LEADING THE FUTURE
OF ONLINE GAMING
888 HOLDINGS PLC
ANNUAL REPORT & ACCOUNTS
2016
WELCOME TO
888: THE NAME
CUSTOMERS
CAN TRUST
888 is one of the world’s most popular online
gaming entertainment and solutions providers.
888’s mission is to supply customers with
market-leading online gaming entertainment,
above all in a safe and secure environment.
At the heart of 888’s business is its cutting-
edge proprietary gaming technology and
associated platforms which are operated
by highly sophisticated business analytics-
driven marketing and customer relationship
management. These strengths enable 888 to
deliver to customers and Business to Business
partners alike market-leading and continually
innovative online gaming entertainment
products and solutions.
888 is always mindful of the complex regulatory
environment in which it operates and the social
responsibility that comes hand-in-hand with the
online gaming industry. 888 continually invests
time and resources in caring for and protecting
its customers and, by successfully doing this,
888’s business will continue to grow and prosper.
OVERVIEW OF 888
Overarching 888 brand
888’s B2C offering
888’s B2B offering
This Annual Report may contain statements which are not based on current or historical fact and which are forward looking in nature. These forward looking statements
reflect knowledge and information available at the date of preparation of this Annual Report and 888 Holdings plc (the “Company”) and its subsidiaries (together, “888”,
or the “Group”) undertake no obligation to update these forward looking statements. Such forward looking statements are subject to known and unknown risks and
uncertainties facing 888 including, without limitation, those risks described in this Annual Report and other unknown future events and circumstances which can cause
results and developments to differ materially from those anticipated. Nothing in this Annual Report should be construed as a profit forecast.
888 HOLDINGS PLC ANNUAL REPORT & ACCOUNTS 2016
01
HIGHLIGHTS
Another successful year for 888
Revenue
US$ million
521
546
462
2015
2016
Actual
2016
Constant
currency
Revenue at
constant
currency1
up 18%
Actual
revenue
up 13%
Revenue – B2C
US$ million
460
399
480 Revenue
- B2C at
constant
currency1
up 20%
2015
2016
Actual
2016
Constant
currency
Actual
revenue -
B2C
up 15%
Revenue – B2C Casino
US$ million
Revenue – B2C Sport
US$ million
279
291
231
Revenue -
B2C Casino
at constant
currency1
up 26%
35
52
55
Revenue -
B2C Sport
at constant
currency1
up 58%
2015
2016
Actual
2016
Constant
currency
Actual
revenue -
B2C Casino
up 21%
2015
2016
Actual
2016
Constant
currency
Actual
revenue -
B2C Sport
up 49%
Adjusted EBITDA2
US$ million
90
81
100
EBITDA
US$ million
89
80
Adjusted
EBITDA at
constant
currency1 up
24%
59
2015
2016
2016
Constant
currency
Adjusted
EBITDA
up 12%
2015
2016
2016
Constant
currency
EBITDA at
constant
currency1
up 50%
EBITDA up
34%
Profit Before Tax
US$ million
First Time Depositors
(FTDs) %
59
up 82%
114
up 14%
100
33
2015
2016
2015
2016
1 As defined in footnote on page 16.
2 As defined in table set out on page 17.
STRATEGIC REPORT
Welcome .................................................................. IFC
Highlights ...................................................................01
At a Glance ...............................................................02
Where we Operate ................................................03
Online Gaming is a
Global Growth Market ......................................... 04
What Makes Us Different ....................................05
Chairman’s Statement ..........................................06
Chief Executive Officer’s
Strategic Report ....................................................08
888’s Business Model ............................................09
888’s Growth Strategy ..........................................14
2016 Business and Financial Review ................ 16
Market Review:
Growth in Regulated Markets ............................ 24
Risk Management Strategy ................................ 26
Regulation and General Regulatory
Developments ......................................................... 32
Viability Statement ................................................ 35
Corporate Responsibility..................................... 36
GOVERNANCE
Board of Directors ................................................ 40
Directors’ Report ....................................................42
Directors’ Statement
of Responsibilities ..................................................46
Corporate Governance
Statement..................................................................48
Directors’ Remuneration
Report .........................................................................54
Audit Committee Report .................................... 67
FINANCIAL STATEMENTS
Independent Auditors’ Report ........................... 71
Consolidated Income Statement ..................... 78
Consolidated Statement
of Comprehensive Income .................................. 78
Consolidated Balance Sheet .............................. 79
Consolidated Statement
of Changes in Equity ............................................80
Consolidated Statement of Cash Flows ......... 81
Notes to the Consolidated
Financial Statements ............................................ 82
Company Balance Sheet .....................................112
Company Statement
of Changes in Equity ............................................113
Company Statement of Cash Flows .............. 114
Notes to the Company
Financial Statements ............................................115
Shareholder Information .....................................117
Company Information ........................................ IBC
> For more information see our website:
corporate.888.com
STRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTS 0202 888 HOLDINGS PLC ANNUAL REPORT & ACCOUNTS 2016
AT A GLANCE
888 is one of the world’s most popular online gaming entertainment
and solutions providers. More than a million customers enjoy our
online gaming entertainment across more than 100 countries.
MISSION
ABOUT US
888’s mission is to exceed its customers’
expectations and provide the most
enjoyable online gaming experience
possible. 888 is mindful of the complex
regulatory environment in which it
operates and the social responsibility
that comes hand-in-hand with the
online gaming industry. 888 always
invests time and resources in caring for
and protecting its customers and, by
successfully doing this, 888’s business
will continue to grow and prosper.
888 has been at the forefront of the
online gaming industry since foundation
in 1997, providing to players and B2B
partners an always innovative and
world-class online gaming experience.
At the heart of 888’s business is its
proprietary gaming technology and
associated platforms, allowing 888 to
differentiate itself from and innovate
ahead of competitors.
IS AN…
ESTABLISHED AND
GROWING
In the growing and dynamic global
online gaming industry, 888 has a
proven track-record of consistent
growth and outperformance. Revenue
in 2016 increased by 13% and 18%
at constant currency*.
TECHNOLOGY-CENTRIC
At the heart of 888’s business is its
cutting-edge, proprietary online gaming
technology that underpins the Group’s
ability to deliver a first class gaming
experience across platforms
to customers.
INCREASINGLY
REGULATED AND
DIVERSIFIED
The Group has a portfolio of
strong, trusted Business to
Customer (“B2C”) brands and
a leading Business to Business
(“B2B”) business, Dragonfish. The
Group has established leading
positions in the Casino, Poker and
Bingo markets and is focused
on developing the fast-growing
888sport brand. The Group’s is
truly diversified with successful
operations under ten licences.
…GLOBAL INDUSTRY LEADER.
* Constant currency in this document as defined on page 16
888 HOLDINGS PLC ANNUAL REPORT & ACCOUNTS 2016 888 HOLDINGS PLC ANNUAL REPORT & ACCOUNTS 2016
03
WHERE WE OPERATE
888’s strong performance continued in the core UK market as well as in key
regulated markets in Spain and Italy. During 2016, 888 received a sports betting
licence in Ireland as well as casino, poker and sports betting licences in both
Denmark and Romania.
UK
SPAIN
ITALY
888 continued to deliver strong growth
in the core UK market with a revenue
increasing 16% year on year at constant
currency and 5% increase in reported
revenue, driven primarily by continued
momentum in Casino and Sport
supported by cost efficient marketing
and effective CRM.
In Spain 888 offers its Casino, Sport
and Poker offering across mobile and
desktop platforms. Spain is now 888’s
second largest market and revenue in
2016 continued to grow impressively
by 45%, further capitalising on the
introduction of slot games midway
through 2015 and its Sport offering.
In Italy, 888 offers Casino and, as of
Q1 2016, Sport on mobile and desktop
platforms. 888 continued to grow
with revenue rising 66% year on year.
This was driven by the launch of
888sport.it in Q1, supported by online
and offline marketing campaigns.
DENMARK
IRELAND
ROMANIA
In 2015, the Group obtained a Sport
betting licence in Ireland.
During 2015, 888 received casino, poker
and sports betting licences in Romania.
In Denmark, 888 offers Casino, Poker
and Sport products across mobile and
desktop platforms. 888 delivered a
solid performance following the Group’s
launch during 2015 and has quickly
built momentum in this exciting market
supported by effective online and offline
marketing activities.
USA
888 is the only operator in all three
regulated US states of Nevada, Delaware
and New Jersey. Trading in the US
has remained in line with the Board’s
expectations and the Group continues
to benefit from the successful launch of
the shared poker player liquidity across
Delaware and Nevada in early 2015.
STRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTS 0404 888 HOLDINGS PLC ANNUAL REPORT & ACCOUNTS 2016
ONLINE GAMING IS A GLOBAL
GROWTH MARKET
The global online gaming industry is fast-growing and dynamic,
supported by technological developments and government regulation.
The online gaming industry has
experienced rapid growth since its
inception during the mid-1990s and
continues to demonstrate strong
growth fundamentals. This is supported
by product innovation, customers’
ever greater access to high-speed
and reliable internet connections,
the popularity of smart mobile devices,
and government regulation.
With the growth of online gaming,
many governments have adopted
and are continuing to adopt specific
regulatory frameworks for the industry
and 888 remains focused on growing
in sustainable, regulated markets.
Whilst new regulation increases
duties and costs for operators, it
also creates opportunities for brands
with scale, proprietary technology
and a marketing edge to access new
customers in new markets and grow.
PRODUCT
2015 – 2021E GLOBAL ONLINE GAMBLING MARKET BY PRODUCT
CAGR
2015
2021
SPORTS BETTING
€17.4bn
€26.7bn
CASINO
€9.3bn
€14.0bn
POKER
€2.5bn
€2.5bn
BINGO
€1.6bn
€2.6bn
7.4%
7.1%
0.1%
8.9%
TOTAL GAMBLING*
€35.8bn
€55.5bn
7.6%
* Also includes skill games and lotteries.
Source: H2 Gambling Capital (2 March 2017).
2015 GLOBAL ONLINE
GAMBLING MARKET
2021 ESTIMATED GLOBAL
ONLINE GAMBLING MARKET
€35.8bn
With 30.1% from mobile
€55.5bn
With 45.8% estimated
to be from mobile
888 HOLDINGS PLC ANNUAL REPORT & ACCOUNTS 2016 888 HOLDINGS PLC ANNUAL REPORT & ACCOUNTS 2016
05
WHAT MAKES US DIFFERENT
At the heart of 888’s business is its proprietary gaming technology and highly
sophisticated marketing, customer relationship management and business
analytics. Together, these enable 888 to deliver to customers and B2B partners
alike market-leading and continually innovative online gaming entertainment
products and solutions.
888’S UNIQUE AREAS OF EXPERTISE
STAKEHOLDERS
1. Proprietary Gaming Technology
At the heart of 888’s business is its
cutting-edge, proprietary online
gaming technology that underpin the
Group’s ability to deliver a first class
gaming experience to customers across
platforms. Technology leadership and
continuous innovation are central
to 888’s progress, and the Group is
constantly evolving and developing
its proprietary platforms and industry-
leading back office systems to maintain
its competitive edge.
3. Highly sophisticated marketing
At the core of 888’s business philosophy
is an unwavering focus on return to
cost driven marketing. Building on the
business’ analytics-driven insights and
expertise, 888 continuously develops
innovative marketing techniques and
channels, both online and offline to
support its brands’ development and
increase customer loyalty.
2. Business analytics
888 employs an extensive team
of highly trained and experienced
business analytics and data-mining
professionals who have analysed and
learned from customer behaviour since
888’s foundation nearly two decades
ago. Teams across 888 from product
development to marketing to customer
support leverage this extensive and
constantly evolving data and, by
applying robust statistical models, are
able to drive 888’s success.
4. Customer Relationship
Management
Underpinned by sophisticated statistical
models, 888 has a unique understanding
of its customers. This understanding
helps enable 888 to deliver to customers
personalised communications across
relevant channels that increase loyalty
and activity. Underpinned by 888’s
analytical approach, the Group offers a
broad range of appealing bonuses that
are localised from country to country,
from product to product, and according
to a customer’s individual profile.
5. Customers
The customer is at the heart of
everything 888 does and the business is
fully committed to providing the most
enjoyable online entertainment possible.
888 is always mindful of the complex
regulatory environment in which it
operates and the social responsibility
that comes hand-in-hand with the online
gaming industry. The Group continuously
invests time and resources in caring for
and protecting its customers and, by
successfully doing this, 888’s business
will continue to grow and prosper.
6. B2B partners
Under its Dragonfish arm, the Group
offers gaming partners a comprehensive
end-to-end solution, encompassing
technology, operations and advanced
marketing tools, as well as online best
practices. Drawing on two decades
of 888’s track record and reputation
in online gaming, the Dragonfish
team is uniquely placed to support its
partners and deliver a cutting-edge
online proposition.
STRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTS 06
STRONG GROWTH ACROSS
A DIVERSIFIED BUSINESS
888’s success in 2016 was characterised
by continued investment in our technology
leadership; successful further expansion
in regulated markets; and standout
performances in Casino and Sport.
BRIAN MATTINGLEY
Chairman
Our values place the community
and the customer at the centre
of all our endeavours.
> See page 36
RESPONSIBLE
GAMING
PROTECTING
CUSTOMERS
PROTECTING THE
VULNERABLE
CHAIRMAN’S STATEMENT
I am delighted to update our stakeholders
on what has been another outstanding
year for 888. Our strong financial results
for the year have been underpinned by
significant progress against our strategic
objectives. As you will read in more detail
throughout this year’s Annual Report,
888’s success in 2016 was characterised
by continued investment in our technology
leadership; successful further expansion
in regulated markets; and standout
performances in Casino and Sport.
RESULTS
2016 was another very busy year at
888 and, testament to the skill and
entrepreneurial spirit of our exceptional
team, our operational performance was
stronger than ever. This resulted in the
Group delivering revenue growth of 13%
to US$520.8 million (2015: US$462.1
million) despite significant adverse
currency movements impacting our
reported results. At constant currency
revenue increased impressively by 18%
to US$546.4 million.
devices, which expanded to represent
60% of B2C revenue in the UK (2015:
47%). As a result, total B2C revenue was
US$460.2 million, representing a 15% uplift
on the prior year (2015: US$399.4 million)
or a 20% increase at constant currency to
US$479.9 million.
Adjusted EBITDA increased by 12% to
US$90.2 million (2015: US$80.6 million)
which represented 24% growth at
constant currency to US$100 million
and profit before tax was 82% higher at
US$59.2 million (2015: US$32.5 million).
The Group remains highly cash generative
with net cash generated from operating
activities of US$68.1 million (2015:
US$85.0 million).
Given the continuing strong financial
performance of the Group and the Board’s
confidence in the outlook, the Board of
Directors is recommending a final dividend
of 5.1¢ per share in accordance with 888’s
dividend policy, plus an additional one-
off 10.5¢ per share bringing the total for
the year to 19.4¢ per share (2015: 15.5¢
per share).
Our core B2C business continued to grow,
with a 5% increase in active customers,
driven primarily by outstanding results
in Casino and Sport, growth in regulated
markets and by our offer on mobile
STRATEGIC PROGRESS
The Board believes that 888’s proprietary
online gaming technology is second to
none. This strength, coupled with the
Group’s business analytics, customer
relationship management and marketing
expertise, continues to provide the
foundation for 888’s competitive
advantages. In such a dynamic and rapidly
developing industry, continually investing
in and developing our own world class
technology means that we are able to
be nimble in relation to opportunities,
respond to regulatory developments
and create new, engaging and — above
all — safe and secure entertainment for
our customers.
In 2016 we delivered further successful
expansion across regulated markets
where we are able to leverage the Group’s
full marketing expertise to develop the
888 brands. We continued to make
outstanding progress in the UK; Spain,
which is now our second largest market;
Italy, where we are benefitting from the
introduction of Sport in the first quarter
of the year; and Denmark, where we
successfully launched in the second
half of 2015 with a full suite of products
and brands. Revenue from regulated
markets increased to represent 61% of
Group revenue (2015: 59%), significantly
outpacing growth from unregulated
“dot.com” markets.
888 HOLDINGS PLC ANNUAL REPORT & ACCOUNTS 2016 888 HOLDINGS PLC ANNUAL REPORT & ACCOUNTS 2016
07
07
I
S
T
R
A
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G
C
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P
O
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T
The Board had previously identified
sports betting as a major opportunity
for the Group. In 2016, a major focus was
on driving growth in Sport, which we are
for the first time in our Annual Results
reporting as a standalone product vertical.
During the year we significantly increased
investment behind marketing the 888sport
brand and enjoyed a very successful
European Football Championships in the
summer, which demonstrated our ability to
effectively compete during major sporting
events. As a result, Sport customers
increased by 49% and revenue increased
by 49% to US$51.9 million (2015:
US$34.8 million). In 2017, the Group will
continue to invest behind delivering the
exciting further opportunities for Sport
both in terms of revenue growth and
efficient customer acquisition.
888’s success in Sport is just
one example of the Group’s
ability to identify new
growth opportunities and
successfully deliver them.
In addition to our organic growth plans,
M&A remains a part of the Group’s
strategic agenda and, with 888 in great
health, it is an area that we are able to
evaluate from a position of strength. 888
has significant organic growth potential
and — where M&A might complement this
— we will continue to evaluate and explore
appropriate opportunities.
888’S WINNING TEAM
On behalf of the Board, I would like to
take this opportunity to thank each and
every one of my colleagues at 888 for
their commitment during the year.
2016 was a very busy year for the Group
and the success we have been able to
deliver under 10 licences across regulated
markets, four major product verticals
and both B2C and B2B divisions speaks
volumes for the strength in depth of our
people throughout 888. I am confident
that their skill and dedication will ensure
888 remains at the forefront of the online
gaming industry for years to come.
I would also like to thank Amos Pickel,
who has served on the 888 Board as a
Non-executive Director and as a Chairman
and member of Board Committees since
2006, and who does not intend to offer
himself for re-election at the 2017 Annual
General Meeting. Amos has brought a
wealth of experience and knowledge to
the Board, and we wish him well in his
future endeavours.
The Board is fully committed to complying
with the principles of the UK Corporate
Governance Code. You can find the
required regulatory and governance
disclosures throughout this report and in
the compliance statement on page 48.
OUTLOOK
The global online gaming market is
dynamic and will continue to grow driven
by technology developments, the opening
up of new marketing channels and
further regulation.
888 operates in a highly regulated
industry across multiple geographies
and the Group’s investment will remain
focused on driving growth in markets
where there are sustainable regulatory
frameworks for online gaming. Regulated
markets are the future of our industry
and 888 has an enviable track record
in adapting to and capitalising on
new regulatory developments.
In the UK, in August 2017 changes in
remote gaming duty will expand the tax
base to include customer bonuses and
this will have an impact on the competitive
dynamics and profitability of operators.
However, with our own gaming platforms
and significant experience of adapting to
new regulatory environments, 888 remains
well positioned to mitigate in part the
impact of and capitalise on opportunities
presented by these changes.
The Group continues to monitor and
plan for potential implications from the
UK’s decision to leave the European
Union. However, we do not anticipate
significant impact on our operations. Since
the ”Brexit” vote Sterling has devalued
compared to the US$ and, as the Group
has adopted the US$ as its reporting
currency, our reported financials have
consequently been impacted.
Trading during the financial year to
date has been in line with the Board’s
expectations with average daily
revenue more than 11% above the
previous year at constant currency.
888 is an increasingly diversified operator
with the majority of its income now
generated from regulated markets.
The Group has significant further
growth opportunities across its existing
geographies, platforms and product
verticals and will continue to evaluate and
explore new avenues for growth. Into 2017
and beyond 888’s focus will remain as
resolute as ever on delivering a truly
satisfying experience for our customers,
thereby delivering strong, sustainable long
term earnings growth for our shareholders.
BRIAN MATTINGLEY
Chairman
21 March 2017
STRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTS888 HOLDINGS PLC ANNUAL REPORT & ACCOUNTS 2016
08
CHIEF EXECUTIVE OFFICER’S STRATEGIC REPORT
888 today is a truly diversified operator across
markets and product verticals with a unique
technology platform and an outstanding team
and culture at its core.
ITAI FRIEBERGER
Chief Executive Officer
During 2016, 888 again made strong
progress against its stated strategy.
We have continued to deliver
outstanding organic growth and expand
our brands across the regulated markets
we operate in. 888 today is a truly
diversified operator across markets
and product verticals with a unique
technology platform and an outstanding
team and culture at its core. With these
qualities we continue to see a number of
clear growth opportunities for the Group
both in existing and new markets.
888 employs an extensive team
of highly trained and experienced
business analytics and data-mining
professionals who have analysed and
learned from customer behaviour since
888’s foundation nearly two decades
ago. Teams across 888 from product
development to marketing to customer
support leverage this extensive and
constantly evolving data and, by applying
robust statistical models, are able to
successfully influence the following
three key drivers of 888’s success:
♦ increasing the number of new players
(first time depositors or “FTDs”)
across 888’s brands;
♦ reducing the cost per acquisition
(“CPA”) of those new players to 888;
and
♦ maximising the life time value (“LTV”)
(measured as average forecasted
revenue over a customer’s entire life
cycle) to 888 of each customer.
This is supported by 888’s strong, trusted
and award-winning brands that remain
crucial in the competitive global online
gaming market. The Group’s consistent
and engaging customer offer, focused
customer support and heritage in online
gaming have meant that 888’s brands are
888’S ‘DNA’
888’s mission is to supply its customers
with innovative and market-leading
online gaming entertainment, above
all in a safe and secure environment.
The Group’s competitive advantages
to achieve this are built on world
class proprietary gaming technology;
leading-edge Customer Relationship
Management (“CRM”) based on business
analytics expertise; strong brands and
innovative marketing.
Technology leadership and continuous
innovation are central to 888’s progress,
and the Group is constantly evolving
and developing its proprietary platforms
and industry-leading back office
systems to maintain its competitive
edge. This is supported by a strong
corporate culture which encourages
our skilled end entrepreneurial team
to develop innovative ideas and test
them. Whilst a significant number of
our myriad ideas and projects may
never reach the market, they are part
of a process and mindset of continually
striving to develop our edge and lead
the industry.
amongst the most trusted and recognised
in the online industry. The Group’s resolute
focus on product development, customer
service and marketing continue to
support the sustained strength and appeal
of 888’s brands.
As a business we never lose sight of
our duty as a responsible operator and
888 acknowledges there is a potential
danger that its games may pose for
a small minority of people. We take
comprehensive steps to minimise fraud,
problem gaming and eliminate minors
from using our services. Through rigorous
and timely customer checks as well as
ongoing real-time tracking of customer
activity, 888 continually monitors for
irregular activity that may be an indication
of compulsive gaming or fraud. 888’s
fraud and prevention and customer
service teams are highly trained and have
developed efficient and proactive methods
to identify issues and notify and protect
our customers. Further details on 888’s
robust Information Technology systems
are given in the Risk Management Strategy
report on page 26. We pride ourselves on
the strength of our customer relationships
and first class customer support is offered
through telephone, email and online chat
functions to customers around the world
in nine different languages.
888 HOLDINGS PLC ANNUAL REPORT & ACCOUNTS 2016 09
888’S BUSINESS MODEL
888 Holdings is structured into two lines of business: B2C, under the 888 brands,
and B2B, conducted through Dragonfish.
e value
I
n
c
r
e
a
s
i
n
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F
i
r
s
t
T
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MISSION
To exceed
customer
expectations
D
e
p
o
s
i
t
o
r
s
Key Drivers
aximising player life-tim
M
Reducing the cost per player acquisition
Proprietary gaming
technology
+
Leading-edge business
analytics expertise
Underpinning 888’s ability to deliver these key drivers are 888’s proprietary
gaming technology and leading-edge business analytics expertise.
Influencing factors include, but are not limited to, the following:
INFLUENCING FACTORS
1. Maintaining our
strong and trusted
brand
A strong brand is a key
advantage in what is
a competitive global
online gaming market.
888’s consistently
innovative and
engaging brand is
amongst the most
trusted and recognised
in the industry.
6. Cross-selling
888 is able to leverage
the strength of the
brands and customer
proposition in each of
its four major product
verticals and, by using
proven predictive
modelling, cross-sell
gaming entertainment
to customers.
2. Innovative, driven
marketing
888 is resolutely
focused on devising
and delivering return
on investment driven
marketing campaigns.
3. Product innovation
and leadership
The ability to
successfully develop
“in-house” proprietary
and innovative games
on mobile and desktop
platforms help to
differentiate 888 from
competitors.
4. A seamless
customer experience
888 delivers its
gaming entertainment
products seamlessly
and responsively across
mobile and desktop
platforms.
7. Excellent customer
support
First class customer
support is offered
through telephone,
email and online
chat functions to
customers around the
world in nine different
languages.
8. Customer
protection
888 takes its duty as a
responsible operator
very seriously and
takes comprehensive
steps to minimise fraud,
problem gaming and
eliminate minors from
using its services.
9. Payment
processing
888’s leading
proprietary payment
supports more than 35
payment methods in
18 languages, both for
desktop and on mobile/
tablet devices.
5. Customer
relationship
management
leadership
Underpinned by
sophisticated
statistical models,
888 has a unique
understanding of its
customers, enabling
888 to deliver to
customers personalised
communications across
relevant channels.
10. Dedicated VIP
support
Across 888’s B2C
brands there is
dedicated VIP Support.
The role of the VIP
Support teams is to
provide first class
support to “high roller”
players and increase
their loyalty to 888.
STRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTS888 HOLDINGS PLC ANNUAL REPORT & ACCOUNTS 2016
10
10
888’S BUSINESS MODEL
continued
B2C — ONLINE BUSINESS CYCLE
6. Gaming
revenue
1. Marketing
5. Activity
RETURN TO
COST DRIVEN
2. Acquisition
4. CRM
3. Deposits
ONLINE BUSINESS CYCLE FACTORS
1. Marketing
At the core of 888’s business philosophy
is an unwavering focus on return to cost
driven marketing. The business continually
develops innovative marketing techniques
and channels, both online (including
online advertising, affiliate programmes,
search engine optimisation) and offline
(including TV and print media advertising,
sponsorships) to support its brands and
increase customer loyalty. The returns
to cost of all marketing campaigns are
rigorously tested against 888’s strict
criteria before being extended to their
target markets. This ensures that 888’s
marketing spend is both cost efficient
and highly effective.
2. Acquisition
Effective marketing helps to attract
increased customers to 888’s brands in the
most cost effective manner. Strong levels
of customer acquisition, measured by
increases in first time depositors (“FTDs”),
is the fuel for 888’s ongoing growth.
3. Deposits
Customers need to be able to enjoy
a seamless, enjoyable journey from the
moment they visit our websites through
to depositing into their accounts and
enjoying our games.
888’s leading proprietary payment
processing capabilities support a wide
variety of languages and currencies with
more than 35 payment methods. 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. 888’s payment
options include a cashier interface
available in 18 languages, both for desktop
and on mobile/tablet devices, with the
most relevant payment methods identified
and emphasised for different customers
according to their market.
4. Customer Relationship Management
Once we have acquired a customer,
we want to keep them enjoying their
experience with 888 for the longest
time possible.
Underpinned by sophisticated statistical
models, the Group is able to effectively
predict the life-time value of a new
customer within a short period of time
of them joining 888. This helps enable
888 to deliver to customers personalised
communications across relevant
channels that increase loyalty and
activity. Underpinned by 888’s analytical
approach, the Group offers a broad range
of appealing bonuses that are localised
from country to country, from product to
product, and according to a customer’s
individual profile. Furthermore, 888 is able
to apply these skills to accurately identify
potential “churning” players according
to certain characteristics, interact with
those players accordingly, and retain
them for longer.
5. Activity
Ensuring that we continually offer a
high quality product across our brands
helps to increase customer activity and,
consequently, life-time value with 888.
888’s ability to successfully develop new
proprietary games and functionality on
mobile and desktop platforms helps to
differentiate the 888 experience in the
eyes of the customer. 888 combines
exclusive and high-quality “in house”
created content with third-party
games and branded content to ensure
that we always offer the freshest and
most enjoyable customer proposition.
888’s products are seamlessly available
and responsive across mobile and
desktop platforms and the flexibility and
consistent experience across devices
means that customers are able to
enjoy unrivalled gaming entertainment
however and wherever they choose.
With 888’s strengths in four major
online gaming verticals – Casino, Poker,
Sport and Bingo – through the use of
analytics and proven predictive modelling,
888 is able to enhance customer activity
and life-time value by promoting each
relevant product to existing customers
in a targeted and attractive way.
6. Gaming revenue
By generating upward trends in customer
LTV, our marketing teams are able
to increase investment in campaigns
to acquire more new customers and
still ensure that the business meets
its strict return to cost criteria.
888 HOLDINGS PLC ANNUAL REPORT & ACCOUNTS 2016 OUR B2C BRANDS
PRODUCT
OUR OFFER
HOW WE GENERATE REVENUE
CASINO
888casino is one of the most recognised and longest
standing online casino brands in the market, and the
winner of numerous prestigious awards.
888casino is known for its generous jackpot prizes and
aims to provide the most enjoyable online experience
available by combining exclusive in-house developed
games alongside branded video slots and “live” Casino
games, which offer high-quality video streamed casino
games with a range of professional dealers.
Online casinos replicate the real-life casino experience
with players playing against “the house” across online
versions of classic casino table games such as roulette
and blackjack as well as slot and video games. In these
games, the house has a statistical advantage or “edge”.
Casino gaming revenue is represented by the difference
between the amounts of bets placed by customers less
amounts won.
POKER
888poker is a multi-award winning poker destination,
offering a first-class poker environment that enables
players of all abilities to enjoy the games of their choice
alongside a variety of innovative features. Formats and
features include BLAST (combining gaming with poker,
allowing players to compete for a randomly drawn
prize pool of up to 10,000 times the player’s “buy in” in
a time-limited game), PokerCam (enabling players to
enjoy secure poker games that are available in real time
via 888’s streaming webcam technology), 3D Poker,
and TeamsPoker tournaments.
888poker offers Texas Hold’em, Omaha Hi’Lo, 7 Card
Stud, Razz and other poker variations in Pot Limit,
Fixed Limit and No Limit formats.
In online poker the operator acts as the virtual host
for the game and provides a platform that enables
customers to play various forms of poker against
each other.
Poker revenue represents the commission (or “rake”)
charged from each poker hand in ring games, and
entry fees for participation in Poker tournaments.
BINGO
888’s leading bingo brands each have engaging
themes, a variety of games and a strong sense of
community, replicating the experience of traditional
bingo halls. The Group’s bingo brands also benefit
from a range of 888 and third party developed slot
games, casino games and scratch cards that are offered
alongside traditional bingo formats.
As with traditional bingo halls, online bingo rooms offer
customers the chance of winning prizes by purchasing
tickets and playing their bingo format of choice.
Bingo online gaming revenue is represented by the
difference between the amounts of bets placed by
customers less amounts won.
888’s portfolio of brands includes 888 Ladies,
Wink Bingo, Posh Bingo and others.
888sport is a fast-growing sports betting destination.
At the heart of the 888sport offer is genuine passion
for sport, with thousands of live and pre-event betting
markets on offer across hundreds of events, from the
obvious to the obscure.
SPORT
Sportsbook online gaming revenue comprises bets
placed less pay-outs to customers.
888 pays a share of net gaming revenue to its
third-party sports betting platform provider.
11
11
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P
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M
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N
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S
STRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTS888 HOLDINGS PLC ANNUAL REPORT & ACCOUNTS 2016
12
888’S BUSINESS MODEL
continued
B2B — DRAGONFISH, THE PARTNER OF CHOICE
Under its Dragonfish arm, the Group offers gaming
partners a comprehensive end-to-end solution,
encompassing technology, operations and advanced
marketing tools, as well as online best practices.
Drawing on two decades of 888’s track record
and reputation in online gaming, the Dragonfish
team is uniquely placed to support its partners
and deliver a cutting-edge online proposition.
Dragonfish’s flexible platform and tools have been
developed and certified to meet the rigorous regulatory
requirements of the different jurisdictions in which its
partner operate.
888’s B2B business model is based on an agreed share
of the revenue generated by its gaming partners.
The division is one of the world’s largest providers
and operators of bingo software. In addition, through
its CasinoFlex platform, Dragonfish offers its partners
a wide range of more than 600 Casino games
releases, including video slots, progressive jackpots,
Live Dealer, video poker, table games and branded
titles. Dragonfish/888 is also the only provider of poker
and casino solutions across all three regulated US states
– New Jersey, Nevada and Delaware. Dragonfish has
powered some of the most prominent gaming brands
in this space, such as Foxy Bingo, World Series Of
Poker (WSOP), Moon Games and Costa Bingo.
MARKETING
Dragonfish works and
supports its partners,
ever improving marketing
effectiveness and value
maximisation. 3600 multi-
channel marketing includes
a full suite of CRM services.
Through utilisation of our
cutting-edge back office tools,
our CRM teams drive partners
forward through increased
conversion, retention and
customer life-time value.
TECHNOLOGY
The Dragonfish technology
and product stack was
developed and built over
20 years through its parent
888’s online track record.
Its Casino, Poker and Bingo
products have encompassed
both in-house and third-party
content, while its proprietary
back office has been driving
growth in the business
using industry-leading
CRM and analytical tools
and capabilities.
OPERATIONS
Dragonfish’s turn-key solution
offers 24/7 support, risk and
fraud management from
various global sites, utilising
multiple communication
channels that serve as the
back bone to its award
winning proposition,
leveraging 20 years of online
operational excellence.
RESPONSIBLE GAMING
We believe our primary
responsibility is to provide
the best online gaming
entertainment for our
partners. However, we also
acknowledge the potential
danger that gaming may pose
for a small minority of people.
Therefore, we strive and are
committed for excellence in
our responsible gaming policy
and ethical conduct.
888 HOLDINGS PLC ANNUAL REPORT & ACCOUNTS 2016 888 HOLDINGS PLC ANNUAL REPORT & ACCOUNTS 2016
13
13
CREATING VALUE FOR OUR STAKEHOLDERS
B2C
B2B
Customer
wins
Customer
Interaction
Customer
loses
Customer
recycles
winnings
Customer
keeps
winnings
Agreed share
of net revenue
Contribution to
Group revenue
Branded
Partners
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P
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N
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F
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M
E
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S
STRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTS888 HOLDINGS PLC ANNUAL REPORT & ACCOUNTS 2016
14 888 HOLDINGS PLC ANNUAL REPORT & ACCOUNTS 2016
14
888’S GROWTH STRATEGY
888 has a strategy for sustainable growth and to deliver long-term value
for all stakeholders by exploiting organic potential as well as evaluating
attractive M&A opportunities.
KEY PILLARS
THE KEY PILLARS OF 888’S GROWTH STRATEGY REMAIN:
DEVELOPMENT
OF CORE B2C
BRANDS
888’s B2C offering remains at the core
of the Group and is the foundation
of our success. We remain resolutely
focused on continuing to develop our
proposition to ensure that we offer
customers the best possible online
gaming entertainment.
888 has established leading brands in
Casino, Poker and Bingo as well as the
fast-growing and rapidly developing
888sport.
ENHANCING
EFFICIENCIES
Management remain steadfastly
focused on maximising operational
efficiencies, including by constantly
developing and refining marketing
approaches and driving increased
volumes.
EXPANSION IN
REGULATED
MARKETS
888’s focus is on driving growth in
markets where there are sustainable
regulatory frameworks for online
gaming and where we are able to
exploit marketing opportunities for
our brands.
888 has a proven track-record
in successfully and efficiently
launching and growing in
attractive regulated markets.
B2B PARTNER
OF CHOICE
THROUGH
DRAGONFISH
We will continue to invest in and
develop our B2B offer to establish
Dragonfish as the partner of
choice in both regulated and
newly regulating markets.
CONTINUE TO
PROTECT OUR
CUSTOMERS
AND ACT
RESPONSIBLY
At 888, it’s all about having fun and
we are focused on ensuring it always
remains that way for our customers.
The Group is constantly mindful
of its social responsibilities, which
includes protecting our customers
and ensuring they enjoy a truly
satisfying experience.
888 continues to invest resources in
caring for our customers, protecting
the vulnerable, and ensuring that
we continue to entertain and delight
those who choose to play with 888.
