revenues up 5% on the prior year as we have developed our
B2B bingo platform as well as our Globalcom bingo network,
where we remain one of the leading bingo software providers
in the UK market supplying many leading brands, as well as
the relationships with our US partners.
Success in New Markets
Our ability to launch in newly regulated markets with
impressive results reflects our proven platform and
technological systems and provides an excellent base for
continuing growth. During the year we have continued to
build impressively on our success in the recently regulated
Spanish and Italian markets, further establishing the 888
brand in Italy and developing a market-leading position
in Spain.
Undoubtedly the key focus for international expansion over
the course of 2013 has been the US market as we prepared
for the long-awaited regulation of Delaware, Nevada and
New Jersey.
As previously outlined, in the run-up to regulation in the US
market we had ensured that through our focused strategy
and partnerships we would be ideally positioned to leverage
own market leading platforms, technological innovation and
marketing expertise as the market opened. Experiences learnt
from our successful launches in Spain and Italy in recent years
further strengthened our position to execute our US strategy
and, by January 2014, our poker platform had built leading
positions in each market.
Our launch in each state has provided different challenges
but has also provided a number of lessons and equipped
us with new skills on which to build as we launch in further
states as and when regulation occurs. We have made further
investment in the US, supporting our operations with data
centres for each of the regulated states and we remain
committed to our objective of becoming the pre-eminent
online gaming operations and services provider in the key
US market as both a B2C operator and a B2B provider
via Dragonfish.
23124.04 10 April 2014 10:18 AM Proof 15
07
Stock Code: 888www.888holdingsplc.com Operations: Delivering on our plans
ePayment and Fraud
888’s leading payment processing capabilities support 18
languages and a wide variety of currencies with more than
50 payment methods supported. It is vital that we are able to
offer fast, efficient and easy to use payment processing, both
to ensure a positive customer experience but also to maximise
revenue and convert browsers into players. However, we take
our duty as a responsible operator very seriously and take
comprehensive steps to minimise fraud.
2014 Focus
2013 has been an incredibly rewarding year. Not only have we
delivered strong growth across our core business but we have
firmly cemented our strategy in the regulating US market.
As we entered 2014 our US operations, although still in
their very early stages, were starting to build momentum
and we are focused on refining and developing our current
business as well as working with our partners to explore
new opportunities in regulated states. There is undoubtedly
appetite for further regulation across the US with a number
of states in advanced talks and throughout the course of the
year we will be monitoring these potential markets closely
for opportunities for 888. We firmly believe that through
our strategy, growing experience and the investment we are
making in the US market for the long term, we are best placed
to take advantage as these opportunities come to bear.
Across our core business the year ahead promises some
exciting areas for development. In 2013 a significant amount
of resource was focused on delivering in the US and in
2014 we will be able to re-direct a significant portion of
this resource to further developing our core products and
markets. The surge in mobile gaming has proved to be an
important growth engine during 2013. Whilst we have made
good progress in developing our touch platforms to date, this
market is still in its infancy and will offer much more to learn
and leverage as it develops.
Following our partnership with Kambi Sports Solutions, our
888sport brand has been revitalised and its performance to
date in 2014 has been very encouraging. In January 2014 we
acquired a company holding a licence allowing us to launch
our Sport offer in the Spanish market, and we feel confident
that the forthcoming year will see us take further significant
steps forward in this market.
In summary, 2014 promises to be another very exciting year
in 888’s continued development.
Brian Mattingley
Chief Executive
25 March 2014
Customer Support and Service
We pride ourselves on the strength of our customer
relationships and are committed to providing a cost-effective
and efficient customer service. First class customer support
is offered for each of our brands and white labels through
telephone, email and chat to customers around the world in
eight different languages.
We have ensured our customer service capability has
been ready to support our growing operations in new and
established markets and have not only hired new people
in this field across the business but are in the process of
establishing a dedicated operations centre in New Jersey to
support our growing business.
08
23124.04 10 April 2014 10:18 AM Proof 15
888 Holdings plc Annual Report & Accounts 2013 Strategic Report
Financial Review and
Key Performance Indicators
Financial Summary
Revenue
B2C
Casino
Poker
Bingo
Emerging Offering
Total B2C
B2B
Revenue
Operating Expenses2
Gaming taxes and duties3
Research and Development expenses
Selling and Marketing expenses
Administrative expenses4,5
Adjusted EBITDA3,4,5
Depreciation and Amortisation
Share benefit charges, finance and other
Share of Joint venture loss
Profit before tax
Adjusted Earnings Per Share6
Reconciliation of Operating Profit to Adjusted EBITDA
Operating profit
Depreciation
Amortisation
Share benefit charges
Retroactive duties and associated charges
Impairment charges
Adjusted EBITDA
“Adjusted EBITDA increased 13% to US$76
million (2012: US$67 million) and Profit
before tax increased 30% to US$53 million
(2012: US$41 million).”
Aviad Kobrine Chief Financial Officer
Year ended
31 December
20131
US$ million
Year ended
31 December
20121
US$ million
Change
190.4
93.6
43.7
24.5
352.2
48.3
400.5
114.1
13.7
30.7
139.9
26.5
75.6
13.9
4.4
4.1
53.2
16.6¢
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
14.8
11.2
—
40.8
13.9¢
Year ended
31 December
20131
US$ million
Year ended
31 December
20121
US$ million
56.2
36.9
8.3
5.6
5.5
—
—
9.2
5.6
1.7
11.1
2.2
75.6
66.8
15%
7%
(16%)
(2%)
7%
5%
7%
13%
30%
19%
09
1 Totals may not sum due to rounding.
2 Excluding depreciation of US$8.3 million (2012: US$9.2 million) and amortization of US$5.6 million (2012: US$5.6 million).
3 Excluding retroactive duties and associated charges of nil (2012: US$11.1 million).
4 Excluding share benefit charges of US$5.5 million (2012: US$1.7 million).
5 Excluding impairment charges of nil (2012: US$2.2 million).
6 As defined in note 8 to the financial statements.
23124.04 10 April 2014 10:18 AM Proof 15
Stock Code: 888www.888holdingsplc.com Financial Review and
Key Performance Indicators
Overview
888’s success is built on its technological strength and the
efficient utilisation of this technology, directed by extensive
data analytics. 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 on marketing
investment. The continued growth in our revenues reflects
our success in attracting new customers, retaining them and
increasing their overall spend.
888 delivered another record performance in 2013 with a
revenue increase of 7% to US$401 million (2012: US$376
million), which was particularly impressive given the strong
comparatives in the prior year. Growth was driven primarily by
our B2C business, with a 7% revenue increase, in turn led by
strong Casino growth of 15% and Poker up by 7%. We also saw
growth in B2B, with rising revenue increase of 5% to US$48
million (2012: US$46 million).
Adjusted EBITDA increased 13% to US$76 million (2012:
US$67 million) and Adjusted EBITDA margin increased to
18.9% (2012: 17.8%) despite Research and Development
expenses increase of US$3.5 million and payment of
additional US$2 million gaming duties in regulated markets.
Profit before tax increased 30% to US$53 million (2012: US$41
million) and Adjusted Earnings per share increased 19% to
16.6¢ (2012: 13.9¢).
888’s record performance in 2013 resulted in operational
cash generation of US$90 million (2012: US$71 million). The
Group’s financial position remains strong with cash and cash
equivalents at the year end of US$116 million (2012: $82 million)
with no debt.
10
23124.04 10 April 2014 10:18 AM Proof 15
888 Holdings plc Annual Report & Accounts 2013 Strategic Report
Product Segmentation
888’s revenue by product segment is set out in the table below.
Revenue by product segment:
Revenue
B2C
Casino
Poker
Bingo
Emerging Offering
Total B2C
B2B
Revenue
Number of active customers B2C Casino and Poker
Casino, Poker and Sport real money registered customer accounts (million)
Year ended
31 December
2013
US$ million
Year ended
31 December
2012
US$ million
Change
190.4
93.6
43.7
24.5
352.2
48.3
400.5
165.5
87.5
51.8
25.0
329.8
46.0
375.8
15%
7%
(16%)
(2%)
7%
5%
7%
Q4 2013
Q4 2012
Change
602,000
520,000
116%
2013
15.5
2012
13.1
Change
19%
888 Casino continued its growth, with record revenues of
US$190.4 million and a 2% increase in active players compared
to last year. The main drivers behind this strong performance
in 2013 were the launch of our mobile platform, the offering
of slot machines in Italy, optimizing our existing offerings, and
improving our efficiency of acquisition, supported by strong
marketing campaigns that have boosted first time depositors
and shown a solid return on investment.
Our Poker business also continues to grow, with record
revenues of US$93.6 million and a 21% increase in active players
compared to last year, reflecting further market share gains and
our advance to number two in the global poker rankings, as
reported by PokerScout*.
Despite the poker market as a whole contracting, 888 was able
to increase player numbers due to improvements made to our
Poker product, enhancing the effectiveness of our marketing
and our strategic focus on obtaining high levels of liquidity.
The Bingo B2C revenues declined by 16% as a result of a highly
competitive and mature market in the UK. However, following
a strategic review we have seen encouraging recovery signs
during the final quarter of 2013 with a 7% revenue increase
compared to the third quarter of 2013.
Emerging offerings revenues have slightly declined by 2% as a
result of a lower activity in our brand licensing deal. During the
year we changed our Sports supplier to Kambi Sports Solutions
to deliver a high quality sportsbook solution to 888 under our
888sport brand. The agreement has allowed us to offer a wider
spectrum of betting markets and products for our players,
through both online channels and mobile platforms and we
have already seen a significant positive effect during the final
quarter of 2013.
B2B activity (Dragonfish) delivered an increase in revenue of
5% mainly due to our successful launch in Nevada, Delaware
and New Jersey where our Poker platforms have achieved
market-leading positions as well as expanding operations with
our Bingo partners.
* As at 19 March 2014
23124.04 10 April 2014 10:18 AM Proof 15
11
Stock Code: 888www.888holdingsplc.com 888 Holdings plc Annual Report & Accounts 2013
Financial Review and
Key Performance Indicators
Geographical Segmentation
888’s turnover by geography is set out in the table below.
Revenue by geographical market:
Year ended 31 December
Revenue
2013
US$ million
Growth on
prior year
% from Total
Revenue
163.3
161.7
46.4
29.1
400.5
1%
14%
22%
(14%)
7%
41%
40%
12%
7%
100%
Research and Development Expenses
Research and development expenses were US$31 million (2012:
US$27 million), reflecting the Group’s efforts to simultaneously
launch operations in three regulated US states and the further
development of our mobile offering. The introduction of
“HTML5” technology on mobile devices has significantly
reduced the effort required to customise the 888 offering to
new devices as they are introduced to the market.
The research and development expense charge does not
include capitalised in house development costs which
totalled US$10 million (2012: US$8 million), with the increase
attributable mainly to the launched operations in
the US.
UK
Europe (excluding UK)
Americas
Rest of World
Total Revenue
Growth was achieved in most geographical segments with UK
revenue up 1% (11% excluding Bingo) and Europe (excluding
UK) revenue up 14%, driven by remarkable growth in the
Spanish and Italian regulated markets. The increase in Italy is
primarily a result of the launch of video slots and improved
efficiency of marketing activity.
Since Spain became part of our regulated offering we have
increased market share and maintained a leading position.
Revenue from the Americas increased by 22% as a result of
our successful launch in the US. Revenue from the Rest of the
World, which was not a focus region for 888 in 2013, declined
by 14%.
Expenses
Operating Expenses
Operating expenses*, which include mainly employee
related costs, chargebacks, payment service providers’
(“PSP”) commissions and costs related to operational risk
management services, totalled US$114 million (2012: US$114
million) representing a lower proportion of revenues at 28%
(2012: 30%), as a result of operating efficiencies and strict
cost control.
Staff costs included in Operating expenses totalled US$51.8
million (2012: US$48.4 million), increased by 7% mainly as a
result of launched operations into the US.
The Group’s chargebacks ratio continued to decrease from 1.0%
in 2011 and 0.9% in 2012 to 0.8% in 2013, as a result of enhanced
fraud and risk management mitigation systems, including the
optimized use of the 3DSecure verification services offered by
credit card schemes and continuous improvements to our in-
house monitoring protocols.
The PSP commission ratio decreased to 5.5% (2012: 6.0%)
reflecting the Group’s stronger commercial terms with greater
deposit volume.
Gaming Duties
Gaming duties levied in regulated markets reached US$14
million (2012: US$12 million, excluding the payment of US$11
million in 2012 back-dated duties imposed in Spain).
* As defined in the table set out on page 9
12
23124.04 10 April 2014 10:18 AM Proof 15
Strategic Report
In addition, during 2013 the Group established a new research
and development centre in Eastern Europe which will enhance
888’s ability to cope with market challenges and competition.
Selling and Marketing Expenses
Marketing expenses during the year reached a record
US$140 million (2012: US$131 million) reflecting our continued
investments in European markets where the strategy is focused
on combining diverse customer recruitment channels. We also
increased our poker marketing initiatives in our core UK market.
Nevertheless, our marketing ratio to revenue remained stable at
35% (2012: 35%).
one time profit on acquiring 47% of the equity accounted joint
venture of US$1.9 million (2012: nil).
Earnings Per Share
Basic earnings per share rose 40% to 14.2¢ (2012: 10.2¢).
Adjusted basic earnings per share rose 19% to 16.6¢ (2012:
13.9¢). We believe adjusted basic earnings per share excluding
share benefit charges, retroactive duties and associated
charges, movement in contingent and deferred consideration
and impairment charges 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 declared an interim dividend of 3.0¢ per share that
was paid on 4 October 2013. Taking into account the strong
performance the Board is recommending a final dividend of
4.0¢ per share (which together with the interim dividend equals
7.0¢ per share in accordance with our pay-out policy) and an
additional one-off 7.0¢ per share, bringing the total for the year
to 14.0¢ per share (2012: 9.0¢ per share).
Cash Flow
The Group continues to generate substantial amounts of free
cash with net cash generated from operating activities reaching
a record of US$90 million (2012: US$71 million, after payment
of retroactive duties and associated charges). The net increase
in cash and cash equivalents in 2013 was US$34 million (2012:
US$5.6 million), after dividend payments during the year of
US$33 million (2012: US$8.7 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 2013 was US$116 million (2012: US$82 million).
Balances owed to customers were US$55 million (2012:
US$49 million).
Administrative Expenses
Administrative expenses* slightly increased to US$27 million
(2012: US$26 million), mainly attributable to foreign exchange
movement impact on salaries.
Share Benefit Charges
Equity settled share benefit charges were US$3.3 million (2012:
US$0.9 million). A portion of the increased charge in 2013
relates to performance based awards granted in the past which
vested during the year. Cash settled share benefit charges were
US$2.2 million (2012: US$0.8 million), due to the higher fair
value of the long term incentive plan. Further details are given
in the Directors’ remuneration report on page 34.
Finance Income and Expenses
Finance income less Finance expenses resulted in an expense
of US$0.3 million (2012: income of US$1.9 million). Most of
this income and expense is attributable to the fair value of
operational hedging instruments. The Group continually
monitors 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.
Adjusted EBITDA
As a result of revenue increase together with strict cost control
a record Adjusted EBITDA of US$76 million (2012: US$67
million) was achieved. Adjusted EBITDA margin increased to
18.9% (2012: 17.8%).
Taxation
The tax charge for 2013 was US$3.2 million (2012:
US$5.4 million). The decrease is a result of prudent
provisions in respect of previous years’ charges that were
released this year.
Equity Accounted Joint Ventures
As stated above, in 2013 the Group entered into a joint
venture agreement with Avenue. As a result, the Group’s share
of post-tax loss of this equity accounted joint venture was
US$4.1 million (2012: nil). In addition, the Group recognised a
*As defined in the table set out on page 9.
23124.04 10 April 2014 10:18 AM Proof 15
13
Stock Code: 888www.888holdingsplc.com Regulation
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. Whilst in its early
days Internet gaming was characterized by under-regulation
in most jurisdictions, this situation has seen rapid change in
numerous large markets in recent years.
Following several years of emerging regulation in various
European jurisdictions (Italy, Spain, Denmark, France and
others), recent years have seen an emergence of licensing
and regulatory regimes in various US States. This represents
a drastic change in the regulatory landscape applicable in
the US, where a 2006 federal law resulted in the majority of
operators exiting the local market (including the 888 group).
Commensurate with its deep commitment to regulation, 888
is proud to be the only international online gaming operator to
currently operate online gaming in all three US States that have
launched commercial Internet gaming — Nevada, New Jersey
and Delaware — and we hope to expand into additional states
once online gaming becomes regulated there. Additionally, the
Group is preparing to face a reform to the regulation of online
gaming in the United Kingdom, which will require the Group to
obtain a UK gaming licence in 2014.
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 2013 and our
expectations regarding changes that will impact the group
in 2014.
European Jurisdictions
After some years of hesitance by the European Commission
with regard to the regulation of online gaming within
the European Internal Market, 2013 saw the adoption of
resolutions on the EU level calling for increased cooperation
and coordination between member states with regard to
the regulation of Internet gaming, as well as the launching
of infringement cases against member states whose gaming
laws contradict EU law. These actions may lead to a greater
degree of inter-European consistency in the coming years,
and will hopefully also encourage member states to open their
markets to licensing of foreign online gaming operators. Such
developments are anticipated, in the coming years, in several
European markets including Ireland, Romania, the Czech
Republic, the Netherlands, and Sweden.
Reports indicate that Spain, where the Group has held a licence
since June 2012, is likely to expand its regulatory regime to
include online slots in 2014. This would present an opportunity
for 888, which has already been successful in capturing a large
share of the Spanish market.
During 2012, the Group was awarded online gaming and
betting licences by the German state of Schleswig-Holstein.
Legal ambiguities regarding the geographic scope of
this licence and the conditions applicable to it, remained
unresolved during 2013. The regulation of online gaming itself
in Germany continued to be characterised by legal ambiguity
and inconsistencies during 2013. The German Federal Court
of Justice expressed significant doubts regarding the validity
of the current German Inter-State Gambling Treaty under EU
law, and referred the matter for adjudication by the European
Court of Justice where the matter remains pending. As a result,
legal proceedings in lower German courts with regard to online
gaming have generally been suspended or adjourned pending
guidance from the Federal Court. A tender process intended to
select a handful of operators who were to be granted national
sports betting licences was bogged down by legal challenges
and remains ongoing.
2013 saw the UK move towards a reform of the 2005 Gambling
Act. At the heart of the proposed reform (which is expected to
enter into law during early 2014) is the requirement for foreign
operators wishing to offer their services to UK residents, to
obtain a UK Gambling Licence and pay UK gaming duty on
revenues generated from UK residents. Such a reform would
effectively abolish the right of EU/EEA based operators to
advertise their services in the UK without a UK gaming licence.
Various challenges to the new law are anticipated, including by
the Gibraltar Betting and Gambling Association (of which the
Group is a member). Notwithstanding, the Group is presently
assessing the legal impact of the upcoming reform on its
interaction with customers in the UK, has supplied comments
to the UK authorities in the context of consultations conducted
with regard to the proposed reform, and is preparing to apply
for licensure in the UK if and when required to do so. Formal
statements by the UK Gambling Commission indicate that
holders of Gibraltar online gaming licences will be subject to
a “transitional” regime allowing them to seamlessly continue
operations under a UK licence and avail themselves of a
“continuing licence” process. Whilst the Group anticipates
that the upcoming reform will have a definite impact on the
manner in which it conducts its UK-facing business, it
expects such business to continue uninterrupted despite the
upcoming reform.
In Greece the national regulator commenced a blacklisting
process, in June 2013, targeting online gaming sites unlicensed
in the jurisdiction. This move, taken under the country’s 2011
gaming law, was accompanied by orders issued to the country’s
Internet Service Providers requiring them to block access to
sites on the blacklist. Legal challenges against the blacklisting
process remained pending as 2013 drew to a close. In addition,
despite the 2011 gaming law allowing for the issuance of online
gaming licences in Greece, no such licences were issued in
2013. Various proposals to amend the law were presented to
the Greek Parliament (but have not yet passed into law).
14
23124.04 10 April 2014 10:18 AM Proof 15
888 Holdings plc Annual Report & Accounts 2013 Strategic Report
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. It seemed
apparent as 2013 drew to a close that both jurisdictions
intended to introduce further changes to their existing online
gaming laws prior to their implementation.
between local licensed operators. The Group hopes that
development on this front can be achieved in 2014. In addition,
the Group has also supported efforts by the state to negotiate
inter-state agreements with other regulated US jurisdictions,
allowing for regulatory cooperation between states as well as
the pooling of player liquidity. In late February 2014, the Multi-
State Internet Gaming Agreement between state of Nevada
and the State of Delaware was entered into.
Bulgaria issued regulations in 2013 to implement its 2012
gaming law, and began receiving applications for the issuance
of local gaming licences. In late 2013 Bulgaria amended the tax
structure applicable to online gaming. The Group is studying
the impacts of that reform.
