OF GLOBAL
ONLINE GAMING
Corporate.888.com
888 Holdings PLC
Annual Report & Accounts 2018
a
888 Holdings plc Annual Report & Accounts 2018 Corporate.888.com
888 Holdings
Our B2C offering
888 operates established B2C
brands across four major online
gaming verticals:
Our B2B offering
Dragonfish provides flexible,
dynamic services including
Games & Technology, Marketing,
Operations and ePayments.
Revenue*
US$ million
530-2%
B2C revenue
US$ million
479-2%
* Before VAT accrual release.
GAMING
10%
6%
9%
15%
B 2 B
O
BIN G
R
E
K
O
P
S
P
O
R
T
90%
B2C
10%
B2B
60%
O
N
SI
A
C
888’s products
888’s structure
107.1
100.7
20.1
20.2
86.7
78.3
+6%
+0.5%
+11%
2017
2018
2017
2018
2017
2018
Adjusted EBITDA1
US$ million
Adjusted basic
earnings per share
US¢
Adjusted profit
before tax
US$ million
317.6
293.9
80.3
75.5
68.0
63.1
+8%
+6%
+8%
2017
2018
2017
2018
2017
2018
B2C – Casino
US$ million
B2C – Sport
US$ million
Revenue – Spain
US$ million
1 As defined in table set out on Page 16.
Strategic Report
01–41
Strategic Report
Overview of 888
2
Our Marketplace
4
888's Business Model
6
Chairman’s Statement
8
Chief Executive Officer’s Strategic Report
10
The Online Gaming Cycle
12
888's B2C Proposition
13
B2B – Dragonfish, the Partner of Choice
14
888's Strategy and Progress
16
Business & Financial Review
Risk Management Strategy
24
Regulation and General Regulatory Developments 32
36
Viability Statement
38
Corporate Responsibility
42–80
Governance
Board of Directors
Directors’ Report
Corporate Governance Statement
Statement by the Chairman
of the Remuneration Committee
Directors’ Remuneration Report
Audit Committee Report
81–134
Financial Statements
Independent Auditors’ Report
Consolidated Income Statement
Consolidated Statement
of Comprehensive Income
Consolidated Balance Sheet
Consolidated Statement of Changes in Equity
Consolidated Statement of Cash Flows
Notes to the Consolidated Financial Statements
Company Balance Sheet
Company Statement of Changes in Equity
Company Statement of Cash Flows
Notes to the Company Financial Statements
Shareholder Information
Company Information
42
44
50
58
60
77
81
90
90
91
92
93
94
129
130
131
132
134
IBC
888 Holdings plc Annual Report & Accounts 2018
1
1
Safe and secure entertainment
888 is one of the world’s most popular online gaming entertainment
and solutions providers.
888’s purpose
888 has been a leading operator in the online gaming industry for more
than twenty years. Throughout this time, 888’s purpose has remained
consistent: to provide a safe, secure and enjoyable experience for its
customers. By doing this effectively, 888 is able to succeed in the fast-
growing and dynamic online gambling industry and generate value for
its shareholders.
888’s difference
888 is a truly diversified operator with a portfolio of leading business-
to-consumer (“B2C”) brands as well as a business-to-business (“B2B”)
division called Dragonfish.
888 Holdings plc and its subsidiaries (the “Group”) has successful
operations under 13 geographic licenses and across four major online
gaming product verticals. This structure and diversification enable the
Group to target and deliver a range of growth opportunities.
The bedrock of 888’s operations remain its proprietary online gaming
technology that has been developed over more than two decades.
This technology platform underpins the Group’s competitive
advantages and 888’s ability to operate efficiently and adapt
to new regulations.
888’s focus
888’s firm strategic focus is on growing its strong brands in sustainable
markets where there are regulatory frameworks that protect customers
and provide clarity for operators.
* 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 2018Strategic Report
Corporate.888.com
Corporate.888.com
Our Marketplace
A GROWING
The online gambling industry continues to
experience significant growth and be shaped
by two key forces: developments in technology
and regulatory changes. Many jurisdictions are
adopting new regulatory frameworks that are
specific to online gaming. This can increase
the costs of operation but helps to provide a
safer environment for customers and creates an
environment in which operators with scale and
technological advantages, such as 888, are able
to prosper.
$50.8BN
2018 global online
gambling market
41.3% from mobile*
* Source: (H2 Gambling, February 2019).
2
2
888 Holdings plc Annual Report & Accounts 2018
2023 estimated global
online gambling market
53.0% estimated from mobile*
888 Holdings plc Annual Report & Accounts 2018 Strategic Report
2018 estimated market size by product
(US$)
2023 estimated market size by product
(US$)
CAGR
(%)
SPORT
CASINO
POKER
BINGO
TOTAL
GAMBLING*
25.6bn
35.1bn
13.5bn
17.4bn
2.7bn
2.9bn
1.9bn
3.4bn
* Source: (H2 Gambling, February 2019).