888 HOLDINGS PLC ANNUAL REPORT & ACCOUNTS 2016 888 HOLDINGS PLC ANNUAL REPORT & ACCOUNTS 2016
15
15
2016 PERFORMANCE HIGHLIGHTS:
♦ B2C revenue growth of 15%
(20% at constant currency)
♦ New Casino brand, 777.com launched
at the end of 2015 performing well
♦ Growth drivers continue to be
Casino and Sport, capitalising on
our focused investments:
♦ Casino – 27% increase in active players
and 23% increase first time depositors
♦ Sport – 49% increase in active
players and 52% increase in first time
depositors
♦ Casino revenue up 21% (26% at constant
currency) aided by further product
development, regulated market growth
and outstanding CRM
♦ Outstanding Sport revenue growth
up 49% (58% at constant currency)
supported by increased marketing
investment, strong Euro 2016
performance and enhanced offering
♦ 888poker remains a credible alternative
for Poker players and showed
superiority in relative trend
♦ Poker first time depositors up 6%
demonstrating the product’s continued
importance as a source of players
acquisition, retention and cross-selling
into Casino and Sport
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C
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P
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T
♦ Successful introduction of fast
featured “Poker BLAST” in the
middle of the year and record
breaking tournaments during
the year fortifying our position
as the go-to destination for
recreational players
♦ Bingo increased 7% at constant
currency, with high potential
for CasinoFlex. Reported Bingo
revenue decreased 5% impacted
by GBP devaluation
♦ Bingo active players up 8%
♦ Mobile continues to drive growth
across verticals and in the UK
increased to represent 60% of UK
B2C revenue (2015: 47%) with an
all-time record of 66% of revenues
in the second half of 2016
♦ Continued operational gearing enables
the Group to invest more into growth
generating activities with the overall
cost to revenue ratio stable at 83%
despite an increase in the marketing
ratio to 32.7% (2015: 30.1%) and gaming
duties rising to 11.6% (2015: 10.8%)
♦ Revenue from regulated markets
increased to represent 61% (2015:
59%) of Group revenue (63% at
constant currency)
♦ Strong performance in core UK market
driven primarily by continued Casino
and Sport growth, offset by adverse
currency movements. Underlying UK
revenue increase during 2016 was
16% at constant currency and 5%
on reported revenue
♦ Continued progress in Italy supported
by launch of Sport in Q1 2016 driving
a 66% increase in revenue
♦ Impressive 45% growth in Spain
following launch of 888sport.es in H2
2014 and slot games during 2015 to
become second largest market for
the Group
♦ Progress in Denmark where the Group
launched its Casino, Poker and Sport
brands in H2 2015 as well as in 888’s
newest regulated territory – Romania
♦ B2B Revenue up 6% at constant
currency and decreased 3% on
reported revenue
♦ CasinoFlex platform already supports
26 brands with significant further
growth potential
♦ 23 new skins added to the Dragonfish
Bingo network
♦ Continued review and optimisation of
responsible gaming tools such as self-
limits, take a break and self-exclusion
♦ Continued investment in staff
training and procedures to identify
instances of problem gambling and
fraudulent behaviour
♦ Close partnership with major helping
agencies and support centres
♦ Continued to monitor environmental
performance and identify
opportunities for energy consumption
and waste reduction
ITAI FRIEBERGER
Chief Executive Officer
21 March 2017
STRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTS888 HOLDINGS PLC ANNUAL REPORT & ACCOUNTS 2016
16
2016 BUSINESS AND FINANCIAL REVIEW
The Group’s strong financial performance in 2016 is
once again a reflection of 888’s continued success in
attracting new customers, retaining them and increasing
their overall spend.
AVIAD KOBRINE
Chief Financial Officer
INTRODUCTION
888’s success is built on its technological strength in combination with the efficient
utilisation of this technology, directed by extensive data analytics. The goals of
888’s business are simple: to maximise customer recruitment, increase customer
life-time value and minimise the cost per customer acquisition, thereby optimising
return on marketing investment. The Group’s strong financial performance in 2016
is once again a reflection of 888’s continued success in attracting new customers,
retaining them and increasing their overall spend.
FINANCIAL SUMMARY
Revenue – B2C
Casino
Poker
Sport3
Bingo
Emerging Offerings3
Total B2C
B2B3
Revenue
Operating expenses4
Gaming duties5
Research and development expenses
Selling and marketing expenses
Administrative expenses6
Adjusted EBITDA4,5,6
Depreciation and amortisation
Share benefit charges, finance and other
Exceptional acquisition costs
Exceptional retroactive duties and associated charges
Profit before tax
Basic earnings per share
20161
US$ million
20151,3
US$ million
Change
Constant
currency2
Change
Reported
279.3
84.4
51.9
41.8
2.8
460.2
60.6
520.8
(136.1)
(60.5)
(34.3)
(170.2)
(29.5)
90.2
(19.0)
(8.1)
(0.9)
(3.0)
59.2
14.4¢
230.6
86.7
34.8
44.0
3.3
399.4
62.7
462.1
(127.4)
(50.0)
(36.8)
(138.9)
(28.4)
80.6
(18.6)
(6.5)
(14.6)
(8.4)
32.5
8.3¢
26%
(3%)
58%
7%
(14%)
20%
6%
18%
21%
(3%)
49%
(5%)
(15%)
15%
(3%)
13%
24%
12%
82%
74%
1 Totals may not sum due to rounding.
2 Constant currency: 888 reports its financial results in US$ but (i) generates certain revenue streams from
customers using other currencies and (ii) incurs costs in various currencies. Due to the strong US$ in 2016,
reported revenue and profit were adversely impacted. Constant currency has been calculated as follows: (i)
Revenue: with the exception of Poker, by applying 2015 exchange rates to revenue generated during 2016.
Poker revenue was also adversely impacted given that many Poker customers fund their US$ bankroll using
other currencies, which suffered reduced purchasing power compared to the US$. It is difficult to quantify
reliably this indirect impact (other than a small adjustment which was made to Poker revenue generated in
Euro) (ii) Costs were retranslated by applying 2015 exchange rates.
3 Sport, which was previously included in the Emerging Offerings segment, is presented as a standalone
segment. Brand licensing on third-party platforms, which was previously included in the Emerging Offerings
segment, is now included in the B2B segment. 2015 revenue figures have been re-classified to allow a like for
like comparison. These changes are described in note 2 to the financial statements.
4 Excluding depreciation of US$8.4 million (2015: US$8.9 million) and amortisation of US$10.6 million (2015:
US$9.7 million).
5 Excluding exceptional retroactive duties and associated charges of US$3.0 million in respect of gaming taxes
relating to activity in prior years (2015: US$8.4 million).
6 Excluding share benefit charges of US$6.7 million (2015: US$4.1 million).
888 HOLDINGS PLC ANNUAL REPORT & ACCOUNTS 2016
17
RECONCILIATION OF PROFIT BEFORE TAX TO EBITDA
AND ADJUSTED EBITDA
Profit before tax
Finance expense
Exceptional finance expenses
Depreciation
Amortisation
EBITDA
Exceptional legal and professional costs
Exceptional reimbursement of acquisition costs
Exceptional retroactive duties and associated charges
Share benefit charges
Share of post-tax loss from equity accounted associates
Adjusted EBITDA2
20161
20151
US$ million US$ million
32.5
2.3
5.9
8.9
9.7
59.3
17.5
(8.8)
8.4
4.1
0.1
80.6
59.2
1.3
—
8.4
10.6
79.5
0.9
—
3.0
6.7
0.1
90.2
FINANCIAL RESULTS AND DIVIDEND
In 2016 888’s revenue reached an all-time
high of US$520.8 million (2015: US$462.1
million), driven by the continued strong
performances of Casino, Sport and
regulated markets including Spain
and Italy as well as further growth on
mobile devices. This revenue growth
of 13% compared to 2015 was achieved
despite weaker currencies compared
to the US$ when compared to the
prior year. At constant currency, Group
revenue increased 18% year on year to
US$546.4 million.
Adjusted EBITDA for the year increased
by 12% to US$90.2 million (2015: US$80.6
million) which represented 24% growth
at constant currency at US$100 million.
Adjusted EBITDA margin remained
stable at 17.3% (2015: 17.4%) despite
significant adverse currency movements.
At constant currency, Adjusted EBITDA
margin was 18.3%.
Profit before tax increased by 82% to
US$59.2 million (2015: US$32.5 million)
and profit after tax increased by 75% to
US$51.5 million (2015: US$29.5 million).
Basic Earnings per Share increased by
74% to 14.4¢ (2015: 8.3¢).
Cash generated from operating
activities was US$68.1 million in 2016
(2015: US$85.0 million). The decrease
compared to 2015 is more than offset
when adding back US$22.7 million cash
payments made during the year which
relate to previous periods: US$14.5
million costs incurred during 2015 in
respect of UK point of consumption
tax, VAT and gaming duties (2015:
US$3.0 million) and of US$8.2 million in
respect of exceptional retroactive duties
and associated charges (2015: US$3.2
million).
As at 31 December 2016, the Group’s
financial position remains strong with
cash and cash equivalents of US$172.6
million (2015: US$178.6 million). This is
despite the adverse impact from Sterling
devaluation of US$8.4 million. As at 31
December 2016, the Group had US$75.7
million liabilities to customers (2015:
US$82.4 million), which was effectively
reduced by US$3.7 million as a result of
Sterling devaluation.
Given the strong results during the year
the Board of Directors is recommending
a final dividend of 5.1¢ per share in
accordance with 888’s dividend policy
plus an additional one-off 10.5¢ per share
bringing the total for the year to 19.4¢
per share (2015: 15.5¢ per share).
B2C OVERVIEW
Active B2C customers and first time
depositors, two core KPIs of the
B2C business, increased 5% and 14%
respectively year on year. This reflects
highly effective customer relationship
management and marketing activity
across our brands as well as strong
growth on mobile and in Sport
which we are for the first time in the
Group’s annual results reporting as
a standalone vertical. The total number
of active customers across 888’s B2C
Casino and Poker brands in the last
quarter of 2016 was 728,000.
B2C revenue during the year was
US$460.2 million, representing a 15%
increase on the prior year (2015: US$399.4
million) and 88% of total Group revenue
(2015: 86%). This strong outcome was
driven primarily by continued momentum
in Casino, outstanding growth in Sport,
further growth in regulated markets
and the increasing popularity of mobile.
1 Totals may not sum due to rounding.
2 Adjusted EBITDA is the main measure analyst community use to evaluate the Company and compare
it to its peers.
STRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTS888 HOLDINGS PLC ANNUAL REPORT & ACCOUNTS 2016
18
2016 BUSINESS AND FINANCIAL REVIEW
continued
Mobile remains a key driver in terms of revenue, deposits and customer recruitment
across product verticals for 888 and the Group continues to benefit from owning
its own proprietary mobile solution and games. B2C revenue from mobile devices in
the UK increased to represent 60% (2015: 47%) of total UK revenue with customer
recruitment and deposits from mobile devices also rising significantly.
B2C – PRODUCT SEGMENTATION
888’s revenue by product segment is set out in the table below:
2016
Change
2015
US$ million US$ million Constant currency
Change
Reported
Revenue – B2C
Casino
Poker
Sport1
Bingo
Emerging Offerings1
Total B2C
B2B1
Revenue
279.3
84.4
51.9
41.8
2.8
460.2
60.6
520.8
230.6
86.7
34.8
44.0
3.3
399.4
62.7
462.1
26%
(3%)
58%
7%
(14%)
20%
6%
18%
21%
(3%)
49%
(5%)
(15%)
15%
(3%)
13%
REVENUE BY GEOGRAPHIC MARKET
Revenue from regulated markets increased to represent 61% of total Group revenue
while revenue from regulated and taxed markets2 increased to 71% of total revenue
(2015: 59% and 68% respectively). This expansion is in line with the Group’s strategic
priority of targeting growth in sustainable regulated markets.
2016
2015
US$ million US$ million
UK
Europe (excluding UK)
Americas
Rest of world
Revenue
223.2
231.0
44.9
21.7
520.8
212.7
178.4
48.5
22.5
462.1
Growth (decline)
from previous
year
5%
29%
(7%)
(4%)
13%
% of
reported
revenue
43%
44%
9%
4%
100%
1. The Group has changed its operating segments in the period to reflect a change in the way that the business
is managed and reported internally. Sport is now presented separately, having previously been reported in
Emerging Offerings. Brand licensing on third-party platforms, which was previously included in Emerging
Offerings, is now included in the B2B segment. The comparative segment results for the year ended
31 December 2015 have been re-classified to reflect this change to allow a like for like comparison. Of the
Emerging Offerings revenue of US$41.3 million, US$34.8 million has been classified in the Sport segment
and US$3.2 million in the B2B segment.
2. Regulated and taxed markets refers to jurisdictions where there are regulations in place or where the Group
is liable for gaming duties or VAT (or its equivalent).
888 continued to deliver growth in the UK market with a revenue increase of 16%
year on year at constant currency and 5% increase year on year at reported revenue,
driven by strong performances in Casino and Sport and supported by innovative
multi-channel marketing initiatives and CRM enhancement enabling effective
cross-sell.
Europe’s (excluding UK) significant growth of 29% reflects the strong progress
delivered across regulated markets mainly in Italy which commenced offering Sport
during the first quarter of 2016, and Spain, where a strong product suite offering
and successful marketing campaigns are driving growth. The Group also saw new
contributions from Denmark and Romania.
Other markets (America and Rest of world) continue to represent smaller proportion
of Group’s revenue and, as such, fewer resources have been allocated to them,
which resulted in a year.
888 HOLDINGS PLC ANNUAL REPORT & ACCOUNTS 2016
19
CASINO
Results overview
POKER
Results overview
+21%
in revenue and 26%
at constant currency
+6%
in first time depositors
BINGO
Results overview
+8%
in active players
Results overview
Casino continued its outstanding
momentum delivering another year of
double digit revenue growth. Casino
revenue increased 21% to US$279.3 million
(2015: US$230.6 million). At constant
currency, growth was 26%. Active
players rose 27% compared to the prior
year and first time depositors increased
by 23% despite the strong prior year
comparatives.
This very good result reflected further
growth on mobile and excellent
momentum across a number of regulated
markets, notably Spain and Italy. Casino
also benefitted from the successful launch
of the Group’s new 777.com towards the
end of 2015 as well as effective cross-sell
from other verticals, notably the fast-
growing Sport.
Product overview
The success of Casino remains
underpinned by our heritage as an online
casino operator and innovative customer
proposition alongside highly effective CRM
and marketing. Casino offers classic table
games, such as blackjack and roulette,
as well as, exclusive in-house developed
proprietary games which differentiate
the brand in the market. The Group
constantly develops its Casino offer and,
during 2016, added 57 new games across
mobile and desktop platforms. In addition
to our unique content we also provide
best-in-class and carefully selected third-
party content to accommodate all our
customers’ needs.
Results overview
In 2016, Poker again outperformed a
challenging poker market backdrop to
increase first time depositors by 6% and
remains a credible alternative for Poker
players. Poker revenue for 2016 was
US$84.4 million (2015: US$86.7 million).
The Poker product continued to be an
attractive source of player’s acquisition,
retention and cross-sell into Casino and
Sport. When factoring 888poker’s cross-
sell contribution, 888poker revenue did
not decline year on year.
Product overview
The Group’s Poker continues to be
recognised as a premier destination for
recreational players and benefit from a
fully integrated casino gaming suite and
sports betting proposition, supporting
the Group’s ability to cross-sell effectively.
Poker revenue in Q4 2016 was the
highest of the year (at constant currency)
driven by the successful launch of Poker
“BLAST” in July 2016, a “Sit n’ Go” Poker
tournament format for a pre-set number
of players.
888poker prides itself on delivering an
incomparable gaming experience with
the widest possible range of formats and
tournaments. Tournaments are critical
to the success of the Poker business,
driving both active customers and first
time depositors. During the year, 888
hosted four major poker tournaments (“XL
Tournaments”), with more prize money
on offer to players than ever before. As
well as continuing to drive growth through
profitable tournaments, in 2017 a major
focus will be on growing 888poker by
developing new variants and games that
are designed to enhance the customer
experience on mobile devices.
Results overview
Bingo active players increased 8%
compared to 2015 in a highly competitive
and challenging market, reflecting the
success of marketing activity and CRM as
well as the growth of our bingo brands
on mobile. Mobile devices represent 54%
of Bingo B2C revenue in the UK (2015:
40%). At constant currency, revenue
increased by 7% supported in part by
newly launched brands, notably Winkslots
which offers a wide variety of games.
Reported Bingo revenue was US$41.8
million (2015: US$44.0 million) as a result
of a significant adverse currency impact
with the vast majority of Bingo revenue
denominated in Sterling, which was
weaker year on year compared to the
US$, the Group’s reporting currency.
Product overview
888 offers online bingo entertainment
across a broad range of branded bingo
sites, each with its own engaging
theme and rich content. During the
year, the Group’s bingo brands also
continued to benefit from new content
including in-house developed games
and greater shared progressive
jackpots, which together contribute to
enhancing and differentiating 888 in
this competitive market.
STRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTS888 HOLDINGS PLC ANNUAL REPORT & ACCOUNTS 2016 20
2016 BUSINESS AND FINANCIAL REVIEW
continued
SPORT
Results overview
+49%
in revenue and 58% increase
at constant currency
Results overview
Sport is an increasingly important market
for 888 both in terms of revenue and
customer acquisition and, reflecting this,
the Group is now presenting Sport as
a standalone operational segment.
Following exceptional growth in 2015,
Sport delivered another outstanding
results in 2016 with revenue for the
period of US$51.9 million (2015: US$34.8
million), a 49% increase compared to the
prior year and 58% growth at constant
currency. Active Sport customers in 2016
increased by 49% and first time depositors
increased by 52% year on year. This very
strong performance was supported by
accelerated marketing investment, growth
on mobile and a successful Euro 2016
which demonstrated the Group’s ability
to successfully compete during major
sporting events. 888sport’s continued
growth and momentum also benefited
from launches into Denmark towards
the end of 2015 and Italy during the first
quarter of this year.
Product overview
Supported by increased marketing
investment and the consistent
development of markets and events for
customers to enjoy, the 888sport brand
is increasingly recognised by customers
as a premier sports betting destination.
As well as agreeing sponsorship deals
with four Championship League football
clubs to raise the profile of the brand,
in September the Group launched a new
multi-channel marketing campaign in
the UK to support 888sport’s growth.
The new campaign, themed “Take’Em On”,
is focused away from the noise of simply
promoting customer offers and matching
odds and has greater emphasis on
customer engagement and empowering
customers by placing them and their
competitive spirit at the center of the
888sport experience.
We continued to develop our innovative
mindset to sports betting with the
development of a new ‘Free Bet Hunt’
game for customers. The Free Bet Hunt
is a geo-technology game allowing
customers to search for free-bet offers
when near to particular football stadia.
This was a first in the market and
captured a wider consumer trend for geo-
technology games, helping to drive brand
engagement and customer recruitment.
As well as providing a growing revenue
stream for 888, Sport is an increasingly
important customer acquisition channel
for the Group, with the lowest cost per
acquisition for new customers across
product verticals. Using the Group’s first
class CRM and analytics capabilities, as
well as leveraging 888’s strong brands
in other verticals, 888 remains focused
on cross-selling customers to other 888
games and brands as a major driver
of the Group’s overall strategy and
continued success.
B2B REVIEW
Results overview
Revenue from Dragonfish, 888’s B2B
offering, was US$60.6 million (2015:
US$62.7 million), with weaker Sterling
impacting the results from our UK bingo
network. At constant currency, B2B
revenue increased 6% to US$66.5 million.
B2B revenue from the USA business was
slightly lower compared to prior year
reflecting continued operational changes
being implemented that are aimed at
increasing the long term sustainability
of the business.
Operational overview
During 2016 the B2B platform continued
to grow with 23 new skins added to the
network and our partners continuing
to benefit from new features and
functionality including the developments
of shared jackpots across bingo brands
on the network. In the US, our partners in
the states of Delaware and New Jersey
continued to benefit from our unique
interstate network launched in February
2015 that enables the pooling of poker
players across the two states.
Dragonfish continued to enjoy success
following the launch of the CasinoFlex
brand (the Group’s Instant Games Only
Platform) towards the end of 2015 with
more brands added to the platform during
the year. Increased Casino games on offer
and integrations with vendors serving
to further differentiate the Group’s B2B
casino offering in the market.
EXPENSES OVERVIEW
888’s strategic decision to accelerate
Sport marketing activities, substantially
invest in Casino and drive continued
expansion in regulated markets has
resulted in increased selling and marketing
investment. This investment created
strong foundations for outstanding results
in Sport, following exceptional growth in
2015, and Casino, with another year of
double digit revenue growth.
The continued growth in regulated and
taxed markets which represented 71% of
total revenue, resulted in an increase in
gaming duties* levied in these markets
during the year.
The Group continues to sustain its
operating efficiencies, which resulted
in a lower expenses to revenue ratio for
expenses other than selling and marketing
and gaming tax.
Operating expenses
Strong performance of Sport product
which is powered by third-party platform
coupled with the substantial increase
in Casino that was supplemented
by Live Casino provider, resulted in
increased associated charges. This has
contributed to the increase of 7% in
operating expenses* to US$136.1 million
(2015: US$127.4 million).
The proportion of operating expenses*
(which mainly comprise employee related
costs, commissions and royalties payable
to third parties, chargebacks, payment
service providers’ (“PSP”) commissions
and costs related to operational risk
management services) to revenues
decreased to 26.1% (2015: 27.6%) reflecting
continued operating efficiencies, strict
cost control and the effect of weaker
currencies compared to the US$. Reported
operating expenses amounted to US$155.1
million (2015: US$146.0 million).
Staff costs as a percentage of revenues
was 11%, compared to 12% in prior year,
with the reduction primarily a result of
moderate cost increase offset by currency
movements.
Deposit volumes substantially increased
during the year while the chargebacks
ratio remained stable at 0.8% (2015:
0.7%) of revenue, reflecting an optimised
balance between maintaining revenues
and increased deposits inflow whilst
reducing transactions with high risk
profiles. This was achieved through the
continued use of risk management and
fraud detection mechanisms which
enhance internal monitoring systems, alert
processes and reporting including the
continued use of 3DSecure verification
systems. In addition, during the year
the Group intensified its ability to verify
members through document submission,
an integral part of our regulatory “Know
Your Customer” obligations.
* As defined in the table set out on page 16.
888 HOLDINGS PLC ANNUAL REPORT & ACCOUNTS 2016 Gaming taxes and duties
Further Revenue growth in regulated
markets primarily as a result of the
launch of Sport in Italy as well as newly
regulated and taxed markets, which
commenced activity in the second half
of 2015, namely Denmark, Romania and
Ireland, resulted in an increase of 21% in
gaming duties* to US$60.5 million (2015:
US$50.0 million).
Reported gaming taxes and duties
amounted to US$63.5 million (2015:
US$58.4 million).
* As defined in the table set out on page 16.
Research and development expenses
Research and development expenses
in the income statement decreased to
US$34.3 million (2015: US$36.8 million).
However, when adding back capitalised
development expenses, overall research
and development spend would have
increased 4% to US$43.9 million (2015:
US$42.0 million). This reflects significant
investment in regulated markets
expansion and the Group’s continued
focus on product development, including
the development of new games,
conversion of Flash technology to
advanced HTML5 across PC and mobile.
Selling and marketing expenses
888’s strategic decision to accelerate
Sport and Casino marketing activities
and continued expansion in regulated
markets has resulted in increased selling
and marketing investment of US$170.2
million (2015: US$138.9 million). The
marketing to revenue ratio stabilised in
the second half of the year at 30.9%,
after a peak of 34.4% in the first half of
2016, resulting in an overall 32.7% ratio
in 2016 (2015: 30.1%). As a result of this
investment, Casino maintained its strong
momentum across regulated markets,
benefiting from the success of the new
777.com brand launched at the end
of 2015.
Sport achieved a 49% revenue increase
compared to previous year supported
by a very successful Euro 2016, the
launches into Denmark towards the end
of 2015 and Italy during the first quarter
of the year as well as continued brand
expansion in the UK with the sponsorship
of four Championship football clubs.
Administrative expenses
Administrative expenses* amounted to
US$29.5 million (2015: US$28.4 million)
but represented a lower proportion of
revenue compared to the previous year
at 5.7% (2015: 6.2%). The slight increase
in administrative expenses is attributed
to legal costs associated with the
increased focus in regulated markets.
Reported administrative expenses
amounted to US$36.2 million (2015:
US$32.5 million).
* As defined in the table set out on page 16.
Adjusted EBITDA
Adjusted EBITDA increased 12% to
US$90.2 million (2015: US$80.6 million).
This is a strong result given external
factors during the year including new
gaming duties from regulated markets
which commenced activity during the
second half of 2015, namely Denmark,
Romania and Ireland, with costs of
US$4.4 million (2015: US$1.7 million), and
adverse currency movements, principally
as a result of the weaker Sterling.
Adjusted EBITDA at constant currency
increased 24% to US$100 million.
The Adjusted EBITDA margin remained
steady at 17.3% (2015: 17.4%) or 18.3% at
constant currency. EBITDA for the period
increased 34% to US$79.5 million (2015:
US$59.3 million).
21
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STRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTS888 HOLDINGS PLC ANNUAL REPORT & ACCOUNTS 2016
22 888 HOLDINGS PLC ANNUAL REPORT & ACCOUNTS 2016
2016 BUSINESS AND FINANCIAL REVIEW
continued
Cash flow
The Group’s strong performance and
operating efficiency led to substantial
free cash allowing for dividend payments
during the year of US$56.6 million
(2015: US$53.5 million).
Cash generated from operating activities
amounted to US$68.1 million (2015:
US$85.0 million). The decrease is more
than offset when adding back US$22.7
million payments in respect of previous
periods comprising: US$14.5 million
relating to costs incurred during 2015
in respect of UK point of consumption
tax, VAT and gaming duties (2015:
US$3.0 million) and US$8.2 million
in respect of exceptional retroactive
duties and associated charges (2015:
US$3.2 million).
Balance sheet
888’s balance sheet remains strong,
with no debt and ample liquid
resources. 888’s cash position as at
31 December 2016 was US$172.6 million
(2015: US$178.6 million) impacted by
Sterling’s devaluation of US$8.4 million.
Balances owed to customers were
US$75.7 million (2015: US$82.4 million)
effectively reduced by US$3.7 million
as a result of the Sterling devaluation.
Share benefit charges
Share benefit charges relate to long-
term incentive equity awards granted
to eligible employees.
Equity settled share benefit charges
of US$6.7 million (2015: US$2.4 million)
comprise of new grants during
the year and the full year effect of
awards granted in previous years
and amounted to US$2.4 million
and US$4.3 million, respectively.
There are no Cash settled share benefit
charges for 2016 (2015: US$1.7 million).
Further details are given in the Directors’
Remuneration Report on page 54.
Finance income and expenses
Finance income of US$0.4 million
(2015: US$0.3 million) less finance
expenses of US$1.7 million (2015:
US$2.6 million, excluding exceptional
items) resulted in a net expense of US$1.3
million (2015: expense of US$2.3 million).
The decrease compared to the previous
year is attributable to the fair value
of operational hedging instruments.
888 continually monitors foreign
currency risk and takes steps,
where practical, to ensure that the
net exposure is kept to an acceptable
level. This has resulted in an income of
US$0.9 million in respect of hedging
of the foreign exchange movements
between US$ and Israeli Shekels. An
additional expense of US$2.6 million
is attributable to the valuation of
assets and liabilities denominated
in currencies other than the 888’s
functional currency mainly impacted
by devaluation of the Sterling following
the UK’s EU membership referendum
on 23 June 2016.
Exceptional costs
During 2016 888 incurred exceptional
legal and professional costs of
US$0.9 million associated with the
subsequently aborted proposal for
a potential combination between
the Group, The Rank Group plc
and William Hill plc.
Separately, 888 incurred exceptional
retroactive duties and associated
charges relating to prior years of
US$3.0 million in respect of gaming
taxes (2015: US$8.4 million).
In total 888 recorded US$3.9
million (2015: US$23.0 million)
of exceptional costs.
Profit before tax
The Group’s excellent performance
resulted and continued success has
resulted in an 82% increase in profit
before tax to US$59.2 million (2015:
US$32.5 million), representing a ratio
of 11% to revenue (2015: 7%).
Taxation and Profit after tax
Profit after tax substantially
increased by 75% to US$51.5 million
(2015: US$29.5 million).
The tax charge for the year was
US$7.7 million (2015: US$3.0 million).
The higher tax charge is attributed to
withholding tax payable on dividends
distributed by a subsidiary to the
parent company during the year and
one off tax credits in 2015 in respect
of prior years. In 2015 and early 2016 the
Group reached agreement on a number
of tax matters with tax authorities in the
key jurisdictions from which it operates.
Further information on the Group’s
corporate tax is given in note 8 to 2016
financial statements.
Earnings per share
Basic earnings per share increased
74% to 14.4¢ (2015: 8.3¢). Adjusted basic
earnings per share increased 9% to 17.4¢
(2015: 15.9¢). Further information on
reconciliation of Adjusted basic earnings
per share is given in note 9 to 2016
financial statements.
Dividend
Given the strong results during the year
the Board of Directors is recommending
a final dividend of 5.1¢ per share in
accordance with 888’s dividend policy
plus an additional one-off 10.5¢ per share
bringing the total for the year to 19.4¢
per share (2015: 15.5¢ per share).
888 HOLDINGS PLC ANNUAL REPORT & ACCOUNTS 2016 888 HOLDINGS PLC ANNUAL REPORT & ACCOUNTS 2016
23
STRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTS888 HOLDINGS PLC ANNUAL REPORT & ACCOUNTS 2016 24
MARKET REVIEW:
GROWTH IN REGULATED MARKETS
The Group’s significant experience of
successfully entering regulated markets
and rapidly developing leading positions
in those markets means that 888 remains
well placed to capitalise on positive
regulatory developments across the
global industry.
We maintain a close eye on the
regulatory environment across Europe
and are monitoring developments
in a number of countries that are
considering or are in the process of
reforming their regulatory landscapes.
We are following progress in the
Netherlands and, on a broader level,
continue to assess any potential
impact of the UK’s decision to leave
the European Union on our business
in various EU jurisdictions.
UNITED STATES
Trading in the US market during 2016
remained in line with the Board’s
expectations. The Group continues
to benefit from the successful launch
of our shared poker player liquidity
across Delaware and Nevada in early
2015 and we continue to believe that
pooled liquidity arrangements will be an
important feature of future states as and
when they regulate.
As the only operator in all three
regulated states, 888 has a unique
experience of and operational edge in
the US market. We continue to monitor
the regulatory landscape in the US
and we remain confident that 888 is
exceptionally well placed to capitalise on
future potential regulatory developments
as and when they occur.
REGULATED
MARKETS
UK
888 continued to deliver
strong growth in the
core UK market with a
revenue increasing 16%
year on year at constant
currency and 5% increase
in reported revenue, driven
primarily by continued
momentum in Casino and
Sport supported by cost
efficient marketing and
effective CRM.
DENMARK
In Denmark, 888 offers
Casino, Poker and Sport
products across mobile
and desktop platforms.
888 delivered a solid
performance following
the Group’s launch during
2015 and has quickly built
momentum in this exciting
market supported by
effective online and offline
marketing activities.
IRELAND
In 2015, the Group
obtained a Sport betting
licence in Ireland.
ROMANIA
During 2015, 888 received
casino, poker and sports
betting licences in
Romania.
USA
888 is the only operator
in all three regulated US
states of Nevada, Delaware
and New Jersey. Trading
in the US has remained
in line with the Board’s
expectations and the
Group continues to benefit
from the successful launch
of our shared poker player
liquidity across Delaware
and Nevada in early 2015.
UK & EUROPE
888 continued to deliver strong growth
in the core UK market with revenue
increasing 16% year on year at constant
currency and 5% increase as reported
to US$223.2 million (2015: US$212.7
million). This growth was driven primarily
by continued momentum in Casino and
Sport and supported by cost efficient
multi-channel marketing investment
and effective customer relationship
management.
In August 2017, changes in remote
gaming duty impacting customer
bonuses in the UK are expected to be
implemented that will impact on the
competitive dynamics of the industry.
However, as a large, established
operator with its own gaming platforms
and significant experience of adapting
to new regulatory environments,
888 remains well positioned to mitigate
in part the impact of and capitalise
on opportunities presented by
these changes.
Europe (excluding UK) revenue
continued to expand by 29% to
US$231.0 million (2015: US$178.4 million).
Within this performance, Spain, which is
now the Group’s second largest market,
continued to grow impressively by 45%,
further capitalising on the introduction of
slot games midway through 2015 and its
Sport offering. The scope, strength and
breadth of the Group’s offering in Spain
is supporting the development of the
888 brand in that market and enabling
the Group to capitalise on
cross-sell opportunities.
In Italy, the Group continued to grow
with revenue rising 66% year on year.
This was supported by the launch of
888sport.it in Q1 of the year, supported
by online and offline marketing
campaigns, which has helped to drive
upward trends across the Group’s
acquisition and activity KPIs. Now with
a key Sport product in the Italian market,
the Group has a clear opportunity to
effectively cross-sell customers to
Casino and drive further growth.
In Denmark, 888 delivered a good
performance following the Group’s
launch in that market during 2015.
The Group launched in Denmark with
a comprehensive suite of Casino,
Poker and Sport products across
mobile and desktop platforms and
this had enabled 888 to quickly build
momentum in this exciting market
supported by effective online and
offline marketing activities.
888 HOLDINGS PLC ANNUAL REPORT & ACCOUNTS 2016 ITALY
SPAIN
+66%
in revenue
In Italy, 888 offers Casino and, as of
Q1 2016, Sport on mobile and desktop
platforms. 888 continued to grow
with revenue rising 66% year on year.
This was driven by the launch of
888sport.it in Q1, supported by online
and offline marketing campaigns.
The Group has seen upward trends
across the Group’s acquisition and
activity KPIs. Now with a key Sport
product in the Italian market, the
Group has a clear opportunity to
effectively cross-sell customers to
Casino and drive further growth.
+45%
in revenue
In Spain 888 offers its Casino, Sport and
Poker offering across mobile and desktop
platforms. Spain is now 888’s second
largest market and revenue in 2016
continued to grow impressively by 45%,
further capitalising on the introduction of
slot games midway through 2015 and its
Sport offering.
The scope, strength and breadth of the
Group’s offering in Spain is supporting
the development of the 888 brand in
that market and enabling the Group to
capitalise on cross-sell opportunities.
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STRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTS888 HOLDINGS PLC ANNUAL REPORT & ACCOUNTS 2016
26
RISK MANAGEMENT STRATEGY
The Board acknowledges that there is no return without
risk. However, key risks must be identified, evaluated and
where possible quantified in order for the Board to rationally
determine how to harness risk to generate optimal return.
888’s culture emphasises the need for
employees to take responsibility for
managing the risks in their own areas
and to transparently and timely report
“bad news” and “near miss” incidents,
with a willingness to constantly learn
and improve.
The Board considers that 888 complies
with the requirements of the Financial
Reporting Council’s Guidance on Risk
Management, Internal Control and
Related Financial and Business Reporting
dated September 2014, and specifically
confirms that:
♦ it is responsible for 888’s risk
management systems and for
reviewing their effectiveness;
♦ there is an on-going process for
identifying, evaluating and managing
the principal risks faced by 888;
♦ the systems have been in place during
2016 and up to the date of approval of
the annual report and accounts; and
♦ they are regularly reviewed by
the Board (please see page 51
for further details of the review
conducted in 2016).
In 2016, the Board adopted 888’s Risk
Management Policy, which aims to
explicitly identify and evaluate key risks
underlying its core business strategy
and standardise the approach to risk
prioritisation and management across
888’s operations, which in turn means
that effective controls can be put in
place to ensure 888 is able to manage
its operations effectively now and into
the future. The risk register has been
updated and is being maintained as a
springboard for discussion at Board and
management level of the role of risk in
888’s business. The risk register is a living
document which is regularly reviewed
on an ongoing basis, serves as a record
of the high-level challenges faced by the
business over time, and also serves as
an action plan. The Board furthermore
discussed its approach and response to
888’s various risks with a view to setting
a clear boundary between acceptable
and unacceptable types and levels of risk.
RISK APPETITE
Risk is a high priority for the Board and effective risk management is an integral
part of the way we conduct our business on a daily basis. The Board factors into
the risk assessment impact, likelihood and appetite considerations. Risk is managed
across the Group in the context of overall risk appetite and the Board considered risk
appetite to ensure adequate resources are allocated to the risks. The Board reviewed
and approved the following risk appetite statement:
Category of risk
Tolerance
Risk parameters
Strategic
Medium
Operational
Low to medium
Financial
Low
Compliance
Extremely low to zero
During development and implementation of new propositions and
assessing new opportunities including potential transactions, we are
prepared to accept medium risks that support our pursuit of growth.
When operating within our business, we have a low to medium
tolerance for risk. We will take a cautious approach to risk within
our operations, but consider that certain risks will be taken
in order to achieve our strategic objectives and maintain our
competitive position.
We consider that robust financial controls are necessary to manage
our business effectively. All our operating processes are based
around policies and procedures that minimise the risk of a loss
of financial control.
We have an extremely low to zero tolerance when complying with
laws and regulations that relate to bribery, corruption and AML. We
have controls in place that are designed to mitigate these risks, and
detailed and tested procedures in place for dealing with these types
of scenarios when they arise.
888 HOLDINGS PLC ANNUAL REPORT & ACCOUNTS 2016 27
888 FACES THE FOLLOWING SIGNIFICANT RISKS:
KEY OF CHANGE
Increased
Decreased
Remained stable
REGULATORY RISK
BREXIT-RELATED RISKS
The risk:
The regulatory framework of online gaming is
dynamic and complex. Change in the regulatory
regime in a specific jurisdiction can 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 several
of those jurisdictions 888 holds licences.
However, in some cases, lack of clarity in
the regulations, or conflicting legislative and
regulatory developments, mean that 888 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 888.
Relevance to strategy:
Compliance with regulatory requirements and
the maintenance of regulatory relationships
in multiple jurisdictions is key to maintaining
888’s online gaming licences which are critical
to the operation and growth of its online
gaming business. In addition, 888 may be
exposed to claims in jurisdictions which do
not regulate online gaming, seeking to block
access to 888’s offering of players located in
such jurisdiction. A robust understanding of the
legal and regulatory position in key locations
worldwide is crucial to mitigating this risk.