The government of the Netherlands continued its efforts
towards liberalisation of the country’s regulatory regime
applicable to online gaming. The Group continued to conduct
its operations in the Netherlands in accordance with interim
guidelines issued by the local authorities, and maintained close
contact with the authorities providing information and making
proposals with regard to the anticipated reform. A draft online
gaming bill is anticipated to be published for comments in
2014, and the Group will continue to engage with the Dutch
authorities with the hope that the anticipated reform will
accommodate a vibrant and commercially viable online gaming
market in the Netherlands.
Political instability delayed reforms to the online gaming regime
of the Czech Republic but these are expected to progress,
under a newly elected government, in 2014.
In Ireland, the Ministry of Justice published a Heads of Bill
document encapsulating a proposed reform to the country’s
betting and online gaming regimes. While the component of
the reform related to betting is expected to enter into force
during 2014, work on the gaming-related reform is unlikely to
reach fruition in the coming year. The Group continues to
follow these developments and their impact on its operations in
these markets.
USA
Though no progress was made with regard to federal legislation
governing online gaming in 2013, major developments
occurred on the state level. This followed the publication
of a US Department of Justice 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, paved the way for various US jurisdictions to
regulate intra-state online gaming. Indeed, during 2013, Internet
gaming was launched in Nevada, New Jersey and Delaware.
On 21 March 2013 the Group was licensed as an Interactive
Gaming Service Provider by the Nevada Gaming Commission,
after being recommended for licensure by the State Gaming
Control Board. Through its partnership with Caesars Interactive
Entertainment, the Group launched its first US-licensed online
gaming platform, offering online poker to players within the
State of Nevada under the World Series of Poker brand. The
Group’s Nevada platform was approved for a “field trial” by the
Nevada authorities, and final approval of the platform by the
State Gaming Commission is anticipated in 2014. As a pioneer
of the Nevada online gaming market, the Group has continued
to work with the Nevada authorities towards approval of inter-
operator poker networks which will allow for shared liquidity
Following the passage of legislation in the State of New Jersey
in 2012, approved by the State Governor in 2013, the Group
applied for licensing as a Casino Service Industry Enterprise
in that state. Late in 2013 the Group received a Transactional
Waiver from the New Jersey Division of Gaming Enforcement
allowing it to commence Internet gaming-related operations in
conjunction with Caesars Interactive Entertainment. 888 was
amongst the group of first operators approved to launch their
online gaming platform in the state (including poker and casino
games) in November 2013. The Group’s platform is available
to players in New Jersey both under 888’s own brands as
well as under several brands belonging to the Caesars group.
The Group continues to work with the Division towards final
approval of its licensing application.
Following a 2012 law enacted by the State of Delaware,
allowing for the online provision of Internet lottery games
(including casino-style gaming and poker) by the State Lottery,
888 together with Scientific Games were selected to provide
the technology to power the State Lottery’s online offering. The
Group worked with the State Lottery providing professional
input to the State Lottery in connection with the drafting
of Internet lottery regulations and standards. Based on 888
technology, and under legislation governing the operation
of Internet lottery games, Internet gaming services are now
offered to Delaware players through websites branded and
promoted by the state’s three racetrack casinos. In connection
with its selection as the Lottery’s technology provider, the
Group is presently undergoing licensing by the Delaware
Division of Gaming Enforcement. The Group continues to
maintain a close dialogue with the Division and with the State
Lottery on technological, regulatory and enforcement issues,
and is supportive of Delaware’s desire to enter into inter-state
gaming agreements with other regulated US jurisdictions.
It is the Group’s anticipation and hope that other US
jurisdictions will follow in the footsteps of Nevada, New Jersey
and Delaware, in regulating the operation of Internet gaming
within their territories. The State of Michigan is expected to
launch online lottery games in the coming months. Several
other states, including California and Pennsylvania, have been
considering online gaming legislation, while other States
(including New York) are reportedly studying the market
and considering their position with regard to the regulation
of Internet gaming. 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. The Group hopes to continue to lead the US
online gaming market, seeking licensing of its technology and
products wherever such licences are available in a commercially
viable manner.
23124.04 10 April 2014 10:18 AM Proof 15
15
Stock Code: 888www.888holdingsplc.com Corporate Responsibility
Environmental Impact
As an online business, 888’s activities have a relatively small
impact on the environment. However, we remain committed to
ensuring that wherever possible we minimise what little effect
we have with the following four areas being the key focus
points.
Energy consumption: We continuously monitor our energy
consumption to help us ensure we are being as energy efficient
as possible.
Water: We use only ecological detergents in our offices and use
water saving devices in most of 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 state-of-the-art technology to help meetings occur
remotely.
888 has commissioned a study to provide quantitative
information regarding its environmental impact and to assist it
in finding ways to further reduce its environmental impact.
Global Greenhouse Gas Emissions for period 1st January to 31st
December 2013
Global Greenhouse Gas Emissions for period
1st January to 31st December 2013
Total Emissions
(tonnes CO2e)
Emissions from combustion of fuel (scope 1)
Process or fugitive emissions (scope 1)
Emissions from electricity, heat, steam and
cooling purchased for own use (scope 2)
Total emissions
0
0
5,718
5,718
Intensity measure: Emissions per total revenue
14.3 tCO2e/£m
Although not legally required to do so, as the Company is
incorporated in Gibraltar, we have reported on all the emissions
sources stipulated under the Companies Act 2006 (Strategic
Report and Directors’ Reports) Regulations 2013. These sources
fall within our consolidated financial statement. We do not have
responsibility for any emissions sources that are not included in
our consolidated statement.
We have used the GHG Protocol Corporate Accounting and
Reporting Standard (revised edition), data gathered from our
own operations, and emissions factors from UK Government’s
Conversion Factors for Company Reporting 2013, as well as an
electricity emission factor for Antigua sourced from UNDP.
The reported emissions come from our offices, data centre and
servers owned by us, but co-located at third party data centres.
Our facilities in Gibraltar use chilled water provided by a
third party for cooling and no emission factor for the chilled
water was available. As a result, we estimated the associated
emissions based on the volume of chilled water and an
assumed coefficient of performance.
The account of our corporate GHG emissions was prepared by
the Carbon Trust in the UK.
Employees
888’s success depends on the quality and commitment of its
people. We take our responsibilities to our staff around the
world very seriously and aim to provide an enjoyable work
environment where employees are challenged and motivated
to excel, where flair is rewarded, compensation is fair and the
balance between work and family is respected.
We carry out regular employee satisfaction surveys each year,
with the latest answers collected in June 2013. The survey
requests employee feedback regarding the employee, his/
her team, direct manager, divisional management, and Group
senior management, as well as regarding the organisation as a
whole and the employee’s overall satisfaction.
This year we were again pleased to report a continued high
level of employee satisfaction, with a number of actions taken
to address the small number of issues raised. These include
improving knowledge sharing in the divisions, professional
development for key employees and managers, and personal
work with individual managers.
All employees are formally updated twice a year regarding the
Group’s business results, and employees are encouraged to
raise ideas and provide feedback.
In 2013, 888 launched its “Excellence Club”, our employee
development programme which sent a group of employees
selected by their divisions for excellence in a number of fields,
to an exciting adventure trip in Lapland. We hope to continue
this programme in years to come with trips to other exotic
locations planned.
In addition, 888 runs a number of management skills
programmes for both senior managers and team leaders from
all divisions, as well as seminars for our B2C employees, which
in 2013 focused on social media and marketing.
16
23124.04 10 April 2014 10:18 AM Proof 15
888 Holdings plc Annual Report & Accounts 2013 Strategic Report
Social, Community and Human Rights Issues
Our values
At 888 we are fully committed to maintaining a high standard
of corporate and social responsibility. This ethos is part of
our culture and permeates throughout our business into the
everyday business decisions we make on a day-to-day basis.
We also recognise that a responsible approach is not only
the correct way to do business but one that enhances our
credibility amongst all our stakeholders and thereby supports
the development of the Group.
Responsible gaming
Our values place the community and the customer at the
centre of all our endeavours. We aim 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 are constantly revising
our innovative procedures to ensure minors are unable to
access our gaming sites. We also continuously train all our staff
in how to provide a safe gaming experience to our customers.
Our training programme incorporates methods and techniques
to help our employees recognise and take appropriate actions
if they identify compulsive or underage activity. We continue
to innovate in this area including the development of our
proprietary sophisticated Observer System to help identify and
prevent compulsive activity.
Protecting customers
} As a responsible, regulated gaming group we comply with
both the GamCare and the eCOGRA guidelines. GamCare
is the leading authority on the provision of counselling,
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 professional help agencies and we
have placed many safeguards for those who need help
with controlling their gaming.
} E-Break & Support programme: Run in collaboration
with specialist well-known charity Gambling Therapy to
offer 888 customers a free of charge four-week gambling
therapy programme.
} Self-assessment test: For players who are worried about
their gaming habits and want to know more about the
signs of compulsive gambling.
} Controlling deposit limits: Should clients feel the need
to, they can control their 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”. Customers can choose
from six different exclusion periods from one day to six
months. During this period, 888 blocks the account and no
promotional emails are sent to the customer.
Protecting minors
Underage activity on our sites is strictly 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.
Community
888 is committed to supporting both the various local
communities in which it operates and also the broader
global community. Our community investment programme
includes charitable donations and long-standing community
involvement in our key areas across the world. In 2014, 888
supported the International Medical Corps in their efforts to
assist people affected by Typhoon Haiyan which struck the
Philippines in November 2013.
Human Rights
888 ensures that its policies comply with local law, in addition
to reflecting the Group’s values. These policies set clear
standards of behaviour to which all Group personnel are
expected to adhere, including as regards social, ethical and
environmental matters. In this respect, 888 is guided by the
ten principles of the United Nations (UN) Global Compact,
which encourages companies to make human rights, labour
standards, environmental responsibility and anti-corruption
part of their business agenda.
23124.04 10 April 2014 10:18 AM Proof 15
17
Stock Code: 888www.888holdingsplc.com Corporate Responsibility
Diversity
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.
We actively seek to recruit and advance women into our
top management. A summary of the breakdown of men and
women across the Group as of 31 December 2013 is as follows:
Board of Directors
Senior Management
Employees
Men
Women
Number
Percentage
Number
Percentage
5
7
657
100%
78%
52%
0
2
616
0%
22%
48%
The Board acknowledges that the lack of women on the
Board is a major challenge for the Company, and that it is the
Board’s responsibility to address this. In 2013, the Nominations
Committee included in the mandate of Odgers Berndtson, the
executive search firm retained to recruit new Non-executive
Directors to the Board, a specific request to include female
candidates amongst the list of candidates presented for its
consideration.
18
23124.04 10 April 2014 10:18 AM Proof 15
888 Holdings plc Annual Report & Accounts 2013 Strategic Report
Principal Risks and Uncertainties
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. The Group considers that the
nature of its principal risks has not undergone any significant
change during 2013.
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 licences. 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 licence, having existing
licences 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 licences to the Group. A detailed regulatory
review is set out in the Regulation section above.
The Group manages its regulatory risk by routinely consulting
with legal advisers 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” using
multiple technological methods as appropriate.
Reputational risk
Underage 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
underaged players from accessing its real money sites. In
addition, the Group promotes a safe and responsible gaming
environment to its customers supplemented by its corporate
culture. The Group has a dedicated Director of Responsible
Gaming tasked with the responsibility of implementing such
policies. Further details about the Group’s responsible gaming
initiatives are set out in the Social, Community and Human
Rights Issue section above.
Information Technology risks
As a leading online business, the Group’s IT systems are critical
to its operation. The Group is reliant on the performance of
these systems.
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 recovery in the event of disaster. 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
critical services, the business can be fully recovered 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.
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
impose tax by reference to customers’ activity. Furthermore,
jurisdictions in which online gaming is regulated may impose
gaming duties on licensed operators. Commencing in December
2014, the United Kingdom is expected to impose gaming tax on
a point of consumption basis, which is expected on the one hand
to lower margins, but on the other, to continue the trend toward
consolidation in that market. The Group actively monitors
taxation risk in the relevant jurisdictions and takes such steps as
it considers necessary to minimise such risks.
23124.04 10 April 2014 10:18 AM Proof 15
19
Stock Code: 888www.888holdingsplc.com 888 Holdings plc Annual Report & Accounts 2013
Principal Risks and Uncertainties
Financial risks
The Group considers its exposure to financial risks, including
country risk and exposure to trading counterparties, to be low.
During 2013, the Group hedged its foreign currency risks solely
with leading banks including Barclays plc and Royal Bank of
Scotland plc.
Partnership risks
In line with its strategy, the Group has consolidated its position
in the B2B market to be focused on fewer, larger B2B contracts.
However, this strategy also gives rise to commercial risks in that
the Group is more exposed to non-renewal or termination of
existing contracts.
On behalf of the Board:
Brian Mattingley
Chief Executive
25 March 2014
20
23124.04 10 April 2014 10:18 AM Proof 15
888 Holdings plc Annual Report & Accounts 2013 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 65.
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 Master’s in Law from New York University and an
LLB from Tel Aviv University. He is Chairman of the Board of
Directors of Berggruen Residential Limited, and is an Executive
Director of Swiftstake Technologies SA. Age 47.
Board of Directors
Richard Kilsby
Non-executive Chairman
Richard Kilsby has been Chairman since March 2006, having
previously been Deputy Chairman of the Group from August
2005. 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 62.
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 62.
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 50.
23124.04 10 April 2014 10:18 AM Proof 15
21
Stock Code: 888www.888holdingsplc.comGovernance Directors’ Report
The Directors submit to the members their Annual Report and
Accounts of the Group for the year ended 31 December 2013.
The Strategic Report, Corporate Governance Statement and
Remuneration Report on pages 3, 27 and 34 respectively, form
part of this Directors’ Report.
Results
The Group’s Profit after tax for the financial year of US$50
million is reported in the Consolidated Income Statement on
page 53. The Board is recommending a final dividend of 4.0¢
per share (which together with the interim dividend equals
7.0¢ per share in accordance with our dividend policy) and an
additional one-off 7.0¢ per share, bringing the total for the year
to 14.0¢ per share (2012: 9.0¢ per share).
Directors and their Interests
Biographical details of the current Board of Directors are
shown on page 21. 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).
The beneficial and non-beneficial interests of the Directors
in shares of the Company are set out in the Directors’
Remuneration Report on page 34. There has been no change
in the interests of Directors in shares of the Company between
31 December 2013 and the date of this Report.
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 2013, the Company’s issued
share capital comprised 351,977,275 ordinary shares of
GBP £0.005 each. At the Annual General Meeting held in May
2013, 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 £87,464.76 (5% of the Company’s Ordinary
Share capital in issue as at 21 March 2013). This authority
expires at the conclusion of the next Annual General Meeting of
the Company. In 2013, the Company did not exercise any of the
foregoing powers and authorities.
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 Gaming Regulations
Nevada
The Company has been licensed by the State of Nevada. 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 registered with the Nevada Gaming
Commission as a publicly traded corporation and its
subsidiaries have been licensed as manufacturers and
distributors of interactive gaming systems and as interactive
gaming service providers. Such licences are not transferable.
The Nevada Gaming Commission may limit, condition,
suspend or revoke a licence, registration, approval or finding
of suitability for any cause deemed reasonable by such
licensing agency.
22
23124.04 10 April 2014 10:18 AM Proof 12
888 Holdings plc Annual Report & Accounts 2013888 Holdings plc Annual Report & Accounts 2013 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 10 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 licence 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.
New Jersey
Vendors offering goods or services to a casino applicant or
licensee which directly relate to Internet gaming activity are
subject to strict regulation pursuant to the New Jersey Casino
Control Act and the regulations promulgated thereunder
(collectively, referred to as New Jersey Act). The New Jersey
Act created the New Jersey Casino Control Commission (New
Jersey Commission) and the New Jersey Division of Gaming
Enforcement (New Jersey Division). Under the New Jersey
Act, a casino service industry enterprise (CSIE) licence is
required for a vendor offering goods or services to a casino
applicant or licensee which directly relate to Internet gaming
activity. The New Jersey Division has the authority to decide
CSIE licence applications. The New Jersey Division also has
the responsibility to investigate all licence applications and
to prosecute violations of the New Jersey Act. However, the
New Jersey Commission has the authority to hear and decide
appeals regarding denials of CSIE licence applications by the
New Jersey Division.
Two subsidiaries of the Company, 888 Atlantic Limited and
AAPN New Jersey LLC, have pending CSIE licence applications
before the New Jersey Division in connection with providing
Internet gaming services to New Jersey casino licensees.
The issuance and maintenance of a CSIE licence requires
that directors, officers, key employees and owners of the
applicant company be found by the New Jersey Division to
be of good character, honesty and financially stable by a
showing of clear and convincing evidence. A CSIE licence
application consists of disclosure forms for the applicant, each
of its holding companies, and each individual required to be
found qualified by the New Jersey Division. Generally, all five
per cent (5%) or greater direct or indirect owners, certain
officers, certain directors, and sales representatives soliciting
business from Atlantic City casinos and their supervisors must
be qualified, unless the qualification requirement is waived.
Outside directors of a holding or intermediary company of a
CSIE licence applicant are only required to be licensed if they
are members of the Audit or Executive Committee. Officers
may be waived from the qualification requirement if they are
not significantly involved in and have no authority over the
conduct of business with a casino; however, the Chief Executive
Officer, Chief Financial Officer, Chief Technology Officer and
Chief Legal Officer cannot be waived. The New Jersey Division
has the discretion to require other persons to be qualified.
These rules apply to all entities through the chain of ownership,
regardless of any resulting dilution in interest in the applicant,
so that any direct or indirect owner of five per cent (5%) or
more of any applicant or holding company must file, as must
their officers and directors. The 5% or greater ownership is
generally calculated based on ownership of equity securities.
The New Jersey Division may also aggregate the holdings
of different owners of less than 5% and require each to be
qualified if they have a commonality of interest with each other.
Situations in which this may occur include common control of
different entities or familial relationships.
With respect to security holders, the New Jersey Division may
waive the qualification requirement for “institutional investors”,
as defined in the New Jersey Act, of an applicant if: (i) there
is no reason to believe that the institutional investor may be
unqualified; (ii) the institutional investor holds less than 25
per cent of the outstanding securities; (iii) the securities were
acquired for investment purposes only; and (iv) the holder
has no intention of influencing the affairs of the applicant,
other than voting its securities. The New Jersey Act defines an
“institutional investor” as (i) any retirement fund administered
by a public agency for the exclusive benefit of federal, state or
local public employees; (ii) an investment company registered
under the Investment Corporate Law of 1940; (iii) a collective
investment trust organised by banks under Part Nine of the
Rules of the Comptroller of the Currency; (iv) a closed end
investment trust; (v) a chartered or licensed life insurance
company or property and casualty insurance company; (vi)
banking or other licensed or chartered lending institutions; (vii)
an investment adviser registered under the Investment Advisers
Act of 1940; and (viii) such other persons as the New Jersey
Division may determine for reasons consistent with the policies
of the New Jersey Act.
23124.04 10 April 2014 10:18 AM Proof 15
23
Stock Code: 888www.888holdingsplc.comGovernance
Directors’ Report
In connection with a licence application, the New Jersey
Division conducts an investigation of the applicant and its
individual qualifiers to determine their suitability for licensure.
In order for a CSIE licence to be issued by the New Jersey
Division, the applicant and its individual qualifiers must
demonstrate, by clear and convincing evidence, their good
character, honesty and integrity, and their financial stability,
integrity and responsibility. The investigation of a CSIE
applicant and affiliated individuals and entities will normally
take at least a year.
The New Jersey Division has broad discretion regarding the
issuance, suspension or revocation of CSIE licences. The New
Jersey Division may impose conditions on the award of a
licence. In addition, the New Jersey Division has the authority
to impose fines or suspend or revoke a licence for violations of
the New Jersey Act, including the failure to satisfy the licensure
requirements. A CSIE licence is issued for an indefinite term and
will essentially remain effective thereafter unless the licence
is suspended, expires, or is revoked. The applicant is asked to
resubmit related information every five years.
An applicant for an Internet CSIE licence is responsible for the
entire cost of the investigation charged at the Division’s hourly
rates, which currently is $113, plus out-of-pocket expenses. All
unexpected cash disbursements are charged directly to the
applicant.
Substantial Shareholdings
As at 31 December 2013 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:
Principal Shareholders
E Shaked Shares Trust
O Shaked Shares Trust
Ben-Yitzhak Family Shares Trust
Number of shares
% issued share capital
86,283,534
86,283,534
37,122,358
24.51
24.51
10.55
No notifications pursuant to DTR Rule 5 have been received by
the Company between 31 December 2013 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 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
A change of control in the Group may, in the event of failure to
fulfil any applicable consent requirement, give rise to certain
revocation or termination rights under the Group’s gaming
licences or certain contracts to which the Group is a party.
Political Donations
The Company did not make any political donations during
the year.
Financial Instruments
The financial risk management objectives and policies of the
Company are set out in the notes to the financial statements
on page 83. The Company is not materially exposed to foreign
exchange fluctuations given its policy to hedge its currency
exposure as described in note 27 to the financial statements.