6.5
5.2
1.3
3.7
6.7
50.8bn
70.3bn
Protecting
the vulnerable
888’s primary goal is to ensure that all those who visit our
sites can do so with confidence and that those for whom
our games are not intended, notably underage individuals
and those vulnerable to addiction, will not be drawn into
the gaming environment. In addition, we aim to quickly
identify those few customers who might develop a
gambling problem and ensure that they helped by our
trained teams. We are constantly developing new and
innovative ways to deliver a safe gaming environment.
Safe and secure
entertainment
Conducting business responsibly,
and putting our customers first,
is fundamental to the future
success of 888. We understand that
a responsible approach is both the
correct way to do business and one
that enhances credibility with all
stakeholders, thereby supporting
888’s development.
Fair play
888 is committed to providing its players with a fair
and enjoyable gaming experience. Our brands are well
established and trusted by customers we strongly oppose
foul play in any form. We leverage our technology and
analytics capabilities to ensure that our customers enjoy
the fairest and most enjoyable experience possible.
Anti-crime
888 takes comprehensive steps to minimise fraud,
including customer checks, and implement effective
anti-money laundering policies. The Group has
developed leading fraud detection mechanisms which
allow the business to react in real time to any potential
or evolving fraud patterns. We regularly request
supporting documentation from customers to verify
their source of funds to ensure that the deposits our
customers make are legitimate.
888 Holdings plc Annual Report & Accounts 2018
3
3
888 Holdings plc Annual Report & Accounts 2018Strategic Report Corporate.888.com
888’s Business Model
VALUE
Our growth strategy
888’s growth strategy is based
on five key pillars:
Development of
core B2C brands
Business activities
Driving margin growth
through operational
efficiencies
Enhancing efficiencies
B2B partner of choice
through Dragonfish
Continue to protect
our customers and
act responsibly
How we create value
B2C
i o n
t
i
u i s
q
c
In
c
r
e
a
s
i
n
g
p
l
a
y
e
r
v
a
l
u
e
er play e r a
st p
o
c
e
h
t
g
n
i
c
u
d
e
R
Our purpose
Key drivers
Safe and secure
entertainment
I
n
creasing first tim e d e p o
s it o rs
Customer
Interaction
Customer
wins
Customer
loses
B2B
Branded
Partners
Agreed share
of net revenue
4
4
888 Holdings plc Annual Report & Accounts 2018
888 Holdings plc Annual Report & Accounts 2018
Influencing factors
1. Continuously developing our proprietary technology-edge
888’s online gaming platforms underpin the Group’s ability to entertain and
protect customers, operate efficiently and adapt to new regulations. The Group
is constantly evolving and developing its proprietary platforms and industry
leading back office systems to maintain its competitive advantages.
2. Safe gambling
888’s upmost priority is the safety of its customers. The Group’s in-house
monitoring tool, Observer, was developed by 888’s responsible gaming and
research department. It was first launched in 2008 and since then has been
continuously fine-tuned and developed to become the sophisticated and effective
tool it is today. Observer employs information from our customer database and
measures changes in gaming behaviour, such as unexpected increases in time
or money spent on the site. Over the last 10 years, we have more than tripled
the number of factors used to detect potentially problematic behaviour.
3. 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.
4. Product development and a seamless customer experience
Product innovation is central to 888’s progress with the Group continually
investing in developing its products across verticals and both mobile and desktop
platforms. This includes adding new games, increased personalisation and new
features that continue to support in differentiating the 888 experience in our
customers’ eyes.
5. Business analytics
888’s teams – from product development to marketing to customer support –
draw on 888’s extensive and constantly evolving data set and analysis capabilities
to drive 888’s continued success.
6. Marketing and CRM
Marketing plays a critical role to 888’s business. Drawing on the Group’s analytics-
driven insights and expertise, 888 is relentlessly focused on developing its
marketing techniques and channels, both online and offline, that adhere to
strict return-on-investment criteria and are always directed within the Group’s
responsible gambling policies. In addition, once a customer joins 888, underpinned
by sophisticated data insights, statistical models and customer understanding,
888 interacts with its customers on a more personalised basis.
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. Payment processing
888’s leading proprietary payment supports more than 35 payment methods
in 18 languages, both for desktop and on mobile/tablet devices.
9. B2B partnerships
Through its Dragonfish B2B division, the Group offers gaming partners
a comprehensive end-to-end solution, encompassing technology, operations
and advanced marketing tools, as well as online best practice. The Dragonfish
team is uniquely placed to support its partners and deliver a cutting-edge
online proposition.