How the risk is managed:
888 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, 888 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.
888 constantly adapts and moderates its
services to comply with legal and regulatory
requirements. Finally, 888 blocks players from
certain “blocked jurisdictions” using multiple
technological methods as appropriate.
What happened in 2016:
In light of increased regulatory scrutiny and
a review of enforcement policy in the UK,
888 commenced a review process with its
English counsel aimed to enhance and improve
its internal processes related to customer
on boarding, AML and responsible gaming,
a process which is ongoing. Consistent with
its growth strategy in regulated markets,
888 obtained a permanent gambling licence
in Romania.
The risk:
The proposed status of Gibraltar in relation
to the United Kingdom as a result of “Brexit”
is at present unclear. If 888 were to remain
registered, licensed and operating in Gibraltar
in these circumstances, its ability to rely on EU
freedom of services/establishment principles
in supplying its services within the EU will be
limited; furthermore, it may become ineligible
to continue to hold regulatory licences in
certain EU jurisdictions. “Brexit” could adversely
affect economic or market conditions in the
United Kingdom, Europe or globally and could
contribute to instability in global financial
markets, in particular until there is more
certainty as to the form that “Brexit” will take
and its effect on Gibraltar, the United Kingdom
and the EU.
Relevance to strategy:
The ability to rely on EU principles underpins
888’s regulatory strategy regarding
major EU markets.
How the risk is managed:
888 would not be able to control or mitigate
political changes of this nature, however it would
reconsider the appropriateness of remaining
registered, licensed and operational in Gibraltar
in these circumstances. Malta may be considered
as an alternative “dot com” licensing jurisdiction.
What happened in 2016:
On June 23, 2016, it was decided by UK
referendum that the UK should leave the EU.
However, the UK Prime Minister has not yet
given written notice under Article 50 of the
Treaty on European Union, which would then
start an up to two-year negotiation period on
the terms of exit and the relationship between
the UK and the EU following exit.
STRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTS888 HOLDINGS PLC ANNUAL REPORT & ACCOUNTS 2016 28
RISK MANAGEMENT STRATEGY
continued
KEY OF CHANGE
Increased
Decreased
Remained stable
INFORMATION
TECHNOLOGY
AND CYBER RISKS
The risk:
IT systems may be impacted by unauthorised
access, cyber-attacks, DDoS (Distributed Denial
of Service) attacks, theft or misuse of data by
internal or external parties, or disrupted by
increases in usage, human error, natural hazards
or disasters or other events. 888 processes
a large quantity of personal customer data
including sensitive data such as name, address,
age, bank details and gaming/betting history
as part of its business; such data could be
wrongfully accessed or used by employees,
customers, suppliers of third parties, or lost
or disclosed or processed in breach of data
protection regulation. Cyber-attack and data
theft incidents may expose 888 to “ransom”
demands and costs of repairing physical and
reputational damage. Failure of IT systems,
infrastructure or telecommunications/third-party
infrastructure may cause significant cost and
disruption to the business and harm revenues.
888 could also face liability under data protection
laws and could be exposed to action by
government agencies or private litigation and loss
of customer goodwill and confidence. Lengthy
down-time of the site (including in transitioning
to activated disaster recovery servers) could also
cause 888 to breach regulatory obligations.
Relevance to strategy:
As an online B2C and B2B business, the
integrity of 888’s IT infrastructure is crucial
to the supply of its offerings and compliance
with its regulatory obligations. The holding
and processing of sensitive data in a lawful
and robust manner is furthermore central to
888’s analytics-based business strategy. These
are also key to maintenance of the impressive
customer loyalty with which 888 is entrusted.
How the risk is managed:
Cutting-edge technologies and procedures
are implemented throughout 888’s technology
operations and designed to protect its networks
from malicious attacks and other such risks.
These measures include traffic filtering, anti-
DDoS devices and Anti-Virus protection from
leading vendors. Physical and logical network
segmentation is also used to isolate and protect
888’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 888’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 on a regular basis. 888 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 888’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, 888 invests in network infrastructure
redundancies whilst regularly reviewing its
service providers. 888 has two Internet service
providers in Gibraltar in order to minimise reliance
on one provider. As a part of its monitoring
system, 888 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.
What happened in 2016:
At 888, IT security is deeply embedded within
the organisation, and security projects are
implemented on a constant ongoing basis.
Awareness training is carried out for Group
personnel at all office locations by the CISO.
Software development personnel are trained in
IT security and computerised systems monitor
coding vulnerabilities in real time and provide
timely notifications to management. Various IT
security projects were implemented by 888’s IT
Department under the guidance of its IT Security
Committee. 888 continued to undergo regular IT
security audits, including reviews by the internal
IT team and external audit by gaming regulators.
888 HOLDINGS PLC ANNUAL REPORT & ACCOUNTS 2016 29
TAXATION RISK
The risk:
Heightened attention to matters of cross-
border taxation, including through the G20/
OECD Base Erosion and Profit Shifting (BEPS)
project, as well as in other public forums and the
media, has increased the likelihood of scrutiny
of tax practices by tax authorities in relevant
jurisdictions. A finding of taxable presence of the
888 group in one or more jurisdictions (including
pursuant to revised interpretations of the
permanent establishment concept as considered
in the BEPS reports), or a transfer pricing
adjustment with respect to attribution of profit
to such jurisdiction(s), may have a substantial
impact on the amount of income tax or VAT
paid by 888. The introduction of the UK Diverted
Profits Tax also gives rise to a risk that, whilst
888 carries out its operations from Gibraltar and
has a considerable presence there, elements
of its business carried out from the UK may be
found to constitute an “avoided PE” giving rise
to tax at a rate of 25% of the profit attributed to
such avoided PE. The possible imposition by the
UK of “use and enjoyment” rules with respect
to advertising, which could be implemented
during 2017 or 2018, may significantly increase
888’s UK-facing marketing expense; the UK VAT
rate is presently 20%. The UK Finance Bill 2017
provisions pursuant to which free plays will be
treated as taxable for Remote Gaming Duty
purposes is expected to have an adverse tax
impact on 888 with effect from 1 August 2017;
however, questions remain regarding how this
will be implemented in practice. Uncertainties
with regard to the application of VAT to certain
of 888’s offerings and the tax base to be applied
thereto also gives rise to the risk of disputes with
tax authorities, as do the imposition of gaming
taxes in jurisdictions in which 888 has customers
but does not hold a local licence. Furthermore,
the imposition in certain jurisdictions of
taxation of player winnings and/or imposition
of a withholding obligation on foreign operators
may make 888’s offerings less attractive to
players in relevant jurisdictions.
Relevance to strategy:
In addition to the financial consequences
of a challenge to 888’s tax structure, tax
compliance — and being seen to be paying the
“right amount” of tax — is becoming a serious
reputational issue as well as being a regulatory
compliance issue. As such, it is crucial that 888
has a solid basis for its tax positions taken in
relevant jurisdictions.
How the risk is managed:
888 aims to ensure that each legal entity within
its group is a tax resident of the jurisdiction
in which it is incorporated and has no taxable
presence in any other jurisdiction. In addition,
certain jurisdictions impose tax by reference to
customers’ activity, regardless of whether 888
has a taxable presence in such jurisdiction. In this
respect, 888 incurred VAT in certain countries in
which certain of its online gaming offerings are
considered services subject to VAT. Furthermore,
jurisdictions in which online gaming is regulated
impose gaming duties on licensed operators and
in some cases even on unlicensed operators. In
this respect, 888 monitors and seeks to comply
with its legal obligations in various jurisdictions,
whilst taking such action as is necessary to
prevent the improper imposition of unlawful
or double taxation.
What happened in 2016:
888 entered into discussions with relevant
tax authorities in order to regularise its tax
position and mitigate exposures. In addition,
it reviewed its structure in light of the BEPS
recommendations and consulted with tax
and legal advisers to determine the manner
and timing of their implementation in relevant
jurisdictions, in order to ensure compliance
with increased tax reporting obligations.
888 furthermore took advice with regard to
VAT and gaming duty obligations and registered
for such taxes in relevant jurisdictions in order
to ensure timely reporting and payment on the
correct basis in the appropriate jurisdictions,
whilst reserving its position concerning
contesting its liability in appropriate cases.
888 is furthermore closely following the UK
developments regarding taxation of free
plays for Remote Gaming Duty purposes, and
possible imposition of “use and enjoyment”
VAT rules regarding advertising, directly
and via relevant industry bodies, as well as
preparing mitigation actions.
STRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTS888 HOLDINGS PLC ANNUAL REPORT & ACCOUNTS 2016 30
RISK MANAGEMENT STRATEGY
continued
KEY OF CHANGE
Increased
Decreased
Remained stable
REPUTATIONAL RISK
PARTNERSHIP RISK
The risk:
The reputation of 888 is affected by the profile
of both other online gaming and betting
operators, as well as the gaming and betting
industry as a whole. The perception could
therefore develop that minors and vulnerable
players are not adequately protected, and
there could also be claims for damages due
to compulsive gambling. It is also difficult
to ensure that affiliate marketers ethically
source reliable data for marketing purposes
such that advertising codes can be strictly
adhered to and only appropriate age groups
or demographics are targeted.
Relevance to strategy:
Underage and problem gaming are risks
associated with an online gaming business,
and ensuring compliance with regulatory
requirements for the protection of vulnerable
people is critical to maintaining 888’s online
gaming licences.
How the risk is managed:
888 devotes resources to putting in place
prevention measures coupled with strict
internal procedures to protect customers,
and monitor and update their procedures to
ensure that minors are unable to access their
gaming sites. Staff are trained to provide a
safe gaming experience to customers and to
recognise and take appropriate actions if they
The risk:
888 has in recent years rationalised its
B2B contracts to focus on fewer, higher-
value contracts. This exposes 888 more to
termination or reduction of volume under
existing B2B contracts.
Relevance to strategy:
B2B is a material part of 888’s business. 888’s
key B2B contracts in terms of financial impact
are its major Bingo B2B contracts; in addition,
its US B2B contracts have strategic importance
for the longer term.
identify compulsive or underage activity.
888 also complies with eCOGRA guidelines to
protect customers. Web links to professional
help agencies are provided on 888’s real
money gaming sites, and 888 has a dedicated
website which provides information regarding
responsible gaming. Players can also limit their
play pattern or request to be self-excluded.
888 furthermore — directly or via industry
bodies — seeks to ensure that legislators
and regulators are provided with accurate
and useful information regarding protections
against problem and underage gaming.
What happened in 2016:
888 continued to invest in staff training and
procedures to identify instances of problem
gambling and fraudulent behaviour, as well
as reviewing and optimising responsible
gaming tools such as self-limits, take a break
and self-exclusion, continuing to monitor the
effectiveness of responsible gaming measures,
and continuing its close partnerships with
major helping agencies and support centers.
888 furthermore updated its business practices
in order to comply with specific new regulatory
requirements imposed in its major regulated
markets, including responsible gaming measures
required under the UK Gambling Commission’s
Licensing Conditions and Codes of Practice.
In this context, 888 implemented a new version
of its player behaviour monitoring system
during 2016.
How the risk is managed:
Whilst 888 generally protects itself contractually
in this respect, it is often not commercially
practicable to compel B2B partners to
continue utilising the Dragonfish platform in
the long term. The main method of mitigation
is therefore to maintain commercial relevance
in terms of the functionality and technology
of the B2B platform offered, competitive
pricing, maintaining an ongoing relationship
with B2B partners, and ensuring that 888 has
a good understanding of the needs of its B2B
partners and their owners.
What happened in 2016:
During the year, 888 maintained its ongoing
dialogue with major B2B partners, with a view
to continued renewal of contracts aligned
with 888’s strategy, and mitigation of the risk
of termination of contracts due to changes
in partner circumstances.
888 HOLDINGS PLC ANNUAL REPORT & ACCOUNTS 2016 888 HOLDINGS PLC ANNUAL REPORT & ACCOUNTS 2016 31
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STRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTS888 HOLDINGS PLC ANNUAL REPORT & ACCOUNTS 2016
32
REGULATION AND GENERAL
REGULATORY DEVELOPMENTS
With regulation playing an increasingly dominant role in defining
and framing our business, 888 continues to monitor closely global
legal and regulatory developments.
As a business operating in a highly
regulated environment, which is
deeply committed to operating in
a lawful, compliant and responsible
manner, 888 is profoundly impacted
by regulatory changes related to its
business operations.
The online gambling industry underwent
a number of legal and regulatory
changes in jurisdictions around the
world during 2016. Each such change
initiated an internal review process within
888, aimed at analysing the potential
opportunities, and managing potential
risks, resulting from each such change.
Although changes were often unforeseen
and inconsistent, which called for
constant vigilance, 888 remains a strong
proponent of the forming of strong
regulatory regimes. Such regimes
would, in 888’s view, contribute towards
advancing the online gambling industry
in its entirety, providing added clarity and
certainty in the business environment,
benefitting regulators and compliant,
responsible operators alike. Strong,
well-structured frameworks inevitably
trickle down and ultimately improve
the services provided to customers,
enhancing operators’ reliability.
Naturally, with regulation playing an
increasingly dominant role in defining
and framing our business, 888 continues
to monitor closely global legal and
regulatory developments and to assess
their impact on 888’s operations.
We continue to support regulation
of the industry and to work with our
partners in the industry and with our
regulators towards shaping a regulatory
landscape that is business-friendly while
safeguarding the objectives of regulation.
The following paragraphs summarise the
main relevant regulatory developments
of 2016 and our expectations regarding
changes that will impact 888 in 2017.
888 HOLDINGS PLC ANNUAL REPORT & ACCOUNTS 2016
EUROPE
Regulated European
markets that 888
currently operates
in include:
UK
DENMARK
IRELAND
ITALY
ROMANIA
SPAIN
33
The general trend throughout the
European Union in 2016 was the
continued strive towards local regulation
by individual member states. Some of
those efforts were directed towards
amending local law so that it will better
comply with EU law, and some focused
on bolstering existing, non-EU law
compliant regimes.
There were no significant actions taken
by the European Commission with
respect to online gambling in 2016.
Other than minimal action with respect
to member states whose gaming laws are
considered to infringe EU law (such as
Greece), the European Commission took
very little action directly related to the
regulation of online gambling.
Nonetheless, there were a number of
general EU law developments which
also impacted the online gambling
industry. For example, new requirements
relating to consumer dispute resolution
came into force at the beginning of
2016. As a business incorporated
and licensed in various EU member
jurisdictions, 888 is directly impacted by
these changes and will continue to be
impacted by future changes (such as the
entry into force of the 4th AML Directive
now scheduled for mid-2017).
Several regulatory developments in
specific European jurisdictions affected
888’s operations in 2016:
♦ As in 2015, the UK’s move to a place-
of-consumption based regulatory
regime continued to have a dramatic
impact on 888 in 2016, given the
prominence of 888’s UK-facing
operations. 888’s continued adaptation
to the new metrics and regulatory
requirements of the UK market
continued to necessitate significant
efforts and the implementation of
changes in many areas of the business.
888’s continued prominence in the
UK market speaks to the overall
success of that process, however
we continue to work to adapt our
operations and working modalities
to ensure ongoing adherence to the
various (and evolving) requirements
applicable to our UK operations.
♦ During the course of 2016, the Group
was awarded a permanent operating
licence in Romania, after operating
based on an interim licence since its
application for Romanian licensure
in 2015.
♦ The regulatory landscape in Germany
as a whole continued to be mired
by uncertainty in 2016 with courts
in various German states issuing
conflicting rulings with respect to
the validity and interpretation of
the German Inter-State Gambling
Treaty (the “Treaty”). The tender
process for the award of 20 sports-
betting licenses has been suspended
(possibly indefinitely), and local
attempts at regulating the industry
in other manners (such as the Hesse
“toleration” process which was aimed
at regulating local provision of remote
sports betting services in Hesse)
were unsuccessful. It is unclear how
the regulatory landscape in Germany
will evolve in 2017 as the term of the
current Treaty nears expiry.
♦ In late 2016, the Norwegian
government published a white
paper on the country’s gambling
policy, supporting the existing
monopoly model.
♦ The Greek Government’s
announcements during 2015 and 2016
of plans to put a licensing regime in
place as a revenue-generating measure
have yet to materialise.
♦ Switzerland pushed on its draft bill
that would allow the country’s casinos
to offer online gaming. The bill has
now unanimously passed the upper
house of the Federal Assembly of
Switzerland and is due to be brought
before the lower house early in 2017,
which supports website blocking of
unauthorised operators. However,
implementation of these changes is
not anticipated earlier than 2019.
♦ Regulatory reform in The Netherlands
is still pending, after the Dutch lower
house of parliament passed a bill
to regulate online gambling in July
2016, which is now pending before
Senate. 888 continued to conduct
its operations in The Netherlands in
accordance with interim guidelines
issued by the local authorities and
awaits developments in this important
market. However, reasonable estimates
do not predict final change in this
respect sooner than 2018.
♦ In the course of 2016, several
European regulators have expressed
their intent to promote the sharing
of poker liquidity within Europe
and beyond. Such statements were
made by regulators from the UK,
France, Italy, Spain and Portugal. In
November 2016, an informal meeting
of the abovementioned regulators
on the issue took place, where it
was concluded that efforts would
be made to reach agreed liquidity
sharing arrangements by mid-2017.
Consequently, in late 2016, France
adopted a bill allowing the French
gaming regulator to enter into liquidity
sharing agreements with other EU/
EEA member states. In addition,
early in 2017, Portugal notified draft
technical standards for such liquidity
sharing to the European Commission,
in preparation of possible future
liquidity sharing agreements with
EU member states.
STRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTS888 HOLDINGS PLC ANNUAL REPORT & ACCOUNTS 2016 34
UNITED STATES
In 2016 888 continued to operate in the
US online gaming market with activity
in all three states in which commercial
internet gaming is operational – Nevada,
New Jersey and Delaware. 888 continues
to be the only online gaming operator
authorised to conduct business in each
of these jurisdictions.
Despite debates in the legislatures of
various states regarding online gaming
(in some cases – online poker) during
2016, no significant legislative changes
occurred. 888 continues to closely
monitor discussions and initiatives
in the various jurisdictions, with the
knowledge that positive developments in
these large-scale markets could present
tremendous opportunities for 888.
♦ The New York state legislature
debated a bill in 2016 to regulate
online provision of poker. The bill was
stalled after passing the state senate.
This legislative initiative is likely to
recommence in 2017.
♦ In addition, we anticipate another
attempt on New York’s side to try
and challenge the federal prohibition
on sports betting embodied in the
Professional and Amateur Sports
Protection Act of 1992 (“PASPA”).
2017 will most likely see a new bill
being introduced in an attempt to
regulate sports betting within the
State of New York, which if passed,
is expected to be challenged
immediately in federal court.
♦ The state of New Jersey continued
its legal challenges to the federal
prohibition on sports betting and
made its appeal to the Supreme
Court on the matter in late 2016. A
decision by the Court whether to hear
New Jersey’s appeal is expected in
early 2017.
♦ In 2016, the California state legislature
debated a bill for the regulation of
online poker. However, the bill ended
up being abandoned mid-year.
Pennsylvania made a similar effort to
amend an existing bill on slot machine
tax to include text authorising casinos
to offer internet gambling in late 2016.
This bill was similarly abandoned but
may be reintroduced in 2017.
The 2016 election cycle brought with
it uncertainty about changes that may
take place in the US’s approach (federal
and state alike) towards gambling in
coming years. The incoming US Attorney
General, Jeff Sessions, commented in
his Senate confirmation hearing that he
intended to review the DOJ’s position
on the interpretation of the Federal Wire
Act which is the keystone to the current
remote casino and poker offerings in the
US. Also on the federal level, a bill has
been proposed to levy a federal tax on
gambling-related income. As of yet, the
position of the Trump administration on
gambling issues remains uncertain.
On the state level, various legislative
initiatives are already surfacing which
would seek to introduce online gaming
on the intra-state level.
888 will, of course, continue to follow
these developments as they evolve.
FURTHER AFIELD
In 2016, the Australian Government
presented draft legislation to Parliament
aimed at strengthening the 2001
Interactive Gambling Act’s prohibition
on online gaming.
As anticipated, regulatory reform
reached Latin America in 2016, with
Colombia adopting a regime for the
regulation and licensing of online
gambling and sports betting.
Further reforms may be brought
forward in 2017, in places such as
Mexico and Brazil.
The Indian State of Nagaland adopted
a regime for the regulation of online
games of skill in 2016.
888 continues to follow these
developments to assess their impact
on our business and to identify
potential opportunities for growth.
888 HOLDINGS PLC ANNUAL REPORT & ACCOUNTS 2016 888 HOLDINGS PLC ANNUAL REPORT & ACCOUNTS 2016
3535
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VIABILITY
STATEMENT
The Directors have carefully considered 888’s current
position and principal risks, and have assessed
the prospects of 888 over a period of three years.
The directors consider this period appropriate for the
assessment of viability of an online gaming company
in 888’s circumstances, taking into account the
following factors:
♦ The Directors are mindful that the Company operates
in the online gaming sector which, whilst having
matured substantially since the early days of the
internet, remains a fast-moving industry subject
to ongoing change in the global regulatory and
competitive landscape; and
♦ Management currently prepares a detailed bottom-up
forecast on an annual basis, long range plans of up to
three years are prepared using a top-down approach,
and capital investment projects are planned over
a period of three to five years.
With respect to the period assessed, the Directors
have considered:
♦ 888’s resilience to threats to its viability in severe
but plausible scenarios;
♦ Both qualitative and quantitative analyses, including
the combined impact of the crystallisation of
multiple risks simultaneously, as well as stress
testing, reverse stress testing and sensitivity
analyses, which the directors consider sufficiently
robust to make a sound statement; and
♦ A broad range of relevant matters that may threaten
888’s viability.
Specific scenarios tested and considered by the
Directors included: exit/closure of major markets due to
regulatory or legal events, loss of major B2B customers,
a major cyber-attack, and anticipated tax developments
together with the crystallisation of tax risks. In addition,
a “reverse stress test” was carried out in order to
analyse combinations of risks which could bring about
insolvency of the Company unless capital were raised;
in such cases it is anticipated that mitigation measures
(including reduction in dividends and overheads) could
be implemented in order to forestall such an outcome.
The Directors confirm they have carried out a robust
assessment of the principal risks facing 888, including
those that would threaten its business model, future
performance, solvency and liquidity, has been
carried out.
In light of the foregoing, the Directors confirm they
have a reasonable expectation that 888 will be able
to continue in operation and meet its liabilities as they
fall due over the three year period to 31 December 2019.
Details of 888’s risk management strategy and how it
manages and mitigates its risks are set out in the Risk
Management Strategy on page 26.
STRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTS888 HOLDINGS PLC ANNUAL REPORT & ACCOUNTS 2016
36
CORPORATE RESPONSIBILITY
As global leaders in online gaming entertainment we
are committed to a pro-active policy of corporate and
social responsibility, which reflects the high professional
and ethical standards we have set for ourselves.
OUR
RESPONSIBILITIES
OUR
PHILOSOPHY
OUR
VALUES
ENVIRONMENTAL
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.
OUR 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, fair and rewarding work
environment.
SOCIAL COMMUNITY AND
HUMAN RIGHTS
Our values place the community and
the customer at the centre of all our
endeavours.
RESPONSIBLE GAMING
888 places customer protection at
the heart of its business and is always
mindful of its customers’ enjoyment
and welfare.
PROTECTING MINORS
Underage activity on our sites is strictly
prohibited and 888 takes the matter of
underage gaming extremely seriously.
We constantly revise innovative
procedures to ensure minors are
unable to access our gaming sites.
DIVERSITY
Diversity is important to 888 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.
Our values place the community and
the customer at the centre of all our
endeavours. We are constantly creating
new and innovative ways to create a
caring, responsible gaming environment
and to ensure all those who visit our site
can do so with confidence and safety,
and that those for who our games
are not intended, notably underage
individuals and those vulnerable to
addiction, will not be drawn into the
gaming environment.
Our philosophy of responsibility is
comprehensive and diverse.
♦ We sponsor and participate
in activities in the neighbourhoods
in which we live and work.
♦ We create collaborative and rewarding
work environments where new ideas
can flourish and employees can grow.
♦ We encourage responsible gaming
practices to avoid the dangers of
problem gambling, and we have taken
rigorous steps at all our online sites
to prevent underage gambling.
♦ We acknowledge the fact that even
our most minuscule actions may
affect the environment and take
pro active measures to protect
the world we live in.
Our dedicated website is available at
888responsible.com
888 HOLDINGS PLC ANNUAL REPORT & ACCOUNTS 2016 37
888 is always mindful of the complex
regulatory environment in which it
operates and the social responsibility
that comes hand-in-hand with the online
gaming industry. 888 places customer
protection at the heart of its business
and is always mindful of its customers’
enjoyment and welfare. By looking after
its customers, 888’s business is able to
continue to flourish.
As an employer of more than 1,300
people, 888 is constantly focused on
creating a collaborative, rewarding
and fair working environment for all
employees across the world.
888 is mindful of its environmental
footprint and continues to monitor
environmental performance and identify
opportunities for energy consumption
and waste reduction.
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 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 the state-of-the-art technology to
help meetings occur remotely.
888 commissioned a study by AVIV
AMCG regarding 2015 to provide
quantitative information regarding its
environmental impact, as reflected
through 888’s Greenhouse Gas emissions
for the period 1 January to 31 December
2015, and to assist it in finding ways
to further reduce its Greenhouse Gas
emissions. Details of the results were
set out in the Company’s 2015 Annual
Report. Whilst 888 is committed
to complying with UK disclosure
requirements and appropriately
managing its Greenhouse Gas emissions,
given 888 has low emissions and in light
of the costs involved in monitoring and
measuring such emissions, the Board has
concluded that a review will be carried
out once every several years rather than
annually. The Board acknowledges its
overall responsibility for environmental
issues and monitors 888’s environmental
performance in light of internal targets.
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.
Some highlights from 2016 include
the following:
♦ We ran a number of management skills
programs for both senior managers
and team leaders from all divisions.
♦ During the year we had team building
activities intended to create better
connections among team members and
managers, including a half day fun day
for each department, overnight event
combining engagement activities and
professional lectures, as well as holiday
celebrations on all Company sites.
♦ We have continued our annual
evaluation process which is based on
the principle that giving and getting
feedback is key to each employee’s
growth and development and that
regularly evaluating on the job
performance helps achieve success
and is essential for the well-being of
all employees.
♦ We continued our efforts to extend
our recruitment channels, including
“refer a friend”, social networks and
internet channels.
♦ We believe that employees should
share part of 888’s success. This
year, due to our great achievements
and business success, we granted
various performance bonuses to
some employees of 888.
♦ 888 employees were involved in
various charity initiatives according
to office location.
♦ Specific retention efforts were carried
out with respect to key employees.
We also continue
to invest in the
state-of-the-art
technology to
help meetings
occur remotely.
STRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTS888 HOLDINGS PLC ANNUAL REPORT & ACCOUNTS 2016 38
CORPORATE RESPONSIBILITY
continued
888 takes its employees’ health and
safety seriously and has written policies
in place with regard to occupational
health and safety issues in its major
offices. The Board will consider setting
targets with regard to occupational
health and safety issues in order to
monitor performance. The Board
acknowledges its overall responsibility
for human resources issues, including for
human resources and labour standards,
implementing management structures
and systems to monitor and evaluate
employee performance and satisfaction,
promoting diversity at all levels of 888
and within 888’s supplier base, providing
employees with the opportunity to have
formal input into matters that affect
them, oversee and allocate resources
to employee training, and to monitor
key health and safety performance
goals and indicators. During 2016,
there were no material labour disputes,
litigation, or health and safety related
fines or sanctions imposed on 888.
888 does not have a written policy
for the employment, training, career
development and promotion of disabled
persons, but in certain of its locations is
subject to statutory requirements in this
respect. During 2016, steps were taken
to maintain and develop arrangements
to provide information to employees
regarding financial and economic factors
affecting 888’s performance, including
divisional and company-wide seminars,
email communications and publication
of pertinent public financial information
on the 888 internal portal.
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 888. The Board acknowledges
its overall responsibility for social,
community and human rights issues.
Responsible gaming
Our values place the community
and the customer at the centre of all
our endeavours. We aim to provide
our customers with the best online
gaming entertainment experience.
However, we acknowledge that gaming
poses a potential risk 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 player
behaviour monitoring system to help
identify and prevent compulsive activity;
in this respect, a new version of this
system was implemented during 2016.
Protecting customers
♦ As a responsible, regulated gaming
group we comply with the eCOGRA
guidelines. eCOGRA ensures that
approved online casinos are properly
and transparently monitored to
provide player protection.
♦ Our sites include links to professional
help agencies and we have placed
many safeguards for those who need
help with controlling their gaming.
♦ Self-assessment test: for players who
are worried about their gaming habits
and want to know more about the
signs of compulsive gambling.
♦ 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 or more. During this
period, 888 blocks the account and
no promotional emails are sent to
the customer.
♦ During 2016, we revised our anti-money
laundering considerations in general,
and specifically how they relate to
our social responsibility program.
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 independent
verification systems, ID3 Global by GB
Group and Call Validate by Call Credit.
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, 888 has made available a
dedicated website, www.888responsible.
com, providing information regarding all
aspects of responsible gaming.
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 the past 888 supported the
International Medical Corps in their efforts
to assist people affected by Typhoon
Haiyan which struck the Philippines.
FISCAL CONTRIBUTIONS
During the year the Group made fiscal
contributions totalling US$79.5 million
(2015: US$ 71.6 million) comprising of
corporation tax of US$7.7 million (2015:
US$3.0 million), VAT of US$8.3 million
(2015: US$ 10.2 million) and gaming
duties of US$63.5 million (2015: US$58.4
million).
HUMAN RIGHTS
888 ensures that its policies comply with
local law, in addition to reflecting 888’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.
888 HOLDINGS PLC ANNUAL REPORT & ACCOUNTS 2016 39
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
888 as of 31 December 2016, is as follows:
Men
Women
Number
Percentage Number
Percentage
Board of Directors
5
Senior Vice Presidents 4
Vice Presidents
All Employees
18
801
100%
66.6%
75%
59%
0
2
6
552
0%
33.3%
25%
41%
The Board acknowledges that the lack
of women on the Board is a major
challenge for 888, and that it is the
Board’s responsibility to address this.
In seeking to recruit new Non-executive
Directors to the Board, the Nominations
Committee specifically seeks to
include female candidates amongst
the list of candidates presented for
its consideration.
On behalf of the Board:
BRIAN MATTINGLEY
Chairman
21 March 2017
STRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTS888 HOLDINGS PLC ANNUAL REPORT & ACCOUNTS 2016 40
BOARD OF DIRECTORS
BRIAN MATTINGLEY
Chairman
Age:
65
ITAI FRIEBERGER
Chief Executive Officer
Age:
46
AVIAD KOBRINE
Chief Financial Officer
Age:
53
EXPERIENCE
Brian Mattingley was Deputy Chairman
of the Company and Senior Independent
Non-executive Director from March
2006 until March 2012, and was then
Chief Executive Officer until March 2016.
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.
In his capacity as Chairman of the UK
Bingo Association, Mr Mattingley spent
a great deal of time with regulators,
which has assisted in the Board’s
understanding of UK gaming regulation
and laws. Mr Mattingley has been in
the gaming industry since 1993, and
launched one of the UK’s first online
Bingo sites whilst at Gala.
EXPERIENCE
Itai Frieberger was appointed Chief
Executive Officer of the Company on
2 March 2016. He was previously Chief
Operating Officer since April 2011, and
was appointed to the Board as an
Executive Director on 13 May 2015. He
also serves as Managing Director of the
Company’s Israeli subsidiary, Random
Logic Ltd. He has worked for the Group
since 2003, and previously served
as Senior Vice President of Product
Technologies, as well as leading various
parts of the business such as marketing,
product and business development. Prior
to joining the Group, he held several
management positions at Orange, one of
the world’s leading telecommunications
operators.
Mr Frieberger brings to the role
operational experience both from within
and outside the online gaming sector, as
well as personal relationships and valuable
insight into the industry as a whole.
> Read more from Brian on pages 06
> Read more from Itai on pages 08 to 15
and 07
EXPERIENCE
Aviad Kobrine has been Chief Financial
Officer of the Company since June
2005, and was appointed to the Board
in August 2005. From October 2004
he was a consultant to the Company.
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.
Mr Kobrine brings with him extensive
finance, economic and analytical
experience, in-depth knowledge of the
group and detailed knowledge of the
City’s workings.
> Read more from Aviad on pages 16 to 22
888 HOLDINGS PLC ANNUAL REPORT & ACCOUNTS 2016 41
RON MCMILLAN
Senior Independent Director
Age:
64
AMOS PICKEL
Independent Non-executive Director
Age:
50
EXPERIENCE
Amos Pickel was appointed in March
2006. Formerly Chairman of the Board
of Berggruen Residential Limited,
Chief Executive Officer of Atlas
Management Company Limited, Chief
Executive Officer and member of the
Board of Directors of Red Sea Hotels
Ltd., and 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 currently
serves as an Executive Director of
Swiftstake Technologies SA. Mr Pickel
is the Chairman of 888’s Remuneration
Committee and Nominations Committee,
and is a member of the Audit Committee
and Gaming Compliance Committee.
Amos Pickel does not intend to offer
himself for re-election at the 2017
Annual General Meeting.
EXPERIENCE
Ron McMillan was the
PricewaterhouseCoopers Global Finance
Partner, Northern Regional Chairman
of the UK firm and Deputy Chairman
and Head of Assurance for the Middle
East firm, in addition to serving as audit
engagement leader on a number of
major listed companies. He is the Senior
Independent Director and Chairman of
the Audit Committee of N Brown Group
Plc and SCS Plc, Chairman of the Audit
Committee of B&M European Value
Retail SA and Chairman of Welcome to
Yorkshire. Mr McMillan is the Chairman
of the Company’s Audit Committee
and a member of the Remuneration
Committee, Nominations Committee
and Gaming Compliance Committee.
Having worked in PWC’s assurance
business for 38 years, Mr McMillan brings
to the Board a deep understanding of
auditing, financial reporting regulatory
matters and corporate governance.
Ron McMillan was appointed as
Non-executive Director on 15 May 2014,
and Senior Independent Director on
9 May 2016.
COMMITTEES
COMMITTEES
COMMITTEE KEY
Audit Committee
Gaming Compliance Committee
Remuneration Committee
Chairman of Commitee
Nominations Committee
Member of Commitee
STRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTS888 HOLDINGS PLC ANNUAL REPORT & ACCOUNTS 2016 42
DIRECTORS’ REPORT
The Directors submit to the members their Annual Report
and Accounts of the Group for the year ended 31 December
2016. The Strategic Report, Corporate Governance Statement
and Directors’ Remuneration Report on pages 8, 48 and 54
respectively, form part of this Directors’ Report.
Results
The Group’s profit after tax for the financial year of US$51.5
million (2015: US$29.5 million) is reported in the consolidated
income statement on page 78. The Board is recommending a
final dividend of 5.1¢ per share plus an additional one-off 10.5¢
per share (which together with the interim dividend equals
19.4¢ per share for the year (2015: 15.5¢ per share).
Directors and their interests
Biographical details of the current Board of Directors, setting
out their relevant skills and experience and their professional
commitments, are shown on page 40. The Directors who
served during the year are shown below. In line with the UK
Corporate Governance Code and as required by the Company’s
Articles of Association, all Directors retire at each Annual
General Meeting and those who wish to continue to serve offer
themselves for re-election.
or other arrangements as they consider expedient in
relation to treasury shares, fractional entitlements, record
dates, shares represented by depositary receipts, legal or
practical problems under the laws in any territory or the
requirements of any relevant regulatory body or stock
exchange or any other matter;
(b) to the allotment (otherwise than pursuant to sub-paragraphs
(a) above and (c) below) of equity securities up to an
aggregate nominal value of £89,317.50; and
(c) to the allotment (otherwise than pursuant to sub-paragraphs
(a) and (b) above) of equity securities in connection with
an acquisition or specified capital investment up to an
aggregate nominal value of £89,317.50;
and shall expire upon the earlier of: (i) the conclusion of the
next Annual General Meeting of the Company after passing
the resolution, save that the Company may before such expiry
make an offer or agreement which would or might require
equity securities to be allotted after such expiry and the Board
may allot equity securities in pursuance of such an offer or
agreement as if the power conferred hereby had not expired;
and (ii) 30 June 2017.
Brian Mattingley (first appointed 30 August 2005).
Itai Frieberger (first appointed 13 May 2015).
Aviad Kobrine (first appointed 30 August 2005).
Ron McMillan (first appointed 15 May 2014).
Amos Pickel (first appointed 14 March 2006). Amos Pickel
does not intend to offer himself for re-election at the 2017
Annual General Meeting.
The beneficial and non-beneficial interests of the Directors
in shares of the Company are set out in the Directors’
Remuneration Report on pages 54 to 66. There has been no
change in the interests of Directors in shares of the Company
between 31 December 2016 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 share capital of the Company during the financial
year are given in the Consolidated Statement of Changes
in Equity. As at 31 December 2016, the issued share capital
of the Company comprised 358,585,958 Ordinary Shares
of GBP £0.005 each (Ordinary Shares).