The Company is not materially exposed to price risk, credit risk
or liquidity risk. Given that end-users are required to fund their
online gaming wallet prior to carrying out any gaming activity,
operational cash flow is not a material risk for the Company.
In addition, the Group manages its cash in a prudent manner
and maintains sufficient liquid resources to meet its anticipated
liabilities as and when they come due.
24
23124.04 10 April 2014 10:18 AM Proof 12
888 Holdings plc Annual Report & Accounts 2013888 Holdings plc Annual Report & Accounts 2013 } New payment options: Configuration of the platform to
interface with US banks and payment methods required
the implementation of entirely new processes.
} Major product modifications: Our platform and games
were adapted to suit US customers’ preferences and
needs.
We will continue investing to develop our platform for
regulated markets as part of the Group’s strategic direction.
Mobile: 2013 saw the completion of 888’s strategy of full
mobile coverage, with all 888 products now offered on both
iOS and Android platforms (Smartphones and Tablets).
The Group is constantly adding both content and customer
communication tools to its mobile offering.
Sport: The Group migrated its sports offering from the
BlueSquare platform to the Kambi platform.
Games: In 2013, we made substantial investments in our world-
class in-house games studio which, together with new external
partners such as Netent, added new games over all platforms
(PC & Mobile).
Core Business & Operation: During 2013, the Group invested
in infrastructure and tools supporting our operations and
core business. Projects included the rebuild of our back-office
software, the addition of new back-office tools, the addition
of enhanced marketing capabilities including sophisticated
communication tools with players and additional payment
options, all with a focus on optimizing cost and improving
efficiency.
Greenhouse Gas Emissions
Details of the Company’s greenhouse gas emissions are set out
in the Corporate Responsibility section of the Business Review
on page 16.
Auditors
A resolution for the reappointment of BDO LLP and BDO
Limited as auditors of the Company will be proposed at the
2014 Annual General Meeting.
During the year ended 31 December 2013 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.
Directors’ Indemnities
The Company’s Articles of Association permit the Company
to indemnify its Directors in certain circumstances, as well
as to provide insurance for the benefit of its Directors. The
Company has undertaken to indemnify its Non-executive
Directors: (a) in defending any proceedings, whether civil or
criminal, in which judgment is given in favour of such Non-
executive Director or in which such Non-executive Director
is acquitted; or (b) in connection with any application under
Section 378 of the Gibraltar Companies Act (pursuant to which
the court may provide relief to such Non-executive Director
in any proceedings for negligence, default, breach of duty or
breach of trust on grounds that such Non-executive Director
has acted honestly and reasonably, and that, having regard to
all circumstances of the case, including those connected with
his appointment, he ought fairly to be excused from liability
on such terms as the court thinks fit). The Company also
undertook in favour of Aviad Kobrine to indemnify him to the
fullest extent permitted by applicable law and the Company’s
Articles of Association in connection with the execution of his
duties and/or exercise of his powers, authorities and discretions
pursuant to his employment agreement. In addition, certain
special indemnities were provided to the Executive Directors
in connection with the compliance and licensing procedures
relating to the Company’s business in the United States, details
of which were provided in the Company’s 2011 Annual Report.
Corporate Governance
The corporate governance statement is on pages 27 to 30 and
is incorporated in this Directors’ Report by reference.
Principal Subsidiary Undertakings
The principal subsidiary undertakings are listed on page 80.
Research & Development Activities
2013 was a year of major investment in developing the Group’s
infrastructure, in order to support our growing business as
well as to meet regulatory and market needs in support of our
business strategy. Our research & development focus was on
regulated markets and mobile, as well as improving scalability
of our gaming platforms and of our back office, and included
the following:
Regulated Markets: Delivering the Group’s offering in
three states over a period of three months required the
commitment of substantial capital and human resources,
leading to successful launches in Nevada in September, and in
both Delaware and New Jersey in November. Major areas of
investment included:
} Data centre set-up: Three fully operational data centres
were established in the US; one dedicated to each
regulated market.
} Adaptation to regulation guidelines: The different state
regulatory requirements meant that our platform and
games needed to be adapted separately for each state.
} Certification: Working with accredited testing houses, we
ensured that our platform passed regulatory certification
for each state.
23124.04 10 April 2014 10:18 AM Proof 15
25
Stock Code: 888www.888holdingsplc.comGovernance Directors’ Statement of Responsibilities
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.
The Directors consider that the annual report and accounts,
taken as a whole, is fair, balanced and understandable and
provides the information necessary for shareholders to assess
the Group’s performance, business model and strategy.
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 strategic report 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.
All of the current directors have taken all the steps that
they ought to have taken to make themselves aware of
any information needed by the company’s auditors for the
purposes of their audit, and to establish that the auditors are
aware of that information. The directors are not aware of any
relevant audit information of which the auditors are unaware.
On behalf of the Board:
Brian Mattingley
Chief Executive
25 March 2014
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 statement”. 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.
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.
26
23124.04 10 April 2014 10:18 AM Proof 12
888 Holdings plc Annual Report & Accounts 2013888 Holdings plc Annual Report & Accounts 2013 Corporate Governance Statement
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 applies 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.
During 2013, the Company materially complied with the Code,
other than as regards the following:
} The Company did not have a Senior Independent Director
serving on the Board of Directors during 2013. The
functions of a Senior Independent Director were fulfilled
during 2013 by the Chairman and Non-executive Directors.
} Board evaluations have been conducted internally over
the past three years by facilitation of the Chairman in
coordination with the Company’s legal adviser, Herzog
Fox & Neeman, who may not be considered an external
facilitator.
Board Composition
The Directors consider it essential that the Company should be
both led and controlled by an effective Board.
During 2013, the Board consisted of five Directors, as follows:
two independent Non-executive Directors, a Non-executive
Chairman, and two Executive Directors, being the Chief
Executive Officer and Chief Financial Officer.
At present, there is no Senior Independent Director on the
Board. During 2013, the Board appointed executive search
firm Odgers Berndtson to undertake a search for new Non-
executive Directors. A process of identification of potential
candidates and interviewing has taken place. It is noted that
Odgers Berndtson is independent of the Company and has no
other connections with the Company. 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. During 2013, the Chairman
and Non-executive Directors fulfilled the functions of a Senior
Independent Director.
The biographical details of all of the Directors are given on
page 21. 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.
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 pages 28 and 29), which
individually consider their own operating frameworks against
the Board’s business programme. The Board plans to meet six
times a year. During 2013, the Board met six times. Set out below
are details of the Directors’ attendance record at Board and
Committee meetings in 2013.
Total number of meetings held during the year ended
December 2013 and the number of meetings attended by each Director
Board
Audit committee
Remuneration committee
Nominations committee
Total held in year
Richard Kilsby
Brian Mattingley
Aviad Kobrine
John Anderson
Amos Pickel
6
6
6
6
4
6
4
N/A
N/A
N/A
3
4
3
N/A
N/A
N/A
2
3
23124.04 10 April 2014 10:18 AM Proof 15
1
N/A
N/A
N/A
1
1
27
Stock Code: 888www.888holdingsplc.comGovernance Corporate Governance Statement
John Anderson did not attend some meetings as noted above,
due to a period of illness, from which he has now recovered.
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 the
Senior Independent Director to lead this process. Presently, the
Board is in the process of appointing a new Senior Independent
Director; during 2013, the Chairman and Non-executive
Directors fulfilled the functions of a 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 2013. 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 2013
are detailed in his biography on page 21. 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.
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 2013 was carried out in
March 2014, 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
Chairman in coordination with the Company’s legal adviser
facilitated the evaluation process. A detailed questionnaire was
used covering various aspects of the Board’s functions, and
particular focus was given to the overall quality of decision-
making and performance of the Chairman. Following analysis
of the questionnaire responses, a detailed discussion was held
by the Board of the results and the Company’s legal adviser
provided external feedback. On the whole, the results of the
evaluation were positive, with the key follow-up action being
to progress the recruitment of additional experienced Non-
executive Directors.
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.
Conflicts of Interest
Conflicts of interest of the Directors are dealt with in
accordance with the procedures set out in the Company’s
Articles of Association and are monitored by the Chairman.
Such procedures operated effectively during the year.
Succession Planning
The Board considers succession planning matters on an
ongoing basis, with particular focus on succession planning for
the CEO role as well as for senior management. At Board level,
the Board has prioritized the recruitment of experienced Non-
executive Directors.
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.
Neither the insurance nor the indemnity provides cover where a
Director has acted fraudulently or dishonestly.
Re-election and Appointment of Directors
All Directors are subject to reappointment by shareholders on
an annual basis in accordance with the provisions of the Code.
The Board may appoint any person to be a Director of the
company and such Director shall hold office only until the next
AGM, when he or she shall be eligible for reappointment by the
shareholders.
Audit Committee
Details of the Audit Committee’s functions, together with its
specific activities in 2013, are set out in the Audit Committee
Report on pages 31 to 33.
28
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888 Holdings plc Annual Report & Accounts 2013888 Holdings plc Annual Report & Accounts 2013 Nominations Committee
During the year, the Nominations Committee comprised two
independent Non-executive Directors: Amos Pickel (Chair) and
John Anderson.
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 and are included on the Company’s
website, www.888holdingsplc.com.
During 2013, the Board appointed executive search firm Odgers
Berndtson to undertake a search for new Non-executive
Directors. A process of identification of potential candidates
and interviewing has taken place.
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 (including
gender diversity) is one of the criteria considered by the
Nominations Committee. The Company’s statement regarding
diversity is set out in the Corporate Responsibility section of
the Business Review on page 18.
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.
The Directors’ Remuneration Report, which outlines the
Remuneration Committee’s work and details of Directors’
remuneration, is on pages 34 to 48. The Remuneration
Committee’s terms of reference are available 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. During 2013, Deloitte Limited
(Gibraltar) carried out the Company’s internal audit function,
reporting to the Audit Committee. Details of the internal audit
function are included in the Audit Committee Report on
page 31.
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 annually 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. Such a review was
carried out in 2013.
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 roadshows.
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 2014 Annual
General Meeting (scheduled to be held on 14 May 2014)
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.
23124.04 10 April 2014 10:18 AM Proof 15
29
Stock Code: 888www.888holdingsplc.comGovernance Corporate Governance Statement
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 2014, 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 Business Review on pages 19 to 20.
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 Responsibility section on pages 16 to 18.
Whistle-blowing Policy
The Company’s whistle-blowing policy sets out the overall
responsibility of the Board for implementation of the policy, but
notes that the Board has delegated day-to-day responsibility
for overseeing and implementing it to the designated
whistle-blowing officer. The policy provides that where an
employee is not comfortable making a disclosure to his/
her respective direct line manager, disclosure can be made
to the designated whistle-blowing officer whose details are
provided. If the subject of the disclosure in any way involves
the designated whistle-blowing officer, the disclosure may be
made directly to the Chairman of the Audit Committee or to
another member of the Group’s senior management. Whilst
employees are permitted to make disclosures anonymously,
disclosing employees are encouraged to reveal their identity
to the designated whistle-blowing officer in order to allow a
full and proper investigation to take place; measures can be
taken to preserve the confidentiality of the disclosure where
appropriate. The Board commits to investigating all disclosures
fully, fairly, quickly and, where circumstances permit,
confidentially. Undertakings are made to employees who raise
genuinely held concerns in good faith under the procedure
that they will not be dismissed or subjected to any detriment
as a result of his/her action. During the year, all employees of
the Group were sent a reminder regarding the whistle-blowing
policy as part of a general refresher of various Group policies.
No reports of incidents under the whistle-blowing policy were
received in 2013.
Diversity Policy
Details of the Company’s diversity policy and involvement
of women in management of the Group are set out in the
Corporate Responsibility section of the Business Review on
pages 16 to 18.
30
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888 Holdings plc Annual Report & Accounts 2013888 Holdings plc Annual Report & Accounts 2013 Audit Committee Report
Letter from the
Chairman of the Audit Committee
Dear Shareholder,
The Audit Committee has continued to work over 2013 to improve the Company’s risk management and reporting.
In this report of the Audit Committee as regards the year ended 31 December 2013, we have made every effort to provide detailed
information as to the activities of the Committee over the course of the year, noting the purpose of such activities and their results,
as well as to give shareholders some insight into the judgment calls made by the Committee and the basis upon which they
were made.
The Committee’s primary responsibility is to review the financial information provided to shareholders on behalf of the Board, to
review the Company’s internal financial controls and to oversee its relationship with the external auditors.
The main agenda items at the four meetings of the Committee in 2013 included reviewing the regular financial reports made to
shareholders, monitoring and reviewing the internal audit programme, and reviewing the effectiveness of internal control systems.
Details of the further work carried out by the Committee are given in the report that follows. The Company’s Chief Executive
Officer and Chief Financial Officer are invited to all the meetings of the Committee; however, the Committee also meets when
appropriate with the external auditors without the presence of the Executive Directors or management.
In addition, during 2013, Deloitte assisted the Audit Committee with its internal audit function. In order to do this, the internal
auditor prepared a risk report, on the basis of which work commenced on various internal audit projects, regarding which the
audit committee received periodic updates. During 2013, the internal auditor produced three reports on issues of importance to
the Group, which were received by the audit committee for comment and two of which have been finally approved. The audit
committee has further prioritised a list of internal audit issues to be examined by the internal auditor in 2014.
In October 2013, the Financial Reporting Council (FRC) issued a report on the reporting of audit committees, providing further
insight from companies and investors on effective approaches to audit committee reporting in light of the changes to the UK
Corporate Governance Code. The Committee has sought in this report to include more detail on the specific matters raised by the
FRC as well as generally to increase the visibility of shareholders to the activities of the audit committee.
Amos Pickel
Chairman of the Audit Committee
25 March 2014
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Stock Code: 888www.888holdingsplc.comGovernance Audit Committee Report
Membership
The Audit Committee is chaired by Non-executive Director
Amos Pickel. John Anderson also served on the Committee
throughout the year. The members of the Committee are
considered independent by the Board, having no day-to-
day involvement with the Company. 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. In addition, the Committee meets with the external
auditors in the absence of the Company’ Executive Directors
and management.
Roles and Responsibilities
The Audit Committee’s terms of reference are available on the
Company’s website, www.888holdingsplc.com.
Work of the Committee
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 the 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. There is an ongoing
process for identifying, evaluating and managing significant
risks faced by the Group that was in place for the year under
review and up to the date of approval of the report, which is
regularly reviewed by the Board and accords with Turnbull
guidance. The Board is responsible for the Group’s system of
internal control and for reviewing its effectiveness, which 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. We disclose below a summary of the processes the Board
and its committee applied in reviewing the effectiveness of the
system and dealing with material internal control aspects of
any significant problems disclosed in the report and accounts.
During the year, the Committee fulfilled this role by carrying
out the following:
} Review of the terms of reference of the Committee
to ensure that they correctly reflect the roles and
responsibilities of the Committee in light of the recent
developments;
} Review of the Company’s interim and annual financial
statements and the published interim management
statements, with particular focus on ensuring that — taken
as a whole — the statements were fair, balanced and
understandable, and provided the information necessary
for shareholders to assess the Company’s performance,
business model and strategy. In this respect, the Committee
considered the adequacy of the systems and controls
on which management relies in preparing the accounts,
including procedures to ensure accuracy and completeness
of information and to ensure consistency with information
provided to the Board throughout the year;
} Receipt and discussion of the internal audit programme
and reports from Deloitte, in its capacity as the Company’s
internal auditor, as well as prioritizing the internal audit
programme for the upcoming year;
} Review of the legal and regulatory risks faced by the
Company and the manner in which such risks are
monitored and addressed on an ongoing basis by the
Board;
} Review of the going concern position of the Company.
Considering all relevant factors, the Committee
determined that the Company remains a going concern.
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, meeting with the auditors
to assess their plans for the audit, and working to ensure
comprehensive audit coverage to meet the risks and demands
posed by the Company’s business.
During the year, the Committee fulfilled this role by carrying
out the following:
} Meetings with the auditors at the planning stage and at
completion of their review of the interim accounts, at the
planning and final stages of the year end audit. Within
these meetings, areas of significant interest that were
discussed were as follows:
} Review of the impairment tests applied to intangible
assets in light of the future cash flows expected from
such assets on the balance sheet and calculation of the
appropriate discount rate;
} Revenue recognition policies of the Group and the
systems and controls around the recording of income
in the accounts;
} Taxation position of the Group;
} The appropriateness of the accounting in respect of
the joint venture arrangements entered into by the
Group in the USA;
} Considering the adequacy of the Company’s procedures
for safeguarding the objectivity and independence of the
external auditors; and
} Considering the implications for the Company of the Code
as to putting the external audit out to tender at least once
every ten years. It is noted that this audit is provided under
a joint arrangement within the same international firm
structure and the relevant firm’s audit partners have been
rotated every five years with the next individual partner
rotation due in 2014. The Committee is considering the
requirement to put the external audit out to tender in the
near future.
32
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888 Holdings plc Annual Report & Accounts 2013888 Holdings plc Annual Report & Accounts 2013 The appointment or reappointment of the external auditors is
put to the vote of each Annual General Meeting. Prior thereto,
the Audit Committee considers the auditors’ performance during
the year, and forms a view as to whether to recommend that the
present auditors be reappointed or an alternative be proposed.
As regards 2013, the Audit Committee formed the view that the
external auditors performed their role in a professional manner
and recommended that the auditor be reappointed for 2014 at
the next AGM in May 2014 and, if so appointed, that they will
hold office until the conclusion of the next general meeting of
the Company at which accounts are laid.
BDO LLP and BDO Limited were appointed as the Company’s
external auditors in 2004. Whilst the Code requires companies
to comply with the requirement to put the external audit out
to tender once every ten years, or explain their failure to do
so, the Financial Reporting Council put forward some possible
transitional arrangements, including suggesting that companies
which appointed their auditor post-2000 may defer the tender
process until after one more audit partner term. In addition,
the Competition Commission proposals published in October
2013, which are expected to pass into law in October 2014,
also provided for transitional arrangements which will require
companies which have not tendered since the beginning of
2005 to tender two years after the present partner rotation
period ends; as well as European regulations approved in
December 2013 and which are expected to come into law
within two years in the United Kingdom, but which currently
contain no such transitional arrangements. 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. In 2013, the external
auditors carried out non-audit work for the Company involving
fees in the aggregate amount of US$0.1 million.
23124.04 10 April 2014 10:18 AM Proof 15
33
Stock Code: 888www.888holdingsplc.comGovernance Directors’ Remuneration Report
Dear Shareholders,
The new regime applying to Directors’ remuneration reporting has introduced a number of requirements both in terms of
formulating a written remuneration policy, disclosing it to shareholders and putting it to vote at the Annual General Meeting; and
in terms of remuneration reporting, including as to the manner in which the remuneration policy was implemented in the relevant
period as well as other relevant matters regarding Directors’ remuneration during the year.
The Company “early adopted” some of the reporting requirements in 2012, on a voluntary basis, which has put it in an
advantageous position to report in 2013 on its remuneration policy and other relevant matters. It has done so even though it is
incorporated in Gibraltar and, therefore, is not legally required to comply with the new UK regulations on directors’ remuneration.
As such, the Board intends to put the remuneration policy set out in this Report, and the remainder of the Report as a whole, to
shareholders for approval in two separate votes at the 2014 Annual General Meeting. Since the Company is not a UK incorporated
company, and is not subject to the UK Companies Act 2006 nor the UK regulations on directors’ remuneration, the two votes will
be “advisory” votes. This means that payments made or promised to Directors would not have to be repaid if either of the votes
were not passed, and while the Board intends to set Directors’ remuneration in accordance with the remuneration policy, subject to
shareholder approval at the Annual General Meeting, neither the Board nor individual Directors are legally bound by the policy.
The Board has determined that its remuneration policy shall come into force immediately after the Annual General Meeting, subject
to its approval by shareholders. As from the effective date, the Board intends that all payments made by the Company to its
Directors will be made in accordance with the remuneration policy. Existing obligations will continue to be met. It is the Company’s
intention that the remuneration policy will remain in force until a new remuneration policy that has been approved by shareholders
takes effect. Furthermore, the Company intends to again seek shareholder approval for its remuneration policy in three years’ time.
The proposed remuneration policy seeks to align 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. In adopting the policy, the Company confirms that there is a formal
and transparent procedure for developing policy on executive remuneration and for fixing the remuneration packages of individual
directors, with no Director being involved in deciding his own remuneration.
Annual Statement
2013 was a record year for the Group, with revenue increasing by 7% compared to 2012, Adjusted EBITDA increasing by 13% and
like for like Adjusted EBITDA increasing by more than 20% compared to 2012. During the year, the Board discussed with investor
representative groups the remuneration of the Executive Directors, amongst other matters. During 2014, the Remuneration
Committee will exercise its duties in accordance with the Remuneration Policy set out herein, subject to its adoption by the Annual
General Meeting.