888 Holdings plc Annual Report & Accounts 2018
5
5
Customer
recycles
winnings
Customer
keeps
winnings
Contribution
to Group
revenue
888 Holdings plc Annual Report & Accounts 2018Strategic Report Corporate.888.com
Chairman’s Statement
AT OUR CORE
During 2018, the Group continued to
deliver against its strategic objectives with
a firm focus on strengthening its position
in regulated markets; developing new
products and technologies; and continuous
improvements in the areas of compliance
and safe gambling.
Brian Mattingley
Chairman
Market overview
The global online gambling market
remains dynamic and fast-growing.
H2 Gambling Capital, a leading industry
data source, predicts that the global
online gambling industry will continue to
grow significantly over the coming years,
from a value of $50.8 billion in 2018 to
be worth approximately $70.3 billion in
2023 (Source: H2 Gambling Capital data,
February 2019). The key drivers behind
this anticipated growth will continue to
be the increasing penetration and use
of mobile devices, improved internet
connectivity for consumers, and positive
regulatory changes that open new
markets for online gambling.
Regulation continues to be a key force
in shaping the future direction of our
industry and the Group continues to
welcome and support the development
of regulatory frameworks globally that
provide better protection for customers
and greater clarity for online gambling
operators. In some cases, such as in
the UK, Italy, Denmark and Romania,
recent and forthcoming changes to
regulation and taxation could present
potential headwinds for profitability
and growth. On the other hand, new
regulated markets also provide significant
potential growth opportunities for 888 by
providing environments where the Group
can access new customers and leverage
its extensive marketing capabilities. The
Group has a proven and successful track
record of launching in new regulated
markets and growing market share and
there is perhaps no better example of this
than in Spain. Having launched in Spain in
2012, revenue from the market has grown
significantly over recent years to account
for 13% of the Group’s revenue in 2018
and now represents the Group’s second
largest individual market. We continue
to seek opportunities to replicate this
success in other markets as they regulate
online gambling and, at the very end of
the year, we were delighted to receive
a licence from the Gambling Authority
in Sweden to provide online Casino,
Sport and Poker services under the new
regulated Swedish regime, which came
into effect on 1 January 2019.
Post the period end, the Group received
a licence to launch Casino and Poker in
the regulated Portuguese market from
January 2019. These marked the 12th
and 13th jurisdictions where 888 holds
a licence, thereby demonstrating further
progress against the Group’s strategy
to diversify and expand across
regulated markets.
Over recent years the regulator in the
UK, the United Kingdom Gambling
Commission (“UKGC”), has become more
active in promoting the improvement
of standards of operation across
the industry, thereby enhancing the
protection of potentially vulnerable
customers. The Group has been proactive
in implementing changes to its operations
to support the long-term sustainability of
our UK business. These include enhancing
customer checks and verifications and
strengthening its customer protection
protocols and procedures. Whilst this
has impacted 888’s revenue from the UK
market over the last 18 months, we are
pleased by the recent encouraging trends
witnessed in our UK business.
The regulatory environment in the US
has continued to evolve and, in May
2018, the US Supreme Court overturned
the Professional and Amateur Sports
Protection Act of 1992 (“PASPA”)
thereby enabling individual states in the
US to regulate online sports betting. In
September, we were delighted to launch
888sport in New Jersey, marking the first
time 888 has offered sports betting in
the US and paving the way for the Group
to expand its sports offer on a state-by-
state basis as future regulation allows.
Whilst the repeal of PASPA represents
a positive and fundamental shift in the
long-term outlook for the US market,
in January 2019, post the period end,
the US Department of Justice released
an updated opinion regarding the
interpretation of the Wire Act of 1961. This
has created some uncertainty across the
US market which may continue through
a legal challenge to the new opinion.
Despite this, the Board believes that the
Group remains well-positioned for future
growth in the developing US market.
Introduction
I am pleased to report on another
year of progress for 888. During
2018, the Group continued to
deliver against its strategic
objectives with a firm focus on
strengthening its position in
regulated markets; developing
new products and technologies;
and continuous improvements
in the areas of compliance and
safe gambling. As a result of the
Group’s continued progress, and
despite regulatory headwinds
in certain markets during 2018,
I am delighted to report that
888 achieved record EBITDA
in the year.
6
888 Holdings plc Annual Report & Accounts 2018 AT OUR CORE
Strategic progress
888’s strategy is to drive growth across
diversified geographies, product verticals
and revenue streams (both B2C and B2B).
To achieve this, the Group continues to
balance investment across areas of the
business that will generate long-term
value for the Group’s stakeholders.
Underpinning the Group’s growth
strategy are 888’s core strengths:
outstanding proprietary technology;
an experienced and dedicated
management team; business analytics
expertise; customer relationship
management (“CRM”) capabilities; and
efficient marketing. The Board believes
that, through continuous investment and
innovation, 888 has developed – and
continues to enhance – truly market-
leading proprietary online gaming
technology. In an industry as dynamic
and fast-moving as 888’s, the Group’s
ability to develop its own products and
solutions remains critical to 888’s ability
to both adapt to regulatory changes and
achieve sustainable growth.