At the Annual General Meeting held in May 2016, the
Board was empowered to allot securities of a value up to
66.66% of the Company’s ordinary share capital in issue
as at 31 March 2016. Furthermore, the Board was empowered
to 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
an offer or issue of equity securities to or in favour of:
(i) 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 (ii) holders of other equity securities if this is
required by the rights of those securities, or if the Directors
consider it necessary, as permitted by the rights of those
securities; so that the Directors may make such exclusions
In paragraph (c) “specified capital investment” means
one or more specific capital investments in respect of which
sufficient information regarding the effect of the transaction
on the Company, the assets the subject of the transaction
and (where appropriate) the profits attributable to those
assets is made available to shareholders to enable them
to reach an assessment of the potential return.
In 2016, the Company did not exercise any of the foregoing
powers and authorities.
The Directors do not have any power in relation to the
buy back by the Company of its own Ordinary Shares.
In 2016, the Company did not seek authority to and did not
purchase any of its own shares.
Rights attaching to Ordinary Shares in the Company
The rights and obligations attaching to Ordinary Shares
are set out in the Memorandum & Articles of Association
of the Company.
Holders of Ordinary Shares are entitled to attend and speak
at general meetings, 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
Company’s assets. Holders of Ordinary Shares are entitled
to receive the Annual Report. Subject to meeting certain
thresholds, holders of Ordinary Shares may requisition
a general meeting or the proposal of resolutions at
general meetings.
Memorandum & Articles of Association
The Memorandum & Articles of Association of the Company
can only be amended by a special resolution at a general
meeting of shareholders. There were no changes to the
Memorandum & Articles of Association of the Company
during 2016.
888 HOLDINGS PLC ANNUAL REPORT & ACCOUNTS 2016 43
Deadlines for exercising voting rights
Electronic and paper proxy appointment and voting
instructions must be received by the Company’s registrars not
later than 9.00am CET (8.00am GMT) on 5 May 2017. Forms
of Direction from persons holding depository interests in the
Company in uncertificated form through CREST must be
received by the Company’s registrars not later than 9.00am
CET (8.00am GMT) on 4 May 2017.
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.
During 2016, the Company adopted a revised Share Dealing
Code as well as an Inside Information Disclosure Policy, in line
with the EU Market Abuse Regulation (EU 596/2014) (MAR).
The policy acknowledges the Company’s obligation to disclose
inside information as soon as possible to the market via a
Regulatory Information Service (RIS), and that disclosure of
inside information may only be delayed in circumstances set
out in MAR, that is: (i) to protect the Company’s legitimate
interests, (ii) if delaying disclosure is not likely to mislead the
public; and (iii) the Company can ensure that the information is
kept confidential. The policy sets out procedures for control of
inside information and the preparation of insider lists, as well as
for disclosing or delaying the disclosure of inside information
and communication with analysts and the media.
Requirements of gaming regulations
Amongst others, the Group:
(i) holds a licence from the Nevada Gaming Commission
as the sole shareholder of an Interactive Gaming Service
Provider licencee, and as such is subject to the Nevada
Gaming Control Act and to the licensing and regulatory
control of the Nevada State Gaming Control Board and
the Nevada Gaming Commission;
(ii) holds a transactional waiver from the New Jersey
Division of Gaming Enforcement permitting it to be the
sole shareholder of a Casino Service Industry Enterprise
licence applicant (presently holder of a transactional
waiver allowing it to conduct online gaming related
business in New Jersey), and as such is subject to the
New Jersey Casino Control Act and to the licensing and
regulatory control of the New Jersey Division of Gaming
Enforcement; and
(iii) holds a Gaming Vendor Licence from the Delaware
Department of Finance, State Lottery Office, and as
such is subject to Title 29 of the Delaware Code and
to the licensing and regulatory control of the Delaware
Department of Finance, State Lottery Office.
The Company and holders of Ordinary Shares therein may
also in the future be subject to similar restrictions in other
jurisdictions where the Group secures a gaming licence.
The criteria used by relevant regulatory authorities to make
determinations as to suitability of an applicant for licensure
varies from jurisdiction to jurisdiction, but generally require
the submission of detailed personal and financial information
followed by a thorough investigation. Gaming authorities have
very broad discretion in determining whether an applicant
(corporate or individual) qualifies for licensing or should be
found suitable.
Many jurisdictions require any person who acquires beneficial
ownership of more than a certain percentage (typically five
percent) of the Company’s securities, to report the acquisition
to the gaming authorities and apply for a finding of suitability.
Many gaming authorities allow an “institutional investor”
to apply for a waiver that allows such institutional investor
to acquire up to a certain percentage of securities without
applying for a finding of suitability, subject to the fulfillment
of certain conditions. In some jurisdictions, suitability
investigations may require extensive personal and financial
disclosure. The failure of any such individuals or entities to
submit to such background checks and provide the required
disclosure could jeopardise the Group’s eligibility for a required
licence or approval.
Any person who is found unsuitable by a relevant gaming
authority may be prohibited by applicable gaming laws or
regulations from holding, directly or indirectly, the beneficial
ownership of any of the Company’s securities.
The Company’s Memorandum and Articles of Association
include provisions to ensure that the Company has the
required powers to continue to comply with applicable
gaming regulations.
These provisions include providing the Company, in the event
of a Shareholder Regulatory Event (as defined in the Articles),
with the right to:
(a) suspend certain rights of its members who do not
comply with the provisions of the gaming regulations
(the Affected Members);
(b) require such Affected Members to dispose of their
Ordinary Shares; and
(c) subject to (b) above, dispose of the Ordinary Shares
of such Affected Members.
The Company considers that these rights are required in order
to mitigate the risk that an interest in Ordinary Shares held
by a particular person could lead to action being taken
by a relevant Regulatory Authority which in turn could lead
to the withdrawal of existing licences held by the Group
or the exclusion of being awarded further licences in other
jurisdictions that the Group seeks to pursue. This potential
Regulatory Authority action could therefore cause substantial
damage to the Group’s business or prospects.
Entities holding company shares on behalf
of Group employees
At 31 December 2016, Virtual Share Services Limited (a wholly
owned subsidiary of the Company) held 3,403,891 Ordinary
Shares in its administrative capacity in connection with the 888
All-Employee Share Plan and under the 888 Holdings plc Long-
Term Incentive Plan 2015. Full details are set out on page 57.
STRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTS888 HOLDINGS PLC ANNUAL REPORT & ACCOUNTS 2016 44
DIRECTORS’ REPORT
continued
Substantial shareholdings
As at 31 December 2016, the Company had been notified of the following interests in 5% or more of its share capital under
Disclosure Guidance and Transparency Rules (DTR) Rule 5 of the UK Listing Authority:
Principal shareholders
Sinitus Nominees Limited in trust
on behalf of Dalia Shaked
O Shaked Shares Trust
Majedie Asset Management Limited
Number of
shares
86,283,534
86,283,534
35,336,801
% issued
share
capital
24.1%
24.1%
9.9%1
Nature
of Holding
Indirect
Indirect
Indirect
1 Holding disclosed under Rule 8.3 of the Takeover Code.
No notifications pursuant to DTR Rule 5 have been received by the Company between 31 December 2016 and the date of this
Annual Report. Information provided to the Company pursuant to the DTRs is publicly available via the regulatory information
services and the Company’s corporate website corporate.888.com.
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.
Relationship Agreement
Any person who exercises or controls, on their own or together with any person with whom they are acting in concert, 30% or
more of the votes able to be cast at general meetings of a company is known as a “Controlling Shareholder” for the purposes
of the UK Listing Rules. The UK Listing Rules require companies with Controlling Shareholders to enter into an agreement
which is intended to ensure that the Controlling Shareholders comply with certain independence provisions in the UK Listing
Rules. Sinitus Nominees Limited in trust on behalf of Dalia Shaked, O Shaked Shares Trust and Ben-Yitzhak Family Shares Trust
(together, the Principal Shareholder Trusts) are “Controlling Shareholders” of the Company.
The Company entered into a relationship agreement with the Principal Shareholder Trusts on 14 September 2005 which was
amended on 28 August 2015 and 22 November 2015 (the Amended Relationship Agreement).
The Amended Relationship Agreement includes the following provisions in respect of the independence of
888 Holdings plc (in accordance with the UK Listing Rules) which provide that each of the Principal Shareholder Trusts shall,
and shall procure as far as it is legally able, that each of their respective associates:
♦ will conduct all transactions and relationships with 888 Holdings plc and any member of the Group on an arm’s length basis
and on a normal commercial basis;
♦ will not take any action which precludes or inhibits 888 Holdings plc, or any member of the Group, from carrying on its
business independently of them;
♦ will not take any action that would have the effect of preventing the Company, or any member of the Group, from complying
with its obligations under the UK Listing Rules; and
♦ will not propose or procure the proposal of any shareholder resolution which is intended, or appears to be intended,
to circumvent any proper application of the UK Listing Rules.
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 Company 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 Amended Relationship Agreement also includes restrictions on the Principal Shareholder Trusts’ power to appoint Directors
and includes obligations on the trusts to exercise their voting rights 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. There are no such nominated directors at present.
Such restrictions and obligations apply in respect of the O Shaked Shares Trust and Sinitus Nominees Limited in trust on behalf
of Dalia Shaked whilst they collectively hold not less than 7.5% of the issued share capital of the Company.
888 HOLDINGS PLC ANNUAL REPORT & ACCOUNTS 2016
45
The obligations of the parties to the Amended Relationship
Agreement are at all times subject to all relevant legal and
regulatory requirements and obligations of the parties thereto
in the United Kingdom, Gibraltar or elsewhere.
Confirmation of independence
As required pursuant to LR 9.8.4(14)R, the Board confirms
that during the financial year 2016:
♦ the Company has complied with the independence
provisions included in the Relationship Agreement;
♦ so far as the Company is aware, the independence provisions
included in the Relationship Agreement have been complied
with by the controlling shareholders and their associates; and
Shaked, a deed of adherence was executed pursuant to which
Sinitus Nominees Limited in trust on behalf of Dalia Shaked
undertook to observe, be bound by and comply in all respects
with the provisions applicable to it as a shareholder pursuant
to the Shareholders‘ Agreement, and to assume the benefits
of the Shareholders‘ Agreement, as if it had executed the
Shareholders‘ Agreement and was named as a party to it.
Change of control
A change of control in the Company 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 Group companies are
a party.
♦ so far as the Company is aware, none of the Principal
Shareholder Trusts or any of their respective associates
proposed or procured the proposal of any shareholder
resolution which circumvented the proper application of
the UK Listing Rules.
Donations
The Group did not make any donations to any political party
(including any non-EU political party) or organisation or
independent election candidate or incurred any political
expenditure during the year.
There were no instances in which an independent
director of the Company did not support the Board’s
statements regarding compliance with the aforementioned
independence criteria.
Shareholders’ Agreement
The Company has been informed that the Principal
Shareholder Trusts and certain other shareholders entered
into a shareholders’ agreement on 14 September 2005
(the Shareholders’ Agreement).
Pursuant to the Shareholders’ Agreement, restrictions are
imposed on substantial disposals of Ordinary Shares by
any of the parties to the Shareholders’ Agreement without
first offering such Ordinary Shares to the other Principal
Shareholder Trusts. With respect to the Principal Shareholder
Trusts, a substantial disposal is a disposal of more than 1%
of the issued ordinary share capital of the Company. This
provision does not apply to: (i) disposal in the context of
a recommended public takeover for the Company; or (ii)
transfers to another Principal Shareholder Trust or a party
associated to a Principal Shareholder Trust.
In addition, the Shareholders’ Agreement requires that
the Principal Shareholder Trusts all vote in favour of any
resolution(s) proposed at a general meeting or all vote against
such resolution(s) or, failing agreement amongst the Principal
Shareholder Trusts, vote in such manner as maintains the status
quo. The other parties to the Shareholders’ Agreement will
vote or act in accordance with the vote cast or action taken
as the case may be, by the Principal Shareholder Trusts.
The Shareholders’ Agreement shall terminate in the event that:
(i) the E Shaked Shares Trust and the O Shaked Shares Trust,
and their respective associates, collectively have an interest
in less than 5% of the issued share capital of the Company
and the Ben-Yitzhak Family Shares Trust and its associates
collectively have an interest in less than 5% of the issued share
capital of the Company; or (ii) all the parties and the associates
of the Principal Shareholder Trusts collectively, in aggregate,
have an interest in less than 10% of the issued share capital
of the Company.
On 22 November 2015, in connection with the transfer of the
entire shareholding in the Company held by E Shaked Shares
Trust to Sinitus Nominees Limited in trust on behalf of Dalia
Financial instruments
The Company considers the Group’s exposure to financial
risks, including and exposure to specific countries and trading
counterparties, to be low. During 2016, hedging of the Group’s
foreign currency risks was carried out solely with leading banks
including Barclays plc. Further information on the Group’s
use of financial instruments is set out in note 24 to the annual
accounts on page 107.
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 certain of 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 477 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 888’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 888’s business in the United States, details of which
were provided in 888’s 2011 Annual Report.
Corporate governance
The corporate governance statement is on pages 48 to 53
and is incorporated in this Directors’ Report by reference.
Going concern and viability statements
The going concern and viability statements required to be
included in the annual report pursuant to the UK Corporate
Governance Code are on pages 53 and 35 respectively,
and are incorporated in this Directors’ Report by reference.
STRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTS888 HOLDINGS PLC ANNUAL REPORT & ACCOUNTS 2016
46
DIRECTORS’ REPORT
continued
Principal subsidiary undertakings
The principal subsidiary undertakings are listed on page 103.
Research and development activities
In 2016, the Group maintained its focus on delivery of its
offerings to regulated markets, expansion of its mobile channel
strategy and expansion of the capabilities of its gaming
platform and offerings.
Some relevant achievements during the year in the field
of research & development included:
♦ Further development of our gaming and betting offerings
in regulated markets, including Italy (Sports) and Romania
(Casino, Poker and Sport);
♦ Modification of our back-end and front-end systems
to support the re-launched 888poker customer
loyalty program;
♦ Poker Blast, a new speedy and exciting poker variation,
was launched during August with great success;
♦ Bingo new variants added to the Bingo offering expanding
Dragonfish’s proposition and player experience;
♦ Addition of more than 100 new games by PC and mobile,
with an emphasis on development in HTML5;
♦ Continued investment in special features and usability
for the company’s Mobile channel, including rating of
apps and special payment methods such as Apple Pay;
♦ Development of a Sport “Freebet Hunt” mobile app
allowing freebet tokens to be scattered on a real-life
map for players to “grab” when they reach the
designated location;
♦ Development of new marketing tools for improved
optimisation of bonuses and customer experience;
♦ Enhancements to customer verification tools for
customer due diligence, responsible gaming and
anti-money-laundering;
♦ Ongoing improvement to our back office and support
tools; and
♦ Continued investment in our core platform and data
centre infrastructure.
Greenhouse gas emissions
Details of 888’s greenhouse gas emissions are set out in the
Corporate Responsibility section of the Strategic Report
on pages 36 and 37.
Auditors
A resolution for the reappointment of Ernst and Young LLP
and EY Limited, Gibraltar, (together, EY), as auditors of the
Company will be proposed at the 2017 Annual General Meeting.
During the year ended 31 December 2016, Ernst and Young LLP
were reappointed auditors for the purposes of the Company
preparing financial statements as required pursuant to the
UK Listing Rules. EY Limited, Gibraltar, which is approved as
a registered auditor under the Gibraltar Financial Services
(Auditors) Act 2009, is the statutory auditor of the Company
including for the purposes of issuing an audit report pursuant
to the Gibraltar Companies Act 2014.
During 2016, EY charged 888 US$0.3 million in audit fees
and US$0.3 million in non-audit fees, and during 2015, EY
charged 888 US$0.4 million in audit fees and US$3.4 million
in non-audit fees (out of which US$3.3 million was associated
with the proposed acquisition of bwin.party digital
entertainment plc).
Directors’ statement of responsibilities
Company law requires the Directors to prepare financial
statements in accordance with the Gibraltar Companies
Act 2014.
International Accounting Standard 1 requires that financial
statements present fairly for each financial year the Company’s
and the Group’s financial position, financial performance
and cash flows. This requires the faithful representation of
the effects of transactions, other events and conditions in
accordance with the definitions and recognition criteria
for assets, liabilities, income and expenses set out in the
International Accounting Standards Board’s “Framework for
the preparation and presentation of financial statements”. In
virtually all circumstances, a fair presentation will be achieved
by compliance with all applicable IFRSs as adopted by the EU.
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 as adopted by the EU 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 adequate accounting
records which disclose with reasonable accuracy at any time
the financial position of the Group, 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 Act 2014.
Financial statements are published on the Company’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 Company’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 IFRSs as adopted by the EU and have also chosen to
prepare financial statements for the Group in accordance
with IFRSs as adopted by the EU.
888 HOLDINGS PLC ANNUAL REPORT & ACCOUNTS 2016
47
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 position and performance, business model
and strategy.
Each of the Directors confirms, to the best of his 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 Company 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 Company 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:
ITAI FRIEBERGER
Chief Executive Officer
21 March 2017
STRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTS888 HOLDINGS PLC ANNUAL REPORT & ACCOUNTS 2016 48
CORPORATE GOVERNANCE STATEMENT
The Company 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” or “UK Corporate
Governance Code”) applies to the Company pursuant to the
UK Listing Rules and is available at www.frc.org.uk. The version
of the Code published in September 2014 applied to the
financial year under review, and 888 has applied the version of
the Code published in April 2016 since its financial year end.
The Board remains committed to the principles of corporate
governance in the UK Corporate Governance 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 UK Corporate Governance Code.
The statement contained in this section explains the key
features of the Company’s governance structure and
compliance with the UK Corporate Governance Code.
Where the Company has not complied with the UK
Corporate Governance Code, explanations are given below.
This statement also includes items required by the UK Listing
Rules and the Disclosure Guidance and Transparency Rules,
including how the “Main Principles” of the UK Corporate
Governance Code have been applied.
The Board remains committed to the principles of
corporate governance in the UK Corporate Governance
Code which it considers to be central to the effective and
efficient management of 888’s business and to maintaining
the confidence of investors for its long-term success.
This report explains how the Company has applied the
main principles of the UK Corporate Governance Code.
Statement of compliance with the UK Corporate
Governance Code
During 2016, the Company was in material compliance with
the UK Corporate Governance Code 2014, other than as
regards the following:
♦ A.2.1: The roles of chairman and chief executive were
exercised by the same individual, Brian Mattingley,
until the appointment of Itai Frieberger as Chief Executive
Officer of the Company and Brian Mattingley as Chairman,
on 2 March 2016.
♦ A.4.1: There was no designated Senior Independent Director
until Ron McMillan’s appointment in May 2016.
♦ C.3.1/D.2.1: As there are only two Independent Non-
executive Directors serving on the Board, it has not been
possible for the Board to appoint three Independent
Non-executive Directors to the Audit and Remuneration
Committees. The appointment of an additional Non-
executive Director to the Board was delayed in light of
potential corporation transactions which were under
discussion during the year. The Board is in advanced stages
of appointing one additional Non-executive Director to the
Board; in addition, a recruitment agency has been engaged
with a view to recruiting a further Non-executive Director.
Leadership
The Directors consider it essential that the Company should
be both led and controlled by an effective Board.
Board responsibilities and procedures
The Board focuses upon the Company’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 the
Company’s budgets and dividend policy. The Board also
determines key appointments. The Board receives regular
updates on shareholders’ views.
Board-level 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-executive Directors (including the Senior Independent
Director), regularly agreeing and reviewing each Director’s
training and development needs, and supporting key external
relationships; the CEO has the overall executive responsibility
for the running of the Company’s business; and the Non-
executive Directors (including the Senior Independent Director)
are responsible to constructively challenge and help develop
proposals on strategy; no one individual has unfettered powers
of decision.
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 48 to 53), which individually
consider their own operating frameworks against the Board’s
business programme.
The Directors have wide-ranging business experience, and
no individual, or group of individuals, dominates the Board’s
decision making.
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 888 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.
Chairman and Chief Executive Officer
Brian Mattingley, who served as Chief Executive Officer from
March 2012, became Executive Chairman in May 2015, a role
which he fulfilled until the appointment of Itai Frieberger
as Chief Executive Officer on 2 March 2016, at which time
Mr Mattingley became a non-executive Chairman. The Board
consulted with 888’s major shareholders in 2016 with regard
to these succession planning matters.
888 HOLDINGS PLC ANNUAL REPORT & ACCOUNTS 2016 49
Itai Frieberger was appointed as Chief Executive Officer on
2 March 2016. Mr Mattingley and Mr Frieberger have a close
working relationship to ensure the integrity of the decision
making process of the Board and the successful delivery of
888’s strategy. There is now a clear division of responsibilities
between the Chairman and the CEO, which the Board
considers an important part of its corporate governance.
Non-executive Director independence
Amos Pickel served as a Non-executive Director of 888 since
March 2006. During 2016, the Board carefully considered
whether Mr Pickel’s length of service had compromised his
independence and concluded that he remained independent in
character and judgement and that there were no relationships
or other circumstances which were likely to affect, or could
appear to affect, his judgement. Moreover, from the rigorous
review carried out by the Board of its members’ performance,
it concluded that Mr Pickel continued to bring invaluable
experience and insight to the Board and to contribute
positively to Board and committee deliberations. The Board
was therefore entirely satisfied as to Mr Pickel’s performance
and continued independence.
Ron McMillan was appointed Senior Independent Director
during 2016 and the Board is confident that he is and remains
independent in character and judgment and that there are no
relationships or circumstances which are likely to affect, or
could appear to affect, his judgement.
Directors’ insurance cover
The Company has arranged and maintains, at its expense,
a directors’ and officers’ liability insurance policy in respect
of legal actions against its Directors, as recommended by the
UK Corporate Governance Code. To the extent permitted by
Gibraltar law, the Company may also indemnify the Directors.
Neither the insurance nor the indemnity provides cover where
a director has acted fraudulently or dishonestly.
Diversity policy
Details of the Company’s diversity position and involvement
of women in management of the Group are set out in the
Corporate Responsibility section of the Strategic Report
on pages 36 to 39.
EFFECTIVENESS
Board composition
During 2016, the Board consisted of five Directors, as follows:
a Senior Independent Director (Ron McMillan), an independent
Non-executive Director (Amos Pickel), a Chairman (Brian
Mattingley who was Executive Chairman until the appointment
of Itai Frieberger as Chief Executive Officer on 2 March 2016),
and two Executive Directors (Itai Frieberger as the Chief
Executive Officer (Chief Operating Officer until 2 March 2016)
and Aviad Kobrine as the Chief Financial Officer).
The biographical details of all of the Directors, setting out
their relevant skills and experience and their professional
commitments, are given on pages 40 and 41.
Independent Directors
Half of the Directors, excluding the Chairman, are
Non-executive Directors determined by the Board
to be independent for the purposes of the UK Corporate
Governance Code.
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.
Ron McMillan was appointed as the 888 Board’s Senior
Independent Director on 9 May 2016.
Nominations Committee
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 prioritised the recruitment of experienced
Non-executive Directors, although appointments were delayed
during 2016 due to potential corporate transactions.
The Board has established a nomination committee to
lead the process for Board appointments and to make
recommendations to the Board (the Nominations Committee).
During the year, the Nominations Committee comprised
independent Non-executive Director Amos Pickel (Chairman),
and Senior Independent Director Ron McMillan.
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. In accordance with the Nominations
Committee’s terms of reference, the Committee Chairman does
not chair the Nomination Committee when it is dealing with
the appointment of a successor to the chairmanship, and the
Nomination Committee is tasked with preparing a description
of the role and the capabilities required for particular roles.
The Nominations Committee’s terms of reference are available
on the Company’s website, corporate.888.com.
The Nominations Committee and the Board will continue its
efforts in 2017 to recruit suitable and experienced independent
Non-executive Directors.
The Nominations Committee is also responsible for pursuing
diversity within the scope of its mandate, including setting
any 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 Strategic Report
on pages 36 to 39.
STRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTS888 HOLDINGS PLC ANNUAL REPORT & ACCOUNTS 2016 50
CORPORATE GOVERNANCE STATEMENT
continued
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 UK
Corporate Governance Code.
discussion and decision making. The Directors regularly
communicate and exchange information irrespective of
the timing of meetings.
When proposing Directors for re-election, the Board rigorously
reviews the performance of each Director and assesses
whether the individual’s performance continues to be effective
and that he or she continues to demonstrate commitment
to the role, taking into account the need for progressive
refreshing of the Board.
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.
Commitment
The opportunity to hold office as Non-executive Directors
of other companies enables the Directors of 888 to broaden
their experience and knowledge, which benefits 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. Non-executive Directors are required
to allocate sufficient time to perform all applicable roles and
to both disclose any external appointments and consult with
the Company prior to accepting any new major external
appointments. During 2016, the Board considered Amos
Pickel’s executive role with Swiftstake Technologies S.A. and
concluded that it did not derogate from his commitment of
sufficient time to his Non-executive Director role with 888.
The Chairman has disclosed details of his other significant
commitments to the Board during 2016 and these are detailed
in his biography on page 40.
The Board considers that Brian Mattingley’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 888 effectively.
The terms of appointment for each Non-executive Director,
including expected time commitment are available for
inspection at the Company’s registered office during normal
business hours and at the AGM.
Meetings and attendance
The Board plans to meet six times a year. When urgent
decision making is required between meetings on matters
reserved to the Board, there is a process in place to facilitate
During 2016, the Board met eight times. Set out below
are details of the Directors’ attendance record at Board
and Committee meetings in 2016. The reason for holding
more annual meetings than the usual six was primarily the
Company’s proposed takeover offer of William Hill plc which
was subsequently withdrawn.
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. If a Director is unable
to attend a meeting, he is given the opportunity to raise any
issues and give any comments to the Chairman in advance.
None of the Directors have raised any concerns about the
running of the Company or a proposed action which needed
to be recorded in the Board minutes of the Company or in
a statement to the Chairman for circulation to the Board.
Meetings with Non-executive Directors
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 take into account the views of the
Executive Directors. Under the UK Corporate Governance
Code, it is part of the role of the Senior Independent Director
to lead this process.
Board evaluation
The Board has established a formal process for the annual
evaluation of its performance, and the performance of 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.
An externally facilitated evaluation of the Board and its
Committees relating to performance in 2016 was carried out
in September 2016, and included evaluation of the performance
of the Board and each Committee as a whole as well as
evaluation of individual Directors and the Chairman against
criteria and minimum requirements set by the Board. The
evaluation was carried out by Mr Raymond Dinkin of Consilium
Board and Leadership Development, a London based
management consulting firm to Boards and executives which
has no other connection with 888. The evaluation included
Total held in year
Brian Mattingley
Itai Frieberger
Aviad Kobrine
Ron McMillan
Amos Pickel
Total number of meetings held during the year ended
December 2016 and the number of meetings
attended by each Director
Board
Audit
Committee
Remuneration
Committee
Nominations
Committee
8
8
8
7
7
8
3
N/A
N/A
N/A
3
3
2
N/A
N/A
N/A
2
2
1
N/A
N/A
N/A
1
1
888 HOLDINGS PLC ANNUAL REPORT & ACCOUNTS 2016
51
questionnaires and face to face meetings with Board members,
senior management, representatives of major shareholders and
888’s external legal advisers.
in the Company) which is to his knowledge material, except
in specific limited circumstances. Such procedures operated
effectively during the year.
The evaluation culminated in a number of recommendations,
including as regards succession planning, the structure
of Board meetings, tracking of Board decisions and
financial reporting to the Board. The Board adopted
all recommendations which arose from the evaluation.
The evaluation concluded that the Board and its Committees
are well-balanced and effective, and are a forum for meaningful
deliberation and constructive challenge with regard to the
matters of strategic importance to the Company.
Following the evaluation, the Board was satisfied that each of
the Non-executive Directors continues to be effective and to
demonstrate commitment to their respective roles. The Board
proposes Ron McMillan for re-election to the Board and notes
that Amos Pickel will not be offering himself for re-election at
the 2017 Annual General Meeting.
Development and advice
The Board understands 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.
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 the Company of their intention to do so.
No new Directors were appointed during 2016. On 9 May 2016,
Ron McMillan was appointed Senior Independent Director.
On 2 March 2016, Itai Frieberger was appointed as Chief
Executive Officer, at which time Brian Mattingley became
a non-executive Chairman.
As noted above, the Chairman regularly agrees and reviews
each Director’s training and development needs. Members of
the committees receive specific updates on matters that are
relevant to their role. Members of the senior management team
with responsibility for the Group’s business make periodic
presentations at Board meetings about their functions,
performance, markets and strategy.
Information and support
Each of the Directors has access to the advice and services
of the Company Secretary. Under the direction of the
Chairman, the Company Secretary’s responsibilities include
ensuring information flows within and between the Board, its
Committees and senior management, as well as facilitating
induction, evaluation and professional development activities,
and advising the Board on corporate governance, legal and
procedural matters.
The appointment or removal of the Company Secretary
is a matter for the Board as a whole.
ACCOUNTABILITY
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.
The Directors monitor the Company’s systems of internal
control and risk management on an ongoing basis, including
identifying, evaluating and managing the significant risks faced
by the Company. The Board believes that its risk management
process accords with the FRC Guidance on Risk Management,
Internal Control and Related Financial and Business Reporting
and carries out an annual review of its effectiveness covering
all material controls, including financial, operational and
compliance controls.
The annual review considers individual risk control
responsibilities, reporting lines and qualitative assessments
of residual risks. Such a review was carried out in respect of the
processes that were in place throughout 2016 up until the date
of approval of the Annual Report and Accounts. No significant
failings or weaknesses were identified in the review.
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 Audit Committee also reviews the appropriateness and
adequacy of systems of internal control and risk management
in relation to the financial reporting process on an ongoing
basis and makes recommendations to the Board based
on its findings.
888’s internal control and risk management systems in relation
to the process of preparing consolidated accounts include
the following:
♦ Identification of significant risk and control areas of
relevance to group-wide accounting processes;
♦ Controls to monitor the consolidated accounting
process and its results at the level of the Board and at
the level of the companies included in the consolidated
financial statements;
♦ Preventative control measures in the finance and
accounting systems of the Company and of the companies
included in the consolidated financial statements and
in the operative, performance-oriented processes that
generate significant information for the preparation of the
consolidated financial statements including the Strategic
Report, including a separation of functions and pre-defined
approval processes in relevant areas;
Conflicts of interest
Conflicts of interest of the Directors are dealt with in
accordance with the procedures set out in the Company’s
Memorandum & Articles of Association and are monitored by
the Chairman. Specifically, a Director does not vote on Board or
Committee resolutions in which he or persons connected with
him have an interest (other than by virtue of a shareholding
♦ Measures that safeguard proper IT-based processing of
matters and data relevant to accounting;
♦ Reporting information of companies around the Group
which enable the Company to prepare consolidated
financial statements including management accounts.
STRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTS888 HOLDINGS PLC ANNUAL REPORT & ACCOUNTS 2016 52
CORPORATE GOVERNANCE STATEMENT
continued
The reporting structure relating to all the companies
included in the consolidated financial statements requires that
significant risks are to be reported immediately to the Board
on identification.
The Directors’ Remuneration Report, which outlines the
Remuneration Committee’s work and details of Directors’
remuneration, is on pages 54 to 66. The Remuneration
Committee’s terms of reference are available on the
Company’s website, corporate.888.com.
Audit Committee and auditors
The Board has established an Audit Committee. Details of
the Audit Committee’s functions, together with its specific
activities in 2016, are set out in the Audit Committee Report
on pages 67 to 70.
During the year the Company’s Audit Committee comprised
Senior Independent Director Ron McMillan (Chair) and
Independent Non-executive Director Amos Pickel. As there are
only two Independent Non-executive Directors serving on the
Board, it has not been possible for the Board to appoint three
Independent Non-executive Directors to the committee.
During 2016, Deloitte carried out the Company’s internal audit
function, reporting to the Audit Committee; during 2016, the
internal auditor provided seven reports to the Audit Committee
and discussed the internal audit working plan for 2017.
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.
Details of the Company’s risk management strategy and the
Board’s assessment of the Company’s viability in light of its
risks are set out on pages 26 and 35 respectively.
Remuneration Committee
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.
During the year the Company’s Remuneration Committee
comprised Independent Non-executive Director Amos Pickel
(Chair) and Senior Independent Director Ron McMillan.
As there are only two Independent Non-executive Directors
serving on the Board, it has not been possible for the Board
to appoint three Independent Non-executive Directors to
the Committee.
The Remuneration Committee determines the Chairman’s
and Executive Directors’ fees, whilst the Chairman and the
Executive Directors determine the fees paid to the
Non-executive Directors. Further details are provided
on page 61.
The Remuneration Committee is advised by New Bridge Street,
a trading name of Aon Hewitt, being a subsidiary of Aon plc,
which has no other connection with 888. Further details are
provided on page 66.
All new long-term incentive schemes and significant changes
to existing long-term incentive schemes are put to the
shareholders of the Company for approval before they are
adopted (save for certain circumstances as set out in the
Listing Rules).
Gaming Compliance Committee
In accordance with Nevada Gaming Control Board
requirements, the Board has appointed a Gaming Compliance
Committee. Its members are Michael Alonso (an external
consultant to the Company), Ron McMillan and Amos Pickel.
The Gaming Compliance Committee is entrusted with making
sure that the Group’s licensed gaming activity is carried out
with honesty and integrity, in accordance with high moral, legal
and ethical standards, and free from criminal and corruptive
elements. As such, the committee is responsible and has the
power to identify and evaluate situations arising in the course
of the Company’s and its Affiliates’ business that may adversely
affect the objectives of gaming control.
The Committee is not intended to displace the Board or the
Company’s executive officers with decision-making authority
but is intended to serve as an advisory body to better ensure
achievement of the Company’s goals of avoiding unsuitable
situations and in entering into relationships exclusively with
suitable persons.
The Committee’s work is being done independently and
impartially. To this end, its members are appointed by and
report directly to the Board of Directors.
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. Employees of the Group
are regularly sent reminders regarding the whistle-blowing
policy as part of general refreshers of various Group policies.
No reports of incidents under the whistle-blowing policy
were received in 2016 and up to the date of this annual report.
888 HOLDINGS PLC ANNUAL REPORT & ACCOUNTS 2016
53
Other disclosures
The following matters can be found in this report on the
following pages:
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 Board also keeps up to date with the
views of major shareholders through meetings and discussions
with shareholder representatives throughout the year.
The outcome of this dialogue and meetings is reported to the
Board. The programme includes formal presentations of full
year and interim results, analysts’ conference calls and periodic
roadshows and discussion of the Company’s strategy and
governance. Discussions were held with shareholder advisory
bodies in 2016, in particular to discuss Directors’ remuneration
and matters relating to the remuneration policy.
Applicable sub-paragraph within LR 9.8.4
(1)
Interest capitalised by the Group
(2) Publication of unaudited financial information
(3) Details of long-term incentive schemes only
involving a Director
(4) Waiver of emoluments by a Director
(5) Waiver of future emoluments by a Director
(6) Non pro-rata allotments for cash (issuer)
The Senior Independent Director and Non-executive Director
are available to talk to shareholders if they have any issues
or concerns or if there are any matters where contact with
the Chairman, Chief Executive Officer and Chief Financial
Officer is inappropriate or where such contact has failed
to resolve the issue.
(7) Non pro-rata allotments for cash
by major subsidiaries
(8) Parent participation in a placing
by a listed subsidiary
(9) Contracts of significance
Disclosure
provided
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
(10) Provision of services by a controlling shareholder
(11) Shareholder waivers of dividends
(12) Shareholder waivers of future dividends
(13) Agreements with controlling shareholders
Page 44
On behalf of the Board:
BRIAN MATTINGLEY
Chairman
21 March 2017
All shareholders are welcome to attend the 2017 Annual
General Meeting (scheduled to be held on 9 May 2017) and
private investors are encouraged to take advantage of the
opportunity given to ask questions. All Board members
(including the Chairmen of the Audit, Remuneration and
Nominations Committees) will attend the meeting and be
available to answer questions.
Compliance with statutory provisions
As the Company is registered in Gibraltar, it is subject to
compliance with Gibraltar statutory requirements. The main
corporate legislation relevant to the Company in Gibraltar
is the Gibraltar Companies Act 2014. The Company is in full
compliance with the Gibraltar Companies Act.
Going concern
After careful review of the Group’s budget for 2017, 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 and for a period of at
least 12 months from the approval of this Annual Report.
They have therefore continued to adopt the going concern
basis in preparing the financial statements.
Principal risks and uncertainties
The principal risks and uncertainties faced by the Group are
disclosed in the Risk Management Strategy report on page 26.
Viability Statement
The Company’s Viability Statement is set out on page 35.
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 36 to 39.
STRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTS888 HOLDINGS PLC ANNUAL REPORT & ACCOUNTS 2016
54
DIRECTORS’ REMUNERATION REPORT
ANNUAL STATEMENT
Dear shareholder,
I am pleased to present our Directors’ Remuneration Report
to shareholders.
As a company incorporated in Gibraltar, 888 Holdings plc is
not bound by UK law or regulation in the area of Directors’
remuneration to the same extent that it applies to UK
incorporated companies. However, by virtue of 888’s Premium
Listing on the London Stock Exchange and reflecting the
Committee’s approach to good governance, we have adopted
in full the disclosure requirements of a UK incorporated
company, and shareholders will be given the opportunity to
approve our Annual Report on Remuneration, which is subject
to an advisory vote at the 2017 Annual General Meeting.