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 of the Remuneration Committee
25 March 2014
34
23124.04 10 April 2014 10:18 AM Proof 12
888 Holdings plc Annual Report & Accounts 2013888 Holdings plc Annual Report & Accounts 2013 Introduction
The Company presents its report on the remuneration of its
Directors for the year ended 31 December 2013. The Company
is incorporated in Gibraltar and, therefore, is not required to
comply with the UK Companies Act 2006 or the Directors’
Remuneration Report requirements in Schedule 8 to the UK
Large and Medium sized Companies and Groups (Accounts
and Reports) Regulations 2008 (as amended), but has chosen
to prepare this Remuneration Report on the basis of those
requirements, as appropriate.
The report sets out the remuneration policy proposed to be
put to the 2014 Annual General Meeting, together with the
structure and details of the remuneration of the Directors
for the year ended 31 December 2013. A report regarding
implementation of the remuneration policy will be included
in future Annual Reports relating to periods during which the
remuneration policy is effective. The report 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.
A resolution to approve the Directors’ Remuneration Report
is proposed, annually, to shareholders for approval. This
Remuneration Report and the Remuneration Policy will each
be put to shareholder votes at the upcoming Annual General
Meeting. As stated above, the advisory nature of the votes,
due to the Company’s incorporation in Gibraltar, means that
obligations to make payments to Directors would continue
to be enforceable in the event that either of the votes is not
passed and neither the Board nor individual Directors are
legally bound by the Remuneration Policy.
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 many 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.
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, as well as shareholder return,
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.
23124.04 10 April 2014 10:18 AM Proof 15
35
Stock Code: 888www.888holdingsplc.comGovernance Directors’ Remuneration Report
The following is the Company’s Remuneration Policy to be put to an advisory vote of the shareholders at the Annual General
Meeting of the Company scheduled to be held on 14 May 2014:
Chart 1 — Future Policy Table
Purpose
How it operates
Opportunity
Performance Metrics
Remuneration
Component
Base Salary
Provide an attractive
pay package taking
into account the risks
and responsibilities
of the role in order
to attract, retain and
motivate Directors of
suitable calibre.
Benefits
Provide an attractive
benefits package
taking into account
the risks and
responsibilities of the
role in order to attract,
retain and motivate
Directors of suitable
calibre.
Short term
incentives
Provide a challenging
framework to
incentivize executive
performance and align
executive incentives to
shareholder interests.
The Executive Directors’
base salaries are subject to
annual review at the time
of the publication of the
annual financial statements
with effect from 1st
January of the same year.
The Company considers
that the Executive
Directors’ personal
performance is best
measured in accordance
with the performance of
the Company as a whole,
taking into account any
changes in the level of
responsibilities of the
Executive Directors.
Therefore, in determining
salary levels and raises, the
Remuneration Committee
has regard to the pay and
conditions of comparable
companies in the same
sector, including the FTSE
250 Index.
Benefits may include cost
of, or an allowance toward,
accommodation (where
the Company has required
the Executive Director to
relocate), use of Company
car, car allowance, health
insurance (or contribution
towards health insurance
scheme), disability and
life insurance, directors’
indemnities and directors’
& officers’ insurance to the
extent permitted by law,
pension (or payment in lieu
thereof) at the discretion
of the Remuneration
Committee.
An annual bonus becomes
payable following the
approval of the Group’s
annual results at the
annual general meeting,
in accordance with the
performance criteria set
by the Remuneration
Committee at the
beginning of the financial
year. The annual bonus
may be paid following
release of the annual
financial results as the
Remuneration Committee
may determine in its
discretion, provided that
any such earlier bonus
payment shall be subject
to clawback. The bonus
can be paid in cash or
shares, at the discretion
of the Remuneration
Committee.
The Remuneration
Committee has regard
to the last reported
median salary level of
the upper quartile of
FTSE 250 companies in
determining base salary.
The Executive Directors
will generally not be
paid more than 5%
over such last reported
upper quartile median,
except in circumstances
of significant changes in
responsibilities.
Payment of base salary is not subject
to performance conditions. However,
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. No recovery or withholding
applies to salary. Current salary levels
of the Executive Directors are set out
on page 42.
Benefits will be
market competitive
taking into account
the role and the local
market. The value
will be appropriate
to the individual
circumstances of the
individual executive
director. The current
package of benefits
will be maintained
but the value may
fluctuate depending
amongst other things
on insurance costs
and an individual’s
circumstances.
Targets are set in light
of Company growth
and market conditions.
The Remuneration
Committee considers
the target Adjusted
EBITDA growth metric
as being appropriate for
determining challenging
performance targets.
Maximum opportunity
is 100% of base salary.
Benefits are not subject to
performance conditions. No recovery
or withholding applies to benefits.
Current benefit levels of the Executive
Directors are set out on page 42.
Maximum bonus award is 100% of base
salary for each of the CEO and CFO,
calculated on a linear scale based on
like-for-like Adjusted EBITDA growth
(i.e. with the adjustment for exceptional
items relating to the changing
regulatory environment to arrive at
a like-for-like Adjusted EBITDA, as
determined by the Remuneration
Committee). The threshold like-for-
like Adjusted EBITDA growth and the
like-for-like Adjusted EBITDA growth
giving rise to maximum bonus award
are determined by the Remuneration
Committee in accordance with the
Executive Directors’ annual targets. No
bonus is paid where growth is below
threshold like-for-like Adjusted EBITDA
growth, and a bonus is only payable
where Adjusted EBITDA is above
budget for the year as approved by
the Board. Whilst not implemented at
present, the Remuneration Committee
may decide to apply clawback or
malus to short term incentive grants
to Executive Directors recruited in
future, at its discretion and pursuant
to the employment agreement of such
Executive Director.
36
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888 Holdings plc Annual Report & Accounts 2013888 Holdings plc Annual Report & Accounts 2013 Remuneration
Component
Long term
incentives
Purpose
How it operates
Opportunity
Performance Metrics
Encourage
executives
to create
long term
shareholder
value, aligned
with the
timing of
implementation
of the
Company’s long
term strategy.
The Executive
Directors are
granted nil
cost options or
shares for no
consideration
on an annual
basis following
the publication
of the Group’s
annual results.
The total grant
allocation to
each Executive
Director under
the All-Employee
Plan 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 following is a summary of the
long term incentive plans currently
utilized by the Company. Other plans
or amendments to the existing plans
may be utilized at the discretion of the
Remuneration Committee and subject to
any required shareholder approvals.
888 All-Employee Share Plan
The Company currently grants awards
under the 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 which will pay a
cash sum to an equivalent value in lieu of
shares.
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 from the date determined by
the Remuneration Committee at the time
of grant. 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 vesting of awards is subject to any
applicable performance conditions
and continued employment during the
vesting period, with exceptions where
the Executive Director leaves for certain
“good reasons”, including ill health, injury,
disability, timely retirement, disposal of
employing company or business by the
Group, or other reasons determined by
the Remuneration Committee. Awards
will vest early in the event of a change
of control of the Company, and in such
event may be exercised within one month
of the date on which the relevant event
occurs or otherwise lapse automatically;
provided that the Board may determine
instead that outstanding awards shall
instead be exchanged for new awards
which in the opinion of the Board are
equivalent thereto but relate to shares in
a different company.
Share awards or nil cost options issued
with performance criteria are subject
to three year cliff vesting, with equally
weighted dependence on EPS-based and
TSR-based metrics.
The performance conditions of nil cost
options or free shares are measured over a
period of three years commencing from the
beginning of the financial year in which the
award is granted, with 50% of such share
awards or options dependent upon the
achievement of a performance condition
based on cumulative growth in Earnings
Per Share (EPS) over such three-year
period adjusted on a like-for like basis, and
the other 50% of such share awards or
options dependent upon the achievement
of a performance condition based on
relative Total Shareholder Return (TSR)
compared to a defined peer group median
over such three-year period.
The threshold compound EPS growth
rate as well as the compound EPS growth
rate and annual relative TSR giving rise to
maximum vesting are determined by the
Remuneration Committee in accordance
with Executive Directors’ annual targets.
With regard to the share awards or options
subject to the EPS performance condition,
where the compound annual EPS growth
rate is between the threshold compound
EPS growth rate and the compound
EPS growth rate giving rise to maximum
vesting, such share awards or options vest
on a linear scale between 25% and 100%
of the shares under the EPS element,
with an EPS growth rate of below the
threshold compound EPS growth rate
not allowing any vesting. With regard to
the share awards or options subject to
the TSR performance condition, where
the Company’s TSR over the vesting
period is between the median of a peer
group determined by the Remuneration
Committee and the TSR over the vesting
period above such median giving rise to
maximum vesting, such share awards or
options vest on a linear scale between
25% and 100% of the shares under the TSR
element, with TSR 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 share awards or
options:
} Bwin.Party Digital Entertainment PLC
} Sportech PLC
} Ladbrokes PLC
} Playtech Ltd.; and
} Paddy Power PLC.
The above conditions applied to all awards
under the 888 All-Employee Share plan to
the Executive Directors from 1 January 2012
and to an award over 1,175,373 ordinary
shares of the company made to Aviad
Kobrine on 24 May 2011.
Whilst not implemented at present, the
Remuneration Committee may decide
to apply clawback or malus to long term
incentive grants to Executive Directors
recruited in future, at its discretion and
pursuant to the employment agreement of
such Executive Director.
37
23124.04 10 April 2014 10:18 AM Proof 15
Stock Code: 888www.888holdingsplc.comGovernance Directors’ Remuneration Report
Future Policy Table
Remuneration
Component
Long term
incentives
Long term
incentives
Purpose
How it operates
Opportunity
Performance Metrics
This plan is presently
not in use.
This plan is presently not in
use, and the Remuneration
Committee does not intend to
operate this plan during the life
of the remuneration policy.
This plan is presently
not in use, except for
shares already held in
the Share Plan Trust.
This plan is presently not in use,
except for shares already held in
the Share Plan Trust.
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.
Awards and options granted
under 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 as at the Company’s
initial public offering 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.
No recovery or withholding
applies under the 888 Holdings
plc Share Plan Trust.
38
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888 Holdings plc Annual Report & Accounts 2013888 Holdings plc Annual Report & Accounts 2013 Remuneration
Component
Long term
incentives
Purpose
How it operates
Opportunity
Performance Metrics
The maximum
amount
payable is
£5,500,000
for the
achievement
of an average
share price of
at least £2.00
over the 20
dealing days
prior to
27 March 2015.
Phantom awards are subject to three year
cliff vesting, and grant a one-time cash
sum on the vesting date provided that the
Executive Director is in employment with
the Company at that time.
Whilst not implemented at present, the
Remuneration Committee may decide
to apply clawback or malus to phantom
grants to Executive Directors recruited in
future, at its discretion and pursuant to the
employment agreement of such Executive
Director.
Phantom Share Award
Generally in circumstances where the grant
of equity may give rise to dilution in excess
of limits set down in institutional investor
guidelines, a phantom share award may be
granted.
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 2013 has been externally
evaluated at £1.9 million, with the Company
recording a charge in the amount of £1.4
million in its 2013 (£0.5 million in 2012)
accounts in respect of the amount earned
in the year.
23124.04 10 April 2014 10:18 AM Proof 15
39
Stock Code: 888www.888holdingsplc.comGovernance Directors’ Remuneration Report
Determination of Performance Measures
The performance measures adopted by the Company in
determining the remuneration of its Executive Directors
acknowledge that the performance of the Executive Directors
is best measured in accordance with the performance of
the Company as a whole. For this reason, the Remuneration
Policy has regard to various financial measures, including
both internal measures such as like-for-like Adjusted EBITDA
growth and cumulative growth in Earnings Per Share (adjusted
to compare like for like), as well as relative Total Shareholder
Return compared to a peer group median, which the Company
believes best reflects the interests of shareholders. In general,
the Company seeks to remunerate its Executive Directors in line
with comparable roles at other companies in the same market,
taking into account the scope of roles and responsibilities of the
Executive Directors; similarly, the Company seeks to remunerate
its employees generally in line with comparable roles of
personnel located in comparable locations.
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.
The principles to be applied by the Company in agreeing the
components of a remuneration package for the appointment of
a new Executive Director will include the following:
} In general, the total compensation package offered to a
new Executive Director will not exceed the upper quartile
total compensation package of the FTSE 250;
} Insofar as practicable, the remuneration proposed for
a new Executive Director would be consistent with the
“Future Policy” table set out above;
} In order to secure an appropriate candidate, it may be
necessary to offer a higher base salary than that offered to
the current Executive Directors;
} There may be a need to compensate a newly recruited
Executive Director for forfeiting remuneration from
existing employment. The Company may award a newly
recruited Executive Director a signing bonus or retention
bonus, which may be paid in the form of cash, options
and/or shares, and may rely on Listing Rule 9.4.2 to put
an appropriate arrangement in place upon recruitment.
If the remuneration being forfeited was subject to the
achievement of performance conditions the compensation
awards will be subject to Company performance
conditions and where practicable will mirror the vesting
schedule of the remuneration being forfeited;
} The Company will not pay more than is necessary to
attract a suitable individual for the role;
} Relocation benefits may be applicable where the newly
recruited Executive Director is required by the Company
to relocate;
} Other benefits may also be payable, including business
expense reimbursement, car or car allowance, health
insurance (or contribution towards health insurance scheme),
pension (or payment in lieu of pension), life insurance,
holiday pay, sick pay and other statutory benefits;
} Where an existing employee is promoted to the Board,
existing contractual entitlements including any outstanding
share and cash awards and pension entitlements will be
honoured;
} The Remuneration Committee may negotiate inclusion
in a newly recruited Executive Director’s employment
agreement a clawback or malus mechanism as regards
short term or long term incentives, and/or a mitigation
mechanism regarding short term and long term incentive
payments made during the Executive Directors’ unexpired
notice period where such Executive Director is engaged in
other employment during such period;
} The Company will make timely disclosure of the
remuneration structure of any new Executive Director or
Chairman in a RIS.
Directors’ Service Agreements and Termination Benefits
Details of the Directors’ Service Agreements are set out in
Charts 6(a) and 6(b) on page 44.
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; the notice period applying
to both Brian Mattingley’s and Aviad Kobrine’s employment
is 12 months. 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 shall continue
to be entitled to be paid a bonus and in Brian Mattingley’s case,
to payment of his phantom share award as described on page
39, in respect of 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. Each Executive Director’s employment can be
terminated without compensation in circumstances where the
employer is entitled to terminate for cause, as defined for the
purposes of the service agreement. An Executive Director’s
entitlement to share awards and share options under the 888
All-Employee Plan on termination of employment are governed
by the terms of that plan, pursuant to which, if the termination
occurs for various “good reasons” set out in the Plan (details
set out on page 37), any vested but unexercised awards may
be exercised or released within six months after such cessation,
whilst any unvested portion automatically lapses, unless
determined otherwise by the Remuneration Committee. In
exercising its discretion, the Remuneration Committee will have
regard to the circumstances of the termination and any special
circumstances of the Executive Director in determining whether
to extend the exercise period by an additional short period.
The Directors’ service contracts are available for inspection
at the Company’s registered office at any time during normal
business hours on any weekday (Saturdays, Sundays and public
holidays excepted).
Remuneration Scenarios
The first financial year in which the Remuneration Policy applies
is 2014. The following charts set out the minimum, target and
maximum remuneration presently expected to be payable to
each of the Executive Directors in that year:
40
23124.04 10 April 2014 10:18 AM Proof 12
888 Holdings plc Annual Report & Accounts 2013888 Holdings plc Annual Report & Accounts 2013 Chart 2 — Remuneration Scenarios
Brian Mattingley
Maximum
Target
Minimum
52%
48%
59%
41%
100%
-
200
400
600
800
1,000
1,200
1,400
$’000
■ Fixed ■ Short term incentive ■ Long term incentive
Aviad Kobrine
Maximum
Target
Minimum
37%
30%
33%
44%
27%
29%
100%
-
500
1,000
$’000
1,500
2,000
■ Fixed ■ Short term incentive ■ Long term incentive
The following assumptions were used in the above charts:
Fixed Salary: Brian Mattingley’s and Aviad Kobrine’s fixed
salaries for 2014 are set out on page 43.
Benefits: The chart assumes that Brian Mattingley’s and Aviad
Kobrine’s benefits are as set out on page 42 below.
Short term Incentive: The maximum bonus payable to each
of Brian Mattingley and Aviad Kobrine is equal to one year’s
salary. The chart assumes that the Executive Directors’ 2014
target performance (which the Board considers stretching) will
give rise to entitlement of 75% of the maximum award amount.
Long term Incentive: The chart assumes no further phantom
grants to Brian Mattingley in 2014, and therefore there is
no Long term Incentive component of Brian Mattingley’s
compensation in 2014. Aviad Kobrine’s nil cost options are
granted subject to the performance conditions set out in the
Remuneration Policy. The chart assumes that the Executive
Directors’ 2014 target performance (which the Board
considers stretching) will give rise to vesting of 75% of the
maximum award amount. The chart assumes that the share
price remains at the same share price as at 31 December 2013.
Finally, it should be noted that the chart shows the potential
remuneration opportunity granted in the relevant year rather
than what actually vests and is received in such year.
Policy on Exit Payments and Loss of Office
The Remuneration Committee will consider a Director’s
past performance, the circumstances of and the reasons for
his departure, prevailing best practice, and any transition/
handover required in exercising any discretions relating to
his arrangements for loss of office, including his contractual
arrangements, his participation in an annual bonus scheme and
awards under the 888 All-Employee Share Plan.
Consideration of Shareholder Views on Remuneration
The Remuneration Committee intends to establish a
programme of consultation with significant investors.
The Board engages with significant investors regarding
remuneration issues and intends to continue doing so.
Consideration of Employee Views on Remuneration
Whilst the Company does not formally consult employees
on remuneration, in determining the remuneration policy for
Executive Directors, the Committee takes account of the policy
for employees across the workforce. In particular, when setting
base salaries for executives, the Committee compares the
salary increases with those for the workforce as a whole.
The overall remuneration policy for Executive Directors is
broadly consistent with the remainder of the workforce.
Executive remuneration and remuneration of senior employees
is weighted towards performance-related pay; the Company
has introduced equity based schemes for senior employees
(albeit at lower quantum) which are similar to those of the
Directors.
23124.04 10 April 2014 10:18 AM Proof 15
41
Stock Code: 888www.888holdingsplc.comGovernance
Directors’ Remuneration Report
Chart 3 — Non-executive Directors
Remuneration Component
Purpose
How it operates
Duly compensate
Non-executive
Directors, taking
into account the
risks of the role, in
order to attract and
retain Non-executive
Directors of suitable
calibre.
Fees
Other Benefits
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
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 with reference to prevailing fee rates
amongst the upper quartile of FTSE 250 companies. Fees paid to
the Non-executive Directors are set by reference to an assessment
of the time commitment and responsibility associated with each
role, and the Remuneration Committee has reference in this respect
to prevailing fee rates amongst the upper quartile of FTSE 250
companies. 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 2013
are disclosed in the Directors’ remuneration summary on page 43.
The Chairman and the Non-executive Directors are not eligible to
participate in any bonus plan, pension plan, share plan, or long term
incentive plan of the Company. The Chairman and Non-executive
Directors are covered by the Company’s directors’ & officers’
insurance policy and are entitled to indemnification in accordance
with the Company’s Articles of Association. In addition, the Chairman
receives a cash amount covering life insurance and health insurance
expenses. The amount paid to the Chairman during 2013 is disclosed
in the Directors’ remuneration summary on page 43.
termination. No compensation is payable on the termination of
the appointment.
Annual Remuneration Report
The following tables set out the remuneration received by the Executive Directors and Non-executive Directors in 2012 and 2013.
Chart 4a — Single Total Figure (Executive Directors)
Brian Mattingley (CEO)*
($’000)
Aviad Kobrine (CFO)*
($’000)
Salary
Benefits
Short term incentives
Long term incentives
Pension
Other items in the nature of
remuneration*
Total
2012
2013
2012
2013
2012
2013
2012
2013
2012
2013
2012
2013
2012
2013
495
590
59
63
506
622
—
—
—
—
—
—
1,060
1,275
550
562
40
46
561
592
—
—
83
84
767
624
2,001
1,908
* Directors remuneration is converted from Sterling into US$ 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.
42
23124.04 10 April 2014 10:18 AM Proof 12
888 Holdings plc Annual Report & Accounts 2013888 Holdings plc Annual Report & Accounts 2013
Salary: In 2013, Brian Mattingley’s annual salary was £377,000,
and Aviad Kobrine’s annual salary was £359,0001. In 2014, Brian
Mattingley’s annual salary will be £396,000 and Aviad Kobrine’s
annual salary will be £377,0001. These amounts are converted
into USD in the Single Total Figure table in accordance with the
GBP:USD exchange rate as at 31 December 2013.
Benefits: Benefits provided to Brian Mattingley in 2013 include
the provision of accommodation 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.