New product development remains
a key driver of the Group’s organic
growth and, as discussed in more
detail in the Business & Financial Review
on page 16, was an area of significant
focus during the year. Towards the
end of May, the Group successfully
launched Orbit, a new cutting edge
web-based Casino platform, which
has recorded very encouraging results
and contributed to the 8% increase in
Casino revenue in 2018. We have also
continued to invest in our growing Sport
proposition, which recorded a revenue
increase of 6% in 2018, with an enhanced
and more personalised “front-end” to
888sport in the pipeline. In early 2019,
we commenced the phased roll out of
Poker 8, a new and improved cross-
territory Poker platform, which we are
confident will provide new momentum
to 888poker following a challenging
year where revenue decreased by 37%.
In addition, we are also excited about
the forthcoming launch of 888’s shared
poker player liquidity network across
selected European markets. In Bingo,
where revenue decreased by 17%, we
are continuing to develop our product
by introducing new games and
enhancing customer personalisation
which we believe will support 888’s
future success in what remains
a competitive bingo market.
The Group continues to explore M&A
opportunities and partnerships that
will create value for its stakeholders.
In December 2018, we were pleased to
announce the acquisition of the remaining
53% interest in the All American Poker
Network (“AAPN”), a joint venture
established in 2013. The acquisition
represented an important strategic step
towards 888 achieving its exciting long-
term potential in the US market and we
are confident that it will create additional
value for our shareholders.
Following the year-end, in February 2019,
the Group announced the acquisition of
a portfolio of bingo brands – including
the well-established Costa Bingo brand –
which previously operated as B2B brands
on the Group’s Dragonfish Platform.
With the acquired brands having been
developed on Dragonfish, the Board
is confident their consolidation into
888’s established B2C brand portfolio
will deliver synergies and growth
opportunities through the application
of the full extent of the Group’s
capabilities in product development,
marketing, and customer relationship
management to their operations.
In March 2019, the Group was delighted
to announce the exciting and strategically
important acquisition of sportsbook
technology alongside associated risk
management, product and trading
capabilities from Dedsert Limited
and Dedsert (Ireland) Limited and its
affiliates (together “BetBright”) for
£15 million. This acquisition gives 888
complete ownership over technology
and product development across four
key online betting verticals for the first
time and will support the long-term
development of the successful and
increasingly established 888sport brand.
We are confident that this acquisition
will increase the Group’s exciting long-
term prospects and differentiation in the
growing global sports betting market.
Safer gambling
888’s values place the safety of our
customers at the centre of all endeavours.
The Group’s primary objective is to
ensure that all those who visit our
websites can do so with confidence
and security.
Many millions of adult customers
around the world choose to participate
in online gambling activities and the clear
majority of those who play our games
enjoy a safe and positive experience.
However, as a responsible operator, we
constantly strive to ensure that those
for whom our games are not intended,
notably the underage and the vulnerable,
will not be drawn into the gaming
environment and that those customers
who develop a gambling problem
are quickly identified and helped. We
maintain a close dialogue with relevant
stakeholders which include regulators,
industry bodies and charities, and we
are committed to contributing to the
continuous improvement of standards
across the industry. As well as being
the right thing to do, by continuing to
conduct business responsibly we are in
a stronger position to generate value
for all stakeholders.
Board and people
On behalf of the Board, I would like to
take this opportunity to thank each of my
colleagues at 888 for their commitment
during the year. We continue to place
an emphasis on nurturing our creative
and responsible culture and ensuring
that this is understood and shared by
all colleagues. This has been another
dynamic year for the industry and the
progress made by 888 during 2018 is,
above all else, testament to the skill and
dedication of our outstanding team.
Following the year-end, the Group
announced that Itai Pazner, previously
Chief Operating Officer (“COO”), had
been appointed as 888’s new Chief
Executive Officer (“CEO”). He replaced
Itai Frieberger who, after more than 14
years with the business, in January stood
down from his role as the Group’s CEO in
January 2019. I am pleased to report that,
in order to ensure the smoothest possible
transition, Itai Frieberger will be remaining
with 888 as a Director of the Group for
a period of up to 12 months.
Itai Frieberger has made a truly
outstanding contribution to 888 over
many years and, on behalf of everyone
at the Company, I would like to thank
Itai for his exceptional achievements and
dedication. In Itai Pazner we have the
ideal successor as CEO. He is a highly
experienced operator with a great track
record of success within 888. He has
developed a unique understanding of
the Group over the past 17 years with
the business and has worked closely
with Itai Frieberger for a number of years,
especially throughout the past year in
his role as COO, which has supported
an effective and seamless transition.
Also following the year-end, we were
delighted to welcome new colleagues
that are joining us from BetBright.