Remuneration and strategy
Our goal is to reward executives fairly, by providing an
appropriate balance between fixed and variable remuneration,
linked to the achievement of suitably challenging performance
measures. As highlighted at the front of this Annual Report,
our strategy focuses on the following pillars:
♦ Development of core B2C brands;
♦ Driving margin growth through operational efficiencies;
♦ Expansion in regulated markets;
♦ B2B partner of choice; and
♦ Continue to protect our customers and act responsibly.
Our incentive plans are aligned to profitability of the 888
business and shareholder value, which we believe derive from
implementation of this strategy.
Pay outcomes for 2016
The annual bonus was focused on the achievement of
stretching like-for-like adjusted EBITDA growth1 targets. Like-
for-like adjusted EBITDA growth in 2016 was 24%, resulting in
bonuses to the Directors of the maximum amount of 150% of
salary. For full details of Executive Directors’ bonuses and the
associated performance delivered see page 61.
In relation to long-term incentives, the awards granted in
2014 under the All Employee Share Plan vested based on
a performance measure comprising 50% of an absolute
EPS growth target and 50% on relative TSR. EPS growth
performance was measured over the three year period to
31 December 2016; EPS growth performance over this period
was 89% against a target range of 15.76% (5% p.a. compounded)
to 72.80% (20% p.a. compounded).TSR performance was
measured over three years to 31 December 2016; TSR
performance was 50%, putting it above the stretch target.
This will result in 100% of the 2014 award vesting in March 2017.
Overall, in light of the annual and long-term performance
delivered, the Committee is satisfied that there has been
a robust link between performance and reward.
Remuneration Policy
No changes are proposed to the Remuneration Policy
adopted by the Company at its 2016 Annual General Meeting,
which is reproduced in the following pages for reference.
The second section of this report is the Annual Report on
Remuneration which provides detailed disclosure on how the
remuneration policy will be implemented for 2017 and how
Directors have been paid in 2016. The disclosures provide
shareholders with the information necessary to form a
judgment as to the link between Company performance and
how the Executive Directors were paid. This Annual Statement
together with the Annual Report on Remuneration will be
subject to an advisory vote and I hope that you will be able to
support the resolution at the forthcoming AGM.
The Committee is committed to maintaining an open and
constructive dialogue with our shareholders on remuneration
matters and I welcome any feedback you may have.
AMOS PICKEL
Chairman of the Remuneration Committee
21 March 2017
1 Like-for-like adjusted EBITDA growth was calculated as the increase
in adjusted EBITDA (i) excluding certain external charges that were
not applicable during 2015, such as gaming duties and VAT,
and (ii) on a constant currency basis.
888 HOLDINGS PLC ANNUAL REPORT & ACCOUNTS 2016 55
DIRECTORS’ REMUNERATION POLICY
No changes are proposed to the Remuneration Policy adopted by the Company at its 2016 Annual General Meeting and detailed
in the 2015 Annual Report. However, the Remuneration Policy table is reproduced below for convenience.
Remuneration policy table
Base salary
Purpose and link to strategy
To recruit, motivate and retain high-calibre Executive Directors by offering salaries
at market competitive levels.
Reflects individual experience and role.
Operation
Reviewed annually with any changes normally effective from 1 January. Positioning
and annual increases are influenced by:
♦ our sector, where the market for executive talent is intense
♦ the experience and performance of the individual;
♦ changes in responsibility or position;
♦ changes in broader workforce salary; and
♦ the performance of 888 as a whole.
Benchmarking is carried out on a total remuneration basis and takes into account pay
levels for comparable roles at a range of organisations of similar size and sector – including
pay practices in other UK listed companies and in the international gaming industry.
Any increase to directors’ salaries will generally be no higher than the average increase
for other employees. However, a higher increase may be proposed in the event of a role
change or promotion, or in other exceptional circumstances.
Opportunity
Benefits
Purpose and link to strategy
Market competitive structure to support recruitment and retention.
Operation
Medical cover aims to ensure minimal business interruption as a result of illness.
Executive Directors may receive various benefits in kind as part of their employment terms.
These may include an accommodation allowance (where 888 has required the executive
to relocate), use of a company car (or car allowance), health insurance (or a contribution
towards a health insurance scheme), “study fund” (a common savings benefit in Israel),
disability and life assurance, relocation expenses, directors’ indemnities and directors’
and officers’ insurances to the extent permitted by law and other ad hoc benefits at the
discretion of the Committee.
Opportunity
The value of benefits is based on the cost to 888 and there is no pre-determined maximum
limit.
The range and value of the benefits offered is reviewed periodically.
Pension
Purpose and link to strategy
Contribution towards the funding of post-retirement life.
Operation
888 offers a defined contribution pension scheme (via outsourced pension providers)
or cash in lieu of pension.
Opportunity
Up to 15% of base salary.
STRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTS888 HOLDINGS PLC ANNUAL REPORT & ACCOUNTS 2016 56
DIRECTORS’ REMUNERATION REPORT
continued
Remuneration policy table continued
Annual bonus
Purpose and link to strategy
Rewards the achievement of annual financial and, if appropriate, non-financial strategic
targets.
Operation
Bonus targets (percentage of salary) are based on objective and disclosable calculations
for financial and non-financial performance where possible.
The precise weightings between metrics may differ each year, although there will be always
be a greater focus on financial as opposed to non-financial performance.
Any bonus payment in excess of 100% of salary is deferred into shares which vest in equal
tranches after one, two and three years.
A dividend equivalent provision operates enabling dividends to be accrued (in cash or
shares) on unvested deferred bonus shares (or up to the point of exercise in the case of nil
cost options).
The bonus is subject to a recovery and withholding provision if the financial statements of
888 were materially misstated or an error occurred in assessing the performance conditions
on bonus and/or if the Executive ceased to be a Director or employee due to gross
misconduct.
Opportunity
The maximum opportunity is 150% of base salary.
Performance metrics
The level of pay-out for the achievement of target performance, as set by the Committee
is 50% of the maximum amount. Presently the target is based on like-for-like Adjusted
EBITDA growth in addition to exceeding budgeted Adjusted EBITDA for the year as
approved by the Board.
The threshold level of payment may be up to 25% of the maximum.
Financial Performance
The financial component is based on 888’s key financial measures of performance. This will
normally be based on like-for-like Adjusted EBITDA growth but may include other financial
KPIs.
A sliding scale of targets applies for financial performance targets which are measured
annually.
The degree of stretch in targets may vary each year depending on the business aims and
the broader economic or industry environment at the start of the relevant year.
Non-financial Performance
There is no intention initially to use non-financial performance conditions, but the
Committee wishes to retain flexibility to do so, for a minority of the bonus opportunity.
888 HOLDINGS PLC ANNUAL REPORT & ACCOUNTS 2016 57
Remuneration policy table continued
Long-Term Incentives (LTIP)
Purpose and link to strategy
Rewards Executive Directors for achieving superior returns for shareholders over a longer-
term timeframe.
Enables Executive Directors to build a meaningful shareholding over time and align goals
with shareholders.
Operation
888 sought shareholder approval for the 2015 LTIP at the EGM held on 30 September 2015.
This replaced the previous share plans which expired in August 2015.
Opportunity
Performance metrics
LTIP awards are made annually in the form of nil cost options or conditional awards with
vesting dependent on the achievement of performance conditions over at least three
financial years, commencing with the year of grant.
Awards are subject to a recovery and withholding provision if there is a material
misstatement in 888’s financial statements, an error in the calculation of any performance
conditions or if the Executive Director ceases to be a Director or employee due to gross
misconduct.
A dividend equivalent provision operates enabling dividends to be accrued (in cash or
shares) on LTIP awards to the extent they vest.
Award levels are determined primarily by seniority. A maximum individual grant limit of
200% of salary applies, based on the face value of shares at the date of grant. The current
award level is 200% of salary for the Chief Executive and 150% of salary for the Chief
Financial Officer.
Awards vest at the end of a three year performance period based on performance
measures reflecting the outputs of the long-term strategy of the business at the time of
grant.
Awards are currently based 50% on adjusted EPS and 50% on relative total shareholder
return (TSR), but the choice and weightings of metrics may differ for future award cycles.
Where possible TSR will be compared to a basket of 888’s peers, but recognising the level
of consolidation in the sector the selection criteria may be broadened to the Leisure Sector
or listed companies more generally.
The Committee will review the weightings between measures and the target ranges prior to
each LTIP grant to ensure that the overall balance and level of stretch remains appropriate.
A sliding scale of targets applies for financial metrics with no more than 25% of the award
vesting at threshold performance.
For TSR, none of this part of the award will vest below median ranking and awards will vest
on a sliding scale for performance between the threshold and stretch targets.
Share ownership guidelines
Under the guidelines, Executive Directors are expected to build and maintain an interest equivalent in value to no less than
two times salary. Beneficially owned shares and fully vested unexercised nil-cost options (valued on a net of tax basis) will be
included when determining the extent to which the guideline holding is achieved. Until such time as the guideline threshold is
achieved. Executive Directors are required to retain 50% of the net of tax value of awards that vest under the LTIP or deferred
annual bonus.
STRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTS888 HOLDINGS PLC ANNUAL REPORT & ACCOUNTS 2016 58
DIRECTORS’ REMUNERATION REPORT
continued
Remuneration policy table continued
Chairman and Non-Executive Directors’ (NEDs) fees
Purpose and link to strategy
Operation
To recruit, motivate and retain a Chairman and Non-executive Directors of a high calibre
by offering a market competitive fee level and which takes account of the specific
circumstances of 888.
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 other gaming 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 Chairman and Executive Directors
have reference in this respect to prevailing fee rates amongst other gaming 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 Senior
Independent Director, and travel time to Board meetings (which are held outside the UK).
Additional fees may be paid as appropriate to reflect increased time commitments of the
role.
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 888. The Chairman
and Non-executive Directors are entitled to be reimbursed for any reasonable travel and
accommodation expenses incurred in the performance of their duties (including any tax
incurred thereon).
Opportunity
No maximum.
Annual report on remuneration
This Annual Report on Remuneration together with the Chairman’s Annual Statement, as detailed on page 54 will be subject
to an advisory vote at the 2017 AGM. The information on page 60 with respect to Directors’ emoluments and onwards through
page 66 has been audited.
Implementation of Remuneration Policy for 2017
In relation to the Remuneration Policy described in the previous section, the expected application of the Remuneration Policy
for 2017 is set out below.
Base salary and fees
Executive Directors
Salaries for 2017 are set out below:
♦ CEO – Itai Frieberger: ILS 3,180,000 (2016: ILS 3,024,495).
♦ CFO – Aviad Kobrine: £437,000 (2016: £416,000).
A 5% increase has been awarded, in line with the average increase for 888’s wider workforce.
Chairman and Non-Executive Director fees
The fees remain unchanged at:
♦ Chairman’s fee: £290,000;
♦ Non-executive Director fee: £85,000; and
♦ Senior Independent Director fee: £105,000.
888 HOLDINGS PLC ANNUAL REPORT & ACCOUNTS 2016
59
DIRECTORS’ SERVICE CONTRACTS
The unexpired term of the directors’ service contracts or appointment letters are as follows:
Name
Position
Unexpired Term of Service Contract
Brian Mattingley
Chairman
Itai Frieberger
Chief Executive Officer
Aviad Kobrine
Chief Financial Officer
Ron McMillan
Senior Independent Director
Terminable at six months’ prior written notice, subject
to annual re-election at the Annual General Meeting.
Indefinite subject to termination provisions set out
in his Agreement.
Indefinite subject to termination provisions set out
in his Agreement.
Until 15 May 2017, subject to re-election at each
Annual General Meeting. Subject to re-election at
the 2017 Annual General Meeting, it is intended that
Ron McMillan’s appointment will be extended for
a further three year term.
Amos Pickel
Non-executive Director
Until 9 May 2017.
Annual bonus
For 2017, the CEO and CFO will have a bonus opportunity of 150% of salary.
Bonus will be based on a sliding scale range of like-for-like EBITDA targets for 25% to 100% vesting, which will be disclosed
retrospectively in next year’s annual report on remuneration.
Any bonus above 100% of salary will be paid in deferred shares.
Long-Term Incentive Plan
Award levels
The CEO and CFO will be granted awards worth 200% of base salary and 150% of salary respectively.
Performance conditions
2017 LTIP awards will be subject to EPS and relative TSR performance conditions, each with a 50% weighting. These metrics
were chosen as EPS provides a focus on 888’s underlying financial performance, and relative TSR provides an objective reward
for delivering value to shareholders compared to 888’s peers.
Detail and target ranges
EPS target range for 2017 awards:
♦ Threshold – 3 year CAGR of 5%;
♦ Maximum – 3 year CAGR of 20%
None of the award will vest if EPS is below threshold, 25% will vest at threshold, and 100% will vest at maximum.
Performance between threshold and maximum is determined on a straight-line basis.
TSR target for 2017 awards:
888’s TSR will be compared against a comparator group comprising five peer companies as follows: GVC Holdings plc,
Ladbrokes Coral Group plc, Playtech plc, Paddy Power Betfair plc, William Hill plc.
♦ 0% will vest if 888’s TSR is below the TSR of the median company in the comparator group;
♦ 25% will vest if 888’s TSR is equal to the TSR of the median company in the comparator group (“Threshold”); and
♦ 100% will vest if 888’s TSR is 33% (i.e. 10% per annum) or more above the TSR of the median company in the comparator
group (“Maximum”).
♦ Vesting will be on a proportionate basis for performance between Threshold and Maximum.
STRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTS888 HOLDINGS PLC ANNUAL REPORT & ACCOUNTS 2016 60
DIRECTORS’ REMUNERATION REPORT
continued
Remuneration paid to Executive Directors for service in 2016
The following table presents the Executive Directors’ emoluments in respect of the year ended 31 December 2016.
Executive Directors1
Itai Frieberger, CEO2
Aviad Kobrine, CFO
2016
2015
2016
2015
Brian Mattingley, former CEO9 2016
2015
Salary3
US$ 000
Taxable
benefits4
US$ 000
Annual Long-Term
Incentives6
bonus5
US$ 000 US$ 000
US$ 000
Pension7 remuneration8
Total
US$ 000 US$ 000
Other Items
in the
nature of
769
401
564
605
—
230
169
129
49
56
—
12
1,153
597
769
876
—
336
899
—
686
1,521
—
4,837
110
56
85
91
—
—
—
—
—
347
—
—
3,100
1,183
2,153
3,496
—
5,415
1 Directors’ remuneration is converted into US Dollar from Sterling and New Israeli Shekels at the average rate of exchange for the relevant month
it was paid save for the annual cash bonus which is converted into US Dollar at the year-end exchange rate. The recorded decrease in Aviad
Kobrine’s salary, pension and annual bonus amounts reflect fluctuations in the USD:GBP exchange rate, and not a decrease in the GBP amounts.
2 Remuneration of Itai Frieberger is shown with respect to the period following his appointment to the Board on 13 May 2015. Itai Frieberger
was appointed as Chief Executive Officer on 2 March 2016.
3 Salaries for 2016 were ILS 2,948,982 for Itai Frieberger and GBP 416,000 for Aviad Kobrine. The 2016 salary anticipated in Remuneration
Scenarios set out in the 2015 Annual Report for Itai Frieberger was ILS 3,024,495, which was an annualised figure based on his updated salary
as of 2 March 2016.
4 Benefits for Aviad Kobrine include car allowance and health, disability and life insurance; and for Itai Frieberger include convalescence and
health insurance for Itai Frieberger and his family, contribution to “study fund” up to the Israeli tax-free ceiling with the excess up to 7.5% of
Itai Frieberger’s salary paid in cash, as well as gross-up of car allowance, meals allowance and transport allowance.
5 A breakdown of the 2016 annual bonus targets and the extent of their achievement is set out overleaf. Out of the total bonus payment made to
Itai Frieberger of ILS 4,423,473 (total of 150% of salary), an amount of ILS 2,948,982 (100% of salary) was granted in cash, and an amount of ILS
1,474,491 (50% of salary) will be deferred into shares of the Company under the Company’s Deferred Share Bonus Plan once approved by the
Board. Out of the total bonus payment made to Aviad Kobrine of GBP 624,000 (total of 150% of salary), an amount of GBP 416,000 (100% of
salary) was granted in cash, and an amount of GBP 208,000 (50% of salary) will be deferred into shares of the Company under the Company’s
Deferred Share Bonus Plan once approved by the Board.
6 Performance-based long-term incentives are disclosed in the year in which they vest. A breakdown of the performance conditions applying to
the payments under long-term incentives is set out on page 62. Brian Mattingley’s long-term incentive relates to the phantom award granted
in 2012 which vested on 27 March 2016. Aviad Kobrine’s long-term incentive in 2015 was governed by the 888 All-Employee Share Plan; Aviad
Kobrine and Itai Frieberger’s long-term incentives in 2016 were governed by the 888 Long-term Incentive Plan 2015. In 2016, 213,000 nil-cost
options granted to Aviad Kobrine, and 279,407 Ordinary Shares granted to Itai Frieberger on 7 April 2013 and due to vest on 7 April 2016 subject
to fulfilment of the performance conditions set out in the Directors’ Remuneration Report in 2015, vested in full.
7 In accordance with standard practice in Israel, Itai Frieberger was granted personal pension scheme contributions in an amount of 13.33% of
base salary until July 2016, and 14.03% of base salary from such date, in addition to 0.6% of base salary contribution for loss of working capacity.
Aviad Kobrine receives a cash payment in lieu of pension in the amount of 15% of base salary.
8 Other items in the nature of remuneration includes share awards and nil-cost options (including dividends accrued thereupon) that are not
subject to performance conditions, and which were granted in the reporting year, regardless of vesting date. These are valued by reference to
the market price of the shares upon grant. In 2015, this includes 136,524 nil-cost options granted to Aviad Kobrine as a like-for-like replacement
for options previously granted under the 888 All-Employee Share Plan which expired on 4 October 2015, of which 136,000 were vested
immediately and 524 will vest on 28 August 2018 in accordance with their terms.
9 Brian Mattingley stepped down as CEO on 13 May 2015 and was appointed Chairman on the same date. Brian Mattingley’s remuneration
as Chairman is excluded from the table above and included in the table on the next page.
888 HOLDINGS PLC ANNUAL REPORT & ACCOUNTS 2016
61
Non-executive Directors’ and Chairman’s fees
Current Non-executive Directors and Chairman
Ron McMillan2
Amos Pickel
Brian Mattingley3
Former Non-executive Directors
Richard Kilsby4
John Anderson5
Fee
US$ 000
Other1
US$ 000
Total
US$ 000
132
130
115
130
393
283
—
—
—
—
24
18
132
130
115
130
417
301
Fee
US$ 000
Other
US$ 000
Total
US$ 000
—
128
—
47
—
—
—
—
—
128
—
47
2016
2015
2016
2015
2016
2015
2016
2015
2016
2015
1 “Other” for Brian Mattingley reflects reimbursement of expenses connected with his role.
2 Ron McMillan was appointed as Senior Independent Director on 9 May 2016, and in that capacity his director fee was increased from
GBP 85,000 to GBP 105,000.
3 Brian Mattingley stepped down as CEO on 13 May 2015 and was appointed Chairman on the same date. Only Brian Mattingley’s remuneration
as Chairman is included in the table above.
4 Richard Kilsby stepped down as Chairman on 13 May 2015.
5 John Anderson stepped down as a Non-executive Director on 13 May 2015.
Annual bonus payments in respect of 2016 performance
As detailed in the Remuneration Policy, each Executive Director participates in the annual bonus plan, under which performance
is measured over a single financial year.
The annual bonus opportunity was 150% of base salary and the bonus was determined by reference to challenging like-for-like
adjusted EBITDA performance conditions.
EBITDA performance
The extent to which the EBITDA performance conditions were achieved is as follows:
Performance Measures
Like-for-like adjusted EBITDA
growth per annum
Threshold
Actual
(25% pay-out) (50% pay-out) (100% pay-out) performance
Target
Max
Bonus awarded
5%
12.5%
20%
24%
150% of salary
Itai Frieberger – ILS 4,423,473
Aviad Kobrine – GBP 624,000
The Committee determined that like-for-like adjusted EBITDA growth, for the 2016 bonus onwards, would be measured on
a constant currency basis.
The Committee considered that the overall bonus out-turn was reflective of the exceptional performance of the Company
and the management team over the year and that the pay-out levels were appropriate.
As noted on page 59, the proportion of bonus awarded in excess of 100% of salary, will be deferred in shares under the Deferred
Share Bonus plan once approved by the Board.
STRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTS888 HOLDINGS PLC ANNUAL REPORT & ACCOUNTS 2016
62
DIRECTORS’ REMUNERATION REPORT
continued
Long-term incentive awards with performance periods ending in the year ended 31 December 2016
888 All Employee Share Plan
The 2014 All Employee Share Plan awards are due to vest in March 2017. The tables below set out the achievement against the
performance conditions attached to the award, resulting in aggregate vesting of 100%, and the actual number of awards vesting
(with their estimated value).
Performance level
Below threshold
Threshold
Stretch or above
Actual achieved
TSR1
Like-for-like EPS growth
Performance required
% vesting
Performance required
% vesting
Below median
Median = 33%
33% (i.e. 10% p.a.)
above median = 43.9%
50%
0%
25%
100%
100%
Below 15.76%2
15.76%2
72.8% or above2
89%
0%
25%
100%
100%
1 Relative to a comparator group of 5 gaming companies – bwin.party digital entertainment plc (now GVC Holdings plc – see below),
Sportech plc, Ladbrokes plc (now Ladbrokes Coral Group plc – see below), Playtech plc, and Paddy Power plc (now Paddy Power Betfair plc).
On 1 February 2016, the acquisition of bwin.party by GVC Holdings plc was completed. As of such date, bwin.party was delisted and therefore
peer group data reflects the share price of GVC Holdings plc from 2 February 2016. In addition, during 2016, Ladbrokes plc acquired Gala Coral
and changed its listing to Ladbrokes Coral Group plc; and Paddy Power plc acquired Betfair plc and changed its listing to Paddy Power Betfair
plc. Playtech Ltd listed on 2 July 2012 and is referred to as Playtech plc.
2 15.76% aggregate EPS growth is the equivalent of 5% EPS growth compounded annually. 72.8% aggregate EPS growth is the equivalent
of 20% EPS growth compounded annually.
Details of the expected level of vesting for each Director, based on the above, are shown in the table below:
Executive
Itai Frieberger
Aviad Kobrine
Number of Number of
awards
to lapse
awards
at grant
Number of
awards
to vest
Dividend
accrual
on vested
awards
value2
US$
310,697
248,845
0
0
310,697
248,845
0
0
Value of
awards
including
Dividend
accrual1
US$
830,899
665,488
1 The value of the vested shares is based on the share price on the date of vesting, currently estimated at US$2.67 (based on the exchange rate
of 1.232) on 31 December 2016.
2 Dividends accrue on awards at the date of a dividend payment and upon exercise the cash value of the accrued dividends is paid to the
employee on the number of vested awards, the value of such dividends cannot presently be reliably estimated.
Long-term incentive awards with performance periods ending in the year ended 31 December 2015
888 All Employee Share Plan
The 2013 All Employee Share Plan awards vested in full in April 2016. The tables below set out the achievement against the
performance conditions attached to the award, resulting in aggregate vesting of 100%, and the actual number and value of
awards vested.
Performance level
Below threshold
Threshold
Stretch or above
Actual achieved
TSR
Like-for-like EPS growth
Performance required
% vesting
Performance required
% vesting
Below median
Median = 30%
33% (i.e. 10% p.a.)
above median = 39.9%
79%
0%
25%
100%
100%
Below 15.76%
15.76%
72.8% or above
96%
0%
25%
100%
100%
888 HOLDINGS PLC ANNUAL REPORT & ACCOUNTS 2016
63
Details of the level of vesting for each Director, based on the above, are shown in the table below:
Executive
Itai Frieberger
Aviad Kobrine
Number of Number of
awards
to lapse
awards
at grant
Number of
awards
to vest
Dividend
accrual
on vested
awards
value1
US$
279,407
213,100
—
—
279,407
213,100
44,146
33,670
Value of
awards
including
dividend
accrual2
US$
899,132
685,756
1 Dividends accrue on awards at the date of a dividend payment and upon exercise the cash value of the accrued dividends is paid to the
employee on the number of vested awards.
2 The value of the vested shares is based on the share price on the date of vesting (7 April 2016), being US$3.06 (based on the exchange rate
of 1.405).
Scheme interests awarded during the year
The table below sets out the grants under the 888 Holdings plc Long-Term Incentive Plan 2015 in 2016.
Executive
Itai Frieberger
Itai Frieberger
Aviad Kobrine
Aviad Kobrine
Grant date
23 March 2016
9 May 2016
23 March 2016
9 May 2016
Number of
awards granted
Face value of
awards granted1
289,7992
252,9272
221,2772
94,7612
US$822,153
US$800,063
US$627,757
US$299,750
Face value of
awards as %
salary
% vesting
at threshold
performance
100%
100%
100%
50%
25%
25%
25%
25%
1 Face value was calculated using share price on the date of grant, which was £2.01 (23 March 2016) and £2.195 (9 May 2016). The awards
to Itai Frieberger were awards of Ordinary Shares, whilst the awards to Aviad Kobrine were nil-cost options.
2 These awards are due to vest subject to performance conditions being met at the end of the performance period ending 31 December 2018.
50% of an award is subject to an EPS performance condition requiring annual EPS growth of between 5% and 20% p.a., and 50% is subject to
a TSR performance condition versus a peer group comprised of GVC Holdings, Ladbrokes Coral Group plc, Playtech plc, Paddy Power Betfair
plc and William Hill plc (25% of the TSR awards vest for median performance with full vesting achieved for out-performance the median by 10%
p.a.). Separate awards were made on 23 March 2016 and 9 May 2016 due to approval at the Annual General Meeting on 9 May 2016 of the revised
Remuneration Policy which increased the maximum individual grant limit to the Executive Directors to 200% of salary for the Chief Executive
and 150% of salary for the Chief Financial Officer (100% of salary under the prior Remuneration Policy).
Loss of office payments
In 2016, no loss of office payments were made to Executive Directors, and no payments were made to past Executive Directors.
Details of all outstanding share awards
In addition to awards made during the 2016 financial year, the table overleaf sets out details of all outstanding share based
awards held by Directors.
Directors’ shareholdings and share interests
A policy for formal shareholding guidelines has been introduced, requiring the Executive Directors to build and maintain
a shareholding in 888 worth two times annual salary as set out in the Remuneration Policy.
Details of the Directors’ interests in shares as at 31 December 2016 (or in the case of former Directors, the date on which
they retired from the Board) are shown in the table below. There were no changes in the Directors’ interests in shares between
31 December 2016 and the date of this Report.
Number of Ordinary Shares
At 31 December 2016
Unvested
shares with
Unvested
Vested
without options with
Legally performance performance performance performance unexercised
owned
conditions1
conditions1
conditions
conditions
options1,2
Unvested
options
without
Unvested
shares
%
achievement
against
shareholding
guideline3
Total
1,349,371
—
142,857
100,000
—
3,602,847
—
—
—
—
1,250,000
—
—
—
—
—
810,084
—
—
—
—
524
—
—
—
50,657
3,262,883
—
—
—
6,252,875
4,073,491
142,857
100,000
—
472%
944%
N/A
N/A
N/A
Director
Itai Frieberger
Aviad Kobrine
Brian Mattingley
Amos Pickel
Ron McMillan
1 Nil Cost Options.
2 Itai Frieberger has 15,965 options with exercise price of £1.22 and 34,692 options with exercise price of £1.49.
3 The Executive Directors are required to build and maintain a shareholding equivalent to 200% of base salary. Shares counting towards this
guideline include legally owned shares and fully vested but unexercised nil-cost options (valued on a net of tax basis). Achievement against
the guideline holding is calculated using the share price at 31 December 2016.
No Director was materially interested during the year in any contract which was significant in relation to the business of 888.
STRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTS888 HOLDINGS PLC ANNUAL REPORT & ACCOUNTS 2016
64
DIRECTORS’ REMUNERATION REPORT
continued
Performance graph
The following graph shows 888’s performance, measured by TSR, compared with the performance of the FTSE 250 Index.
The Directors consider that the FTSE 250 Index is the most appropriate comparator benchmark as it has been a member
of this index for a significant period of the time covered by the chart.
Value of £100 Sterling in 888 1/1/2009 - 31/12/2016 v. FTSE 250
320
300
280
260
240
220
200
180
160
140
120
100
80
60
40
20
0
2009
2010
2011
2012
2013
2014
2015
2016
888 dividend reinvested
FTSE 250
Total remuneration history for CEO
The table below sets out the total single figure remuneration for the CEOs over the last eight years with the annual bonus paid as
a percentage of the maximum and the percentage of long-term share awards vesting in the year.
Total remuneration (US$ 000)
Annual bonus (%)
LTI vesting (%)
2009
1,168
100%
68%
2010
20111
20122
958
100%
0%
3,783
100%
100%
1,060
100%
N/A
2013
1,275
100%
N/A
2014
1,640
100%
N/A
20153,4
20165
5,415
100%
59%
1,855
100%
N/A
1 Gigi Levy was the CEO of 888 from 2009 to 30 April 2011. There was no CEO from 1 May 2011 to 26 March 2012.
2 Brian Mattingley was CEO from 27 March 2012 to 13 May 2015. Brian Mattingley‘s total remuneration in 2015 included a phantom award granted to
him on 27 March 2012 which vested on 27 March 2015. There was no CEO from 14 May 2015 to 1 March 2016.
3 Brian Mattingley’s total remuneration in 2015 included a phantom award granted to him on 27 March 2012 and which vested on 27 March 2015.
4 Figures in 2015 reflect Brian Mattingley’s tenure as CEO until 13 May 2015.
5 Itai Frieberger was appointed as Chief Executive Officer on 2 March 2016. Figures reflect the period during which Itai Frieberger served
as Chief Executive Officer and do not include LTIP awards granted during the period prior to his appointment as Chief Executive Officer.
888 HOLDINGS PLC ANNUAL REPORT & ACCOUNTS 2016
65
Percentage change in CEO remuneration compared to the average for other employees
As the Chief Executive position remained vacant for a significant portion of 2016, as well as for most of 2015, it is not possible
to provide meaningful year-on-year analysis for this disclosure requirement.
Relative importance of spend on pay
The following graph sets out the actual expenditure by 888 in financial years 2015 and 2016 on various items, including
on remuneration to Group employees.
+22%
170
139
+2%
106
108
180
160
140
120
100
80
60
40
20
0
+12%
80
72
+6%
53
57
Employee pay & benefits*
Selling and
marketing expenses
Dividends
Tax**
■ 2015 ■ 2016
US$ million
* Employee pay & benefits is calculated in accordance with note 6 of the financial statements, and include share benefit charges
of US$6.7 million (2015: US$4.1 million).
** Includes corporation tax of US$7.7 million (2015: US$3.0 million), VAT of US$8.3 million (2015: US$10.2 million) and gaming duties
of US$63.5 million (2015: US$58.4 million).
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 888 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.
STRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTS888 HOLDINGS PLC ANNUAL REPORT & ACCOUNTS 2016 66
DIRECTORS’ REMUNERATION REPORT
continued
Committee members, attendees and advice
The Remuneration Committee consists solely of Non-executive Directors, currently Amos Pickel (Chair) and Ron McMillan.
Details of attendances at Committee meetings are contained in the statement on Corporate Governance on page 50.
The Chairman and Company Secretary attend meetings by invitation.
The Remuneration Committee’s remit includes such matters as:
♦ Determining and agreeing with the Board the remuneration policy with regard to 888’s Chairman, Chief Executive Officer,
Chief Financial Officer and other members of the executive management;
♦ Regularly reviewing the ongoing appropriateness and relevance of 888’s remuneration policy;
♦ Setting and monitoring performance criteria for bonus arrangements operated by 888 ensuring that they represent
achievable and motivating rewards for appropriate levels of performance and, where appropriate, are justifiable taking
into account 888’s and 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 888’s share option and share award schemes, setting or recommending vesting criteria which are appropriate
in terms of 888’s performance and return on shareholders’ investment over the same period.
The formal terms of reference of the Remuneration Committee are available on 888’s corporate website, corporate.888.com.
Remuneration Committee adviser
The Remuneration Committee is advised by New Bridge Street, a trading name of Aon Hewitt, being a subsidiary of Aon
plc. New Bridge Street was appointed by the Remuneration Committee in 2007. New Bridge Street has discussions with the
Remuneration Committee Chairman regularly on Committee process and topics which are of particular relevance to 888.
The primary role of New Bridge Street is to provide independent and objective advice and support to the Committee’s Chair
and members. In order to manage any possible conflict of interest, New Bridge Street operates as a distinct business within
the Aon Group and there is a robust separation between the business activities and management of New Bridge Street and
all other parts of Aon Hewitt and the wider Aon Group. The Committee is satisfied that the advice that it receives is objective
and independent. New Bridge Street is also a signatory to the Remuneration Consultants Group Code of Conduct which sets
out guidelines for managing conflicts of interest, and has confirmed to the Committee its compliance with the Remuneration
Consultants Group Code.
The total fees paid to New Bridge Street in respect of its services to the Committee for the year ending 31 December 2016
were £11,730 (2015: £57,721). Fees are charged on a “time spent” basis.
Engagement with shareholders
Details of votes cast for and against the resolution to approve last year’s Remuneration Report and the Remuneration Policy,
are shown below.
For
Against
Vote withheld
Advisory Vote to approve
Directors’ Remuneration Policy
Advisory Vote to approve
Annual Report on Remuneration
Total number
of votes
278,617,899
15,900,728
37,443
% of votes cast
94.60%
5.40%
—
Total number
of votes
291,087,062
2,115,145
1,353,863
% of votes cast
99.28%
0.72%
—
Approved by the Board of Directors and signed on behalf of the Board:
AMOS PICKEL
Chairman of the Remuneration Committee
21 March 2017
888 HOLDINGS PLC ANNUAL REPORT & ACCOUNTS 2016
67
AUDIT COMMITTEE REPORT
LETTER TO SHAREHOLDERS
Dear shareholders,
The Audit Committee exercises oversight of 888’s financial reporting policies, monitors the integrity of the financial statements
and considers the significant financial and accounting estimates and judgments applied in preparing the financial statements. It
also ensures that disclosures in the financial statements are appropriate and obtains from the external auditors an independent
view of the key disclosure issues and risks. The Committee has reviewed the narrative at the front end of this Annual Report and
considers that sufficient information has been provided to give shareholders a fair, balanced and understandable account of the
Company’s business.
To achieve its objectives, the Committee works closely with the Board to ensure that all significant risks are considered on
an ongoing basis, and that all communications with shareholders are properly considered.
A key responsibility of the Committee is to review the scope, nature and effectiveness of internal and external audits.
Internal audit work is conducted by Deloitte and the scope of their work is agreed with both management and the Audit
Committee. The Committee also monitors and reviews the key aspects of 888’s external audit, which is conducted by EY.
In relation to risks and controls, the Committee ensures that these have been identified and that appropriate responsibilities
and accountabilities have been set.
Amongst other things, during the year the Committee considered:
♦ The complex legal and regulatory environment in which 888 operates, together with changes in laws and regulations
which may impact 888’s business, sector and market.
♦ 888’s exposure to corporation tax, VAT and gaming duties in various jurisdictions.
♦ The carrying value of goodwill and other intangible assets and related disclosures in the financial statements.
♦ The adequacy of 888’s IT systems and controls.
♦ The adequacy of the systems and controls on which management relies.
♦ The Board’s assessment of risk and the risk register prepared by management.
♦ The viability statement and going concern statement prepared by management.
♦ 888’s anti-slavery and human trafficking obligations.
♦ 888’s anti-bribery obligations.
♦ 888’s anti-money laundering obligations.
Further information on the Committee’s responsibilities and the manner in which they are discharged are set out below
and are available on 888’s corporate website corporate.888.com.
I will be available at the Annual General meeting in May 2017 to answer any questions and would like to thank my colleague
on the Committee for his help and support.
Sincerely,
RON MCMILLAN
Chairman of the Audit Committee
STRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTS888 HOLDINGS PLC ANNUAL REPORT & ACCOUNTS 2016 68
AUDIT COMMITTEE REPORT
continued
Committee composition
The Committee comprises two members, Senior Independent
Director Ron McMillan and Independent Non-executive Director
Amos Pickel.
Activities
The key matters discussed by the Committee during the year
included the following:
Two members constitute a quorum. The Committee
requires the inclusion of at least one financially qualified
member with recent and relevant financial experience.
The Committee’s Chairman fulfils that requirement. Both
members of the Committee are expected to have an
understanding of financial reporting, 888’s internal control
environment, relevant corporate legislation, the functions of
internal and external audit and the regulatory framework of
the business, in addition to competence relevant to the online
gaming sector. Amos Pickel has extensive industry experience
through his various roles in the leisure and gaming industry,
and Ron McMillan has served in the past as the auditor of
betting and gaming companies. Details of meetings of the
Audit Committee are set out in the Corporate Governance
Report on page 52.
The timing of Audit Committee meetings is set to
accommodate the dates of release of financial information at
the half year and full year ends and the approval of scope and
outputs from work programmes executed by the internal and
external auditors.
In addition to scheduled meetings, the Chairman of the
Committee met with the Chief Financial Officer and the
internal and external auditors on a number of occasions.