Short term incentives: The sole short term incentives
applicable to Brian Mattingley and Aviad Kobrine in 2012
and 2013 were their annual bonuses. In both cases, the
performance conditions set out in the Remuneration Policy
applied. Specifically, threshold performance for 2013 was 5%
year-on-year Adjusted EBITDA Growth and target performance
for 2013, which was considered a stretching target, was 15%
year-on-year Adjusted EBITDA growth, which would have given
rise to payment of 75% of the Executive Directors’ bonuses. In
fact, year-on-year Adjusted EBITDA growth for 2013 (adjusted
to arrive at a like-for-like basis) exceeded 20%, thus giving rise
to payment of 100% of the Executive Directors’ bonuses. The
2013 Adjusted EBITDA performance also exceeded budgeted
EBITDA for 2013.
Long term incentives: The long term incentives applicable to
Aviad Kobrine in 2012 and 2013 were governed by the 888 All-
Employee Share Plan; however, no performance-based grants
under the 888 All-Employee Share Plan were due to vest in
2012 and 2013 and therefore no vesting occurred. As regards
Brian Mattingley, the phantom award is due to vest in 2015 and
therefore no long term incentive figure appears in the table for
2012 and 2013.
Pensions: In 2013, Brian Mattingley had 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.
Other items in the nature of remuneration: Aviad Kobrine
benefited in 2012 and 2013 from vesting of awards under the
888 All-Employee Share Plan granted to him in previous years.
The value of the vested awards is determined in accordance
with the share price as of the vesting dates being 44.8p on 15
January 2012, 70.5p on 24 May 2012 and 160.2p on
24 May, 2013.
Chart 4b — Single Total Figure (Non-Executive
Directors)
Salary
Total
John
Anderson
($’000)
Amos
Pickel
($’000)
Richard
Kilsby
($’000)
2012
2013
2012
2013
122
120
122
120
122
120
122
120
366
361
366
361
Scheme Interests Awarded
The following table sets out the long term incentives awarded
to the Executive Directors under the 888 All-Employee Share
Plan in 2013.
Chart 5 — Scheme Interests Awarded
Face
Value of
Award
(US$)
Percentage
receivable
on threshold
performance
Date on
which
performance
measurement
period ends
531,695
25% 07/04/2016
Executive
Director
Scheme
Interest Award
Aviad
Kobrine
Long term
incentives -
Performance
nil cost
options
Basis of awards: Awards were made in 2013 only to Aviad
Kobrine (details of the phantom award to Brian Mattingley
in 2012 are detailed separately). The total grant allocation to
eligible Executive Directors 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 prevailing share price at the date of the award
was £1.63.
Performance conditions: The performance conditions applying
to the grants are as set out in the Remuneration Policy.
Payments to Past Directors and Payments for
Loss of Office
No payments were made by the Company in 2013 to any past
Director or for loss of office by any Director.
1 Part of which is paid by the Company and part by Cassava Enterprises (Gibraltar) Limited.
23124.04 10 April 2014 10:18 AM Proof 15
43
Stock Code: 888www.888holdingsplc.comGovernance Directors’ Remuneration Report
Directors’ Service Contracts
Chart 6a — Directors’ Service Contracts (Executive Directors)
Executive Directors
Name
Position
Contracting Party
Service
Contract Date
Unexpired Term
of Service Contract
Brian Mattingley
Chief Executive Officer
The Company
27/03/2012
Aviad Kobrine
Chief Financial Officer
The Company
14/09/2005
Aviad Kobrine
Chief Financial Officer Cassava Enterprises
14/09/2005
(Gibraltar) Limited 1
1 Wholly owned subsidiary of the Company.
Indefinite subject to termination provisions
set out in the Service Agreement.
Indefinite subject to termination provisions
set out in the Service Agreement.
Indefinite subject to termination provisions
set out in the Service Agreement.
Chart 6b — Directors’ Service Contracts (Non-executive Directors)
Non-executive Directors
The Chairman and the Non-executive Directors do not have service contracts but have signed Letters of Appointment.
Name
Richard Kilsby
Position
Contracting Party
Service
Contract Date
Chairman
The Company
01/03/2013
John Anderson
Non-executive Director
The Company
01/03/2013
Amos Pickel
Non-executive Director
The Company
01/03/2013
Unexpired Term
of Appointment
Until 01/03/2016, subject to re-election at
each Annual General Meeting
Until 01/03/2016, subject to re-election at
each Annual General Meeting
Until 01/03/2016, subject to re-election at
each Annual General Meeting
44
23124.04 10 April 2014 10:18 AM Proof 12
888 Holdings plc Annual Report & Accounts 2013888 Holdings plc Annual Report & Accounts 2013 Directors’ Shareholdings and Scheme Interests
The following table sets out the shareholdings and scheme interests held in 2013 by the Executive Directors and Non-executive
Directors. No Director is required to own shares in the Company. There have been no changes in Directors’ interests in shares of the
Company between 31 December 2013 and the date of this Report.
Chart 7 — Directors’ Shareholdings and Scheme Interests
Unvested
Unvested
Vested
unexercised
Vested
unexercised
options**
with
performance
conditions
options**
without
performance
conditions
options**
with
performance
conditions
options**
without
performance
conditions
Share*
interests
Total
Aviad Kobrine
Brian Mattingley
Richard Kilsby
Amos Pickel
John Anderson
*Ordinary shares.
**Nil Cost Options.
15,620
2,013,473
493,657
94,501
1,146,360 3,763,611
142,857
114,285
100,000
138,869
142,857
114,285
100,000
138,869
During 2013, Aviad Kobrine exercised and sold 257,827 ordinary
shares under nil cost options, in addition to selling 427,563
shares; John Anderson sold 450,000 shares.
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 Chart
4a — Single Total Figure to this point have been audited by
BDO LLP and BDO Limited 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 ended 31 December 2013. 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 included again in that index from
February 2008 until 2010, was on the reserve list in 2012 and
was readmitted as a full member in 2013.
23124.04 10 April 2014 10:18 AM Proof 15
45
Stock Code: 888www.888holdingsplc.comGovernance
Directors’ Remuneration Report
Chart 8 — Value of £100 in 888 over 5 year period ended 31 December 2013 v. FTSE 250 Index
300
250
200
150
100
50
0
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
1
0
0
2
/
1
/
1
1
0
0
2
/
4
/
1
1
0
0
2
/
7
/
1
1
0
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
3
1
0
2
/
1
/
1
3
1
0
2
/
4
/
1
3
1
0
2
/
7
/
1
3
1
0
2
/
0
1
/
1
888 Div reinvest
FTSE 250 index
Performance Graph and Table
The following table sets out details of the Chief Executive’s remuneration during the period 1 January 2009 – 31 December
2013. It is noted that Gigi Levy served as Chief Executive of the Company until 30 April 2011 and that Brian Mattingley
was appointed full-time Chief Executive Officer in March 2012; during the interim period, Brian Mattingley took on certain
executive duties.
Chart 9 – CEO Performance
Total remuneration ($’000)
Short term incentives — (% compared to maximum
possible)
Long term incentives — (% compared to maximum
possible)
CEO Remuneration — Percentage Change
The following table sets out the percentage change in salary /
fees, benefits and short term incentives from financial year 2012
to financial year 2013, for both the CEO and employees of the
Group taken as a whole.
Chart 10 — CEO Remuneration — Percentage Change
Percentage
change in CEO
Average percentage
change for all
employees
(2012 vs. 2013)
(2012 vs. 2013)
Salary
Benefits
Short term incentives
8%
6%
11%
3%
7%
9%
2009
1,168
2010
958
2011
3,783
2012
1,060
2013
1,275
100%
100%
100%
100%
100%
68%
0%
100%
0%
0%
Notes:
} The salary figure includes base salary together with other
payments made to the employees (e.g. sick pay, vacation
pay), but excluding discretionary bonuses.
} The benefits figure includes benefits granted to employees
which are not part of salary. (e.g. medical insurance, meals,
further education fund).
} Pension amounts are not included.
} The short term incentives figure solely includes bonuses,
which are based on an estimation by the Company based on
the bonus accrual, since bonuses are generally paid to Group
employees in April in respect of the previous financial year.
} CEO wage and STI were normalized in 2012 to present
a full year, as Brian Mattingley was appointed as Chief
Executive Officer as of 27 March 2012.
} CEO benefits include the provision of accommodation.
46
23124.04 10 April 2014 10:18 AM Proof 12
888 Holdings plc Annual Report & Accounts 2013888 Holdings plc Annual Report & Accounts 2013 Chart 11 — Relative Importance of Spend on Pay
The following graph sets out the actual expenditure by the
Company in financial years 2012 and 2013 on various items,
including on remuneration to Group employees.
■ 2013
■ 2012
US$ millions
160
140
120
100
80
60
40
20
0
Employee pay
& benefits
Selling & Marketing
expenses
Dividends
Taxes
The comparables chosen were the following:
} The employee pay figure includes employee benefits in
accordance with the financial statements (including both
staff costs and share benefit charges).
} Sales and marketing expenses — This reflects the amount
invested in development of the future revenue stream of
the Group driven by customer acquisition.
} Dividends — This reflects amounts distributed to
shareholders.
} Taxes and duties — This is a necessary cost of doing
business in a regulated business environment.
Implementation of the Remuneration Policy
The performance targets applying to Directors’ remuneration in
2014 are considered commercially sensitive. The Remuneration
Committee intends to disclose these performance targets
retrospectively in the 2014 Remuneration Report.
The salary to be paid to the Executive Directors in 2014 is set
out on page 43. Brian Mattingley is entitled in 2014 to use of
company car. Benefits payable to Aviad Kobrine in 2014 will be
paid on the same basis as 2013, as set out on page 43. Payment
of short term incentives and vesting of long term incentives
will occur in accordance with the remuneration policy, and the
performance targets set by the Remuneration Committee, as
stated above.
Remuneration Committee Advice
The Remuneration Committee consisted solely of independent
Non-executive Directors, currently Amos Pickel (Chair)
and John Anderson. As a member of the FTSE 250 Index
throughout 2013 (and on the reserve list in 2012), the Company
is required to have three independent Non-executive Directors
on its Remuneration Committee. As such, 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 27.
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 ongoing 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 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 the Company’s website, www.888holdingsplc.
com.
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 2013,
the Remuneration Committee took into consideration advice
received in the past from New Bridge Street; however, no
additional advice was received during 2013. New Bridge Street
does not provide any other services to the Company, and was
appointed in the past by the Remuneration Committee as an
objective and independent remuneration adviser. No fees were
paid by the Company to New Bridge Street in 2013.
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Stock Code: 888www.888holdingsplc.comGovernance Directors’ Remuneration Report
Voting at General Meeting
At the Company’s last Annual General Meeting, held on 8 May
2013, 86.62% of the votes (243,336,972 votes) were cast for
the resolution to approve the Remuneration Report, 13.38%
(37,590,064 votes) of the votes were cast against the resolution to
approve the Remuneration Report, and 28,576 votes were withheld.
Actions taken by the Directors in 2013 in response to concerns
of institutional investor groups included:
} The Remuneration Committee has sought to provide more
detail in the Remuneration Report and to make it a more
straightforward document to read.
} The performance conditions under the 888 All-Employee
Share Plan are considered by the Remuneration Committee
to be challenging, due to the three-year cliff vesting
mechanism and the reference to relative TSR compared to
a peer group median. The performance targets set by the
Remuneration Committee for the Executive Directors are
also considered to be stretching.
} The Remuneration Committee may negotiate inclusion
in newly recruited Executive Directors’ employment
agreements a clawback or malus mechanism as regards
short term or long term incentives, and/or a mitigation
mechanism regarding short term and long term incentive
payments made during the Executive Directors’ unexpired
notice period where such Executive Director is engaged in
other employment during such period.
} The Remuneration Committee has sought to introduce
guidelines that will reference overall compensation levels, to
compensation packages in FTSE 250 companies, in order
to avoid concerns that compensation may be considered or
appear excessive.
Approval
This report was approved by the Board and signed on its
behalf by:
Amos Pickel
Chairman of the Remuneration Committee
25 March 2014
48
23124.04 10 April 2014 10:18 AM Proof 12
888 Holdings plc Annual Report & Accounts 2013888 Holdings plc Annual Report & Accounts 2013 Independent auditors’ report to the
Members of 888 Holdings plc
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 at 31 December
2013 and of the Group’s profit for the year then ended;
} The Group and Company’s financial statements have been properly prepared in accordance with International Financial
Reporting Standards (“IFRSs”) as adopted by the European Union; and
} 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).
We have audited the financial statements (the “financial statements”) of 888 Holdings plc for the year ended 31 December 2013
which comprise the Consolidated Income Statement, the Consolidated Statement of Comprehensive Income, the Consolidated
and Company Balance Sheets, the Consolidated and Company statements of changes in equity, 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 IFRSs as adopted by the European Union.
Our assessment of risks of material misstatement
In preparing the financial statements, the Directors made a number of subjective judgements and significant accounting
estimates that involved making assumptions and considering future events that are, by their nature, inherently uncertain (see
note 2 to the consolidated financial statements). We primarily focused our work in these areas by assessing the Directors’
judgements against available evidence, forming our own judgements and evaluating the disclosures in the financial statements.
In arriving at our audit opinion above on the Group financial statements the risks of material misstatement that had the
greatest effect on our Group audit in the current year are noted below. This is not a complete list of all risks or areas of audit
focus identified by our audit. We discussed these areas of focus with the Audit Committee. Their report on those matters that
they considered to be significant issues in relation to the financial statements is set out on pages 31 to 33. We focused on the
following areas:
} Revenue recognition, which is a presumed fraud risk under International Standards on Auditing (UK & Ireland). The main risks
are the completeness, existence and presentation in the statement of comprehensive income of net gaming revenue and
other revenue. Details of the accounting policies applied in respect of the various income streams earned by the Group are
given in note 2 to the financial statements. The Group also makes certain judgements around the estimates and treatment of
various customer incentives and bonuses that are either deducted from revenue or treated as a cost, the timing of revenue
recognition and the accounting treatment of revenue streams derived from contractual arrangements entered into with third
parties.
We documented and tested the key IT and manual general and application controls over the completeness and accuracy
of the Group’s main gaming systems. This included testing the reconciliation between the main gaming systems and the
nominal ledger. We also undertook analytical and other substantive testing, including IT interrogation work over net gaming
revenue, other revenue and the treatment of customer bonuses.
We reviewed the assumptions, estimates and judgements applied by management related to certain customer bonuses and
challenged these based on available information.
We reviewed key contracts related to revenue share agreements and other relevant documentation to assess whether
the revenue recognised had been correctly treated as gross or net in line with the Group’s stated accounting policies and
whether any other terms within the contract had any material accounting or disclosure impacts. We also assessed whether
the revenue recognition policies adopted by the Group comply with IFRSs as adopted by the EU and industry standards.
Where revenue was recorded through journal entries we performed testing to establish whether a service had been provided
in the financial year to support this recognition.
} The assessment of the additions to, and carrying value of goodwill and other intangible assets, to determine whether there
was a risk of material misstatement in the carrying value of these assets and whether an impairment should be recognised.
Intangible assets primarily comprise those intangible assets recognised on acquisitions, licences acquired, and internally
generated computer software enhancements, including those designed to meet US licensing criteria. The Group holds
material amounts related to the above assets with carrying values supported through compiling discounted cash flow
models with assumptions, estimates and judgements adopted or applied by management. Key assumptions include discount
rates, perpetuity rates, expected operating margins and growth rates, the future period over which projections should apply,
and sensitivity analysis.
23124.04 10 April 2014 10:18 AM Proof 15
49
Stock Code: 888www.888holdingsplc.comFinancials Independent auditors’ report to the
Members of 888 Holdings plc
We documented and tested the key controls in respect of the capitalisation of intangible assets, tested a sample of projects
undertaken in the year against invoices from external suppliers and internal payroll costs and assumptions, and evaluated
the assessment by management as to whether the project spend met all the recognition criteria set out in IAS 38. We also
considered whether there were any indications of impairment of intangible assets. We utilised our internal valuations team
as part of the audit team and together we challenged management’s assumptions used in the discounted cash flow models
prepared to assess the impairment of goodwill and other intangibles as described in note 11 of the Group’s annual report.
This included reviewing all the key assumptions against external evidence where available and by reviewing the cash flow
projections against Board approved budgets and assessing the reasonableness of cash flow projections beyond that period
against available evidence to support these including external information and studies. We also assessed the past ability of
management to forecast with material accuracy. We also performed other sensitivity analyses on these models particularly
where changes in key assumptions could have an impact on the headroom against a break-even position. We also reviewed
the disclosures in the financial statements to conclude that these reasonably highlighted all key assumptions and judgements
made.
} Legal and regulatory compliance and provisions. Given the developing nature of the gaming sector in many countries across
the world, there is a risk that potential material legal or regulatory matters are not appropriately disclosed or provided for.
We discussed with the Group’s Legal advisors as to whether there were any known instances of material breaches in
regulatory and licence compliance that needed to be disclosed or required provisions to be made in the financial statements.
The Group has compliance obligations that range from administration of their licences to assessing the impact of country-
specific and pan-regional rules and regulations on its business. We reviewed how the Group monitors legal and regulatory
developments and their assessment of the potential impact on the business and the appropriate internal and external
advice taken in respect of these developments. The Group assesses the appropriateness and quantum of any provisions and
disclosures required under IFRSs as adopted by the EU for certain outstanding legal and regulatory disputes which are an
estimate of what the Directors believe to be the fair value based on the Directors’ best estimate where there is a probable
outflow of economic benefits. Where the Group do not consider the likelihood of a provision being probable the Group will
disclose the existence of a contingent liability unless it is remote. We corroborate this by reviewing any correspondence
from regulators related to the Group’s licence compliance requirements. We met with, and reviewed the litigation report
provided by the Group’s legal counsel and discussed each of the material cases noted in the report to determine the Group’s
assessment of the likelihood and magnitude of any liability that may arise. We also reviewed, where required, any available
external legal or regulatory advice sought by the group in their assessment. We challenged the assessments made, where
needed, and reviewed the calculation of any provisions made in the light of the external advice provided to the Group. We
also reviewed all disclosures prepared by the Group for these provisions and contingent liabilities.
} Tax including deferred tax given that due to the international nature of the Group there was a risk that material tax
exposures may not be reasonably disclosed or provided for in the financial statements.
We discussed with the Group how they manage, control and operate Group companies in the countries in which they are
registered. We also reviewed how the Group considers taxation as part of the overall business planning and how they
regularly monitor the rules and practices governing the taxation of ecommerce activity that is evolving in many countries.
The Group seeks external advice on these matters in formulating the estimated amount of tax to be provided in certain
jurisdictions. We reviewed the taxation provisions in respect of each jurisdiction in which the Group is registered or has a
significant presence. We assessed the latest external advice received by management with regard to exposure to taxation
in the major territories in which the Group operates, and any correspondence from tax authorities in those territories that
may require additional disclosures or provisions. We also considered any transfer pricing studies carried out on behalf of
the Group in the period, and assessed, in respect of earlier studies, whether there had been any change in the basis of
operations in the relevant territories. We challenged the assessments made by management, where needed, and reviewed
the disclosures prepared by the Group for the tax provisions and contingent liabilities.
} The re-opening of the US market in certain states. Certain US states have legalised various forms of online gaming, and
the Group has re-entered the market during the year. As a consequence, the Group has entered into a number of new
agreements and joint venture arrangements during the year and management has assessed the accounting treatments that
should be applied to these.
We critically assessed the agreements entered into during the year in respect of the group’s US operations, both with
third parties and joint venture partners and assessed whether the company and consolidation accounting applied was in
accordance with applicable IFRSs as adopted by the EU. We also assessed with the Group’s Compliance and Legal advisors
as to whether the Group was operating in accordance with its US licences.
50
23124.04 10 April 2014 10:18 AM Proof 15
888 Holdings plc Annual Report & Accounts 2013 Our application of materiality
We apply the concept of materiality both in planning and performing our audit, and in evaluating the effect of misstatements on
our audit and on the financial statements. For planning, we consider materiality to be the magnitude by which misstatements,
including omissions, could influence the economic decisions of reasonable users that are taken on the basis of the financial
statements. In order to reduce to an appropriately low level the probability that any misstatements exceed materiality, we use
a lower materiality level, performance materiality, to determine the extent of testing needed. Importantly, misstatements below
these levels will not necessarily be evaluated as immaterial as we also take account of the nature of identified misstatements,
and the particular circumstances of their occurrence, when evaluating their effect on the financial statements as a whole.
We determined materiality for the financial statements as a whole to be US$4.0 million. In determining this, we based our
assessment on a level of 1% of revenue for the year. On the basis of our risk assessment, together with our assessment of the
Group’s control environment, our judgment is that performance materiality for the financial statements should be 75% of planning
materiality. We agreed with the Audit Committee that we would report to the Committee all audit differences individually in excess
of US$0.1 million. We also agreed to report differences below these thresholds that, in our view, warranted reporting on qualitative
grounds.