The BetBright sportsbook that we
have acquired has been developed
by a fantastic team and our new
colleagues will significantly strengthen
888’s sports betting expertise and
industry know-how.
Outlook
The Board continues to believe that,
underpinned by the Group’s diversification
across products and markets as well as its
technology leadership and first-class team,
888 is very well positioned to continue to
generate value for its stakeholders.
Changes and developments to regulation
will continue to play a major role in
dictating the future dynamics and size
of the global online gambling industry.
Despite recent uncertainty arising from
the US Department of Justice’s recently
revised opinion to the Wire Act of 1961,
the Board believes that 888 remains well
positioned and we will continue to invest
to develop 888’s presence in the evolving
US market. Whilst these investments will
have an impact on Group profitability in
the coming year, the longer term growth
potential for 888 in the US market, which
retains the potential to become the largest
in the world, remains significant.
The positive momentum at the end of
2018 continued into the first quarter
of 2019 with average daily revenue up
10% compared to Q4 2018 reflecting
improvements across all major KPIs.
In the UK, we are encouraged by the
improving trends we began to witness
in the latter stages of 2018 and the Board
is pleased to report that these have
continued during the first quarter of the
current financial year with average daily
revenue at constant currency in our UK
B2C business in Q1 so far up by more
than 10% compared to prior year. Overall
Group trading during the financial year
to date is 5%* higher at constant currency
year-on-year.
888’s focus in 2019 and beyond will, as
ever, remain on delivering a truly satisfying
and safe experience for customers,
expanding the business in regulated
markets and investing in our technology,
people and platform, thereby supporting
sustainable growth for our shareholders.
Brian Mattingley
Non-Executive Chairman
12 March 2019
* Adjusted for the migration of Cashcade Bingo.
7
888 Holdings plc Annual Report & Accounts 2018Strategic Report Corporate.888.com
Chief Executive Officer’s Strategic Report
LEADER
In my first report as CEO I am delighted to
update 888’s stakeholders on the significant
strategic progress made by the Group
during 2018 and since the start of 2019.
Itai Pazner
Chief Executive Officer
888’s established
business model
The operations of 888 Holdings plc
are structured into two lines of business:
the core B2C business, where the
Group operates the 888 brands, and
a leading B2B offering, conducted
through Dragonfish.
Through its B2C business, which
accounted for 90% of the Group’s
revenue in 2018 (2017: 90%), 888
operates popular online gaming brands
across four product verticals; Casino,
Sport, Poker and Bingo. Through
Dragonfish, the Group offers gaming
partners a comprehensive end-to-end
solution encompassing technology,
compliance, operations and advanced
marketing tools.
888’s core B2C business is based upon
attracting customers to its brands in a
cost-effective manner and then retaining
those customers by offering a variety
of games and markets across different
product verticals in an enjoyable and
safe environment. To achieve this, 888
continually invests in technology and
product development, marketing and
its people. Sophisticated data analytics
underpin and guide the Group’s approach
to all key areas of business development.
I am delighted to present my first
Strategic Report to 888’s stakeholders
since taking over as Chief Executive
Officer in January 2019. I am honoured
to be the new CEO of 888, which is
a business with an outstanding team
and culture. I am hugely excited at the
prospect of building on the Group’s
position of strength as a diversified
operator with outstanding proprietary
technology and a number of significant
potential future growth opportunities.
The Board believes that 888 is one of
the most diversified operators across
product verticals and regulated markets
in the global online gaming industry.
I am pleased to report that, in 2018, 888
delivered further strategic progress and
maintained its focus on compliance and
customer safety, technology and product
innovation, and achieved growth in
various regulated markets.
Maintaining a safe
and enjoyable online
environment
888’s mission remains, above all else, to
provide its customers with a safe, secure
and entertaining environment to enjoy
online gaming and betting. Our primary
goal remains consistent: to ensure that
all those who visit our sites can do so
with confidence and that those for whom
our games are not intended, notably
underage and vulnerable individuals,
will not be drawn into the gaming
environment. Critically, protecting our
customers is not only the right way to do
business, but it is the only way in which
888 will continue to succeed and create
value for all its stakeholders.
70%
Revenue from regulated
and taxed markets
+26%
Revenue growth in regulated
markets excluding the UK
8
888 Holdings plc Annual Report & Accounts 2018 Strategic Report
888 Holdings plc Annual Report & Accounts 2018
9
9
888 Holdings plc Annual Report & Accounts 2018Strategic Report Corporate.888.com
The Online Gaming Cycle
DRIVEN APPROACH
888’s highly-skilled
team and its internally
generated know-how
remain major drivers
of the Company’s
value. 888 carefully
manages and sustains
these resources and
details of key actions
taken in 2018 are set
out in the Corporate
Responsibility Report
on page 38 to 41.