Although not members of the Committee, the Chairman,
Chief Executive Officer and Chief Financial Officer normally
attend meetings together with representatives from the
internal and external auditors.
Responsibilities
The committee is responsible for:
♦ Monitoring the integrity of 888’s financial statements and
reviewing significant financial judgments and estimates in
advance of these being considered by the Board;
♦ Reviewing internal financial controls and management’s
response to required corrective actions identified in both
internal and external audit reports;
♦ Monitoring and reviewing the role and effectiveness of the
internal audit function, including activities and resources;
♦ Overseeing the role and effectiveness of the external
auditors, reviewing and monitoring their objectivity and
independence and agreeing the scope of work and fees for
audit and non-audit services; and
♦ Assisting the Board in its consideration of relevant risk
factors and determining appropriate mitigation actions.
Legal and regulatory environment
888 operates within an increasingly regulated marketplace
and is challenged by regulatory requirements across the Board.
This creates risk for the business as non-compliance can lead
to financial penalties, reputational damage and the loss of
licences to operate.
The Company manages its regulatory risk with input from its
legal advisors and seeks to balance regulatory requirements
with those of the business. The Company works with its
lawyers to produce regular updates so that the Board and
Audit Committee understand what is happening in the
regulatory landscape.
During 2016, the Audit Committee received a detailed
regulatory briefing from the Company’s lawyers and
reviewed updates on the management of regulatory risk from
management, as well as reviewing the status of litigation
involving 888 and the accounting for 888’s obligations in the
financial statements.
Taxation
The Board oversees and sets the Company’s tax strategy and
evaluates tax risk. In undertaking this task the Company uses
its legal advisors and receives reports from its external auditors
on its audit work. During the year, the Company’s legal advisors
have kept the Audit Committee apprised of both existing and
emerging tax risks and, where appropriate, these have been
elevated to the Board for consideration in conjunction with
888’s commercial strategy.
In 2016, the Board and Audit Committee again received a
detailed tax briefing from the Company’s lawyers regarding
tax, VAT and gaming duty obligations to which the Group may
be exposed. The Committee noted that the Group registered
for taxes in relevant jurisdictions in order to ensure timely
reporting and payment on the correct basis in the appropriate
jurisdictions, whilst reserving its position concerning contesting
its liability in appropriate cases. Uncertainty remains as to
whether VAT is due in respect of certain services provided by
888 to customers in some EU Member States prior to 2015.
However, based on a legal assessment, the Board and the
Committee again concluded that it is unlikely that any liability
will arise and again decided not to record any liability in the
financial statements.
For further information, see notes 8 and 26 to the
financial statements.
888 HOLDINGS PLC ANNUAL REPORT & ACCOUNTS 2016 69
Goodwill and intangible assets
As set out in note 11 to the consolidated financial statements,
888 has significant goodwill and other intangible assets
relating to the acquisitions of businesses and the development
of gaming platforms and software.
The Audit Committee reviewed the cash flow forecasts
supporting the carrying value of goodwill and other intangible
assets including the key assumptions and estimates, and
satisfied itself that no impairments were required in relation
to carrying values. In addition, the appropriateness of the
capitalisation of costs relating to the development of gaming
platforms and software was reviewed in light of reports
received from management and the external auditor.
IT systems
888’s IT systems are complex and in the main are developed
in house. The success of the business relies on the
development of IT platforms which are innovative and
appealing to customers. In addition, the integrity and security
of the IT systems are vital from a commercial standpoint.
During the year, the Audit Committee has reviewed
reports from management on data security and disaster
recovery planning. In addition, the Committee reviewed a
report of the Company’s external auditor regarding the IT
control environment.
In addition to the matters described above, the work of the
Committee during the year included:
♦ Reviewing the draft interim and annual reports
and considering:
1. The accounting principles, policies and practices adopted
and the adequacy of related disclosures in the reports;
2. The significant accounting issues, estimates and judgments
of management in relation to financial reporting;
3. Whether any significant adjustments were required arising
from the audit;
4. Compliance with statutory tax obligations and the
Company’s tax policy;
5. Whether the information set out in the Strategic Report
was balanced, comprehensive, clear and concise
and covered both positive and negative aspects of
performance; and
6. Whether the use of “alternative performance measures”
obscured IFRS measures.
♦ Meeting with internal and external auditors, both with and
in the absence of the Executive Directors.
♦ Overseeing the management of the Company’s
whistleblowing procedures which contain procedures for
the Committee to receive, in confidence, complaints and
notifications on all operational matters.
Internal controls and risk management
The Board has overall responsibility for ensuring that the
Company maintains a sound system of internal control.
There are inherent limitations in any system of internal control
and no system can provide absolute assurance against material
misstatements, loss or failure. Equally, no system can guarantee
elimination of the risk of failure to meet the objectives of
the business. Against this background, the Committee has
continued to help the Board develop and maintain an approach
to risk management which incorporates risk appetite and
tolerance, the framework within which risk is managed and
the responsibility and procedures pertaining to application
of the policy.
The Company is proactive in ensuring that corporate and
operational risks are identified, assessed and managed by
identifying suitable controls. A corporate risk register is
maintained which details:
1. The risks and impact they may have
2. Actions to mitigate risks
3. Risk scores to highlight the likelihood and implications
of occurrence
4. The owners of risks
5. Target dates for actions to mitigate.
A description of the principal risks is set out on pages 27
to 30.
The Board has confirmed that it has carried out a robust
assessment of the principal risks facing 888, including those
which threaten its business model, future performance,
solvency or liquidity.
♦ Reporting to the Board on how it has discharged
its responsibilities.
♦ Making recommendations to the Board in respect of
its findings in respect of all of the above matters.
♦ Reviewing the going concern position of 888 and
the Viability Statement set out on page 35.
The Board considers that the processes undertaken by the
Audit Committee continue to be appropriately robust and
effective and in compliance with the guidance issued by the
Financial Reporting Council. During the year, the Board has
not been advised by the Audit Committee of, nor identified
itself, any failings, frauds or weaknesses in internal control
which it has determined to be material in the context of the
financial statements.
The Committee believes that appropriate internal controls
are in place through the Group, that 888 has a well-defined
organisational structure with clear lines of responsibility and a
comprehensive financial reporting system. The Committee also
believes that the Company complies with the FRC Guidance on
Risk Management, Internal Control and Related Financial and
Business Reporting.
STRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTS888 HOLDINGS PLC ANNUAL REPORT & ACCOUNTS 2016 70
Performance of Audit Committee
The Audit Committee’s performance was evaluated as part
of the Board evaluation carried out during 2016, as detailed
on page 51.
Internal auditors
The Company’s internal audit function is outsourced to
Deloitte. The Audit Committee reviewed and modified the
internal audit plan in accordance with the principal risks
to 888’s business as set out in the Risk Register. It has also
reviewed reports from Deloitte in relation to all internal audit
work carried out during the year and monitored response and
follow up by management to internal audit findings. In the
past three years, the internal auditors have reviewed various
aspects of 888’s customer services and business operations,
finance, B2B and B2C activities, product technologies, human
resources, global operations and regulation. In 2016, Deloitte
issued reports on payroll audits (various locations), customer
credits, software licences management, treasury and PSPs,
change management, insurance, and procurement. Whilst no
critical issues were identified by Deloitte, a number of matters
were identified which required modifications to procedures
and improved controls which either have been or are being
implemented by management. The Committee has evaluated
the performance of Deloitte and has concluded that they
provide constructive challenge and consistently demonstrate
a realistic and commercial view of the business.
External auditors
EY has been the Company’s external auditor since their
appointment in 2014. The partners responsible for the external
audit are Jose Julio Pisharello, a partner in EY’s Gibraltar
office, and Cameron Cartmell, a partner in EY’s London
office. Jose Julio and Cameron have been responsible for the
audit since EY was appointed. The Committee has reviewed
the performance of EY, a process which involved all Board
members and senior members of 888’s finance function. The
conclusions reached were that EY continued to perform the
external audit in a very professional and efficient manner, and
it was therefore the Committee’s recommendation that the
reappointment of EY be put to shareholders at the Annual
General Meeting in May 2017. If reappointed, EY will hold
office until the conclusion of the next Annual General Meeting
at which accounts are laid. Given EY’s short tenure to date,
the Board has no present plans to consider an audit tender
process.
The Committee reviewed the reports prepared by the
external auditors (EY) on key audit findings and any significant
deficiencies in the financial control environment, as well as
the recommendations made by EY to improve processes
and controls together with management’s responses to those
recommendations. EY did not highlight any significant internal
control weaknesses and management has committed to
making appropriate changes to controls in areas highlighted
by EY.
Non-audit work
The Audit Committee remains mindful of the attitude investors
have to the auditors performing non-audit services, and has
updated its approach in light of the UK auditor independence
rules which are now operative. The Committee monitors the
appointment of the auditors for any non-audit work involving
fees above US$0.1 million, with a view to ensuring that non-
audit work does not compromise the Company’s auditors
objectiveness and independence. From 2016, the Committee
has committed to ensure that fees for non-audit services
performed by the auditors will not exceed 70% of aggregate
audit fees measured over a three year period, and the US$0.1
million threshold will no longer apply.
In 2016, the external auditors carried out non-audit work
for 888 involving fees in the aggregate amount of US$0.3
million (2015: US$3.4 million, out of which US$3.3 million was
associated with the proposed acquisition of bwin.party digital
entertainment plc). The non-audit work carried out in 2016
included audit-related and IT assurance work and corporate
finance services relating to the proposed transaction between
the Company, William Hill plc and Rank Group plc which
eventually did not proceed. With regard to the latter services,
information barriers were implemented between the EY team
involved in audit of the Company’s financial statements and
the independent team which were separately engaged to carry
out the review of the proposed transaction. The Board took the
decision to engage EY for the corporate finance work in light
of the cost effectiveness and timing benefits to the Company
given EY’s familiarity with the online gaming industry. Going
forward and in line with the Board’s policy the Committee
will ensure that fees for non-audit services performed by the
auditors will not exceed 70% of aggregate audit fees measured
over a three year period.
888 HOLDINGS PLC ANNUAL REPORT & ACCOUNTS 2016
71
INDEPENDENT AUDITORS’ REPORT
to the members of 888 Holdings plc
OPINION ON FINANCIAL STATEMENTS
In our opinion:
♦ 888 Holdings plc’s Group financial statements and Company financial statements (the ‘financial statements’) give a true
and fair view of the state of the Group’s and of the Company’s affairs as at 31 December 2016 and of the Group’s profit
for the year then ended;
♦ the Group financial statements have been properly prepared in accordance with International Financial Reporting Standards
(‘IFRSs’) as adopted by the European Union;
♦ the Company financial statements have been properly prepared in accordance with IFRSs as adopted by the European Union
and as applied in accordance with the provisions of the Gibraltar Companies Act 2014; and
♦ the financial statements have been prepared in accordance with the requirements of the Gibraltar Companies Act 2014 and,
as regards the Group financial statements, Article 4 of the IAS Regulation.
WHAT WE HAVE AUDITED
888 Holdings plc’s financial statements comprise:
Group
Company
Consolidated income statement for the year ended
31 December 2016
Consolidated statement of comprehensive income
for the year then ended
Company balance sheet as at 31 December 2016
Company statement of changes in equity for the year then ended
Consolidated balance sheet as at 31 December 2016
Company statement of cash flows for the year then ended
Consolidated statement of changes in equity
for the year then ended
Related notes 1 to 10 to the financial statements
Consolidated statement of cash flows for the year then ended
Related notes 1 to 26 to the financial statements
The financial reporting framework that has been applied in their preparation is applicable law and IFRSs as adopted
by the European Union and, as regards the Company financial statements, as applied in accordance with the provisions
of the Gibraltar Companies Act 2014.
OVERVIEW OF OUR AUDIT APPROACH
Risks of material misstatement
♦ Regulatory and legal risks
Audit scope
Materiality
♦ Taxation
♦ Revenue recognition
♦ Capitalisation of development costs
♦ We performed an audit of the complete financial information
of two components, one being a subsidiary in Israel and the
other being the remainder of the Group.
♦ The components where we performed full audit procedures
accounted for the entirety of the Group’s revenue, profit
before tax and total assets.
♦ Overall Group materiality of US$3.2 million, which represents
5% of profit before tax and exceptional items.
STRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTS888 HOLDINGS PLC ANNUAL REPORT & ACCOUNTS 2016 72
INDEPENDENT AUDITORS’ REPORT
continued
OUR ASSESSMENT OF RISK OF MATERIAL MISSTATEMENT AND RESPONSE TO THAT RISK
We identified the risks of material misstatement described below as those that had the greatest effect on our overall audit
strategy, the allocation of resources in the audit and the direction of the efforts of the audit team. In addressing these risks,
we have performed the procedures below which were designed in the context of the financial statements as a whole and,
consequently, we do not express any opinion on these individual areas.
Risk
Our response to the risk
What we concluded
to the Audit Committee
Based on our audit procedures on the
Group’s accounting conclusions in each
of its major jurisdictions, we concluded
that the accruals for amounts payable to
regulatory authorities are conservative,
within an acceptable range and that the
disclosures in the financial statements
were appropriate.
We concluded that management’s
judgements in relation to the taxation
charge, provisions for taxation and the
related disclosures were appropriate.
Regulatory and legal risks
♦ Given the industry and jurisdictions
in which the Group operates,
as described in the Principal Risks
and Uncertainties on page 27, there
is a risk that the Group will operate
without an appropriate licence,
have an existing licence adversely
affected or be subject to other
regulatory sanctions.
♦ Judgement is also applied in
estimating amounts payable
to regulatory authorities in certain
jurisdictions. This gives rise to a risk
over the accuracy of accruals and
disclosure of contingent liabilities.
There is also a risk that management
may influence these significant
estimates and judgements in order
to meet market expectations or
bonus targets.
♦ Refer to the Audit Committee Report
(page 67; significant accounting
policies (Note 2 on page 82); and
Note 26 to the Consolidated Financial
Statements (page 111).
Taxation
♦ The Group recognised a taxation
charge of US$7.7 million in 2016
(2015: US$3.0 million) and had income
tax receivables of US$1.1 million
(2015: US$2.7 million) and payables
of US$0.1 million at 31 December 2016
(2015: US$2.8 million).
♦ The Group operates in a number of
countries, resulting in complexities in
the payment of and accounting for tax.
The Group faces a risk that given the
international nature of its operations,
material tax exposures may not be
appropriately provided or disclosed in
the financial statements.
♦ Refer to the Audit Committee Report
(page 67); significant accounting
policies (Note 2 on page 82); and
Notes 8 and 14 to the Consolidated
Financial Statements (pages 94
and 101).
♦ We understood the Group’s process
and related controls over the
identification and mitigation of
regulatory and legal risks and the
related accounting, and assessed
whether the controls are designed
effectively to achieve this.
♦ We inquired of management and
the Group’s legal advisers about any
known instances of material breaches
in regulatory or licence compliance
that needed to be disclosed or
required accruals to be recorded.
♦ Based on the Group’s correspondence
with regulators and any legal advice
the Group has received, we understood
management’s interpretation and
application of relevant laws and
regulations. With support from
our own indirect tax experts, we
challenged the appropriateness of its
assumptions and estimates in relation
to accruals and contingent liabilities
with reference to historical payments
made by the Group and the period to
which any accrued liabilities relate.
♦ We discussed with management
and its legal advisers, with support
from our tax experts, how the Group
manages and controls the companies
in countries in which it operates.
♦ We obtained and read the results
of the third party tax studies
obtained by the Group and read
its correspondence with the relevant
tax authorities, in order to support
the tax position of the Group.
♦ With support from our international
tax experts we understood
management’s interpretation and
application of relevant tax law and,
based on our experience challenged
the appropriateness of its assumptions
and estimates in relation to provisions
and contingent liabilities. We also
compared the prior year estimate
to amounts actually paid.
♦ We considered whether the Group’s
disclosure of its tax estimates were
in accordance with IFRS requirements.
888 HOLDINGS PLC ANNUAL REPORT & ACCOUNTS 2016 73
Risk
Our response to the risk
What we concluded
to the Audit Committee
Revenue recognition
♦ The Group recognised revenue
of US$520.8 million in 2016
(2015: US$462.1 million).
♦ The Group makes a number of
judgements in recognising revenue,
principally in respect of whether the
Group is acting as a principal or an
agent with its B2B customers and
whether certain customer bonuses
are treated as a deduction from
revenue or as a cost. Any inappropriate
judgements could result in a material
misstatement of revenue and operating
expenses. There is also a risk that
management may override controls to
influence the significant judgements in
respect of revenue recognition in order
to meet market expectations.
♦ Refer to the significant accounting
policies (Note 2 on page 82); and
Note 3 to the Consolidated Financial
Statements (page 89).
Capitalisation of development costs
♦ The Group capitalised development
costs of US$10.6 million in 2016
(2015: US$6.8 million) and had net
capitalised development costs of
US$28.8 million at 31 December 2016
(2015: US$26.5 million).
♦ The capitalisation of costs associated
with the development of the Group’s
systems, in accordance with the
criteria set out in IFRS, involves
significant management judgement
and is therefore an area of focus for
our audit. There is a risk that costs are
capitalised inappropriately, affecting
the Group’s profitability. There is also
a risk that management may override
controls to influence the significant
judgements in respect of the
capitalisation of development costs
in order to meet market expectations
or bonus targets.
♦ Refer to the significant accounting
policies (Note 2 on page 82); and
Note 11 to the Consolidated Financial
Statements (pages 96 and 97).
We concluded that the revenue recognised
in the year, including in respect of its B2B
contracts and the treatment of certain
customer bonuses, is materially correct.
♦ We understood and tested the key
application and manual controls
over the Group’s principal gaming
systems. We then applied IT-based
auditing techniques to re-perform
the reconciliation between the
Group’s gaming revenue, cash and
customer accounts. We also agreed
a sample of revenue transactions
to customers’ cash deposits.
♦ We read the Group’s contractual
arrangements and observed how
they operate in practice to check
management’s judgement as to
whether the Group was operating
as a principal or an agent in its B2B
contracts with customers, in the context
of the guidance in IAS 18. We also
challenged the treatment of certain
customer bonuses by considering
the customer’s contractual obligations
in respect of these bonuses to provide
marketing services.
♦ We understood and tested the
process and key controls over the
Group’s capitalisation of internal
development costs, including its
payroll and purchasing systems.
We concluded that the Group’s
capitalisation of development costs
during 2016 was appropriate and in
accordance with IAS 38.
♦ For development projects capitalised
in the year, we made enquiries of
management with respect to technical
feasibility of a sample of projects to
challenge whether the Group met
the conditions set out in IAS 38 for
capitalisation. We also tested on a
sample basis external supplier and
internal payroll costs capitalised.
♦ We considered the impact of the
capitalisation of development costs
on the Group’s achievement of bonus
targets and analysts’ expectations.
♦ We compared the useful lives of
capitalised development costs to
the Group’s business plans for each
development project and to historical
experience of project lives in the online
gaming industry.
♦ We checked that where projects are not
yet in use and no amortisation has been
charged, they are still expected to be
implemented and meet the conditions
set out in IAS 38.
The above risk areas are consistent with those in the prior year other than that the classification and presentation of exceptional
items was an area of focus for our 2015 audit given their quantum. However, following a significant reduction in exceptional items
to US$3.9 million in 2016 (2015: US$23.0 million), auditing this area no longer constitutes a significant proportion of audit effort
or audit strategy. The Group’s exceptional items are described in note 5 to the consolidated financial statements.
STRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTS888 HOLDINGS PLC ANNUAL REPORT & ACCOUNTS 2016 74
INDEPENDENT AUDITORS’ REPORT
continued
AN OVERVIEW OF THE SCOPE OF OUR AUDIT
Tailoring the scope
Our assessment of audit risk, our evaluation of materiality and our allocation of performance materiality determine our
audit scope for each entity within the Group. Taken together, this enables us to form an opinion on the consolidated financial
statements. We take into account size, risk profile, the organisation of the group and effectiveness of group-wide controls,
changes in the business environment and other factors such as recent internal audit results when assessing the level of work
to be performed at each entity.
The Group operates from a small number of locations and as an online gaming operator the Group’s accounting is centrally
managed. In assessing the risk of material misstatement to the Group financial statements, we determined that there were
two components, one being a subsidiary in Israel and the other being the remainder of the Group.
We performed an audit of the complete financial information of both of these components (“full scope”). The components
we audited therefore account for the entirety of the Group’s revenue, profit before tax and total assets. This is consistent
with our approach in the prior year.
Involvement with component teams
In establishing our overall approach to the Group audit, we determined the type of work that needed to be undertaken
at each of the components by us, as the Group audit team, or by component auditors from other EY global network firms
operating under our instruction. The Israeli subsidiary was subject to a full scope audit by a component team in Israel and
the remainder of the Group was audited directly, as a full scope audit, by the Group audit team.
The Group audit team performed the majority of its audit fieldwork in Israel and Gibraltar, with visits to both locations
at the planning, interim and year end phases of the audit.
During these visits the Group audit team attended audit planning and closing meetings, the Group’s Audit Committee
meetings and conducted and reviewed audit work. For the Israeli subsidiary, in addition to the location visits the Group
audit team interacted regularly during the various stages of the audit, reviewed key working papers, participated in the
component team’s planning, including its discussion of fraud and error and were responsible for the scope and direction
of the audit process. The allocation of responsibilities between the Group audit team and the Israeli component team was
such that the audit work on each of the areas of risk described above was led by the Group audit team. This, together with
the procedures performed at Group level, gave us appropriate evidence for our opinion on the Group financial statements.
OUR APPLICATION OF MATERIALITY
We apply the concept of materiality in planning and performing the audit, in evaluating the effect of identified misstatements
on the audit and in forming our audit opinion.
Materiality
“The magnitude of an omission or misstatement that, individually or in the aggregate, could reasonably be expected to influence
the economic decisions of the users of the financial statements. Materiality provides a basis for determining the nature and
extent of our audit procedures.”
We determined materiality for the Group to be US$3.2 million (2015: US$2.7 million), which is approximately 5% (2015: 5%)
of profit before tax and exceptional items.
We believe that profit before tax, adjusted for the exceptional items described below, provides us with a consistent year on year
basis for determining materiality and is the most relevant performance measure to the stakeholders of the Group. The increase
from the prior year predominately reflects continued growth achieved by the Group.
In calculating materiality, we excluded the effects of certain non-recurring exceptional items from profit before tax. For 2016,
these related to the exceptional acquisition costs of US$0.9 million and exceptional retroactive duties and associated charges of
US$3.0 million, as highlighted in Note 5 to the consolidated financial statements.
During the course of our audit, we reassessed initial materiality and adjusted our materiality to reflect the reported profit before
tax and exceptional items.
888 HOLDINGS PLC ANNUAL REPORT & ACCOUNTS 2016
75
Performance materiality
“The application of materiality at the individual account or balance level. It is set at an amount to reduce to an appropriately
low level the probability that the aggregate of uncorrected and undetected misstatements exceeds materiality.”
On the basis of our risk assessments, together with our assessment of the Group’s overall control environment, our judgement
was that performance materiality was 75% (2015: 50%) of our planning materiality, namely US$2.4 million (2015: US$1.35 million).
We increased our performance materiality from 50% to 75% due to our past experience of the audit that indicates a reduction
in the risk of misstatements, both corrected and uncorrected.
Audit work at the Israeli subsidiary for the purpose of obtaining audit coverage over significant financial statement accounts
is undertaken based on a percentage of total performance materiality. The performance materiality set for that component is
based on its relative scale and risk to the Group as a whole and our assessment of the risk of misstatement at that component.
In the current year, the performance materiality allocated to the Israeli subsidiary was US$1.3 million (2015: US$0.6 million).
The audit work on the remainder of the Group was undertaken using Group materiality.
Reporting threshold
“An amount below which identified misstatements are considered as being clearly trivial.”
We agreed with the Audit Committee that we would report to them all uncorrected audit differences in excess of US$160,000
(2015: US$135,000), which is set at 5% of planning materiality, as well as differences below that threshold that, in our view
warranted reporting on qualitative grounds.
We evaluate any uncorrected misstatements against both the quantitative measures of materiality discussed above and in light
of other relevant qualitative considerations in forming our opinion.
SCOPE OF THE AUDIT OF THE FINANCIAL STATEMENTS
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 and the Company’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 and Accounts to identify material inconsistencies with 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.
RESPECTIVE RESPONSIBILITIES OF DIRECTORS AND AUDITORS
As explained more fully in the Directors’ Statement of Responsibilities set out on page 46, the Directors are responsible for
the preparation of the financial statements and for being satisfied that they give a true and fair view. The directors are also
responsible for the preparation of the Directors’ Remuneration Report, which they have chosen to prepare, being under no
obligation to do so under Gibraltar law, and the preparation of the Corporate Governance Statement and statement on going
concern under the Listing Rules. Our responsibility is to audit and express an opinion on the financial statements in accordance
with applicable law and International Standards on Auditing (UK and Ireland). Those standards require us to comply with the
Auditing Practices Board’s Ethical Standards for Auditors.
This report is made solely to the Company’s members, as a body, in accordance with the Gibraltar Companies Act 2014 and
our engagement letter dated 30 November 2015.
Our audit work has been undertaken so that we might state to the Company’s members those matters we are required
to state to them in an 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.
OPINION ON OTHER MATTER PRESCRIBED BY THE GIBRALTAR COMPANIES ACT 2014
In our opinion the information given in the Strategic Report and the Directors’ Report for the financial year for which the financial
statements are prepared is consistent with the financial statements and has been properly prepared in accordance with the Act.
STRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTS888 HOLDINGS PLC ANNUAL REPORT & ACCOUNTS 2016 76
INDEPENDENT AUDITORS’ REPORT
continued
OPINION ON OTHER MATTERS AS PER THE TERMS OF OUR ENGAGEMENT WITH THE COMPANY
In our opinion:
♦ the information given in the Corporate Governance Statement with respect to internal control and risk management systems
in relation to financial reporting processes and share capital structures is consistent with the financial statements; and
♦ the section of the Directors’ Remuneration Report that is described as audited has been properly prepared in accordance
with the basis of preparation described therein.
MATTERS ON WHICH WE ARE REQUIRED TO REPORT BY EXCEPTION
ISAs (UK and Ireland)
reporting
We are required to report to you if, in our opinion, financial and
non-financial information in the Annual Report and Accounts is:
We have no exceptions
to report.
♦ materially inconsistent with the information in the audited financial
statements; or
♦ apparently materially incorrect based on, or materially inconsistent
with, our knowledge of the Group acquired in the course of
performing our audit; or
♦ otherwise misleading.
In particular, we are required to report whether we have identified
any inconsistencies between our knowledge acquired in the course
of performing the audit and the Directors’ statement that they
consider the annual report and accounts taken as a whole is fair,
balanced and understandable and provides the information necessary
for shareholders to assess the entity’s performance, business model
and strategy; and whether the annual report appropriately addresses
those matters that we communicated to the audit committee that we
consider should have been disclosed.
Gibraltar Companies
Act 2014 reporting
We are required to report to you if, in our opinion:
We have no exceptions
to report.
♦ we have not received all the information and explanations
we require for our audit; or
♦ there are material misstatements in the Directors’ Report based
on our knowledge and understanding of the Company and its
environment obtained in the course of the audit.
Listing Rules review
requirements
We are required to review:
We have no exceptions
to report.
♦ the Directors’ statement in relation to going concern, set out
on page 45, and longer-term viability, set out on page 35; and
♦ the part of the Corporate Governance Statement relating to the
Company’s compliance with the provisions of the UK Corporate
Governance Code specified for our review.
888 HOLDINGS PLC ANNUAL REPORT & ACCOUNTS 2016 77
STATEMENT ON THE DIRECTORS’ ASSESSMENT OF THE PRINCIPAL RISKS THAT WOULD THREATEN
THE SOLVENCY OR LIQUIDITY OF THE ENTITY
ISAs (UK and Ireland)
reporting
We are required to give a statement as to whether we have anything
material to add or to draw attention to in relation to:
We have nothing
material to add or
to draw attention to.
♦ the Directors’ confirmation in the Annual Report and Accounts that
they have carried out a robust assessment of the principal risks
facing the entity, including those that would threaten its business
model, future performance, solvency or liquidity;
♦ the disclosures in the Annual Report and Accounts that describe
those risks and explain how they are being managed or mitigated;
♦ the Directors’ statement in the financial statements about whether
they considered it appropriate to adopt the going concern basis
of accounting in preparing them, and their identification of any
material uncertainties to the entity’s ability to continue to do so
over a period of at least twelve months from the date of approval
of the financial statements; and
♦ the Directors’ explanation in the Annual Report and Accounts as
to how they have assessed the prospects of the entity, over what
period they have done so and why they consider that period to
be appropriate, and their statement as to whether they have a
reasonable expectation that the entity will be able to continue in
operation and meet its liabilities as they fall due over the period
of their assessment, including any related disclosures drawing
attention to any necessary qualifications or assumptions.
Cameron Cartmell (Non-Statutory Auditor)
Ernst & Young LLP
London
21 March 2017
Jose Julio Pisharello (Statutory Auditor)
For and on behalf of EY Limited, Registered Auditors
Gibraltar
21 March 2017
STRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTS888 HOLDINGS PLC ANNUAL REPORT & ACCOUNTS 2016 78
CONSOLIDATED INCOME STATEMENT
For the year ended 31 December 2016
Note
2016
US$ million
2015
US$ million
Revenue
Operating expenses
Gaming duties
Research and development expenses
Selling and marketing expenses
Administrative expenses
Exceptional acquisition costs
Exceptional acquisition income
Operating profit before exceptional costs and share benefit charge
Exceptional items
Share benefit charge
Operating profit
Finance income
Finance expenses
Exceptional finance expenses
Share of post-tax loss of equity accounted joint ventures and associates
Profit before tax
Taxation
Profit after tax for the year attributable to equity holders of the parent
Earnings per share
Basic
Diluted
3
4
5
5
5
21
4
7
7
5
13
8
9
520.8
(155.1)
(63.5)
(34.3)
(170.2)
(36.2)
(0.9)
—
71.2
(3.9)
(6.7)
60.6
0.4
(1.7)
—
(0.1)
59.2
(7.7)
51.5
14.4¢
14.1¢
462.1
(146.0)
(58.4)
(36.8)
(138.9)
(32.5)
(17.5)
8.8
62.0
(17.1)
(4.1)
40.8
0.3
(2.6)
(5.9)
(0.1)
32.5
(3.0)
29.5
8.3¢
8.2¢
CONSOLIDATED STATEMENT
OF COMPREHENSIVE INCOME
For the year ended 31 December 2016
Note
2016
US$ million
2015
US$ million
Profit for the year
Items that may be reclassified subsequently to profit or loss
Exchange differences on translation of foreign operations
Items that will not be reclassified to profit or loss
Remeasurement of severance pay liability
6
Total other comprehensive expense for the year
Total comprehensive income for the year attributable
to equity holders of the parent
The notes on pages 82 to 111 form part of these consolidated financial statements.
51.5
(0.8)
(0.5)
(1.3)
50.2
29.5
(1.1)
(1.1)
(2.2)
27.3
888 HOLDINGS PLC ANNUAL REPORT & ACCOUNTS 2016
CONSOLIDATED BALANCE SHEET
At 31 December 2016
79
Assets
Non-current assets
Goodwill and other intangible assets
Property, plant and equipment
Investments
Non-current receivables
Deferred tax assets
Current assets
Cash and cash equivalents
Trade and other receivables
Income tax receivable
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
Income tax payable
Customer deposits
Non-current liabilities
Deferred tax liabilities
Total liabilities
Total equity and liabilities
Note
2016
US$ million
2015
US$ million
11
12
13
16
14
15
16
17
17
18
19
14
158.6
9.1
1.5
0.7
1.1
171.0
172.6
35.9
1.1
209.6
380.6
3.2
3.3
157.1
163.6
139.3
0.1
75.7
215.1
1.9
217.0
380.6
157.3
11.2
1.6
0.8
1.2
172.1
178.6
32.9
2.7
214.2
386.3
3.2
2.2
156.8
162.2
137.2
2.8
82.4
222.4
1.7
224.1
386.3
The consolidated financial statements on pages 78 to 111 were approved and authorised for issue by the Board of Directors
on 21 March 2017 and were signed on its behalf by:
Itai Frieberger
Chief Executive Officer
Aviad Kobrine
Chief Financial Officer
The notes on pages 82 to 111 form part of these consolidated financial statements.
STRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTS888 HOLDINGS PLC ANNUAL REPORT & ACCOUNTS 2016
80
CONSOLIDATED STATEMENT
OF CHANGES IN EQUITY
For the year ended 31 December 2016
Share
capital
Share
premium
Retained
earnings
Total
US$ million US$ million US$ million US$ million US$ million
Foreign
currency
translation
reserve
Balance at 1 January 2015
Profit after tax for the year attributable
to equity holders of the parent
Other comprehensive expense for the year
Total comprehensive income
Dividend paid (note 10)
Equity settled share benefit charges (note 21)
Issue of shares to cover employee share schemes (note 17)
Balance at 31 December 2015
Profit after tax for the year attributable
to equity holders of the parent
Other comprehensive expense for the year
Total comprehensive income
Dividend paid (note 10)
Equity settled share benefit charges (note 21)
Issue of shares to cover employee share schemes (note 17)
3.2
—
—
—
—
—
—
3.2
—
—
—
—
—
—
1.3
—
—
—
—
—
0.9
2.2
—
—
—
—
—
1.1
Balance at 31 December 2016
3.2
3.3
The following describes the nature and purpose of each reserve within equity.
181.1
(0.5)
185.1
29.5
(1.1)
28.4
(53.5)
2.4
—
158.4
51.5
(0.5)
51.0
(56.6)
6.7
—
159.5
—
(1.1)
(1.1)
—
—
—
(1.6)
—
(0.8)
(0.8)
—
—
—
(2.4)
29.5
(2.2)
27.3
(53.5)
2.4
0.9
162.2
51.5
(1.3)
50.2
(56.6)
6.7
1.1
163.6
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 and other transactions with equity holders.
Foreign currency translation reserve – represents exchange differences arising from the translation of all Group entities that
have functional currency different from US$.
The notes on pages 82 to 111 form part of these consolidated financial statements.
888 HOLDINGS PLC ANNUAL REPORT & ACCOUNTS 2016
CONSOLIDATED STATEMENT
OF CASH FLOWS
For the year ended 31 December 2016
Cash flows from operating activities
Profit before tax
Adjustments for:
Depreciation
Amortisation
Interest income
Interest expense
Share of post-tax loss of equity accounted joint ventures and associates
Share benefit charges
Increase in trade receivables
Increase in other accounts receivables
(Decrease) increase in customer deposits
Decrease in foreign exchange derivatives
Increase in trade and other payables
Cash generated from operations
Income tax paid
Net cash generated from operating activities
Cash flows from investing activities
Acquisition of investment in equity accounted associates
Acquisition of property, plant and equipment
Interest received
Acquisition of intangible assets
Internally generated intangible assets
Net cash used in investing activities
Cash flows from financing activities
Issue of shares to cover employee share schemes
Dividends paid
Net cash used in financing activities
Net (decrease) increase in cash and cash equivalents
Net foreign exchange difference
Cash and cash equivalents at the beginning of the year
Cash and cash equivalents at the end of the year1
81
2015
2016
Note US$ million US$ million
59.2
8.4
10.6
(0.4)
—
0.1
6.7
84.6
(1.8)
(2.5)
(5.7)
—
2.7
77.3
(9.2)
68.1
—
(6.3)
0.4
(1.3)
(10.6)
(17.8)
1.1
(56.6)
(55.5)
(5.2)
(0.8)
178.6
172.6
32.5
8.9
9.7
(0.3)
0.2
0.1
4.1
55.2
(0.1)
(1.6)
12.9
(2.5)
27.1
91.0
(6.0)
85.0
(1.5)
(4.6)
0.3
(3.0)
(6.8)
(15.6)
0.9
(53.5)
(52.6)
16.8
(1.3)
163.1
178.6
12
11
7
7
13
21
16
16
19
7
18
13
12
7
11
11
17
10
15
15
1 Cash and cash equivalents includes restricted short-term deposits of US$1.1 million (2015: US$3.3 million) (see note 15).
Included in net cash generated from operating activities are amounts paid during 2016 in respect of exceptional items
of US$9.1 million (2015: net payment of US$17.8 million).
The notes on pages 82 to 111 form part of these consolidated financial statements.
STRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTS888 HOLDINGS PLC ANNUAL REPORT & ACCOUNTS 2016
82
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 in
the British Virgin Islands and since 17 December 2003 has been domiciled in Gibraltar (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, Sport, Emerging Offerings (comprising Mytopia social games), and
brand licensing revenue on third party platforms. These services are provided to end users (“B2C”) and to business partners
through its business to business unit, Dragonfish (“B2B”). In addition, the Group provides payment services, customer support
and online advertising.
Definitions
In these financial statements:
The Company
The Group
Subsidiaries
Related parties
Joint ventures and associates
888 Holdings Public Limited Company.
888 Holdings Public Limited Company and its subsidiaries.
Companies over which the Company has control (as defined in IFRS 10 –
Consolidated Financial Statements) and whose accounts are consolidated
with those of the Company.
As defined in IAS 24 – Related Party Disclosures.
As defined in IFRS 11 – Joint Arrangements and IAS 28 – Investments in Associates
and Joint Ventures.