An overview of the scope of our group audit
The majority of the Group’s individual entities do not require individual statutory audits and as an online gaming group the
accounting for the Group is centrally managed. For the purposes of the Group audit we consider that there are two reporting
components, comprising one company based in Israel, and the other being the rest of the worldwide group. The audit of the
Israeli company is carried out by a component audit firm using a materiality of US$0.9 million as instructed by BDO, and the
BDO Group audit team audit the rest of the worldwide group, which includes all the Group’s consolidated revenue, and the
majority of the Group’s costs, using materiality of US$4.0 million. As part of our work on the Group and in accordance with
ISA 600 “Special considerations — Audit of Group financial statements (including the work of component auditors), we
requested that the Israeli component auditor performed their audit under group instructions and reporting, and we met with
and reviewed their work as part of the overall audit. Based on the above scope we were able to conclude whether sufficient
appropriate audit evidence had been obtained as a basis of our opinion on the Group financial statements as a whole.
Opinion on other matters prescribed by legal and regulatory requirements
In our opinion:
} The information given in the Strategic Report and the Directors’ Report for the year ended 31 December 2013 for which the
financial statements are prepared is consistent with the financial statements; and
} The part of the Remuneration Report described as having been audited has been properly prepared in accordance with
Section 421 of the UK Companies Act 2006.
Matters on which we are required to report by exception
Under the ISAs (UK and Ireland), we are required to report to you if, in our opinion, information in the annual report is:
} Materially inconsistent with the information in the audited financial statements; or
} apparently materially incorrect based on, or materially inconsistent with, our knowledge of the Company acquired in the
course of performing our audit; or
} is otherwise misleading.
In particular, we are required to consider whether we have identified any inconsistencies between our knowledge acquired
during the audit and the Directors’ statement that they consider the annual report is fair, balanced and understandable and
whether the annual report appropriately discloses those matters that we communicated to the Audit Committee which we
consider should have been disclosed.
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, on page 30, in relation to going concern; and
} the part of the corporate governance statement on pages 27 to 30 relating to the Company’s compliance with the nine
provisions of the UK Corporate Governance Code specified for our review.
We have nothing to report in respect of these matters.
23124.04 10 April 2014 10:18 AM Proof 15
51
Stock Code: 888www.888holdingsplc.comFinancials Independent auditors’ report to the
Members of 888 Holdings plc
Respective responsibilities of Directors and auditors
As explained more fully in the Statement of Directors’ Responsibilities on page 26, 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 Financial Reporting Council’s (FRC’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 Conduct
Authority 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 performed in accordance with ISAs (UK and Ireland)
An audit involves obtaining evidence about the amounts and disclosures in the financial statements sufficient to give reasonable
assurance that the financial statements are free from material misstatement, whether caused by fraud or error. This includes
an assessment of: whether the accounting policies are appropriate to the Group’s circumstances and have been consistently
applied and adequately disclosed; the reasonableness of significant accounting estimates made by the Directors; and the overall
presentation of the financial statements. In addition, we read all the financial and non-financial information in the annual report
to identify material inconsistencies within the audited financial statements and to identify any information that is apparently
materially incorrect based on, or materially inconsistent with, the knowledge acquired by us in the course of performing the
audit. If we become aware of any apparent material misstatements or inconsistencies we consider the implications for our
report.
The purpose of this report and restrictions on its use by persons other than the members of the Company, as a body
Our 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 that we are required to state to them in an
auditor’s 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.
BDO LLP
Chartered Accountants
55 Baker Street
London W1U 7EU
United Kingdom
25 March 2014
Christian Summerfield (Statutory Auditor)
For and on behalf of
BDO Limited
Registered Auditors
Regal House
PO Box 1200
Gibraltar
25 March 2014
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.
52
23124.04 10 April 2014 10:18 AM Proof 15
888 Holdings plc Annual Report & Accounts 2013 Consolidated Income Statement
For the year ended 31 December 2013
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 and share benefit charges
Impairment charges
Retroactive duties and associated charges
Share benefit charges
Operating profit
Finance income
Finance expenses
Movement in contingent and deferred consideration
Profit on acquisition of equity accounted joint venture
Share of post-tax loss 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
4
6
6
21
13
13
7
Year ended 31 December
2013
US$ million
2012
US$ million
400.5
128.0
13.7
30.7
139.9
32.0
61.7
—
—
(5.5)
56.2
7.2
(7.5)
(0.5)
1.9
(4.1)
53.2
3.2
50.0
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
Note
8
Year ended 31 December
2013
US$
14.2¢
14.0¢
2012
US$
10.2¢
10.1¢
Consolidated Statement of Comprehensive Income
For the year ended 31 December 2013
Profit for the year
Items that may be reclassified subsequently to profit or loss
Group share of equity injections by joint venture partner in equity accounted joint venture
Items that will not be reclassified to profit or loss
Actuarial losses on defined benefit pension plan
Total other comprehensive income for the year
Total comprehensive income for the year attributable to equity holders of the parent
The notes on pages 57 to 88 form part of these financial statements.
23124.04 10 April 2014 10:18 AM Proof 15
Year ended 31 December
Note
2013
US$ million
2012
US$ million
50.0
35.4
13
5
6.1
—
(0.5)
5.6
55.6
(0.7)
(0.7)
34.7
53
Stock Code: 888www.888holdingsplc.comFinancials Consolidated Balance Sheet
At 31 December 2013
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
Corporate taxes
Fair value of derivative financial instruments
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
Fair value of derivative financial instruments
Corporate taxes
Customer deposits
Contingent and deferred consideration
Non-current liabilities
Share benefit charges — cash settled
Total liabilities
Total equity and liabilities
31 December
Note
2013
US$ million
2012
US$ million
11
12
13
14
15
16
17
18
27
19
20
27
22
21
24
155.7
19.1
3.9
0.2
1.2
180.1
115.8
3.9
31.4
1.0
—
152.1
332.2
3.2
0.9
170.6
174.7
92.5
4.2
1.9
55.4
0.4
154.4
3.1
157.5
332.2
147.7
18.3
—
0.2
0.4
166.6
81.5
3.5
26.2
3.5
3.3
118.0
284.6
3.2
0.1
144.9
148.2
83.1
—
2.3
49.5
0.7
135.6
0.8
136.4
284.6
The financial statements on pages 53 to 88 were approved and authorised for issue by the Board of Directors on 25 March 2014
and were signed on its behalf by:
Brian Mattingley
Chief Executive Officer
Aviad Kobrine
Chief Financial Officer
The notes on pages 57 to 88 form part of these financial statements.
54
23124.04 10 April 2014 10:18 AM Proof 15
888 Holdings plc Annual Report & Accounts 2013 Consolidated Statement of Changes in Equity
For the year ended 31 December 2013
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 1 January 2013
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 2013
Share
capital
US$ million
Share
premium
US$ million
Retained
earnings
US$ million
Total
US$ million
3.2
—
—
—
—
3.2
—
—
—
—
—
3.2
0.1
—
—
—
—
0.1
—
—
0.8
—
—
0.9
118.0
(8.7)
0.9
—
35.4
(0.7)
144.9
(33.2)
3.3
—
50.0
5.6
170.6
121.3
(8.7)
0.9
—
35.4
(0.7)
148.2
(33.2)
3.3
0.8
50.0
5.6
174.7
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 57 to 88 form part of these financial statements.
23124.04 10 April 2014 10:18 AM Proof 15
55
Stock Code: 888www.888holdingsplc.comFinancials Consolidated Statement of Cash Flows
For the year ended 31 December 2013
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 unrealized foreign exchange derivatives
Share of post-tax loss of equity accounted joint venture
Profit on acquisition of equity accounted joint venture
Movement in contingent and deferred consideration
Share benefit charges
Increase in trade receivables
Increase 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
Issue of shares
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 57 to 88 form part of these financial statements.
56
23124.04 10 April 2014 10:18 AM Proof 15
Year ended 31 December
2013
US$ million
2012
US$ million
53.2
40.8
—
8.3
5.6
(0.3)
—
—
7.5
4.1
(1.9)
0.5
5.5
82.5
(0.7)
(2.0)
5.9
8.8
94.5
(4.3)
90.2
(0.8)
(9.1)
(0.4)
0.3
(0.8)
(12.7)
(23.5)
—
0.8
(33.2)
(32.4)
34.3
81.5
115.8
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)
70.7
(36.7)
(10.6)
2.5
0.3
(0.3)
(10.5)
(55.3)
(1.1)
—
(8.7)
(9.8)
5.6
75.9
81.5
888 Holdings plc Annual Report & Accounts 2013 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 to 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 and games, Poker, Bingo and Emerging Offering which mainly comprises 888’s
Sportsbook, brand licencing revenue on third party platforms and Mytopia social games to end users and also provides
these services through its business to business unit Dragonfish to business partners. In addition, the Group provides
payment services, customer support and online advertising.
Definitions
In these financial statements:
The Company
888 Holdings Public Limited Company.
The Group
Subsidiaries
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).
Related parties
As defined in International Accounting Standard 24 — ‘Related Party Disclosures’.
Jointly controlled
entities
As defined in International Accounting Standards 31 — ‘Interests in Joint Ventures’.
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 during the year with no significant impact on its consolidated results
or financial position:
} Amendments to IAS 1 — Presentation of items of Other Comprehensive Income (effective for accounting periods
beginning on or after 1 July 2012).
} IFRS 13 — Fair Value Measurement.
} Amendments to IAS 19 — Employee Benefits: Accounting for defined benefit pension schemes.
} Amendments to IFRS 7 — Disclosures Offsetting Financial Assets and Financial Liabilities (effective for accounting
periods beginning on or after 1 January 2013).
} Improvements to IFRSs (2009–2011 cycle) — This annual improvement project clarifies the requirements of IFRSs
and eliminates inconsistencies within and between standards. The relevant changes included amendments to IAS 1
‘Presentation of financial statements’, IAS 16 ‘Property, plant and equipment’, IAS 32 Financial instruments and IAS 12
‘Income taxes’.
23124.04 10 April 2014 10:18 AM Proof 15
57
Stock Code: 888www.888holdingsplc.comFinancials Notes to the Consolidated Financial Statements
2
Significant accounting policies (continued)
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 2013. The Group is currently assessing the impact these standards and interpretations will have
on the presentation of, and recognition in, its consolidated results in future periods:
} IFRS 10 — Consolidated Financial Statements (effective for accounting periods beginning on or after 1 January 2014).
} 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).
} 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).
} 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 2014).
} Amendments to IAS 32 — Offsetting Financial Assets and Financial Liabilities (effective for accounting periods
beginning on or after 1 January 2014).
} Amendments to IAS 36 — Recoverable amounts disclosures for non-financial assets (effective for accounting periods
beginning on or after 1 January 2014).
} Amendments to IAS 39 — Novation of Derivatives and Continuation of Hedge Accounting (effective for accounting
periods beginning on or after 1 January 2014).
} IFRS 9 — Financial Instruments (the effective date is to be determined). This amendment has not yet been endorsed
for use in the EU.
} IFRIC 21 Levies — Interpretation of IAS 37: Accounting for levies imposed by governments (effective for accounting
periods beginning on or after 1 January 2014). This amendment has not yet been endorsed for use in the EU.
} Amendments to IAS 19 — Defined Benefit Plans: Employee Contributions (effective for accounting periods beginning
on or after 1 July 2014). This amendment has not yet been endorsed for use in the EU.
} Improvements to IFRSs (2010-2012 cycle and 2011-2013 cycle) — 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’, IFRS 2 ‘Share-based
Payment’, IFRS 3 ‘Business Combinations’, IFRS 8 ‘Operating Segments’, IFRS 13 ‘Fair Value Measurement’, IAS 16
‘Property, Plant and Equipment’, IAS 24 ‘Related Party Disclosures’, IAS 38 ‘Intangible Assets’ and IAS 40 ‘Investment
Property’ (effective for accounting periods beginning on or after 1 July 2014). This amendment has not yet been
endorsed for use in the EU.
The preparation of consolidated financial statements under IFRS requires the Group to make estimates and judgments that
affect the application of policies and reported amounts. Estimates and judgments are continually evaluated and are based
on historical experience and other factors including expectations of future events that are believed to be reasonable under
the circumstances. Actual results may differ from these estimates.
Included in this note are accounting policies which cover areas that the Directors consider require estimates and
assumptions which have a significant risk of causing a material adjustment to the carrying amount of assets and liabilities
within the next financial year. These policies together with references to the related notes to the financial statements can
be found below:
Taxation
Intangible assets
Impairment of goodwill and intangible assets
Investment in equity accounted joint ventures
Share-based payments
Contingent liabilities and regulatory compliance
Note
7
11
11
13
24
29
58
23124.04 10 April 2014 10:18 AM Proof 15
888 Holdings plc Annual Report & Accounts 2013 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 after adding the management fees and charges applied to customer accounts,
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 brand licensing on third party
platforms.
} 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 brand licensing on 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.
} B2B also includes fees from the provision of certain gaming related services to partners.
} Customer advances received are treated as deferred income within current liabilities and released as they are earned.
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.
23124.04 10 April 2014 10:18 AM Proof 15
59
Stock Code: 888www.888holdingsplc.comFinancials Notes to the Consolidated Financial Statements
2
Significant accounting policies (continued)
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:
(a) assets and liabilities for each balance sheet presented are translated at the closing rate at the date of that balance
sheet; and
(b) 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.
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 mainly the Chief Executive
Officer and the Chief Financial Officer. These segments are:
} B2C (Business to Customer) Casino and games, Poker, Bingo and Emerging Offering; 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 advanced marketing services, through
the provision of offline/online marketing, management of affiliates, SEO, CRM and business analytics.
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.
60
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888 Holdings plc Annual Report & Accounts 2013 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.
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. Changes in the
fair value of the contingent consideration are charged or credited to the income statement. In addition 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
33%
7–15%
15%
Leasehold improvements
Over the shorter of the term of the lease or useful lives
Impairment of non-financial assets
Impairment tests on goodwill 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. 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.
Where amounts paid for a JCE are exceeded by the Group’s share of the fair value of net assets acquired, the excess is
recognised as negative goodwill and released to the consolidated income statement immediately.
The Group’s share of additional equity contributions from other joint venture partners is taken to Other Comprehensive
Income.
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.
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Stock Code: 888www.888holdingsplc.comFinancials Notes to the Consolidated Financial Statements
2
Significant accounting policies (continued)
Derivative financial instruments
The Group enters into contracts for derivative financial instruments such as forward currency contracts to hedge
operational 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 balance sheets 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.
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.
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.
62
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888 Holdings plc Annual Report & Accounts 2013 2
Significant accounting policies (continued)
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 the 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 appropriate to the terms of the liabilities; plus
} Unrecognised past service costs.
Any difference between the expected return on assets and that actually achieved, and any changes in liabilities over the
year due to changes in assumptions or experience within the scheme, are recognised in other comprehensive income in
the period in which they arise.
Financial guarantee contracts
Where the Group enters into financial guarantee contracts the Group considers these to be insurance contracts and
accounts for them as such. The Group treats the guarantee as a contingent liability until such time as it becomes probable
that the Group will be required to make payments under the guarantee.
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Stock Code: 888www.888holdingsplc.comFinancials Notes to the Consolidated Financial Statements
3
Segment information
Business Segments
Revenue
Result
Segment result
Unallocated corporate expenses1
Operating Profit
Financial income
Financial expenses
Movement in contingent and
deferred consideration
Profit on acquisition of equity
accounted joint venture
Share of post-tax loss 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 2013
B2C
B2B
Consolidated
Casino
US$ million
Poker
US$ million
Bingo
US$ million
Emerging
offerings
US$ million
Total B2C
US$ million
US$ million
US$ million
190.4
93.6
43.7
24.5
352.2
48.3
400.5
171.4
27.0
52.1
3.3
198.4
142.2
56.2
7.2
(7.5)
(0.5)
1.9
(4.1)
(3.2)
50.0
332.2
332.2
55.4
102.1
157.5
1 Including share benefit charges of US$5.5 million charged to administrative expenses.
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888 Holdings plc Annual Report & Accounts 2013 3
Segment information (continued)
Year ended 31 December 2012
B2C
B2B
Consolidated
Casino
US$ million
Poker
US$ million
Bingo
US$ million
Emerging
offerings
US$ million
Total B2C
US$ million
US$ million
US$ million
165.5
87.5
51.8
25.0
329.8
46.0
375.8
157.3
(0.6)
156.7
26.7
(1.6)
25.1
46.5
3.0
184.0
(2.2)
181.8
144.9
36.9
4.6
(2.7)
2.0
—
—
(5.4)
35.4
284.6
284.6
49.5
86.9
136.4
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
Profit on acquisition of equity
accounted joint venture
Taxation
Profit for the year
Assets
Unallocated corporate assets
Total assets
Liabilities
Segment liabilities
Unallocated corporate liabilities
Total liabilities
1 Including share benefit charges of US$1.7 million charged to administrative expenses.
Other than where amounts are allocated specifically to the B2C and B2B segments above, the expenses, assets and
liabilities relate jointly to all segments. These amounts are not discretely analysed between the two operating segments as
any allocation would be arbitrary.
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Stock Code: 888www.888holdingsplc.comFinancials Notes to the Consolidated Financial Statements
3
Segment information (continued)
Geographical information
The Group’s performance can also be reviewed by considering the geographical markets and geographical locations within
which the Group operates. This information is outlined below:
Revenue by geographical market
UK
Europe (excluding UK)
Americas
Rest of World
Total Revenue
Assets by geographical location
Europe (including UK)
Americas
Rest of world
Total assets by geographical location
4 Operating profit
Year ended 31 December
2013
US$ million
2012
US$ million
163.3
161.7
46.4
29.1
400.5
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
2013
US$ million
2012
US$ million
2013
US$ million
2012
US$ million
248.4
26.8
57.0
332.2
226.6
9.5
48.5
284.6
3.8
3.0
2.3
9.1
5.4
2.5
2.7
10.6
Operating profit is stated after charging:
Staff costs
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
Impairment costs (within administrative expenses – see notes 11 and 13)
Year ended 31 December
2013
US$ million
2012
US$ million
89.5
0.3
0.1
0.1
8.3
5.6
3.1
21.5
—
—
80.1
0.3
0.1
0.1
9.2
5.6
3.3
21.7
11.1
2.2
66
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888 Holdings plc Annual Report & Accounts 2013 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
Year ended 31 December
2013
US$ million
2012
US$ million
89.9
3.8
6.0
99.7
(10.2)
89.5
79.9
3.3
4.9
88.1
(8.0)
80.1
In the income statement total staff costs, excluding share benefit charges of US$5.5 million (2012: US$1.7 million),
are included within the following expenditure categories:
Operating expenses
Research and development expenses
Administrative expenses
Average headcount number of employees by category:
Operations
Research and development
Administration
Year ended 31 December
2013
US$ million
2012
US$ million
51.8
19.8
17.9
89.5
48.4
15.0
16.7
80.1
2013
Number
2012
Number
736
279
115
1,130
671
224
115
1,010
At 31 December 2013 the Group employed 1,253 (2012: 1,035) 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.
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Stock Code: 888www.888holdingsplc.comFinancials Notes to the Consolidated Financial Statements
5
Employee benefits (continued)
The following table summarises the employee benefits figures as included in the Group’s financial statements for 2013 and
2012, respectively:
Severance pay liability (within trade and other payables)
Income statement charge
Actuarial movements on severance pay liability
(included in statement of comprehensive income)
Movement in severance pay liability:
Severance pay plan assets
2013
US$ million
2012
US$ million
1.2
3.3
0.5
1.0
2.8
0.7
Year ended 31 December
2013
US$ million
2012
US$ million
10.4
0.4
3.6
(1.7)
0.8
0.6
14.1
8.4
0.4
3.0
(1.7)
0.1
0.2
10.4
Year ended 31 December
2013
US$ million
2012
US$ million
11.4
0.4
3.3
(1.8)
1.3
0.7
15.3
9.0
0.4
2.8
(1.8)
0.8
0.2
11.4
Year ended 31 December
2013
US$ million
2012
US$ million
2011
US$ million
2010
US$ million
2009
US$ million
14.1
(15.3)
(1.2)
10.4
(11.4)
(1.0)
8.4
(9.0)
(0.6)
8.3
(8.6)
(0.3)
6.8
(7.0)
(0.2
At beginning of year
Expected return
Contributions
Benefits paid
Actuarial gain 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
68
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888 Holdings plc Annual Report & Accounts 2013 5
Employee benefits (continued)
Experience gains and losses on scheme assets and liabilities:
On plan assets
On plan liabilities
Year ended 31 December
2013
US$ million
2012
US$ million
2011
US$ million
2010
US$ million
2009
US$ million
0.6
(1.1)
(0.5)
0.1
(0.8)
(0.7)
(0.3)
(0.1)
(0.4)
0.2
(0.5)
(0.3)
0.9
(1.1)
(0.2)
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$3.0 million (2012: US$2.5 million). The expected
contribution for 2014 is US$4.3 million.