888 employs an extensive team
of highly trained and experienced
business analytics and data-mining
professionals. Teams across 888
including product development,
marketing and customer support
leverage this extensive and
constantly evolving data and, by
applying robust statistical models
and subject always to our safe
and responsible gaming policies,
influence the following factors in
the online gaming cycle:
Gaming cycle
6. Gaming
revenue
1. Marketing
5. Activity
2. Acquisition
Return to
cost driven
4. CRM
3. Deposits
10 888 Holdings plc Annual Report & Accounts 2018
10
888 Holdings plc Annual Report & Accounts 2018
1. Marketing
Central to the Group’s approach to growth is an
unwavering focus on return-to-cost driven marketing.
The Group continually evolves and develops new
marketing techniques and campaigns, both online
and offline, to increase awareness of its brands and
create customer loyalty. The returns to cost ratios of all
marketing campaigns are rigorously tested against strict
criteria before being extended to their target markets.
This helps to ensure that 888’s marketing spend remains
cost-efficient.
2. Acquisition
Effective marketing helps to attract customers to 888’s
brands. Strong levels of customer acquisition, measured
by increases in first time depositors, is the fuel for 888’s
future growth.
3. Deposits
Customers need to be able to enjoy a seamless journey
from the moment they visit the Group’s websites through
to making deposits and then enjoying 888’s games. 888’s
proprietary payment processing capabilities support a
wide variety of languages, methods and currencies and
it is vital that the Group is able to offer efficient and easy
to use payment processing.
4. Customer relationship
management ("CRM")
Once 888 has acquired a customer, our goal is to make
sure that they have a great, safe experience with 888.
Subject always to our safe and responsible gaming
policies, tools used to achieve this include personalised
communications and the promotion of relevant offers
and bonuses.
5. Activity
Whilst subject always to our safe and responsible
gaming policies, offering a high-quality product helps
to increase customer activity and, consequently, life-
time value with 888. 888’s ability to successfully create
proprietary games, enhance personalisation, offer great
odds, and develop new functionality on mobile and
desktop platforms helps to differentiate 888 from
its competitors.
6. Gaming revenue
Player activity leads to revenue for the Group. This then
enables our marketing teams to invest in campaigns to
acquire more new customers.
888 Holdings plc Annual Report & Accounts 2018
11
11
888 Holdings plc Annual Report & Accounts 2018Strategic Report Corporate.888.com
888's B2C Proposition
OFFERING
Our offer
How we generate revenue
888casino is one of the longest standing online casino
brands in the market.
Through continuous product development, 888casino
aims to provide the most enjoyable online experience
available. 888casino combines 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 video slot and video poker
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 adjusted for bonuses granted to
customers.
888sport is a fast-growing sports betting destination.
At the heart of the 888sport brand is genuine passion
for sport, with thousands of live and pre-event betting
markets on offer, from the obvious to the obscure.
Sportsbook online gaming revenue comprises bets
placed less amounts won adjusted for the fair value
of open betting positions.
888poker offers a first-class poker environment that
enables players of all abilities to enjoy the games of
their choice.
888poker offers Texas Hold’em, Omaha Hi’Lo, 7 Card
Stud and other poker variations in Pot Limit, Fixed Limit
and No Limit and Blast 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 less the fair
value of certain promotional bonuses.
888’s leading bingo brands 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 an extensive
range of 888-developed and 3rd parties slot 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 tickets purchased
by customers less amounts won, less the fair value of
certain promotional bonuses.
888’s portfolio of brands includes 888 Ladies,
Wink Bingo and Wink Slots.
Product
Casino
Sport
Poker
Bingo
12
888 Holdings plc Annual Report & Accounts 2018 B2B – Dragonfish, the Partner of Choice
Under its Dragonfish arm, the Group
offers gaming partners a comprehensive
end-to-end solution, encompassing
customer support, technology, operations
and advanced marketing tools.
Dragonfish offers its partners a wide
range of more than 570 games, including
video slots, progressive jackpots, Live
Dealer, video poker, table games and
branded titles. Dragonfish powers leading
brands such as MoonBingo and World
Series Of Poker ("WSOP").
888’s B2B business model is based on
an agreed share of the revenue generated
by its gaming partners.
Drawing on more than 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 first-class online proposition.
Dragonfish is home to one of the world’s
leading bingo networks, providing
software to some of the biggest
names in bingo.
We are steadfastly committed to
providing a safe, secure and compliant
environment for each of our partners’
customers and Dragonfish’s flexible
platform and tools have been developed
and certified to meet the rigorous
regulatory requirements of the different
jurisdictions in which its partners operate.
888 Holdings plc Annual Report & Accounts 2018
1313
888 Holdings plc Annual Report & Accounts 2018Strategic Report
Corporate.888.com
888's Strategy and Progress
PRIORITIES
888 has a consistent strategy for
sustainable growth that is built on five
key pillars, described below. The delivery
of this strategy is based upon harnessing
the Group’s organic potential as well as
evaluating attractive M&A opportunities.