2 SIGNIFICANT ACCOUNTING POLICIES
The significant accounting policies applied in the preparation of the consolidated 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 (“IFRSs”), including International Accounting Standards (“IAS”) and Interpretations adopted by the International
Accounting Standards Board (“IASB”), endorsed for use by companies listed on an EU regulated market. The consolidated
financial statements have been prepared on a historical cost basis, except for available for sale investments and derivative
financial instruments, which have been measured at fair value.
The Group has changed its operating segments in the year to reflect a change in the way that the business is managed
and reported internally. Sport is now presented separately, having previously been reported in Emerging Offerings.
Brand licensing on third party platforms, which was previously included in Emerging Offerings, is now included in the
B2B segment. The comparative segment results for the year ended 31 December 2015 have been restated to reflect this
change, as described in note 3.
The consolidated 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 Act 2014.
The significant accounting policies applied in the consolidated financial statements in the prior year have been applied
consistently in these consolidated financial statements, with the exception of the amendments to accounting standards
adopted during 2016. These are described in more detail below.
The following amendments to IAS, issued by the IASB and adopted by the EU, were effective from 1 January 2016 and
have been adopted by the Group during the year with no significant impact on its consolidated results or financial position:
♦ Amendments to IAS 1 – Disclosure Initiative.
♦ Amendments to IAS 16 and IAS 38 – Clarification of Acceptable Methods of Depreciation and Amortisation.
♦ Amendments to IAS 27 – Equity Method in Separate Financial Statements.
♦ Amendments to IFRS 10, IFRS 12 and IAS 28 – Investment Entities: Applying the Consolidation Exception.
♦ Amendments to IFRS 11 – Accounting for Acquisitions of Interests in Joint Operations.
♦ Annual Improvements 2012-2014 Cycle, including minor amendments to IFRS 5 – Non-Current Assets Held for Sale
and Discontinued Operations, IFRS 7 – Financial Instruments: Disclosures, IAS 19 – Employee Benefits and
IAS 34 – Interim Financial Reporting.
888 HOLDINGS PLC ANNUAL REPORT & ACCOUNTS 2016 83
2 SIGNIFICANT ACCOUNTING POLICIES continued
The following standards, interpretations and amendments issued by the IASB have not been adopted by the Group as they
were not effective for the year. The Group is currently assessing the impact these standards and amendments will have on the
presentation of, and recognition in, its consolidated results in future periods:
♦ Amendments to IAS 7 – Disclosure initiative (effective for accounting periods beginning on or after 1 January 2017).
♦ Amendments to IAS 12 – Recognition of Deferred Tax Assets for Unrealised Losses (effective for accounting periods
beginning on or after 1 January 2017).
♦ Annual Improvements Process IFRS 12 – Disclosure of Interests in Other Entities (effective for accounting periods beginning
on or after 1 January 2017).
♦ IFRS 9 – Financial Instruments (effective for accounting periods beginning on or after 1 January 2018).
♦ IFRS 15 – Revenue from Contracts with Customers (effective for accounting periods beginning on or after 1 January 2018).
♦ Amendments to IFRS 2 – Classification and Measurement of Share-based Payment Transactions (effective for accounting
periods beginning on or after 1 January 2018).
♦ Amendments to IAS 40 – Transfer of Investment Property (effective for accounting periods beginning on or after
1 January 2018).
♦ IFRIC Interpretation 22 – Foreign Currency Transactions and Advance Consideration (effective for accounting periods
beginning on or after 1 January 2018).
♦ Annual Improvements Process IFRS 1 – First-time Adoption of International Financial Reporting Standards (effective for
accounting periods beginning on or after 1 January 2018).
♦ Annual Improvements Process IAS 28 – Investments in Associates and Joint Ventures (effective for accounting periods
beginning on or after 1 January 2018).
♦ IFRS 16 – Leases (effective for accounting periods beginning on or after 1 January 2019).
♦ Amendments to IFRS 10 and IAS 28 – Sale or Contribution of Assets between an Investor and its Associate or Joint Venture
(in December 2015, the IASB postponed the effective date of this amendment indefinitely pending the outcome of its
research project on the equity method of accounting).
Critical accounting estimates and judgments
The preparation of consolidated financial statements under IFRS as adopted by the EU requires the Group to make estimates
and judgements that affect the application of policies and reported amounts. Estimates and judgements are continually
evaluated and are based on historical experience and other factors including expectations of future events that are believed
to be reasonable under the circumstances. Actual results may differ from these estimates.
Included in this note are accounting policies which cover areas that the Directors consider require estimates and assumptions
which have a significant risk of causing a material adjustment to the carrying amount of assets and liabilities in the future.
These policies together with references to the related notes to the financial statements, which include further commentary
on the nature of the estimates and judgements made, can be found below:
Revenue
The Group applies judgement in determining whether it is acting as a principal or an agent where it provides services to business
partners through its business to business unit. In making these judgements the Group considers, by examining each contract
with its business partners, which party has the primary responsibility for providing the services and is exposed to the majority
of the risks and rewards associated with providing the services, as well as if it has latitude in establishing prices, either directly
or indirectly. This is described in further detail in the revenue accounting policy set out below.
Taxation
Due to the international nature of the Group and the complexity of tax legislation in the jurisdictions in which it operates, the
Group applies judgement in estimating the likely outcome of tax matters and the resultant provision for income taxes. However,
in 2015 and early 2016 the Group reached agreement on a number of tax matters with tax authorities in the key jurisdictions from
which it operates. These agreements materially reduce the level of judgement to be made in preparing the financial statements.
The Group believes that its accruals for tax liabilities are appropriate. For further information see note 8.
STRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTS888 HOLDINGS PLC ANNUAL REPORT & ACCOUNTS 2016 84
NOTES TO THE CONSOLIDATED
FINANCIAL STATEMENTS
continued
2 SIGNIFICANT ACCOUNTING POLICIES continued
Impairment of goodwill and other intangible assets
Determining whether goodwill is impaired requires an estimation of the value in use of the cash-generating units to which the
goodwill has been allocated. The value in use calculation requires the entity to estimate the future cash flows expected to arise
from the cash-generating unit and a suitable discount rate in order to calculate present value. For further information see note 11.
Internally generated intangible assets
Costs relating to internally generated intangible assets, are capitalised if the criteria for recognition as assets are met.
The initial capitalisation of costs is based on management’s judgment that technological and economic feasibility criteria are
met. In making this judgement, management considers the progress made in each development project and its latest forecasts
for each project. Other expenditure is charged to the consolidated income statement in the year in which the expenditure
is incurred. Following initial recognition, intangible assets are carried at cost less any accumulated amortisation and any
accumulated impairment losses. For further information see note 11.
Contingent liabilities and regulatory matters
The Group makes a number of judgements in respect of the accounting for and disclosure of expenses and contingent liabilities
for regulatory matters, including gaming duties. These are described in further detail in note 26.
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 power over an entity; exposure, or
rights, to variable returns from its involvement with an entity; and the ability to use its power over an entity to affect the amount
of its returns. Subsidiaries are consolidated from the date the Parent gained control until such time as control ceases.
The financial statements of 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.
Intercompany 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 promotional bonuses granted to customers and VAT, and after adding the 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 income generated from foreign exchange commissions on customer
deposit and withdrawals and account fees, 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, adjusted for the fair value of certain promotional bonuses granted to customers and the value of loyalty
points accrued.
Poker
Poker online gaming revenue represents the commission charged from each poker hand in ring games and entry fees for
participation in Poker tournaments less the fair value of certain promotional bonuses and the value of loyalty points accrued.
In Poker tournaments entry fee revenue is recognised when the tournament has concluded.
Sport
Sport online gaming revenue comprises bets placed less payouts to customers, adjusted for the fair value of open betting positions.
Emerging Offerings
Revenue from Emerging Offerings is mainly comprised of Social games. Revenue represents the Group’s share from the sale
of virtual goods to customers playing the Group’s games.
888 HOLDINGS PLC ANNUAL REPORT & ACCOUNTS 2016
85
2 SIGNIFICANT ACCOUNTING POLICIES continued
B2B
Revenue from B2B is mainly comprised of services provided to business partners and brand licensing on third party platforms.
♦ For services provided to business partners through its B2B unit, the Group considers whether for each customer it is acting as
a principal or as an agent by considering which party has the primary responsibility for providing the services and is exposed
to the majority of the risks and rewards associated with providing the services, as well as if it has latitude in establishing prices,
either directly or indirectly:
♦ 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 marketing 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.
♦ Revenue derived from brand licensing on third party platforms represents the Group’s net revenue share from that activity.
Operating expenses
Operating expenses consists primarily of staff costs, payment service providers’ commissions, chargebacks, commission
and royalties payable to third parties, all of which are recognised on an accruals basis, and depreciation and amortisation.
Administrative expenses
Administrative expenses consist primarily of staff costs and corporate professional expenses, both of which are recognised
on an accruals basis.
Exceptional items
The Group classifies and presents certain items of income and expense as exceptional, as the Group considers that it allows
for a better reflection of the underlying performance of the Group. The Group also seeks to present a measure of underlying
performance which is not impacted by exceptional items. These measures are described as “adjusted” and are used by the
management to measure and monitor the Group’s underlying performance. The Group considers any non-recurring items
of income and expense for classification as exceptional by virtue of their nature and size. The items classified as exceptional
(and are excluded from the adjusted measures) are described in further detail in note 5.
Foreign currency
Monetary assets and liabilities denominated in currencies other than the functional currency of the relevant company are
translated into that functional currency 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 in the consolidated income statement, as appropriate.
The results and financial position of all Group entities that have a functional currency different from US$ are translated
into the presentation currency at foreign exchange rates as set out below. Exchange differences arising, if any, are recorded
in the consolidated statement of comprehensive income as a component of other comprehensive income.
(i) assets and liabilities for each balance sheet presented are translated at the closing rate at the date of that balance sheet; and
(ii) income and expenses for each income statement are translated at an average exchange rate (unless this average is not
a reasonable approximation of the cumulative effect of the rates prevailing on the transaction dates, in which case income
and expenses are translated at the dates of the transactions).
Taxation
The tax expense represents tax payable for the year based on currently applicable tax rates.
Deferred tax assets and liabilities are recognised where the carrying amount of an asset or liability in the balance sheet differs
from its tax base. They are accounted for using the balance sheet liability method. Recognition of deferred tax assets is restricted
to those instances where it is probable that taxable profits 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.
STRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTS888 HOLDINGS PLC ANNUAL REPORT & ACCOUNTS 2016 86
NOTES TO THE CONSOLIDATED
FINANCIAL STATEMENTS
continued
2 SIGNIFICANT ACCOUNTING POLICIES continued
Intangible assets
Acquired intangible assets
Intangible assets acquired separately consist mainly of software licences and domain names and are capitalised at cost. Those
acquired as part of a business combination are recognised separately from goodwill if the fair value can be measured reliably.
These intangible assets are amortised over the useful life of the assets, which for software licences is between one and five years
and for domain names is five years.
Internally generated intangible assets
Expenditure incurred on development activities of gaming platform 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.
Goodwill and business combinations
Goodwill represents the excess of the fair value of the consideration in a business combination over the Group’s interest in the
fair value of the identifiable assets, liabilities and contingent liabilities acquired. Consideration 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 and not subsequently reversed. Where the fair values 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 consolidated income statement.
In addition, the direct costs of acquisition are charged immediately to the consolidated income statement.
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 indicators of impairment.
Depreciation is calculated using the straight-line method, at annual rates estimated to write off the cost of the assets less their
estimated residual values over their expected useful lives. The annual depreciation rates are as follows:
IT equipment
Office furniture and equipment
Motor vehicles
Leasehold improvements
33%
7-15%
15%
Over the shorter of the term of the lease or useful lives
Impairment of non-financial assets
Impairment tests on goodwill are undertaken annually and where applicable an impairment loss is recognised immediately
in the consolidated 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 (being the higher of value in use and fair value less costs to sell), the asset is written down accordingly
through the consolidated income statement.
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 smallest group of assets to which the asset belongs for which there are separately
identifiable and largely independent cash inflows).
888 HOLDINGS PLC ANNUAL REPORT & ACCOUNTS 2016
87
2 SIGNIFICANT ACCOUNTING POLICIES continued
Investment in equity accounted joint ventures and associates
Joint ventures are those entities over relevant activities the Group has joint control, established by contractual agreement
and requiring unanimous consent for strategic financial and operating decisions.
Associates are those businesses in which the Group has a long-term interest and is able to exercise significant influence over
the financial and operational policies but does not have control or joint control over those policies.
Joint ventures and associates are accounted for using the equity method 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 joint ventures and associates are not recognised unless there is an obligation to make good
those losses.
Profits and losses arising on transactions between the Group and its joint ventures or associates are recognised only to the
extent of unrelated investors’ interests in the joint ventures and associates. The investor’s share in the profits and losses of the
investment resulting from these transactions is eliminated against the carrying value of the investment.
Any premium paid 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 investment. Where there is objective evidence that the investment 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 an investment in joint venture and associates are in excess of 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 the consolidated statement
of comprehensive income.
Trade receivables
Trade receivables are initially recognised at fair value and subsequently measured 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.
Fair value measurement
The Group measures certain financial instruments, including derivatives and available for sale investments, at fair value at each
balance sheet date. The fair value related disclosures are included in notes 24 and 25. Fair value is the price that would be
received or paid in an orderly transaction between market participants at a particular date, either in the principal market for
the asset or liability or, in the absence of a principal market, in the most advantageous market for that asset or liability accessible
to the Group.
The Group uses valuation techniques that are appropriate in the circumstances and for which sufficient data are available
to measure fair value, maximising the use of relevant observable inputs and minimising the use of unobservable inputs.
The fair value measurement hierarchy is based on the inputs to valuation techniques used to measure fair value. The inputs
are categorised into three levels, with the highest level (level 1) given to inputs for which there are unadjusted quoted prices
in active markets for identical assets or liabilities and the lowest level (level 3) given to unobservable inputs. Level 2 inputs are
directly or indirectly observable inputs other than quoted prices.
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 and are carried in
the consolidated balance sheet 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.
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.
STRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTS888 HOLDINGS PLC ANNUAL REPORT & ACCOUNTS 2016
88
NOTES TO THE CONSOLIDATED
FINANCIAL STATEMENTS
continued
2 SIGNIFICANT ACCOUNTING POLICIES continued
Equity
Equity issued by the Company is recorded as the proceeds received from the issue of shares, net of direct issue costs.
Trade and other payables
Trade and other payables are initially recognised at fair value and subsequently measured 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 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.
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 the consolidated
income statement 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 to equity shareholders, this
is when declared by the Board of Directors and paid. In the case of final dividends, this is when approved by the shareholders
at the Annual General Meeting.
Share benefit charges
Equity-settled
Where the Company grants its employees or contractors shares or options, the cost of those awards, recognised in the
consolidated income statement over the vesting period with a corresponding increase in equity, is measured with reference
to the fair value at the date of grant. Market performance conditions are taken into account in determining the fair value at the
date of grant. Non-market performance conditions, including service 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.
Cash-settled
For transactions treated as cash-settled share benefit charges, the Company recognises an expense in the consolidated
income statement and a corresponding liability as the employees render services.
Until the liability is settled, the Company measures 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 consolidated income statement.
Severance pay schemes
Severance pay scheme surpluses and deficits are measured as:
♦ 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.
Remeasurements of the net severance pay scheme assets and liabilities, including actuarial gains and losses on the scheme
liabilities due to changes in assumptions or experience within the scheme and any differences between the interest income
and the actual return on assets, are recognised in the consolidated statement of comprehensive income in the period in which
they arise.
Financial guarantee contracts
Where the Group or Company enters into financial guarantee contracts these are classified as financial liabilities and measured
at fair value, by estimating the probability of the guarantees being called upon and the related cash outflows from the Group
or Company.
888 HOLDINGS PLC ANNUAL REPORT & ACCOUNTS 2016
89
3 SEGMENT INFORMATION
The Group has changed its operating segments in the year to reflect a change in the way that the business is managed and
reported internally. Sport is now presented separately, having previously been reported in Emerging Offerings. Brand licensing
on third party platforms, which was previously included in Emerging Offerings, is now included in the B2B segment.
Segmental results 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. The operating segments identified are:
♦ B2C (Business to Customer): including Casino and games, Poker, Bingo, Sport and Emerging Offering; and
♦ B2B (Business to Business): offering 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, search engine optimisation (SEO), customer relationship
management (CRM) and business analytics.
There has been no aggregation of these two operating segments for reporting purposes. The management team continues
to assess the performance of operating segments based on revenue and segment profit, being revenue net of chargebacks,
payment service providers’ commissions, gaming duties, royalties payable to third parties, selling and marketing expenses.
2016
US$ million US$ million US$ million US$ million US$ million US$ million US$ million US$ million
Casino
Poker
Bingo
Sport1 Offerings1 Total B2C
Emerging
B2C
B2B1
Consolidated
Segment revenue
279.3
84.4
41.8
51.9
2.8
460.2
194.4
60.6
30.9
Segment result2
Unallocated corporate
expenses3
Operating profit
Finance income
Finance expenses
Share of post-tax loss
of equity accounted joint
ventures and associates
Taxation
Profit after tax for the year
Assets
Unallocated corporate assets
Total assets
Liabilities
Segment liabilities
Unallocated corporate liabilities
Total liabilities
520.8
225.3
(164.7)
60.6
0.4
(1.7)
(0.1)
(7.7)
51.5
380.6
380.6
75.7
141.3
217.0
69.4
6.3
1 The comparative segment results for the year ended 31 December 2015 have been restated to reflect this change, as described on the
following page.
2 Revenue net of chargebacks, payment service providers’ commissions, gaming duties, VAT, royalties payable to third parties, selling and
marketing expenses.
3 Including staff costs, corporate professional expenses, other administrative expenses, exceptional acquisition costs, depreciation, amortisation,
share benefit charges and exceptional retroactive duties and associated charges.
STRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTS888 HOLDINGS PLC ANNUAL REPORT & ACCOUNTS 2016
90
NOTES TO THE CONSOLIDATED
FINANCIAL STATEMENTS
continued
3 SEGMENT INFORMATION continued
B2C
B2B1
Consolidated
2015 (restated1)
US$ million US$ million US$ million US$ million US$ million US$ million US$ million US$ million
Casino
Poker
Bingo
Sport1 Offerings1 Total B2C
Emerging
Segment revenue
230.6
86.7
44.0
34.8
3.3
399.4
181.2
62.7
33.4
Segment result2
Unallocated corporate
expenses3
Operating profit
Finance income
Finance expenses
Exceptional finance expenses
Share of post-tax loss
of equity accounted joint
ventures and associates
Taxation
Profit after tax for the year
Assets
Unallocated corporate assets
Total assets
Liabilities
Segment liabilities
Unallocated corporate liabilities
Total liabilities
462.1
214.6
(173.8)
40.8
0.3
(2.6)
(5.9)
(0.1)
(3.0)
29.5
386.3
386.3
82.4
141.7
224.1
68.6
13.8
1 The comparative segment results for the year ended 31 December 2015 have been restated to reflect this change. Of the Emerging Offerings
revenue of US$41.3 million, US$34.8 million has been classified in the Sport segment and US$3.2 million in the B2B segment. Of the previously
reported B2C segment result of US$182.2 million, US$1.0 million relating to brand licensing on third party platforms has been reclassified
in the B2B segment result, reducing the B2C segment result to US$181.2 million and increasing the B2B segment result from US$32.4 million
to US$33.4 million.
2 Revenue net of chargebacks, payment service providers’ commissions, gaming duties, royalties payable to third parties, selling and
marketing expenses.
3 Including staff costs, corporate professional expenses, other administrative expenses, depreciation, amortisation and share benefit charges.
Other than where amounts are allocated specifically to the B2C and B2B segments above, the expenses, assets and liabilities
relate jointly to all segments. These amounts are not discretely analysed between the two operating segments as any allocation
would be arbitrary.
Geographical information
The Group’s performance can also be reviewed by considering the geographical markets and geographical locations within
which the Group operates. This information is outlined below:
Revenue by geographical market (based on location of customer)
UK
Europe (excluding UK)
Americas
Rest of world
Total revenue
2015
US$ million US$ million
2016
223.2
231.0
44.9
21.7
520.8
212.7
178.4
48.5
22.5
462.1
888 HOLDINGS PLC ANNUAL REPORT & ACCOUNTS 2016
91
Carrying amount of
non-current assets by location
2015
US$ million US$ million
2016
142.3
27.6
169.9
144.9
26.0
170.9
2015
2016
Note US$ million US$ million
6
5
12
11
101.2
63.5
170.2
0.3
—
0.1
0.2
8.4
10.6
4.1
21.3
102.2
58.4
138.9
0.3
0.1
0.1
3.3
8.9
9.7
3.2
21.2
3 SEGMENT INFORMATION continued
Non-current assets by geographical location
Gibraltar
Rest of world
Total non-current assets by geographical location1
1 Excludes deferred tax assets of US$1.1 million (2015: US$1.2 million).
4 OPERATING PROFIT
Operating profit is stated after charging:
Staff costs (including Executive Directors)
Gaming duties
Selling and marketing expenses1
Fees payable to EY Limited, Ernst & Young LLP and its affiliates:
Statutory audit of the consolidated financial statements
Other statutory audits
Other assurance services
Corporate finance services
Depreciation (within operating expenses)
Amortisation (within operating expenses)
Chargebacks
Payment of service providers’ commissions
1 Selling and marketing expenses reflecting management’s strategic decision to accelerate targeted investment in Casino and Sport marketing
activities during the year.
5 EXCEPTIONAL ITEMS
The Group classifies certain items of income and expense as exceptional, as the Group considers that it allows for a better
reflection of the underlying performance of the Group. The Group considers any non-recurring items of income and expense
for classification as exceptional by virtue of their nature and size.
Exceptional acquisition costs: Legal and professional costs1
Exceptional acquisition income: Reimbursement of acquisition costs2
Exceptional finance costs3
Total exceptional acquisition costs
Exceptional retroactive duties and associated charges
(included within gaming duties in the consolidated income statement)4
Total exceptional costs
2015
US$ million US$ million
2016
0.9
—
—
0.9
3.0
3.9
17.5
(8.8)
5.9
14.6
8.4
23.0
1 During the year the Group incurred legal and professional costs of US$0.9 million associated with the subsequently aborted proposal
for potential combination between the Group, The Rank Group plc and William Hill plc. During 2015 the Group incurred legal and professional
costs of US$17.5 million associated with the subsequently aborted proposed acquisition of bwin.party digital entertainment plc.
2 In 2015, following the termination of the proposed acquisition described above, the Group received reimbursement income of US$8.8 million
from bwin.party digital entertainment plc, in line with its contractual agreement.
3 In 2015, the Group incurred finance costs of US$5.9 million in connection with the proposed acquisition of bwin.party digital entertainment plc
described above. The costs represent fair value movements on derivatives entered into to hedge the currency exposure associated with
the transaction.
4 Exceptional retroactive duties and associated charges of US$3.0 million in respect of gaming taxes relating to activity in prior years
(2015: US$8.4 million).
STRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTS888 HOLDINGS PLC ANNUAL REPORT & ACCOUNTS 2016
92
NOTES TO THE CONSOLIDATED
FINANCIAL STATEMENTS
continued
6 EMPLOYEE BENEFITS
Staff costs, including Executive Directors’ remuneration, comprises the following elements:
Wages and salaries
Social security
Pension and severance pay scheme costs
Staff costs capitalised in respect of internally generated intangible assets
2015
US$ million US$ million
2016
97.9
5.1
7.8
110.8
(9.6)
101.2
96.8
4.7
6.6
108.1
(5.9)
102.2
In the consolidated income statement total staff costs, excluding share benefit charges of US$6.7 million (2015: US$4.1 million),
are included within the following expenditure categories:
Operating expenses
Research and development expenses
Administrative expenses
The average number of employees by category was as follows:
Operations
Research and development
Administration
2015
US$ million US$ million
2016
56.0
26.7
18.5
101.2
53.8
28.7
19.7
102.2
2016
Number
2015
Number
832
394
129
1,355
800
377
122
1,299
At 31 December 2016 the Group employed 1,353 (2015: 1,318) staff.
At 31 December 2016 the Group used the services of 312 chat moderators (2015: 324) and 93 contractors (2015: 97).
Severance pay scheme – Israel
The Group’s employees in Israel are eligible to receive certain benefits from the Group in specific circumstances on leaving the
Group. As such the Group operates a defined benefit severance pay plan which requires contributions to be made to separately
administrated funds.
The current service cost and the present value of the defined benefit obligation are measured using the projected unit
credit method.
The following table summarises the employee benefits figures as included in the consolidated financial statements:
Included in the balance sheet:
Severance pay scheme liability (within trade and other payables)
Included in the income statement:
Current service costs (within operating expenses)
Current service costs (within research and development)
Current service costs (within administrative expenses)
Included in the statement of comprehensive income:
Remeasurement of severance pay scheme liability
2015
US$ million US$ million
2016
1.6
1.8
1.7
0.7
0.5
2.5
1.7
1.7
0.6
1.1
888 HOLDINGS PLC ANNUAL REPORT & ACCOUNTS 2016
93
2015
US$ million US$ million
2016
16.0
0.8
5.6
(3.0)
(0.7)
0.1
18.8
14.6
0.5
3.8
(2.6)
(0.3)
—
16.0
2015
US$ million US$ million
2016
18.5
0.8
4.3
(3.2)
(0.3)
0.1
0.2
20.4
2016
%
4.52
5.12
75
1.71
15.8
0.5
4.0
(2.6)
—
0.8
—
18.5
2015
%
4.58
5.12
75
1.67
2015
US$ million US$ million
2016
0.4
0.4
0.3
0.3
2015
US$ million US$ million
2016
—
(0.9)
2.6
1.7
0.2
0.1
2.3
2.6
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.
The expected contribution for 2017 is US$4.3 million.
The main actuarial assumptions used in determining the fair value of the Group’s severance pay plan are shown below:
6 EMPLOYEE BENEFITS continued
Movement in severance pay scheme liability:
Severance pay scheme assets
At beginning of year
Interest income
Contributions by the Group
Benefits paid
Return on assets less interest income already recorded
Exchange differences
At end of year
Severance pay plan liabilities
At beginning of year
Interest expense
Current service costs
Benefits paid
Actuarial gain on past experience
Actuarial loss on changes in financial assumptions
Exchange differences
At end of year
Discount rate (nominal)
Estimated increase in employee benefits costs
Voluntary termination rate
Inflation rates based on Israeli bonds
7 FINANCE INCOME AND FINANCE EXPENSES
Finance income:
Interest income
Finance income
Finance expenses:
Interest expense
Fair value movements on foreign exchange derivatives
Foreign exchange losses
Finance expenses
Details of the exceptional finance expenses are included in note 5.
STRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTS888 HOLDINGS PLC ANNUAL REPORT & ACCOUNTS 2016
94
NOTES TO THE CONSOLIDATED
FINANCIAL STATEMENTS
continued
8 TAXATION
Corporate taxes
Current taxation
Gibraltar taxation
Other jurisdictions taxation
Adjustments in respect of prior years
Deferred taxation
Origination and reversal of temporary differences
Taxation expense
2015
US$ million US$ million
2016
1.1
7.4
(1.1)
7.4
0.3
7.7
1.3
4.6
(3.9)
2.0
1.0
3.0
The taxation expense for the year differs from the standard Gibraltar rate of tax. The differences are explained below:
Profit before taxation
Standard tax rate in Gibraltar (2016: 10%, 2015: 10%)
Higher effective tax rate on other jurisdictions
Tax on dividends distributed from other jurisdictions
Utilisation of previously unrecognised tax losses
Expenses not allowed for taxation
Non-taxable income
Adjustments to prior years’ tax charges
Total tax charge for the year
2015
US$ million US$ million
2016
59.2
5.9
2.1
2.9
—
1.0
(3.4)
(0.8)
7.7
32.5
3.3
3.1
—
(0.1)
2.4
(2.9)
(2.8)
3.0
Current tax is calculated with reference to the profit of the Company and its subsidiaries in their respective countries
of operation. Set out below are details in respect of the significant jurisdictions where the Group operates and the factors
that influenced the current and deferred taxation in those jurisdictions:
Gibraltar
Gibraltar companies are subject to a corporate tax rate of 10%. During 2015, the Group changed certain elements of its tax
calculation in Gibraltar, which have been agreed with the tax authorities. These changes resulted in adjustments in respect
of prior years in 2015 and have been applied consistently in 2016.
Israel
The domestic corporate tax rate in Israel in 2016 is 25% (2015: 26.5%). From 1 January 2017 the rate has been reduced to 24%.
Prior to reporting its 2015 results, the Company’s Israeli subsidiary concluded an assessment agreement with respect to all tax
years up to and including 2013 and entered into certain transfer pricing agreements with the Israeli Income Tax Commissioner
as regards 2014-2015. This agreement resulted in adjustment in respect of prior years in 2015. The tax charge has increased
in the current year as a result of tax payable on dividends distributed to 888 Holdings plc.
UK
The Group’s subsidiary in the UK is subject to a corporate tax rate of 20% (2015: 20.25%). During the year, in addition
to the previously enacted reduction in the UK corporation tax rate to 19% from April 2017, the UK government announced
and substantively enacted a further reduction to 17% from April 2020.
888 HOLDINGS PLC ANNUAL REPORT & ACCOUNTS 2016
95
9 EARNINGS PER SHARE
Basic earnings per share
Basic earnings per share (“EPS”) has 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
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
them into shares, in the case of options. The number of equity instruments included in the diluted EPS calculation consist
of 7,688,394 Ordinary Shares (2015: 3,423,108) and 101,447 market-value options (2015: 158,484).
The number of equity instruments excluded from the diluted EPS calculation is 1,551,580 (2015: 3,051,243).
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 earnings per share
Diluted earnings per share
Adjusted earnings per share
2016
2015
51.5
358,154,255
7,789,841
29.5
356,129,113
3,581,592
365,944,096 359,710,705
14.4¢
14.1¢
8.3¢
8.2¢
The Directors believe that EPS excluding exceptional items, share benefit charges and share of post-tax loss of equity accounted
associates (“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 exceptional items, share benefit charges and share of post-tax loss of equity
accounted associates (“Adjusted profit”):
Profit for the period attributable to equity holders of the parent
Exceptional items (see note 5)
Share benefit charges (see note 21)
Share of post-tax loss of equity accounted associates (see note 13)
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
10 DIVIDENDS
Dividends paid
2015
US $ million US $ million
2016
51.5
3.9
6.7
0.1
62.2
29.5
23.0
4.1
0.1
56.7
358,154,255
365,944,096
356,129,113
359,710,705
17.4¢
17.0¢
15.9¢
15.8¢
2015
US$ million US$ million
2016
56.6
53.5
An interim dividend of 3.8¢ per share was paid on 6 October 2016 (US$13.6 million). The Board of Directors will recommend
to the shareholders a final dividend in respect of the year ended 31 December 2016 comprising 5.1¢ per share, and an additional
one-off dividend of 10.5¢ per share, both of which will be recognised in the 2017 financial statements once approved.
In 2015 an interim dividend of 3.5¢ per share was paid on 30 September 2015 (US$12.5 million) and a final dividend of 4¢ per share
plus an additional one-off 8¢ per share were paid on 12 May 2016 (US$43.0 million).
STRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTS888 HOLDINGS PLC ANNUAL REPORT & ACCOUNTS 2016
96
NOTES TO THE CONSOLIDATED
FINANCIAL STATEMENTS
continued
11 GOODWILL AND OTHER INTANGIBLE ASSETS
Cost or valuation
At 1 January 2015
Additions
At 31 December 2015
Additions
At 31 December 2016
Amortisation and impairments:
At 1 January 2015
Amortisation charge for the year
At 31 December 2015
Amortisation charge for the year
At 31 December 2016
Carrying amounts
At 31 December 2016
At 31 December 2015
At 1 January 2015
Goodwill
US$ million
146.1
—
146.1
—
146.1
20.7
—
20.7
—
20.7
125.4
125.4
125.4
Acquired
intangible
assets
Internally
generated
intangible
assets
Total
US$ million US$ million US$ million
14.5
3.0
17.5
1.3
18.8
10.3
1.8
12.1
2.3
14.4
4.4
5.4
4.2
52.0
6.8
58.8
10.6
69.4
24.4
7.9
32.3
8.3
40.6
28.8
26.5
27.6
212.6
9.8
222.4
11.9
234.3
55.4
9.7
65.1
10.6
75.7
158.6
157.3
157.2
Internally generated intangible assets
This category of assets includes capitalised development costs in accordance with IAS 38, which in nature includes research
and development projects. The material projects as included within the carrying amount above include compliance with local
regulatory requirements in certain jurisdictions US$11.1 million (2015: US$14.7 million) and a major upgrade to the gaming systems
platform US$17.7 million (2015: US$11.8 million).
Analysis of goodwill by cash generating units
Bingo online
business
Total
goodwill
US$ million US$ million US$ million
Other
Carrying value at 31 December 2015 and 31 December 2016
125.1
0.3
125.4
Impairment
In accordance with IAS 36 and the Group’s stated accounting policy an impairment test is carried out annually on the carrying
amounts of goodwill and a review for indicators of impairment is carried out for other non-current assets. Where an impairment
test was carried out, the carrying value is compared to the recoverable amount of the asset or the cash generating unit. In each
case, the recoverable amount was the value in use of the assets, which was determined by discounting the future cash flows of
the relevant asset or cash generating unit to their present value.
Goodwill – Bingo online business
Goodwill and intangible assets associated with the Bingo online business unit arose following the acquisition of the Bingo
online business of Globalcom Limited during 2007 and the acquisition of the Wink Bingo business in 2009. The income streams
generated from the Bingo online business, comprising the B2C Bingo cash generating unit and the B2B cash generating unit,
have been considered together as the risks and rewards associated with those income streams are deemed to be sufficiently
similar.
888 HOLDINGS PLC ANNUAL REPORT & ACCOUNTS 2016
97
11 GOODWILL AND OTHER INTANGIBLE ASSETS continued
Key assumptions and inputs used
Cash flow projections have been prepared for a five year period, following which a long term growth rate has been assumed.
Underlying growth rates, as shown in the table below, have been applied to revenue and are based on past experience,
including the positive results in 2016 and 2015 and projections of future changes in the online gaming market. Key assumptions
in preparing these cash flow projections include moderate growth in revenue, a stable level of costs per customer acquisition
and the expectation that the Group will continue to operate and be subject to gaming duties (including incremental UK remote
gaming duty commencing August 2017 driven by the intention to introduce a tax charge on all freeplays) in its core jurisdictions.
The pre-tax discount rate that is considered by the Directors to be appropriate is the Group’s specific Weighted Average Cost
of Capital, adjusted for tax, which is considered to be appropriate for the online Bingo cash generating units.
Pre-tax Underlying Underlying
discount rate growth rate2 growth rate
years 2-5
applied1
year 1
Long-term
growth rate
year 6+
Operating
expenses3
increase
years 1-5
Operating
expenses2
increase
year 6+
At 31 December 2016
At 31 December 2015
9%
9%
(1%)
4%
7%
2%
2%
1%
8%
4%
2%
1%
1 The pre-tax 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 Bingo revenue is significantly affected by GBP currency changes with the vast majority of Bingo revenue denominated in GBP. The underlying
growth rate for 2017 is effected by the expected average GBP exchange rate compared to the average GBP exchange rate in 2016.
3 Operating expenses exclude marketing costs which are included in the projections as a fixed percentage of revenues.
The Directors have concluded that there are no reasonably possible changes to key assumptions that would lead to impairment
in the Bingo goodwill and intangible assets.
Licences
No impairment tests were considered to be required at 31 December 2016 and the carrying value of licences is considered
to be appropriate.
Other intangible assets
No impairment tests were considered to be required at 31 December 2016 and the carrying value of other intangible assets
is considered to be appropriate.
STRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTS888 HOLDINGS PLC ANNUAL REPORT & ACCOUNTS 2016
98
NOTES TO THE CONSOLIDATED
FINANCIAL STATEMENTS
continued
12 PROPERTY, PLANT AND EQUIPMENT
Office furniture,
Leasehold
equipment and
IT equipment motor vehicles improvements
US$ million
US$ million
US$ million
Cost
At 1 January 2015
Additions
Disposals
At 31 December 2015
Additions
Disposals
At 31 December 2016
Accumulated depreciation
At 1 January 2015
Charge for the year
Disposals
At 31 December 2015
Charge for the year
Disposals
At 31 December 2016
Carrying amounts
At 31 December 2016
At 31 December 2015
At 1 January 2015
63.0
3.8
(17.6)
49.2
5.6
(4.9)
49.9
51.9
7.4
(17.6)
41.7
6.8
(4.9)
43.6
6.3
7.5
11.1
3.5
0.6
—
4.1
0.3
—
4.4
2.7
0.3
—
3.0
0.3
—
3.3
1.1
1.1
0.8
14.6
0.2
—
14.8
0.4
(0.1)
15.1
11.0
1.2
—
12.2
1.3
(0.1)
13.4
1.7
2.6
3.6
Total
US$ million
81.1
4.6
(17.6)
68.1
6.3
(5.0)
69.4
65.6
8.9
(17.6)
56.9
8.4
(5.0)
60.3
9.1
11.2
15.5
Following a review of fully written down assets, assets no longer in use with a total cost and accumulated depreciation
of US$5.0 million were written off in 2016 (2015: US$17.6 million).