The main actuarial assumptions used in determining the fair value of the Group’s employee benefits plan are shown below:
Discount rate (nominal)
Estimated increase in employee benefits costs
Voluntary termination rate
Estimated rate of return on assets
Inflation rates based on Israeli government bonds
6
Finance income and finance expenses
Finance income:
Interest income
Fair value movements on foreign exchange derivatives
Foreign exchange gains
Fair value movements of foreign exchange derivatives on deferred consideration
Finance income
Finance expenses:
Interest expense on deferred consideration
Fair value movements on foreign exchange derivatives
Foreign exchange losses
Finance expenses
2013
%
3.53
3.71
70
3.80
2.18
2012
%
3.80
3.82
70
4.34
2.28
Year ended 31 December
2013
US$ million
2012
US$ million
0.3
—
6.9
—
7.2
0.4
3.3
—
0.9
4.6
Year ended 31 December
2013
US$ million
2012
US$ million
—
7.5
—
7.5
1.1
—
1.6
2.7
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Stock Code: 888www.888holdingsplc.comFinancials Notes to the Consolidated Financial Statements
7
Taxation
Corporate taxes
Current tax
Deferred tax
Taxation expense
Year ended 31 December
2013
US$ million
2012
US$ million
4.0
(0.8)
3.2
5.4
—
5.4
The taxation expense for the year differs from the standard Gibraltar rate of tax. The differences are explained below:
Profit before taxation
Tax at effective tax rate in Gibraltar (2013:10%, 2012: 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
Year ended 31 December
2013
US$ million
2012
US$ million
53.2
5.3
1.4
0.2
0.3
(3.2)
(0.8)
3.2
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 — Gibraltar companies are subject to a corporate tax rate of 10%.
Israel — The domestic corporate tax rate in Israel from 2013 is 25% (2012: 25%). 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 and
including 2012.
UK — 888’s subsidiary in the UK pays corporate tax in the UK at the applicable rate of 23.25%
(For period April 1, 2012 — March 31, 2013: 24%; for period April 1, 2013 – March 31, 2014: 23%)
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 2,259,924 (2012: 6,363,756).
Profit for the period attributable to equity holders of the parent (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
70
23124.04 10 April 2014 10:18 AM Proof 15
Year ended 31 December
2013
50.0
2012
35.4
350,909,199 348,880,677
5,443,710
2,665,293
356,352,909 351,545,970
14.2¢
14.0¢
10.2¢
10.1¢
888 Holdings plc Annual Report & Accounts 2013 8
Earnings per share (continued)
Adjusted earnings per share
The Directors believe that EPS excluding share benefit charges, retroactive taxes and associated charges, movement in
contingent and deferred consideration, impairment charges, share of post-tax loss of equity accounted joint ventures and
profit on acquisition of equity accounted joint venture (“Adjusted EPS”) 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, retroactive taxes and associated charges, movement in
contingent and deferred consideration, impairment charges, share of post-tax loss of equity accounted joint ventures and
profit on acquisition of equity accounted joint venture (“Adjusted profit”):
Profit for the period attributable to equity holders of the parent
Share benefit charges
Retroactive taxes and associated charges
Movement in contingent and deferred consideration
Impairment charges
Share of post-tax loss of equity accounted joint ventures
Profit on acquisition of equity accounted joint venture
Adjusted Profit
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
9
Dividend
Dividends paid
Year ended 31 December
2013
US$ million
2012
US$ million
50.0
5.5
—
0.5
—
4.1
(1.9)
58.2
35.4
1.7
11.1
(2.0)
2.2
—
—
48.4
350,909,199 348,880,677
356,352,909 351,545,970
16.6¢
16.3¢
13.9¢
13.8¢
Year ended 31 December
2013
US$ million
2012
US$ million
33.2
8.7
An interim dividend of 3.0¢ per share was paid on 4 October 2013.
In 2012 an interim dividend of 2.5¢ per share was paid on 18 October 2012 and a final dividend of 6.5¢ per share was paid
on 13 June 2013.
The Board of Directors will recommend to the shareholders a final divided in respect of the year ended 31 December 2013,
comprising 4.0¢ per share, and an additional one-off 7.0¢, which will be recognised in the 2014 financial statements once
approved.
10 Acquisitions
Acquisitions completed in prior years
Internet domain name and brands
During the prior year the Group acquired one of its former B2B customers domain name and brands 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 $0.3m, were attributed to intangible assets acquired, comprising customer
information and brands. During the year 2012 the contingent consideration payable was increased by US$0.4 million and
during the year 2013 by US$0.5 million. The acquisition is deemed immaterial in respect of IFRS 3 disclosure requirements.
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 prior year, 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$2.4 million was released to the Consolidated Income Statement in 2012.
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Stock Code: 888www.888holdingsplc.comFinancials Notes to the Consolidated Financial Statements
11
Intangible assets
Cost or valuation
At 1 January 2012
Additions
Acquisitions
At 31 December 2012
Additions
At 31 December 2013
Amortisation and impairments:
At 1 January 2012
Impairment
Amortisation charge for the year
At 31 December 2012
Amortisation charge for the year
At 31 December 2013
Carrying amounts
At 31 December 2013
At 31 December 2012
At 31 December 2011
Analysis of goodwill by cash generating units:
Carrying value at 1 January 2012
Acquisition of internet domain name and brands
Carrying value at 1 January 2013
Carrying value at 31 December 2013
Acquired
intangible
assets
US$ million
Internally
generated
intangible
assets
US$ million
Total
US$ million
Goodwill
US$ million
145.8
—
0.3
146.1
—
146.1
20.7
—
—
20.7
—
20.7
125.4
125.4
125.1
9.2
—
1.5
10.7
0.9
11.6
7.0
—
1.7
8.7
0.8
9.5
2.1
2.0
2.2
20.2
10.5
—
30.7
12.7
43.4
5.6
0.9
3.9
10.4
4.8
15.2
28.2
20.3
14.6
175.2
10.5
1.8
187.5
13.6
201.1
33.3
0.9
5.6
39.8
5.6
45.4
155.7
147.7
141.9
Bingo online
business
US$ million
Other
US$ million
Total
Goodwill
US$ million
125.1
—
125.1
125.1
—
0.3
0.3
0.3
125.1
0.3
125.4
125.4
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 2013 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.
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 prior to assuming a long term
growth rate. Underlying growth rates as shown in the table below have been applied to revenue and are based on past
experience, the reorganisations that have taken place within the B2C Bingo cash generating unit during the year, the
positive results of which have been seen in recent months, and projections of future changes in the online gaming market.
72
23124.04 10 April 2014 10:18 AM Proof 15
888 Holdings plc Annual Report & Accounts 2013 11
Intangible assets (continued)
Having applied conservative estimates, certain B2B contracts due to end in the next two 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
Discount rate
applied1
Underlying
growth rate
year1
Underlying
growth rate
years 2–5
Underlying
growth rate
year 6+
Operating
expenses2
increase years
1–5
Operating
expenses2
increase year
6+
At 31 December 2013
At 31 December 2012
9%
10%
2%
2%
1%
0%
1%
1%
3%
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 on a slowly declining
percentage of revenues.
Under the key assumptions above, the Bingo unit recoverable amount exceeds its carrying amount by US$49 million. A 1%
increase in the discount rate, or a 1% reduction in the underlying growth rate over the forecast period would reduce this
excess by US$17 million and US$13 million respectively.
Internally generated Intangible assets
Other intangible assets
No impairment tests were considered to be required at 31 December 2013 and the carrying value of other intangible assets
is considered to be appropriate.
Licenses- prior year impairment
During the year 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 made a full impairment
charge of US$0.8 million in respect of the French licence costs and other intangible assets of US$0.1 million.
23124.04 10 April 2014 10:18 AM Proof 15
73
Stock Code: 888www.888holdingsplc.comFinancials Notes to the Consolidated Financial Statements
12 Property, plant and equipment
Cost
At 1 January 2012
Additions
Disposals
At 31 December 2012
Additions
Disposals
At 31 December 2013
Accumulated depreciation
At 1 January 2012
Charge for the year
Disposals
At 31 December 2012
Charge for the year
Disposals
At 31 December 2013
Carrying amounts
At 31 December 2013
At 31 December 2012
At 31 December 2011
IT equipment
US$ million
Office
furniture and
equipment
US$ million
Motor vehicles
US$ million
Leasehold
improvements
US$ million
Total
US$ million
40.6
10.3
(0.4)
50.5
8.2
—
58.7
30.5
7.4
(0.2)
37.7
6.9
—
44.6
14.1
12.8
10.1
2.8
0.1
—
2.9
0.2
(0.1)
3.0
1.9
0.2
—
2.1
0.2
(0.1)
2.2
0.8
0.8
0.9
0.5
0.1
—
0.6
0.1
(0.2)
0.5
0.4
0.1
—
0.5
—
(0.2)
0.3
0.2
0.1
0.1
13.3
0.1
—
13.4
0.6
(0.2)
13.8
7.3
1.5
—
8.8
1.2
(0.2)
9.8
4.0
4.6
6.0
57.2
10.6
(0.4)
67.4
9.1
(0.5)
76.0
40.1
9.2
(0.2)
49.1
8.3
(0.5)
56.9
19.1
18.3
17.1
74
23124.04 10 April 2014 10:18 AM Proof 15
888 Holdings plc Annual Report & Accounts 2013 13
Investment in equity accounted joint ventures
The following entities meet the definition of Jointly Controlled Entities and have been equity accounted in the
consolidated financial statements:
Name
Technology Solutions (Gibraltar) Limited
AAPN Holdings LLC
AGN LLC
AAPN New Jersey LLC
Country of
incorporation
Effective interest
31 December 2013
Effective interest
31 December 2012
Gibraltar
USA
USA
USA
50%
47%
47%
47%
50%
—
—
—
Technology Solutions (Gibraltar) Limited (“TSG”)
In 2010 the Group obtained a licence to operate online poker games in France.
High gaming duty rates imposed in France rendered the offering of the Group’s online gaming services in that jurisdiction
not economically viable. Accordingly, in 2012, the Group requested its local licence to be revoked following agreement to
terminate the joint venture. Consequently, in 2012, the Group impaired the full amount of its investment in the joint venture
in the amount of US$1.3 million.
USA Jointly Controlled Entities
On 11 March 2013 the Group entered into a joint venture agreement (“JVA”) with Avenue OLG Entertainment LLC
(“Avenue”) and other minority shareholders to form AAPN Holdings LLC (“AAPN”). Under that agreement the Group has a
47% interest in AAPN. AAPN is funded by Avenue as defined in the JVA.
AAPN New Jersey LLC (“AAPN NJ”) is the entity which contracted with an Atlantic City casino licensee in connection with
the operation of a B2C gaming offering in New Jersey (an offering which launched in November 2013). AGN LLC is the
entity which contracted with a Las Vegas casino licensee in connection with the operation of a B2C gaming offering in
Nevada (this offering has not yet launched).
As at December 31 2013, AGN LLC and AAPN NJ (together, the “Operating Entities”) were 100% owned by 888 US Inc.
However, both are regarded as jointly controlled entities, as the Group has agreed that so long as the Operating Entities
remain wholly owned by the Group, they will be operated in a manner consistent with the contractual arrangements in
place within the AAPN JVA. The Group also has an irrevocable commitment to contribute 100% of the interests in AAPN
NJ and AGN LLC, to AAPN for no consideration, upon fulfillment of certain conditions.
On this basis the three entities, ( the “US Joint venture”) have been equity accounted for reflecting the Groups effective
47% interest in their aggregated results and assets.
On 8 July 2013, AGN LLC obtained the required licences by the Nevada Gaming Commission enabling it to provide online
gaming services in the State of Nevada in accordance with the stipulations of the licences.
On 8 November 2013, AAPN NJ obtained the transactional waiver by the New Jersey Division of Gaming Enforcement
enabling it to provide online gaming services in the State of New Jersey for a period of six months from the date of the
waiver and subject to final approval by the New Jersey Division of Gaming Enforcement.
23124.04 10 April 2014 10:18 AM Proof 15
75
Stock Code: 888www.888holdingsplc.comFinancials Notes to the Consolidated Financial Statements
13
Investment in equity accounted joint ventures (continued)
Amounts relating to the joint ventures and the Groups share of net assets and post-tax losses of the joint venture are as
follows:
Net assets of Joint ventures
Non-current assets
Current assets
Current liabilities
Net assets of joint ventures
Group effective interest in joint ventures
Group share of net assets of joint ventures
Income statement of Joint Ventures
Income
Expenses
Post tax losses of joint ventures
Group share of effective interest
Group share of Post-tax losses of joint ventures
1 Amounts in 2012 relate solely to TSG.
US Joint
Ventures
US$ million
TSG
US$ million
Total
2013
US$ million
Total
20121
US$ million
5.9
6.0
(3.6)
8.3
47%
3.9
—
(8.7)
(8.7)
47%
(4.1)
—
—
—
—
50%
—
—
—
—
50%
—
5.9
6.0
(3.6)
8.3
2.3
—
(2.2)
0.1
3.9
—
—
(8.7)
(8.7)
(4.1)
0.2
(0.2)
—
—
During 2013 the US JV launched regulated license gaming offering in the states of Nevada and New Jersey. As a result
substantial marketing costs were incurred in order to facilitate the penetration into these newly opened markets.
On acquisition of the interest in AAPN the difference of US$1.9 million between the consideration paid of nil and the share
of net assets of the entity of US$1.9 million was accounted for as a profit on acquisition in line with IAS 31.
The Group’s share of subsequent increases in the net assets of AAPN arising from equity injections by its JV partners,
amounting to US $6.1 million has been accounted for through Other Comprehensive Income.
A reconciliation of the movements in the Group’s interest in equity accounted joint ventures is shown below.
Movements in interest in equity accounted joint ventures
Investment in equity accounted joint ventures
At 1 January 2012
Impairment
At 31 December 2012
Profit on acquisition of equity accounted joint venture
Group share of equity injections by joint venture partner in equity accounted
joint venture
Share of post-tax loss of equity accounted joint ventures
At 31 December 2013
14 Financial Assets — Available-for-sale investments
Balance at the beginning and end of the year
US Joint
Ventures
US$ million
TSG
US$ million
Total
US$ million
—
—
—
1.9
6.1
(4.1)
3.9
1.3
(1.3)
—
—
—
—
—
1.3
(1.3)
—
1.9
6.1
(4.1)
3.9
31 December
2013
US$ million
2012
US$ million
0.2
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 2012 and 2013 were insignificant.
76
23124.04 10 April 2014 10:18 AM Proof 15
888 Holdings plc Annual Report & Accounts 2013 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
31 December
2013
US$ million
2012
US$ million
0.4
0.9
(1.3)
0.1
0.7
0.4
1.2
0.4
0.6
(0.8)
0.2
0.3
(0.3)
0.4
31 December
2013
US$ million
2012
US$ million
111.2
4.6
115.8
78.1
3.4
81.5
Restricted cash represents customers’ funds held in designated accounts under regulated market licence requirements.
17 Short term investments
Deposits
31 December
2013
US$ million
2012
US$ million
3.9
3.5
Short term investments primarily relates to deposits held by banks to support guarantees in respect of regulated markets
licence requirements.
18 Trade and other receivables
Trade receivables
Other receivables and prepayments
31 December
2013
US$ million
2012
US$ million
20.9
10.5
31.4
20.1
6.1
26.2
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.
23124.04 10 April 2014 10:18 AM Proof 15
77
Stock Code: 888www.888holdingsplc.comFinancials Notes to the Consolidated Financial Statements
19 Share capital
Share capital comprises the following:
Ordinary Shares of £0.005 each
426,387,500
426,387,500
3.9
3.9
Authorised
31 December
2013
Number
31 December
2012
Number
31 December
2013
US$ million
31 December
2012
US$ million
Allotted, called up and fully paid
31 December
2013
Number
31 December
2012
Number
31 December
2013
US$ million
31 December
2012
US$ million
Ordinary Shares of £0.005 each at beginning of year
349,688,356
347,687,468
Issue of ordinary shares of £0.005 each
Ordinary Shares of £0.005 each at end of year
2,288,919
2,000,888
351,977,275
349,688,356
3.2
—
3.2
3.2
—
3.2
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 2013 and 2012:
Issued during 2013
February
March
April
May
June
July
August
September
October
November
December
Shares issued during 2013
Issued during 2012
January
April
May
June
August
October
Shares issued during 2012
Ordinary
shares of
£0.005 each
51,087
125,734
577,874
865,357
33,783
19,046
97,787
8,102
129,837
376,873
3,439
2,288,919
Ordinary
shares of
£0.005 each
76,816
362,612
1,106,071
194,988
161,468
98,933
2,000,888
During 2013, the Company issued 461,406 shares (2012: nil) in respect of employees’ exercising market value options
giving rise to an increase in share premium of US$0.8 million.
Shares issued are converted into US$ 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 (2012: US$3.2 million) and is split into 351,977,275 (2012: 349,688,356)
ordinary shares. The share capital in UK sterling (GBP) is £1.8 million (2012: £1.7 million) and translates at an average
exchange rate of US$1.82 (2012: US$1.82) to GBP.
78
23124.04 10 April 2014 10:18 AM Proof 15
888 Holdings plc Annual Report & Accounts 2013 20 Trade and other payables
Trade payables
Other payables, accrued expenses and deferred income
31 December
2013
US$ million
2012
US$ million
31.3
61.2
92.5
33.1
50.0
83.1
The carrying value of trade and other payables approximates to their fair value given the short maturity date of these
balances.
21 Contingent and deferred consideration
Other contingent consideration
31 December
2013
US$ million
2012
US$ million
0.4
0.7
The Group has recognised contingent and deferred consideration on an acquisition in the year 2012. Further details are
given in note 10.
Contingent and deferred consideration — movements in the year
Contingent and deferred consideration at 1 January 2012
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 31 December 2012
Paid in year — Capital amounts
Movement in contingent and deferred consideration
Contingent consideration at the end of the year
Wink Bingo
business1
US$ million
Others
US$ million
Total
US$ million
37.4
—
(35.5)
(2.4)
0.5
—
—
—
—
—
1.5
(1.2)
0.4
—
0.7
(0.8)
0.5
0.4
37.4
1.5
(36.7)
(2.0)
0.5
0.7
(0.8)
0.5
0.4
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$2.4 million was released to the Consolidated Income Statement.
22 Liabilities to customers and progressive prize pools
Liabilities to customers
Progressive prize pools
31 December
2013
US$ million
2012
US$ million
51.1
4.3
55.4
44.1
5.4
49.5
23124.04 10 April 2014 10:18 AM Proof 15
79
Stock Code: 888www.888holdingsplc.comFinancials Notes to the Consolidated Financial Statements
23
Investments in significant subsidiaries
Name
Cassava Enterprises (Gibraltar)
Limited
Country of
incorporation
Gibraltar
Virtual Marketing Services (UK)
Limited
UK
Virtual Marketing Services (Gibraltar)
Limited
Gibraltar
Dixie Operation Limited
Random Logic Limited
Brigend Limited
Fordart Limited
Antigua
Israel
Gibraltar
Gibraltar
New Wave Virtual Ventures Limited
Gibraltar
Virtual Internet Services Limited
Gibraltar
Virtual Marketing Services Italia SRL
Italy
888 Spain Public Limited Company
Gibraltar
Virtual IP Assets Limited
888 Virtual Limited
888 US Limited
BVI
Gibraltar
Gibraltar
888 Atlantic Limited
Gibraltar
888 US Inc.
Delaware,
USA
Percentage
of equity
interest 2013
%
100
100
100
100
100
100
100
100
100
100
100
100
—
100
100
100
Percentage
of equity
interest 2012
% Nature of business
100 Holder of gaming licences in Gibraltar
and main trading company
100 Advertising services
100 Marketing acquisition
100 Customer call center operator
100 Research, development and marketing
support
100 Bingo business operator
100 B2B business operator (except Bingo)
100 Development of social games —
Mytopia.
100 Data hosting and development services
100 Holder of Italian online gaming licence
100 Holder of Spanish online gaming
licence
— Holder of Group IP assets
100 Holder of Group IP assets
100 Holder of Interactive Gaming Service
Provider and Manufacturer licence in
the state of Nevada
— Holder of Transactional Waiver pending
application for full licensing in the state
of New Jersey
100 Providing US—based services for US
operations
80
23124.04 10 April 2014 10:18 AM Proof 15
888 Holdings plc Annual Report & Accounts 2013 24 Share-based payment
The Company has 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 installments over a fixed period of up to four years subject to the relevant individuals remaining in
service. 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 pages 37 to 39.
Details of equity settled Shares and Share Options granted as part of the 888 All-Employee Share Plan are set out below:
Share options granted
Outstanding at the beginning of the year
Market value options lapsed during the year
Market value options exercised during the year
Outstanding at the end of the year1,2,3
31 December 2013
31 December 2012
Weighted
average
exercise
price
£ 1.41
£ 1.47
£ 1.21
Number
3,141,422
(112,399)
(468,423)
Weighted
average
exercise
price
£ 1.41
£ 1.41
—
Number
3,645,044
(503,622)
—
£ 1.44
2,560,600
£ 1.41
3,141,422
1 Of the total number of options outstanding at 31 December 2013, 2,560,600 had vested and were exercisable (2012: 2,923,109).
2 The range of exercise prices for options outstanding at 31 December 2013 is £1.02—£1.80 (2012: £1.02—£1.80).
3 The weighted average remaining contractual life at 31 December 2013 was 3.59 years (2012: 4.74 years).
Ordinary Shares granted (without performance conditions)
Outstanding at the beginning of the year
Shares granted during the year
Lapsed future vesting shares
Shares issued during the year
Outstanding at the end of the year
Averaged remaining life until vesting
Shares are granted at a nominal exercise price.