This strategy is underpinned by the
strength of the Group’s people and
technology. 888 owns and develops
proprietary online gaming technology
and associated platforms and this
provides the bedrock of the Group’s
success. Owning and developing
proprietary technology enables 888
to create a differentiated customer
proposition, adapt to regulatory
changes effectively and respond
quickly to new opportunities.
888’s operations are directed by highly
sophisticated business analytics which
are critical to the Group’s approach to
product development, marketing and
customer relationship management.
These strengths enable 888 to deliver
first-class and innovative online gaming
entertainment products and solutions.
During 2018, 888 made further progress
against its growth strategy:
Strategic pillars
2018 performance highlights1
Development of core
B2C brands
888 continue to develop its B2C
brands to ensure that it offer
customers the most enjoyable
online gaming entertainment
possible.
• Casino continued to deliver solid growth with an 8%
increase in revenue to US$317.6 million (2017: US$293.9
million) and a 16% increase in active players; excluding the
UK, Casino revenue increased 17%.
• Successful gradual launch of Orbit from May, 888’s
most exciting Casino product innovation in recent years,
delivering encouraging results.
888 has a portfolio of
established and strong brands in
Casino, Sport, Poker and Bingo.
• Sport revenue increased 6% to US$80.3 million (2017:
US$75.5 million); excluding the UK, Sport revenues
increased 18%.
• Sport first time depositors increased by 21% (28% outside
of UK) and deposits increased by 10% (18% excluding UK).
• In March 2019, post the year-end, the Group was delighted
to announce the exciting and strategically important
acquisition of the sports betting platform and team behind
BetBright, giving 888 complete ownership over technology
and product development across four key online betting
verticals for the first time.
• Continued investment in Poker product with launch of
Poker in Italy at the beginning of 2018, launch of Progressive
Knock Out ("PKO") format in 2018, and development of
the new Poker 8 platform during the year (which began its
phased roll out in early 2019).
• Post the year-end, in February 2019, the Group
announced the acquisition of a portfolio of bingo brands,
including the well-established Costa Bingo brand, which
previously operated as B2B brands on the Group’s
Dragonfish Platform.
1 All comparisons are against the same data for 2017.
14
888 Holdings plc Annual Report & Accounts 2018 Strategic pillars
Enhancing efficiencies
Management remain steadfastly focused on maximising
operational efficiencies, including by constantly developing and
refining marketing approaches and driving increased volumes.
2018 performance highlights
• Marketing ratio decreased to 29% of revenue (2017: 30%) but new
customer recruitment increased therefore cost per acquisition declined
reflecting the optimisation and efficiency of targeted marketing investment.
• Overall cost ratio reduced to 80% of revenue (2017: 81%) reflecting
operational efficiencies and strict cost control.
Expansion in regulated markets
888’s focus is on driving growth in markets where there is
a sustainable regulatory framework for online gaming and
where we are able to benefit from marketing opportunities
for our brands. 888 has a proven track-record in successfully
and efficiently launching and growing in attractive regulated
markets.
• Revenue from regulated and taxed markets comprised 70% of Group
revenue (2017: 70%). Excluding the UK, the proportion of revenue from
regulated and taxed markets increased 5.5%.
• The Group’s diversification strategy continues with the UK now
representing 32% of Group revenue, down from 37%.
• Spain revenue increased by 8% with lower Poker revenue partially
offsetting strong double-digit growth in both Casino and Sport.
• Italy revenue increased by 29% driven by enhanced Casino content
including the launch of ‘Orbit’ during the second half of the year; the launch
of Poker at the beginning of the year and a robust Sport performance.
• New licences obtained in Sweden and Malta at the end of the year, and a
Portuguese license was applied for during 2018 and obtained in early 2019.
• Continued development in the US with the launch of 888sport in New
Jersey in September, marking the first time 888 has offered sports betting
in the US market, and 149 new Casino games added to the Group’s offering
in New Jersey during 2018.
• Acquisition of the remaining 53% interest in AAPN to support future
expansion in the US market.
• B2B Revenue declined 8% reflecting the challenges of the UK bingo
market as well as the termination of an agreement with Cashcade,
a former B2B partner.
• 21 new skins added to the Dragonfish Bingo network, including eight added
to CasinoFlex.
• Sustained focus on and investment in enhancing 888’s responsibility tools
and processes during the year to:
• better identify vulnerable or potentially vulnerable players;
• better identify customers with multiple accounts; and
• check customer source of funds.
• Further investment in training our team to help them identify and interact
better with vulnerable or potentially vulnerable customers.
• Due diligence processes are in place with regard to the Company’s anti-
bribery policy and anti-modern slavery policy. Particular focus is given
to bribery risks involved in dealings with foreign government officials
and brokers, and to human slavery risks in respect of service providers
to the Group’s offices in less developed countries.