888 HOLDINGS PLC ANNUAL REPORT & ACCOUNTS 2016
99
13 INVESTMENT IN EQUITY ACCOUNTED JOINT VENTURES AND ASSOCIATES
The following entities meet the definition of joint ventures and associates and have been equity accounted in the consolidated
financial statements:
Name
AAPN Holdings LLC
AGN LLC
Come2Play Limited
Relationship
Joint venture
Joint venture
Associate
Effective
interest
Country of 31 December 31 December
2015
Effective
interest
2016
incorporation
USA
USA
Israel
47%
47%
20%
47%
47%
20%
A reconciliation of the movements in the Group’s interest in equity accounted joint ventures and associates is shown below:
At 1 January 2015
Acquisitions
Share of post-tax loss of equity accounted joint ventures and associates
At 31 December 2015
Share of post-tax loss of equity accounted joint ventures and associates
At 31 December 2016
Joint ventures Associates
US$ million US$ million
—
—
—
—
—
—
—
1.5
(0.1)
1.4
(0.1)
1.3
US joint ventures
In 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 which the Group has a 47% interest in AAPN.
AAPN has a 100% owned subsidiary, AAPN New Jersey LLC (“AAPN NJ”), which has a B2C gaming offering in New Jersey.
As at 31 December 2016, AGN LLC (“AGN”), the entity which contracted with a Las Vegas casino licensee in connection with
the operation of a B2C gaming offering in Nevada, remained 100% owned by the Group. However, the Group considers that
due to the manner in which AGN is operated under the contractual arrangements in the JVA, it is regarded as a joint venture.
The Group also has an irrevocable commitment to contribute its ownership of AGN to AAPN for no consideration upon fulfilment
of certain conditions.
On this basis AAPN and AGN have been equity accounted for, reflecting the Group’s effective 47% interest in their aggregated
results and assets.
STRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTS888 HOLDINGS PLC ANNUAL REPORT & ACCOUNTS 2016
100
NOTES TO THE CONSOLIDATED
FINANCIAL STATEMENTS
continued
13 INVESTMENT IN EQUITY ACCOUNTED JOINT VENTURES AND ASSOCIATES continued
Amounts relating to the joint ventures and the Group’s share of net assets and post-tax losses of the joint ventures
are as follows:
Net assets of US joint ventures
Non-current assets
Current assets
Current liabilities
Net assets of joint ventures
Assets attributed to class B holders
Net assets of joint ventures attributed to the Group
Group effective interest in joint ventures
Group share of net assets of joint ventures
Income statement of US joint ventures
Revenue
Expenses
Post tax loss of joint ventures
Expenses attributed to class B holders
Total post tax loss of joint ventures attributed to the Group
Group effective interest in joint ventures
Group share of post tax loss of joint ventures1
2015
US$ million US$ million
2016
4.1
9.6
(1.4)
12.3
4.7
12.9
(1.9)
15.7
(12.3)
(15.7)
—
47%
—
2.7
(6.1)
(3.4)
(2.0)
(5.4)
47%
(2.5)
—
47%
—
3.8
(8.7)
(4.9)
(2.0)
(6.9)
47%
(3.2)
1 As at 31 December 2016 the Group’s investment in the US joint ventures had reduced to nil due to the US joint ventures’ cumulative losses
exceeding the Group’s investment. In 2016 the US joint ventures incurred further losses and, as a result, the Group’s investment remained at nil.
As the Group’s investment remained at nil, the Group did not recognise the losses of US$2.5 million in its consolidated income statement in 2016
(2015: US$3.2 million).
Associates
On 15 April 2015 the Group acquired 20% of the Ordinary Shares of Come2Play Limited for a cash payment of US$1.5 million.
Further disclosures have not been provided as the investment is not material to the Group.
Other investments
The Group holds available for sale investments of US$0.2 million at 31 December 2016 (31 December 2015: US$0.2 million).
888 HOLDINGS PLC ANNUAL REPORT & ACCOUNTS 2016
101
14 DEFERRED TAXES
Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities
for financial reporting purposes and the amounts used for income tax purposes. The Group’s deferred tax assets and liabilities
resulting from temporary differences, some of which are expected to be settled on a net basis, are as follows:
Deferred tax assets
Accrued severance pay
Share benefit charges
Vacation pay accrual
Property, plant and equipment
Deferred tax liabilities
Property, plant and equipment
Intangible assets
2015
US$ million US$ million
2016
0.2
—
0.6
0.3
1.1
1.0
(2.9)
(1.9)
(0.8)
0.5
0.1
0.6
—
1.2
1.0
(2.7)
(1.7)
(0.5)
The Group has no tax losses at 31 December 2016 (2015: US$1.8 million) that are available indefinitely for offset against future
taxable profits of the companies in which the losses arose.
15 CASH AND CASH EQUIVALENTS
Cash and short-term deposits
Customer funds
Restricted short-term deposits
2015
US$ million US$ million
2016
95.8
75.7
1.1
172.6
92.9
82.4
3.3
178.6
Customer funds represent bank deposits matched by liabilities to customers and progressive prize pools of an equal value
(see note 19). Restricted short-term deposits represent amounts held by banks primarily to support guarantees in respect
of regulated markets licence requirements.
16 TRADE AND OTHER RECEIVABLES
Trade receivables
Other receivables
Prepayments
Current trade and other receivables
Non-current other receivables and prepayments
2015
US$ million US$ million
2016
20.2
11.2
4.5
35.9
0.7
36.6
18.6
11.2
3.1
32.9
0.8
33.7
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. note 24 provides credit risk disclosures on trade and other receivables.
STRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTS888 HOLDINGS PLC ANNUAL REPORT & ACCOUNTS 2016
102
NOTES TO THE CONSOLIDATED
FINANCIAL STATEMENTS
continued
17 SHARE CAPITAL
Share capital comprises the following:
Authorised
Ordinary Shares of £0.005 each
1,026,387,500
1,026,387,500
8.1
8.1
Allotted, called up and fully paid
31 December 31 December 31 December 31 December
2015
Number US$ million US$ million
2016
Number
2016
2015
31 December 31 December 31 December 31 December
2015
Number US$ million US$ million
2016
Number
2016
2015
Ordinary Shares of £0.005 each at beginning of year
Issue of Ordinary Shares of £0.005 each
357,081,283
1,504,675
354,436,608
2,644,675
Ordinary Shares of £0.005 each at end of year
358,585,958
357,081,283
3.2
—
3.2
3.2
—
3.2
The narrative below includes details on issue of Ordinary Shares of £0.005 each as part of the Group’s employee share option
plan (see note 21) during 2016 and 2015:
During 2016, the Company issued 1,504,675 shares (2015: 2,644,675) out of which 535,958 shares (2015: 458,256) were
issued in respect of employees’ exercising market value options giving rise to an increase in share premium of US$1.1 million
(2015: US$0.9 million).
Shares issued are converted into US$ 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 (2015: US$3.2 million) and is split into 358,585,958 (2015: 357,081,283) Ordinary Shares.
The share capital in UK sterling (GBP) is £1.8 million (2015: £1.8 million).
18 TRADE AND OTHER PAYABLES
Trade payables
Accrued expenses
Other payables
2015
US$ million US$ million
2016
38.0
69.4
31.9
139.3
29.7
72.2
35.3
137.2
The carrying value of trade and other payables approximates to their fair value given the short maturity date of these balances.
19 LIABILITIES TO CUSTOMERS AND PROGRESSIVE PRIZE POOLS
Liabilities to customers
Progressive prize pools
2015
US$ million US$ million
2016
70.7
5.0
75.7
76.1
6.3
82.4
888 HOLDINGS PLC ANNUAL REPORT & ACCOUNTS 2016
103
20 INVESTMENTS IN SIGNIFICANT SUBSIDIARIES
The consolidated financial statements include the following principal subsidiaries of 888 Holdings plc:
Percentage of Percentage of
equity interest equity interest
2015
Country of
incorporation
2016
%
Name
VHL Financing Limited
Cassava Enterprises (Gibraltar) Limited
Gibraltar
Gibraltar
Virtual Digital Services Limited
Gibraltar
Brigend Limited
Fordart Limited
888 UK Limited
Virtual Marketing Services Italia Limited
Gibraltar
Gibraltar
Gibraltar
Gibraltar
888 Spain Public Limited Company
Gibraltar
888 US Limited
Gibraltar
100
100
100
100
100
100
100
100
100
888 Atlantic Limited
Gibraltar
100
888 Liberty Limited
888 Romania Limited
888 (Ireland) Limited
888 Denmark Limited
Gibraltar
Gibraltar
Gibraltar
Gibraltar
New Wave Virtual Ventures Limited
Gibraltar
Gisland Limited
Virtual IP Assets Limited
Gibraltar
BVI
Virtual Marketing Services (Gibraltar) Limited Gibraltar
Virtual Marketing Services (UK) Limited
UK
888 US Services Inc.
Dixie Operations Limited
Random Logic Limited
Sparkware Technologies SRL
Virtual Internet Services Limited
888 US Inc.
New Jersey,
USA
Antigua
Israel
Romania
Gibraltar
Delaware,
USA
Virtual Marketing Services (Ireland) Limited
Ireland
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
% Nature of business
100
Holding company
100
100
Holder of gaming licences
in Gibraltar
Holder of gaming licences in
Gibraltar for European markets
which are not locally regulated
100
Bingo business operator
100
B2B business operator
(except Bingo)
100
Holder of UK remote gaming licence
100
100
100
100
100
100
Holder of Italian online
gaming licence
Holder of Spanish online
gaming licence
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
Holder of Gaming Vendor License
in the state of Delaware
Holder of Romanian online gaming
licence
100
Holder of Irish online betting licence
100
100
Holder of Danish online gaming
licence
Development of social games –
Mytopia
100
Payment transmission
100
Holder of group IP assets
100
Marketing acquisition
100
Advertising services
100 Provider of US-based services
for US operations
100
Customer call center operator
100
Research, development and
marketing support
100
Software development
100
Data hosting and
development services
100 Holder of US Joint Venture
100
Payment transmission and
social gaming
STRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTS888 HOLDINGS PLC ANNUAL REPORT & ACCOUNTS 2016
104
NOTES TO THE CONSOLIDATED
FINANCIAL STATEMENTS
continued
21 SHARE BENEFIT CHARGES
Equity-settled share benefit charges
As at 31 December 2016 the Group has equity-settled employee shares and share options granted under two equity-
settled employee share incentive plans – the 888 All-Employee Share Plan, which expired according to its terms in
August 2015, and the 888 Long-Term Incentive Plan 2015 which was adopted at the Extraordinary General Meeting on
29 September 2015. The 888 Long-Term Incentive Plan 2015 is open to employees (including Executive Directors) and
full-time consultants of the Group, at the discretion of the Remuneration Committee. Awards under this scheme will
vest in instalments over a fixed period of at least three years subject to the relevant individuals remaining in service.
Certain of these awards are subject to additional performance conditions imposed by the Remuneration Committee
at the dates of grant, further details of which are given in the Directors’ Remuneration Report on page 54.
Details of equity settled shares and share options granted as part of the 888 All-Employee Share Plan and the 888
Long-Term Incentive Plan 2015 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
2016
2015
Weighted
average
exercise
price
Weighted
average
exercise
price
Number
£1.35
£1.70
£1.31
£1.27
908,224
(112,285)
(535,958)
259,981
£1.48
£1.75
£1.28
£1.35
Number
2,136,633
(770,153)
(458,256)
908,224
1 Of the total number of options outstanding at 31 December 2016 259,981 had vested and were exercisable (2015: 908,224).
2 The range of exercise prices for options outstanding at 31 December 2016 is £1.02-£1.50 (2015: £1.02-£1.80).
3 The weighted average remaining contractual life at the year-end was 1.62 years (2015: 2.26 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
2016
Number
2015
Number
1,327,483
3,041,045
(92,754)
(35,508)
738,746
1,320,000
—
(731,263)
4,240,266
2.09 years
1,327,483
2.63 years
2016
Number
2015
Number
5,273,963
1,621,450
(388,592)
(933,209)
3,496,205
3,367,724
(134,810)
(1,455,156)
5,573,612
1.61 years
5,273,963
2.00 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 page 57. The EPS growth target is taken into account when determining the number of
shares expected to vest at each reporting date, and the TSR target is taken into account when calculating the fair value of the
share grant.
888 HOLDINGS PLC ANNUAL REPORT & ACCOUNTS 2016
105
21 SHARE BENEFIT CHARGES 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
2016
2015
Monte Carlo Monte Carlo
£1.06
1,683,862
1.18%
45%
32%
£1.31
810,725
0.50%
33%
31%
TSR measure is described in further detail in the Directors’ Remuneration Report.
Valuation information – shares granted
2016
2015
Without
With
performance performance performance performance
conditions
conditions
conditions
conditions
Without
With
Weighted average share price at grant date
Weighted average share price at issue of shares
£2.02
£2.15
£2.05
£2.28
£1.63
£1.64
£1.63
£1.56
Ordinary Shares granted for future vesting with EPS growth performance conditions are valued at the share price at grant date,
which the Group 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 IFRS 2 – Share-based Payment, a charge to the consolidated 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 (now the Chairman) a cash-settled share-based award
(“Phantom Award”). The Phantom Award vested on 27 March 2015 as all vesting requirements were fulfilled.
Under the terms of the Phantom Award, the amount payable was calculated on an incremental basis, based on the average share
price over a period of 20 dealing days prior to the vesting date (£1.56), resulting in an entitlement of £3.3 million (US$4.8 million).
Valuation information
As there were no outstanding cash-settled share-based payment awards at either 31 December 2016 or 31 December 2015,
no amounts have been recorded in the consolidated balance sheet at either date.
Share benefit charges
Equity-settled
Equity-settled charge for the year
Cash-settled
Charges in respect of the Phantom Award
Total share benefit charges
2015
US$ million US$ million
2016
6.7
—
6.7
2.4
1.7
4.1
STRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTS888 HOLDINGS PLC ANNUAL REPORT & ACCOUNTS 2016
106
NOTES TO THE CONSOLIDATED
FINANCIAL STATEMENTS
continued
22 RELATED PARTY TRANSACTIONS
The aggregate amounts payable to key management personnel, considered to be the Directors of the Company, as well as their
share benefit charges, are set out below:
Short-term benefits
Post-employment benefits
Share benefit charges – equity-settled
Share benefit charges – cash-settled
2015
US$ million US$ million
2016
4.1
0.2
4.2
—
8.5
4.3
0.1
1.8
1.7
7.9
Further details on Directors’ remuneration are given in the Directors’ Remuneration Report on pages 54 to 66.
US joint ventures
During 2016 the Group charged the US joint ventures for reimbursement of costs of US$1.7 million (2015: US$1.8 million),
of which the outstanding balance at 31 December 2016 is US$0.3 million (2015: US$0.2 million).
Investment in associates
During 2016 the Group charged its associate for the Group share of the net revenue of US$1.6 million (2015: US$1.5 million),
of which the outstanding balance at 31 December 2016 is US$0.1 million (2015: US$1.0 million).
23 COMMITMENTS
Lease commitments
Future minimum lease commitments under operating leases on properties occupied by the Group at the year-end are as follows:
Within one year
Between two and five years
More than five years
20151
US$ million US$ million
2016
4.1
13.1
14.4
31.6
4.4
1.3
—
5.7
1 The 2015 financial statements disclosed lease commitments due within one year as US$3.7 million. This amount now includes lease commitments
in respect of car parking (US$0.7 million).
The increase in lease commitments during the year mainly relates to the renewal of the lease agreement in Israel, for ten years
(until January 2027) and in the UK until June 2020.
The expense relating to operating leases recorded in the consolidated income statement in the year was US$4.6 million
(2015: US$4.5 million).
888 HOLDINGS PLC ANNUAL REPORT & ACCOUNTS 2016
107
24 FINANCIAL RISK MANAGEMENT
The Group is exposed through its operations to risks that arise from use of its financial instruments. Policies and procedures for
managing these risks are set by the Board following recommendations from the Chief Financial Officer. The Board reviews the
effectiveness of these procedures and, if required, approves specific policies and procedures in order to mitigate these risks.
The main financial instruments used by the Group, on which financial risk arises, are as follows:
♦ Cash and cash equivalents;
♦ Restricted cash;
♦ Trade and other receivables;
♦ Trade and other payables;
♦ Liabilities to customers;
♦ Available for sale financial investments.
Detailed analysis of these financial instruments is as follows:
Financial assets
Trade and other receivables1 (note 16)
Cash and cash equivalents (note 15)
Available for sale investment (note 13)
1 Excludes prepayments.
2015
US$ million US$ million
2016
31.4
172.6
0.2
204.2
29.8
178.6
0.2
208.6
In accordance with IAS 39, all financial assets are classified as loans and receivables except for available-for-sale investments,
which are classified as available for sale assets.
Financial liabilities
Trade and other payables1 (note 18)
Customer deposits (note 19)
1 Excludes taxes payable and deferred income.
31 December 31 December
2015
US$ million US$ million
2016
92.5
75.7
168.2
90.0
82.4
172.4
In accordance with IAS 39, all financial liabilities are held at amortised cost except for the derivative financial instruments,
which are recognised at fair value through profit and loss.
STRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTS888 HOLDINGS PLC ANNUAL REPORT & ACCOUNTS 2016
108
NOTES TO THE CONSOLIDATED
FINANCIAL STATEMENTS
continued
24 FINANCIAL RISK MANAGEMENT continued
Capital
The capital employed by the Group is composed of equity attributable to shareholders. The primary objective of the Group
is 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 25, 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, most of which are due 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
wallets with the Group. These are mainly intermediaries that transact on behalf of credit card companies.
The risk is that a PSP would fail to discharge its obligation with regard to the balance owed to the Group. The Group reduces
this credit risk by:
♦ Monitoring balances with PSPs 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 limit any concentration of risk.
The Group considers that based on the factors above and on extensive past experience, the PSP receivables are of good
credit quality and there is a low level of potential bad debt amounting to US$0.5 million arising from a PSP failing to discharge
its obligation (2015: US$0.5 million). This has been charged to the consolidated income statement.
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 an impairment provision based on analysis of past transactions. This provision is set off against trade receivables and
at 31 December 2016 was US$1.4 million (2015: US$1.3 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 from its Gibraltar headquarters. Subsidiaries in its other main locations maintain minimal
cash balances as required for their operations. Cash settlement proceeds from PSPs, as described above, are paid into bank
accounts controlled by the Treasury function in Gibraltar.
The Group holds its funds with highly reputable financial institutions and will not hold funds with financial institutions with
a low credit rating. The Group maintains its cash reserves in highly liquid deposits and regularly monitors interest rates in order
to maximise yield.
Customer funds
Customer funds are matched by customer liabilities and progressive prize pools of an equal value.
Restricted short-term deposits
Restricted short-term deposits are short-term deposits held by banks primarily to support guarantees in respect of regulated
markets licence requirements.
The Group’s maximum exposure to credit risk is the amount of financial assets presented above, totalling US$204.2 million
(2015: US$208.5 million).
888 HOLDINGS PLC ANNUAL REPORT & ACCOUNTS 2016
109
24 FINANCIAL RISK MANAGEMENT continued
Liquidity risk
Liquidity risk exists where the Group might encounter difficulties in meeting its financial obligations as they become due.
The Group monitors its liquidity in order to ensure that sufficient liquid resources are available to allow it to meet its obligations.
The following table details the contractual maturity analysis of the Group’s financial liabilities:
Trade and other payables1
Customer deposits
1 Excludes taxes payable and deferred income.
On demand
In 3 months
US$ million US$ million
2016
Between
3 months More than
1 year
and 1 year
Total
US$ million US$ million US$ million
10.0
75.7
85.7
72.8
—
72.8
9.7
—
9.7
—
—
—
92.5
75.7
168.2
2015
On demand
In 3 months
US$ million US$ million
Total
US$ million US$ million US$ million
Between
3 months
and 1 year
More than
1 year
Trade and other payables1
Customer deposits
6.6
82.4
89.0
72.7
—
72.7
10.7
—
10.7
—
—
—
90.0
82.4
172.4
1 Excludes taxes payable and deferred income.
Market risk
Currency risk
The Group’s financial risk arising from exchange rate fluctuations is mainly attributed to:
♦ Mismatches between customer deposits, which are predominantly denominated in US$, and the net receipts from customers,
which are settled in the currency of the customer’s choice and of which Pounds Sterling (GBP) and Euros (EUR) are the
most significant.
♦ Mismatches between reported revenue, which is mainly generated in US$ (the Group’s reporting currency and the functional
currency of the majority of its subsidiaries), and a significant portion of deposits settled in local currencies.
♦ Expenses, the majority of which are denominated in foreign currencies including Pounds Sterling (GBP), Euros (EUR)
and New Israeli Shekels (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. This includes the use of foreign exchange forward contracts designed to fix the economic impact
of known liabilities when considered appropriate.
At 31 December 2016 the Group does not have any open foreign exchange forward contracts.
STRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTS888 HOLDINGS PLC ANNUAL REPORT & ACCOUNTS 2016
110
NOTES TO THE CONSOLIDATED
FINANCIAL STATEMENTS
continued
24 FINANCIAL RISK MANAGEMENT continued
The tables below detail the monetary assets and liabilities by currency:
2016
GBP
ILS
US$ million US$ million US$ million
EUR
USD
Total
US$ million US$ million US$ million
Other
Cash and cash equivalents
Trade and other receivables
Available for sale investments
Monetary assets
Trade and other payables
Customer deposits
Monetary liabilities
Net financial position
Cash and cash equivalents
Trade and other receivables
Available for sale investments
Monetary assets
Trade and other payables
Customer deposits
Monetary liabilities
Net financial position
39.0
13.0
—
52.0
(26.4)
(18.2)
(44.6)
7.4
26.1
9.5
—
35.6
(11.7)
(11.7)
18.4
0.5
—
18.9
(27.9)
—
(23.4)
(27.9)
12.2
(9.0)
81.1
3.3
0.2
84.6
(24.3)
(43.8)
(68.1)
16.5
8.0
5.1
—
13.1
(2.2)
(2.0)
(4.2)
8.9
172.6
31.4
0.2
204.2
(92.5)
(75.7)
(168.2)
36.0
2015
GBP
ILS
US$ million US$ million US$ million
EUR
USD
Total
US$ million US$ million US$ million
Other
56.1
13.6
—
69.7
(25.6)
(23.0)
(48.6)
21.1
33.8
8.4
—
42.2
(18.7)
(9.5)
(28.2)
14.0
20.6
0.3
—
20.9
(23.2)
—
(23.2)
(2.3)
61.5
4.2
0.2
65.9
(21.1)
(49.1)
(70.2)
(4.3)
6.6
3.3
—
9.9
(1.4)
(0.8)
(2.2)
7.7
178.6
29.8
0.2
208.6
(90.0)
(82.4)
(172.4)
36.2
Sensitivity analysis
The table below details the effect on profit before tax of a 10% strengthening (and weakening) in the US$ exchange rate
at the balance sheet date for balance sheet items denominated in Pounds Sterling, Euros and New Israeli Shekels:
Year ended 31 December 2016
GBP
ILS
US$ million US$ million US$ million
EUR
10% strengthening
10% weakening
10% strengthening
10% weakening
(0.7)
0.7
(1.2)
1.2
0.9
(0.9)
Year ended 31 December 2015
GBP
ILS
US$ million US$ million US$ million
EUR
(2.1) (1.4)
1.4
2.1
0.2
(0.2)
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$0.8 million.
888 HOLDINGS PLC ANNUAL REPORT & ACCOUNTS 2016
111
25 FAIR VALUE MEASUREMENTS
At 31 December 2016 and 2015, the Group’s available for sale investment is measured at fair value. For the remaining financial
assets and liabilities, the Group considers that the book value approximates to fair value.
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.
26 CONTINGENT LIABILITIES AND REGULATORY MATTERS
(a) As part of the Board’s ongoing regulatory compliance and operational risk assessment process, it 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, for the majority of these matters the Board is unable to quantify
reliably any material outflow of funds that may result, if any, and has not made any provisions. For matters where an
outflow of resources is probable and can be measured reliably, amounts have been accrued in the financial statements.
These amounts are not material at 31 December 2016.
(c) The Group operates in numerous jurisdictions. Accordingly, and on the basis of tax advice obtained, the Group is filing
tax returns, providing for and paying all taxes and duties it believes are due based on local tax laws and transfer pricing
agreements. The Group is also periodically subject to audits and assessments by local taxing authorities.
There is significant uncertainty as to whether VAT is due in respect of certain services provided by the Group to customers in
certain European Union Member States prior to 2015. These uncertainties are in respect of the determination of the place of
supply of some or all of the services provided by the Group prior to 2015 and, insofar as the place of supply is determined to
be the Member State in which the customer is located, whether a possible imposition of VAT on relevant services by certain
Member States would be lawful. There is also uncertainty in certain Member States surrounding the tax base to be applied in
the event that it is ultimately determined that VAT is due on any relevant services. Based on a thorough legal assessment, the
Group considers that it is unlikely that any liability will arise and has, therefore, not recorded any liability in the Group financial
statements. Furthermore, given the uncertainties surrounding the quantification of any VAT which may be payable, the Board
believes that any attempt to either estimate or quantify the range of the amounts which may reasonably be in dispute would
potentially be misleading and may be prejudicial to the Group’s position in defending any claims for past VAT.
In respect of other taxes and duties, other than as provided in the Group financial statements, the Board considers it unlikely
that any further liability will arise from the final settlement of such assessments.
STRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTS888 HOLDINGS PLC ANNUAL REPORT & ACCOUNTS 2016
112
COMPANY BALANCE SHEET
At 31 December 2016
Assets
Non-current assets
Investments in subsidiaries
Current assets
Trade and other receivables
Income tax receivable
Total assets
Equity and liabilities
Equity
Share capital
Share premium
Retained earnings
Total equity
Liabilities
Current liabilities
Trade and other payables
Non-current liabilities
Deferred tax liabilities
Total liabilities
Total equity and liabilities
2015
2016
Note US$ million US$ million
2
3
4
4
5
10
37.9
37.9
86.0
1.1
87.1
125.0
3.2
3.3
85.4
91.9
31.2
31.2
1.9
33.1
125.0
29.6
29.6
91.6
2.7
94.3
123.9
3.2
2.2
69.6
75.0
47.2
47.2
1.7
48.9
123.9
The financial statements on pages 112 to 116 were approved and authorised for issue by the Board of Directors on 21 March 2017
and were signed on its behalf by:
Itai Frieberger
Chief Executive Officer
Aviad Kobrine
Chief Financial Officer
The notes on pages 115 and 116 form part of these financial statements.
888 HOLDINGS PLC ANNUAL REPORT & ACCOUNTS 2016
113
COMPANY STATEMENT OF CHANGES IN EQUITY
For the year ended 31 December 2016
Balance at 1 January 2015
Profit and total comprehensive income for the year
Dividend paid (note 9)
Issue of shares (note 4)
Equity settled share benefit charges (note 8)
Balance at 31 December 2015
Profit and total comprehensive income for the year
Dividend paid (note 9)
Issue of shares (note 4)
Equity settled share benefit charges (note 8)
Balance at 31 December 2016
Share capital
US$ million
Share premium
US$ million
Retained earnings
Total
US$ million US$ million
3.2
—
—
—
—
3.2
—
—
—
—
3.2
1.3
—
—
0.9
—
2.2
—
—
1.1
—
3.3
65.4
55.3
(53.5)
—
2.4
69.6
65.7
(56.6)
—
6.7
85.4
69.9
55.3
(53.5)
0.9
2.4
75.0
65.7
(56.6)
1.1
6.7
91.9
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 for.
Share premium – represents the amount subscribed for share capital in excess of nominal value.
Retained earnings – represents the cumulative net gains and losses recognised in the parent company statement
of comprehensive income and other transactions with equity holders.
The notes on pages 115 and 116 form part of these financial statements.
STRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTS888 HOLDINGS PLC ANNUAL REPORT & ACCOUNTS 2016
114
COMPANY STATEMENT OF CASH FLOWS
For the year ended 31 December 2016
Cash flows from operating activities:
Profit before tax
Adjustments for:
Share benefit charges
Decrease (increase) in net amounts owed by subsidiaries
Decrease (increase) in other receivables
Decrease in trade and other payables
Cash generated from operations
Income tax paid
Net cash generated from operating activities
Cash flows from financing activities:
Issue of shares
Dividends paid
Net cash used in financing activities
Net decrease in cash and cash equivalents
Cash and cash equivalents at the beginning of the year
Cash and cash equivalents at the end of the year
The notes on pages 115 and 116 form part of these financial statements.
2015
2016
Note US$ million US$ million
8
3, 5
3
5
4
9
67.1
0.5
(9.6)
(0.1)
(2.4)
55.5
—
55.5
1.1
(56.6)
(55.5)
—
—
—
52.0
2.0
5.1
0.1
(5.4)
53.8
(1.2)
52.6
0.9
(53.5)
(52.6)
—
—
—
888 HOLDINGS PLC ANNUAL REPORT & ACCOUNTS 2016
115
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’s financial statements have been prepared in accordance with International Financial Reporting Standards (“IFRS”)
as adopted by the European Union and on an historical basis.
The Company applies consistent accounting policies, as applied by the Group. To the extent that an accounting policy
is relevant to both Group and Company financial statements, refer to the Group financial statements for disclosure of the
accounting policy (see note 2 to the consolidated financial statements). Material policies that apply to the Company only
are included as appropriate.
Investment in subsidiaries
The Company’s investments in subsidiaries are carried at cost less provisions resulting from impairment.
Share-based payments
The financial effect of awards by the Company of options over its equity shares to employees of subsidiary undertakings
is recognised by the Company in its individual financial statements as an adjustment to its investment in subsidiaries with
an opposite adjustment to equity. The subsidiary, in turn, will recognise the IFRS 2 adjustment in its income statement with
a credit (debit) to equity to reflect the deemed capital contribution from (dividend to) the Company.
Critical accounting estimates and judgements – impairment testing of investments in and amounts
due from subsidiaries
The Company’s investments in and amounts due from subsidiaries have been tested for impairment by comparison against
the underlying value of the subsidiaries’ assets.
Under Section 288 of the Gibraltar Companies Act 2014, 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 20 to the consolidated financial statements. In the Company’s
financial statements, investments in subsidiaries are held at cost less provision for any impairment. The Group applies
IFRS 2 – Share-based Payment. Consequently, the 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
in investment in subsidiaries during the year was US$8.3 million (2015: US$2.2 million) included within this were share-based
payment charges of US$6.2 million in 2016 (2015: US$2.1 million) and a capital contribution of US$2.1 million in respect
of incorporation of a new subsidiary.
3 TRADE AND OTHER RECEIVABLES
Amounts due from subsidiaries
Other receivables and prepayments
31 December 31 December
2015
US$ million US$ million
2016
85.7
0.3
86.0
91.4
0.2
91.6
The carrying value of trade and other receivables approximates 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 SHARE CAPITAL
The disclosures in note 17 to the consolidated financial statements are consistent with those for the Company, including capital
management in note 21 to the consolidated financial statements.
5 TRADE AND OTHER PAYABLES
Trade payables
Amounts due to subsidiaries
Other payables and accrued expenses
31 December 31 December
2015
US$ million US$ million
2016
0.2
25.2
5.8
31.2
0.3
38.4
8.5
47.2
The carrying value of trade and other payables approximates to their fair value. All balances included within trade and other
payables are repayable on demand.
STRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTS888 HOLDINGS PLC ANNUAL REPORT & ACCOUNTS 2016
116
NOTES TO THE COMPANY
FINANCIAL STATEMENTS
continued
6 FINANCIAL RISK MANAGEMENT
To the extent relevant to Company’s financial assets and liabilities (see notes 2 and 3), the Company’s financial risk management
objectives and policies are consistent with those of the Group as disclosed in note 24 to the consolidated financial statements.
7 CONTINGENT LIABILITIES
The disclosures in note 26 to the consolidated financial statements are consistent with those for the Company.
8 SHARE BENEFIT CHARGES
The disclosures in note 21 to the consolidated financial statements are consistent with those for the Company except that
the charge for the year is partly taken to investment in subsidiaries, as set out in note 2.
9 RELATED PARTY TRANSACTIONS
The aggregate amounts payable to key management personnel, considered to be the Directors of the Company, as well as their
share benefit charges is detailed in note 22 to the consolidated financial statements.
During the year the Company received dividends from its subsidiaries through intercompany accounts (to be paid subsequently
in cash), totalling US$70.1 million (2015: US$60.5 million) and paid to its shareholders dividends totalling US$56.6 million
(2015: US$53.5 million).
Share benefit charges in respect of options and shares of the Company awarded to employees of subsidiaries totalled US$6.2
million (2015: US$2.1 million).
During the year subsidiaries of the Company supported it in funding US$9.9 million of the Company’s costs (2015: US$7.5 million).
At 31 December 2016, the net amounts owed by subsidiaries to the Company were US$60.6 million (2015: US$53.0 million).
10 DEFERRED TAXES
Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities
for financial reporting purposes and the amounts used for income tax purposes. The Company’s deferred tax assets and
liabilities resulting from temporary differences, some of which are expected to be settled on a net basis, are as follows:
Deferred tax liabilities
Property, plant and equipment
Intangible assets
2015
US$ million US$ million
2016
1.0
(2.9)
(1.9)
1.0
(2.7)
(1.7)
888 HOLDINGS PLC ANNUAL REPORT & ACCOUNTS 2016
117
SHAREHOLDER
INFORMATION
Group websites
A range of shareholder information
is available in the Investor Relations
area of the Group’s website,
corporate.888.com, including:
Bingo
888’s Bingo offering is through
888ladies and Wink
♦ www.888ladies.com
Italy
888’s Italy Casino games and
Sport are offered through its Italian
regulated website
♦ Latest information on the Group’s
♦ www.winkbingo.com
share price
♦ Information on the Group’s financial
performance
♦ www.poshbingo.co.uk
♦ www.tastybingo.com
♦ News and events
♦ www.redbusbingo.com
The following websites can also
be accessed through the Group’s
main website www.888.com or are
available directly.
Casino
888’s Casino games are offered through
its 888casino and live casino
♦ www.bingostreet.com
♦ www.winkslots.com
♦ www.bingoloft.com
♦ www.daisybingo.com
♦ www.888bingo.com
♦ www.888casino.com
♦ www.777.com
♦ www.888games.com
♦ live-casino.888casino.com
♦ www.Casino-on-Net.com
♦ www.ReefClubCasino.com
♦ www.eucitycasino.com
♦ www.bingofabulous.com
Sportsbook
888’s Sportsbook offering is
through 888sport
♦ www.888sport.com
USA
888’s New Jersey Poker and Casino
games are offered through its
US regulated website
♦ www.888vipcasinoclub.com
♦ US.888poker.com
Poker
888’s Poker offering is through 888poker
♦ US.888casino.com
♦ www.888.it
♦ www.888casino.it
♦ www.888sport.it
Denmark
888’s Denmark Poker, Casino games and
Sport are offered through its Denmark
regulated website
♦ www.888.dk
♦ www.888poker.dk
♦ www.888casino.dk
♦ www.888sport.dk
Romania
888’s Romania Poker, Casino games and
Sport are offered through its Romania
regulated website
♦ www.888.ro
♦ www.888poker.ro
♦ www.888casino.ro
♦ www.888sport.ro
Games
888’s Games offering is through
888games
♦ www.888poker.com
♦ www.PacificPoker.com
♦ US.888.com
♦ www.888games.com
Spain
888’s Spain Poker, Casino games and
Sport are offered through its Spanish
regulated website
Mytopia Social Games
888’s social games are offered through
Mytopia social games websites:
♦ www.888.es
♦ www.888poker.es
♦ www.888casino.es
♦ www.888sport.es
♦ www.mytopia.com
♦ www.bingoisland.com
Responsible gaming:
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on responsible gaming
♦ www.888responsible.com
STRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTS888 HOLDINGS PLC ANNUAL REPORT & ACCOUNTS 2016
118
NOTES
888 HOLDINGS PLC ANNUAL REPORT & ACCOUNTS 2016 COMPANY
INFORMATION
Shareholder services
All enquiries relating to Ordinary Shares,
Depository Interests, dividends and
changes of address should be directed
to the Group’s Transfer Agent:
Company secretary
Strait Secretaries Limited
57/63 Line Wall Road
Gibraltar
Capita Asset Services
The Registry
34 Beckenham Road Beckenham
Kent
BR3 4TU
UK
Tel: 0871 664 0300
www.capitashareportal.com
Further information
For further information please contact:
info@888holdingsplc.com
Auditors
Ernst & Young LLP
1 More London Place
London
SE1 2AF
United Kingdom
EY Limited
PO Box 191
Regal House
Queensway
Gibraltar
Principal bankers
Barclays Bank Plc
1 Churchill Place
London
E14 5HP
UK
Solicitors
Allen & Overy LLP
One Bishops Square
London
E1 6AD
UK
Hassans
57/63 Line Wall Road
Gibraltar
Herzog Fox Neeman
Asia House
4 Weizman Street
Tel Aviv
Israel 64239
Incorporated in Gibraltar with registered number 90099
Stock Code: 888
Design & production
www.carrkamasa.co.uk
888 Holdings plc
Suite 601/701 Europort
Europort Road
Gibraltar
T +350 20049800
F +350 20048280
E info@888holdingsplc.com
corporate.888.com