Ordinary shares granted (subject to performance conditions)
Outstanding at the beginning of the year
Shares granted during the year
Lapsed future vesting shares
Shares issued during the year
Outstanding at the end of the year
Averaged remaining life until vesting
31 December
2013
Number
2012
Number
2,654,091
5,192,919
405,843
—
(24,462)
(537,940)
(1,539,988)
(2,000,888)
1,495,484
2,654,091
0.89 years
1.23 Years
31 December
2013
Number
3,205,587
1,049,059
2012
Number
1,175,373
2,134,719
(17,629)
(104,505)
(287,529)
—
3,949,488
3,205,587
1.22 years
1.71 years
Of these grants, 50% of each are dependent on an EPS growth target, and 50% on total shareholder return (TSR)
compared to a peer group of companies. Further details of performance conditions that have to be satisfied on these
awards are set out in the Directors Remuneration Report on pages 37 to 39. The EPS growth target is taken into account
when determining the number of shares expected to vest, and the TSR target is taken into account when calculating the
fair value of the share grant.
23124.04 10 April 2014 10:18 AM Proof 15
81
Stock Code: 888www.888holdingsplc.comFinancials Notes to the Consolidated Financial Statements
24 Share-based payment (continued)
Valuation information — shares granted under TSR condition:
Shares granted during the year:
Share pricing model used
Determined fair value
Number of shares granted
Average risk-free interest rate
Average standard deviation
Average standard deviation of peer group
Valuation information — shares granted
Weighted average share price at grant date
Weighted average share price at issue of shares
31 December
2013
2012
Monte Carlo Monte Carlo
£1.14
£0.40
524,530
1,067,360
0.73%
53%
34%
1.22%
51%
37%
2013
2012
Without
performance
conditions
With
performance
conditions
Without
performance
conditions
With
performance
conditions
£1.54
£1.60
£1.63
£1.71
—
£0.72
£0.63
—
Ordinary shares granted for future vesting without TSR performance conditions 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, 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. These charges have no cash impact.
Cash-settled share-based payment
On 27 March 2012, the Company awarded its Chief Executive Officer a cash settled share-based award (“Phantom 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
Remaining life until vesting
Risk-free interest rate
Standard deviation
Year ended 31 December
2013
2012
Monte Carlo Monte Carlo
£1.73
£1.19
1.24 years
2.24 years
0.46%
43.10%
0.37%
50.31%
Cash settled share-based payment charge for the year amounts to US$2.2 million (2012: US$0.8 million) and the liability
recognised at 31 December 2013 amounts to US$3.1 million (2012: US$0.8 million).
82
23124.04 10 April 2014 10:18 AM Proof 15
888 Holdings plc Annual Report & Accounts 2013 24 Share-based payment (continued)
Share benefit charges
Equity settled
Equity settled charge for the year
Cash settled
Charges in respect of the phantom option awards
Total share benefit charges
Year ended 31 December
2013
US$ million
2012
US$ million
3.3
2.2
5.5
0.9
0.8
1.7
25 Related party transactions
The aggregate amounts payable to the Directors as well as their share-based charges are set out below:
Short term benefits
Post-employment benefits
Share benefit charges — equity settled
Share benefit charges — cash settled
Year ended 31 December
2013
US$ million
2012
US$ million
3.1
0.1
1.0
2.2
6.4
2.9
0.1
0.3
0.8
4.1
Further details on Directors’ remuneration are given in the Directors’ remuneration summary on pages 42 to 43.
During 2013 the Group charged the US Joint Venture for reimbursement of costs in the amount of US$5.2 million, out of
which the outstanding balance for 31 December 2013 is US$1.9 million.
26 Commitments
Lease commitments
Future minimum lease commitments under property operating leases at the year end are as follows:
Leases expiring within
One year
Two to five years
Year ended 31 December
2013
US$ million
2012
US$ million
4.0
8.3
12.3
3.3
9.2
12.5
The amount paid in the year was US$3.6 million (2012: US$3.5 million).
Lease commitments on the Group’s property are shown to the date of the first break clause.
27 Financial risk management
The Group is exposed through its operations to risks that arise from use of its financial instruments. Policies and
procedures for managing these risks are set by the Board following recommendations from the Chief Financial Officer. The
Board reviews the effectiveness of these procedures and, if required, approves specific policies and procedures in order to
mitigate these risks.
The main financial instruments used by the Group, on which financial risk arises, are as follows:
} Cash and cash equivalents;
} Restricted cash;
} Short term investments;
} Trade and other receivables;
} Trade and other payables;
} Liabilities to customers;
} Available for sale financial investments
23124.04 10 April 2014 10:18 AM Proof 15
83
Stock Code: 888www.888holdingsplc.comFinancials Notes to the Consolidated Financial Statements
27 Financial risk management (continued)
Detailed analysis of these financial instruments is as follows:
Financial assets
Trade receivables
Other receivables
Fair value of derivative financial instruments
Cash and cash equivalents
Restricted cash
Short term investment
Available for sale financial investments
31 December
2013
US$ million
2012
US$ million
20.9
6.2
—
111.2
4.6
3.9
0.2
147.0
20.1
3.2
3.3
78.1
3.4
3.5
0.2
111.8
In accordance with IAS 39, all financial assets are classified as loans and receivables except for available-for-sale assets
(2012: except for available-for-sale assets and US$3.3 million relating to forward currency contracts to hedge risks
associated with foreign exchange rates). Such derivative financial instruments are measured at fair value under IAS 39 and
comprise level 2 fair value measurement instruments.
Financial liabilities
Trade payables
Other payables and accrued expenses
Fair value of derivative financial instruments
Contingent and deferred consideration
Liabilities to customers
31 December
2013
US$ million
2012
US$ million
31.3
51.8
4.2
0.4
55.4
143.1
33.1
40.7
—
0.7
49.5
124.0
In accordance with IAS 39, all financial liabilities are held at amortised cost, except for US$0.4 million of contingent
consideration arising on acquisitions and US$4.2 million relating to the forward currency contracts to hedge risks
associated with foreign exchange transactions which are recognised at fair value. Such derivative financial instruments are
measured at fair value under IAS 39 and comprise level 2 fair value measurement instruments (2012: except for US$0.5
million of contingent consideration arising on acquisitions which are recognised at fair value).
At 31 December 2013 and 2012, 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 due primarily from 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.
84
23124.04 10 April 2014 10:18 AM Proof 15
888 Holdings plc Annual Report & Accounts 2013 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 and as a result gain high degree of
diversification.
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 (2012: 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 2013 was US$1.2 million (2012: US$1.1 million).
The Group’s in-house Fraud and Risk Management department carefully monitors deposits and withdrawals by following
prevention and verification procedures using internally developed bespoke systems integrated with commercially available
third party measures.
Cash and cash equivalents
The Group controls its cash position out of its Gibraltar headquarters. Subsidiaries in its other main locations maintain
minimum cash balances which are deemed required for their operations.
Cash settlement proceeds from PSPs, as described above, are paid into bank accounts controlled by the Treasury function.
The Group maintains its funds with highly reputable financial institutions and will not hold funds with financial institutions
with low credit rating.
The Group maintains its cash reserves in highly liquid deposits and regularly monitors rates in order to maximize yield.
Restricted cash
Restricted cash represents customers’ funds held for payment service provider transactions in respect of regulated markets.
Short term investments
Short term investments primarily relates to deposits held by banks for guarantees in respect of regulated markets licence.
The Group’s maximum exposure to credit risk by type of financial instrument is summarised below:
Trade receivables
Other receivables
Fair value of derivative financial instruments
Cash and cash equivalents
Restricted cash
Short term investment
Available for sale financial investments
31 December 2013
31 December 2012
Carrying
value
US$ million
Maximum
exposure
US$ million
Carrying
value
US$ million
Maximum
exposure
US$ million
20.9
6.2
—
111.2
4.6
3.9
0.2
20.9
6.2
—
111.2
4.6
3.9
0.2
147.0
147.0
20.1
3.2
3.3
78.1
3.4
3.5
0.2
111.8
20.1
3.2
3.3
78.1
3.4
3.5
0.2
111.8
Liquidity risk
Liquidity risk exists where the Group might 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.
23124.04 10 April 2014 10:18 AM Proof 15
85
Stock Code: 888www.888holdingsplc.comFinancials Notes to the Consolidated Financial Statements
27 Financial risk management (continued)
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
31 December 2013
Trade
payables
US$ million
Other
payables1
US$ million
Contingent
consideration
US$ million
Liabilities to
customers
US$ million
Total
US$ million
6.3
23.0
2.0
—
31.3
3.3
39.5
10.1
3.1
56.0
—
0.1
0.3
—
0.4
55.4
—
—
—
55.4
65.0
62.6
12.4
3.1
143.1
1 Includes other payables, accrued expenses, derivative financial liabilities and provisions, and excludes deferred income.
On demand
In 3 months
Between 3 months and 1 year
More than 1 year
31 December 2012
Trade
payables
US$ million
Other
payables1
US$ million
Contingent
consideration
US$ million
Liabilities to
customers
US$ million
Total
US$ million
6.9
24.8
1.4
—
33.1
2.1
33.3
4.5
0.8
40.7
—
0.3
0.4
—
0.7
49.5
—
—
—
58.5
58.4
6.3
0.8
49.5
124.0
1 Includes other payables, accrued expenses and provisions, and excludes deferred income.
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 and in interest bearing bank accounts. The
Group arranges for excess funds to be placed in these interest bearing accounts with its principal bankers 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$0.4 million.
Currency risk
The Group’s financial risk arising from exchange rate fluctuations is mainly attributed to:
} Mismatch between balance sheet liabilities to customers which is predominantly denominated in US$ 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 a 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 2013 the Group had entered into US Dollar/GB Pound and US Dollar/Euro forward
contracts totaling US$146 million regarding 2014 expected currency excess in GB Pound and Euro. The total fair value
of the forward contracts was US$4.2 million liability to be settled on a monthly basis throughout 2014. (During 2012 the
Group had entered into Israeli Shekel/US Dollar outstanding forward contracts totaling US$81 million regarding 2013
operational business costs 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$140 million regarding 2013 currency excess in GB Pound and Euro. The
total fair value of the forward contracts as at 31 December 2012 was US$ 3.3 million asset which had been settled during
the year 2013.)
86
23124.04 10 April 2014 10:18 AM Proof 15
888 Holdings plc Annual Report & Accounts 2013 27 Financial risk management (continued)
The tables below detail the net financial position by currency at 31 December 2013 and 2012:
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
GBP
US$ million
EUR
US$ million
ILS
US$ million
USD
US$ million
Other
US$ million
Total
US$ million
31 December 2013
16.5
—
9.0
—
—
25.5
(36.7)
(36.7)
(11.2)
7.4
4.6
7.3
2.9
—
22.2
(16.5)
(16.5)
5.7
15.9
—
0.4
1.0
—
17.3
(24.3)
(24.3)
(7.0)
68.9
—
5.7
—
0.2
74.8
(64.2)
(64.2)
10.6
2.5
—
4.7
—
—
7.2
(1.4)
(1.4)
5.8
111.2
4.6
27.1
3.9
0.2
147.0
(143.1)
(143.1)
3.9
GBP
US$ million
EUR
US$ million
ILS
US$ million
USD
US$ million
Other
US$ million
Total
US$ million
31 December 2012
16.9
—
9.9
—
—
26.8
(21.3)
(21.3)
5.5
7.3
3.4
6.0
2.7
—
19.4
(17.3)
(17.3)
2.1
7.4
—
4.9
0.8
—
13.1
(20.5)
(20.5)
(7.4)
44.9
—
3.6
—
0.2
48.7
(63.1)
(63.1)
(14.4)
1.6
—
2.2
—
—
3.8
(1.8)
(1.8)
2.0
78.1
3.4
26.6
3.5
0.2
111.8
(124.0)
(124.0)
(12.2)
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 2013
GBP
US$ million
EUR
US$ million
ILS
US$ million
1.0
(1.0)
(0.6)
0.6
0.7
(0.7)
Year ended 31 December 2012
GBP
US$ million
EUR
US$ million
ILS
US$ million
(0.6)
0.6
(0.2)
0.2
0.7
(0.7)
23124.04 10 April 2014 10:18 AM Proof 15
87
Stock Code: 888www.888holdingsplc.comFinancials Notes to the Consolidated Financial Statements
28 Fair value measurements
Materially, the Group’s financial instruments carried at fair value are in respect of derivative foreign exchange contracts.
The carrying value of derivative foreign exchange contracts was a liability of US$4.2m at 31 December 2013. (2012: an asset
of US$3.3m). These comprise level 2 fair value measurement instruments, valued using forward exchange rates that are
quoted in an active market.
Other financial instruments carried at fair value are not considered material. There were no changes in valuation techniques
or transfers between categories in the period.
The fair value of the following financial assets and liabilities approximate to their carrying amount:
} Trade and other receivables
} Other current financial assets
} Cash and cash equivalents
} Trade and other payables
} Customer deposits
The following table sets out the Group’s material liabilities that are measured and recognised at fair value at 31 December
2013:
As at 31 December 2013
Financial liabilities
Derivatives at fair value
Level 2
US$ million
4.2
29 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.
88
23124.04 10 April 2014 10:18 AM Proof 15
888 Holdings plc Annual Report & Accounts 2013 Company Balance Sheet
At 31 December 2013
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
Liabilities
Current liabilities
Trade and other payables
Non-current liabilities
Share benefit charges - cash settled
Total liabilities
Total equity and liabilities
31 December
Note
2013
US$ million
2012
US$ million
2
3
4
5
26.1
26.1
74.1
0.7
74.8
100.9
3.2
0.9
70.8
74.9
23.4
23.4
225.5
17.6
243.1
266.5
3.2
0.1
32.5
35.8
6
22.9
229.9
3.1
26.0
100.9
0.8
230.7
266.5
The financial statements on pages 89 to 93 were approved and authorised for issue by the Board of Directors on 25 March 2014
and were signed on its behalf by:
Brian Mattingley
Chief Executive Officer
Aviad Kobrine
Chief Financial Officer
The notes on pages 92 to 93 form part of these financial statements.
23124.04 10 April 2014 10:18 AM Proof 15
89
Stock Code: 888www.888holdingsplc.comFinancials Company Statement of Changes in Equity
For the year ended 31 December 2013
Balance at 1 January 2012
Dividend paid
Issue of shares
Share benefit charges
Total comprehensive income for the year
Balance at 1 January 2013
Dividend paid
Issue of shares
Share benefit charges
Total comprehensive income for the year
Balance at 31 December 2013
Share
capital
US$ million
Share
premium
US$ million
Retained
earnings
US$ million
Total
US$ million
3.2
—
—
—
—
3.2
—
—
—
—
3.2
0.1
—
—
—
—
0.1
—
0.8
—
—
0.9
(4.3)
(8.7)
—
0.9
44.6
32.5
(1.0)
(8.7)
—
0.9
44.6
35.8
(33.2)
(33.2)
—
3.3
68.2
70.8
0.8
3.3
68.2
74.9
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 92 to 93 form part of these financial statements.
90
23124.04 10 April 2014 10:18 AM Proof 15
888 Holdings plc Annual Report & Accounts 2013 Company Statement of Cash Flows
For the year ended 31 December 2013
Cash flows from operating activities:
Profit before income tax
Adjustments for:
Interest received
Share benefit charges
Increase in net amounts owed by subsidiaries
Decrease (increase) in other accounts receivables
(Decrease) increase in trade payables
Decrease in other accounts payables
Cash generated from operations
Tax paid
Net cash generated from operating activities
Cash flows from investing activities:
Interest received
Net cash generated from investing activities
Cash flows from financing activities:
Issue of shares
Dividends paid
Net cash used in financing activities
Net (decrease) increase in cash and cash equivalents
Cash and cash equivalents at the beginning of the year
Cash and cash equivalents at the end of the year
The notes on pages 92 to 93 form part of these financial statements.
Year ended 31 December
2013
US$ million
2012
US$ million
70.4
46.5
—
2.9
(53.7)
0.1
(1.5)
(0.4)
17.8
(2.3)
15.5
—
—
0.8
(33.2)
(32.4)
(16.9)
17.6
0.7
(0.1)
1.1
(35.9)
(0.3)
1.4
(1.9)
10.8
(1.0)
9.8
0.1
0.1
—
(8.7)
(8.7)
1.2
16.4
17.6
23124.04 10 April 2014 10:18 AM Proof 15
91
Stock Code: 888www.888holdingsplc.comFinancials 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
2013. 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 principal 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 payments’. 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$2.7 million in 2013 (2012: US$0.6 million).
3
Trade and other receivables
Amounts due from subsidiaries
Other receivables and prepayments
31 December
2013
US$ million
2012
US$ million
73.8
0.3
74.1
225.2
0.3
225.5
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
2013
US$ million
2012
US$ million
0.7
0.7
17.6
17.6
5
Share capital
The disclosures in note 29 to the consolidated financial statements are identical for the Company.
6
Trade and other payables
Trade payables
Amounts due to subsidiaries
Corporate tax
Other payables and accrued expenses
31 December
2013
US$ million
2012
US$ million
0.4
17.2
1.1
4.2
22.9
1.9
222.3
1.6
4.1
229.9
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.
92
23124.04 10 April 2014 10:18 AM Proof 15
888 Holdings plc Annual Report & Accounts 2013
Notes to the Company Financial Statements
7
8
9
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 29 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 was credited with dividends from its subsidiaries totaling US$86.1 million and paid to its
shareholders dividends totaling US$33.2 million (2012: US$8.7 million).
Share benefit charges in respect of options and shares of the Company awarded to employees of subsidiaries totalled
US$2.7 million (2012: US$0.6 million).
During the year subsidiaries of the Company participated in funding its costs which totalled US$12.5 million
(2012: US$11.2 million) At 31 December 2013, net amount owed by subsidiaries to the Company amounted to
US$56.6 million (2012: net amount owed by subsidiaries to the Company US$2.9 million).
The aggregate benefits paid to the Directors of the Company by its subsidiaries set out below:
Short term benefits
Year ended 31 December
2013
US$ million
2012
US$ million
0.2
0.2
11
Significant non cash transactions
During the year the company was a party to arrangements made by the group to rationalise the intercompany balances
within the group. Under these arrangements certain intercompany balances were novated to and from the company and
its subsidiaries, and certain intercompany balances were forgiven by subsidiary companies. As a result movements on
intercompany debtor and creditor balances of US$238 million and US$238 million respectively in the period did not arise
as a result of cash transfers and have therefore been excluded from the company cash flow.
23124.04 10 April 2014 10:18 AM Proof 15
93
Stock Code: 888www.888holdingsplc.comFinancials 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.
USA
888’s New Jersey Poker and Casino games are offered
through its US regulated website
} us.888poker.com
} us.888casino.com
} us.888.com
Sportsbook
888’s Sportsbook offering is through 888sport
} www.888sport.com
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
} www.bingofabulous.com
Spain
888’s Spain Poker and Casino games are offered through its
Spanish regulated website
Games
888’s Games offering is through 888games
} 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
} www.888casino.it
Casino
888’s Casino games are offered through its 888casino and live
casino
} www.888games.com
} www.888play.com
Mytopia Social Games
888’s social games are offered through Mytopia social games
websites:
} www.mytopia.com
} www.bingoisland.com
Responsible gaming
The Group’s dedicated site focusing on responsible gaming
} www.888responsible.com
} www.888casino.com
} www.Casino-on-Net.com
} www.ReefClubCasino.com
} www.eucitycasino.com
Poker
888’s Poker offering is through 888poker
} www.888poker.com
} www.PacificPoker.com
} www.LuckyacePoker.com
94
23124.04 10 April 2014 10:18 AM Proof 15
888 Holdings plc Annual Report & Accounts 2013 Shareholder Notes
23124.04 10 April 2014 10:18 AM Proof 15
95
Stock Code: 888www.888holdingsplc.comFinancials Shareholder Notes
96
23124.04 10 April 2014 10:18 AM Proof 15
888 Holdings plc Annual Report & Accounts 2013 Shareholder Services
All enquiries relating to Ordinary Shares, Depository
Interests, dividends and changes of address should be
directed to the Group’s Transfer Agent:
Capita Registrars
The Registry
34 Beckenham Road
Beckenham
Kent
BR3 4TU
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
Solicitors
Freshfields Bruckhaus Deringer
65 Fleet Street
London
EC4Y 1HS
UK
Hassans
57/63 Line Wall Road
Gibraltar
Company Secretary
Strait Secretaries Limited
57/63 Line Wall Road
Gibraltar
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
Stock Code: 888
23124.04 10 April 2014 10:18 AM Proof 15
www.888holdingsplc.com S
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888 Holdings plc
Suite 601/701 Europort
Europort Road
Gibraltar
T: +350 20049800
F: +350 20048280
E: Info@888holdingsplc.com
www.888holdingsplc.com
23124.04 10 April 2014 10:18 AM Proof 15