B2B 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, employees,
community and act responsibly
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 those who choose to play with 888.
888 has policies in place to prevent bribery and corruption,
promote the well-being and diversity of its employees and
prevent violations of human rights in its supply chain. 888
periodically reviews the Group’s environmental impact,
however notes that as an online business this is limited,
and therefore has not adopted a formal policy at this stage.
The strategic report, from pages 08 to 15, was reviewed, approved by the Board and signed on its behalf on 12 March 2019.
Itai Pazner
Chief Executive Officer
15
888 Holdings plc Annual Report & Accounts 2018Strategic Report Corporate.888.com
Business & Financial Review
PROGRESS
During 2018, 888 delivered continued
progress against its stated strategy.
The Group has continued to focus on
driving growth in regulated markets,
enhancing compliance, and developing
exciting product innovations.
Financial summary
Revenue – B2C
• Casino
• Poker
• Sport
• Bingo
Total B2C
B2B
Revenue before VAT accrual release
VAT accrual release2
Revenue
Adjustment of VAT accrual release
Operating expenses3
Gaming duties
Research and development expenses
Selling and marketing expenses
Administrative expenses4
Adjusted EBITDA5
Depreciation and amortisation
Finance
Adjusted profit before tax5
Share benefit charges
VAT accrual release
Exceptional items6
Gain from re-measurement of previously
held equity interest in joint ventures
Share of equity accounted associates’ loss
$530m
888 revenue*
$479.3m
B2C revenue
$50.6m
B2B revenue
* Before VAT accrual release.
Profit before tax
Alternative Performance Measures (“APMs”) used
in this Business & Financial Review do not have
standardised meanings and therefore may not be
comparable to similar measures presented by other
companies.
Adjusted basic earnings per share
Basic earnings per share
16
20181
US$ million
20171
US$ million
Change
(2%)
(8%)
(2%)
6%
11%
317.6
49.0
80.3
32.4
479.3
50.6
529.9
10.7
540.6
(10.7)
(137.8)
(69.9)
(32.8)
(155.0)
(27.3)
107.1
(20.3)
(0.1)
86.7
(8.9)
10.7
11.1
9.3
(0.2)
108.7
20.2¢
26.3¢
293.9
77.9
75.5
39.3
486.6
55.2
541.8
—
541.8
—
(138.8)
(75.2)
(35.4)
(162.5)
(29.2)
100.7
(19.3)
(3.1)
78.3
(8.5)
—
(50.8)
—
(0.2)
18.8
20.1¢
3.5¢
888 Holdings plc Annual Report & Accounts 2018 Strategic Report
Reconciliation of profit before tax to EBITDA and Adjusted EBITDA
Profit before tax
Finance
Depreciation
Amortisation
EBITDA
Exceptional items6
VAT accrual release2
Share benefit charges
Gain from re-measurement of previously
held equity interest in joint ventures
Share of equity accounted associates loss
Adjusted EBITDA5
1 Totals may not sum due to rounding.
2 Revenue includes US$10.7 million (2017: nil)
in respect of accrual release which relates to
receipt of tax assessments in respect of legacy
value-added tax in Germany, as detailed in note
19 to the financial statements.
3 Excluding depreciation of US$5.3 million (2017:
US$5.7 million) and amortisation of US$15.0
million (2017: US$13.6 million).
4 Excluding share benefit charges of US$8.9
million (2017: US$8.5 million).
20181
US$ million
20171
US$ million
108.7
0.1
5.3
15.0
129.1
(11.1)
(10.7)
8.9
(9.3)
0.2
107.1
18.8
3.1
5.7
13.6
41.2
50.8
—
8.5
—
0.2
100.7
5 Adjusted EBITDA is the main measure the
analyst community uses to evaluate the
Company and compare it to its peers. The Group
presents adjusted measures (including adjusted
profit before tax) which differ from statutory
measures due to the exclusion of exceptional
items and adjustments. It does so because the
Group considers that it allows for a further of the
underlying financial performance of the Group.
6 Exceptional income of US$11.1 million related to
US$22.4 million release of provision following
receipt of tax assessments in respect of legacy
VAT relating to the provision of gaming services
in Germany prior to 2015 (2017: exceptional
charges of US$45.3 million) offset by an accrual
of US$10.4 million in respect of regulatory
matters related to customers’ activity in prior
periods and US$0.9 million legal and professional
costs associated with aborted M&A efforts, as
set out in note 5 to the financial statements.
B2C revenue during the year was
US$479.3 million (2017: US$486.6
million), representing 90% of total
Group revenue1 (2017: 90%). The Group
delivered continued growth across
several regulated markets, primarily in
Continental Europe, underpinned by
good momentum in Casino and Sport.
However, this growth was offset by the
closure of several markets (primarily
Australia and the Czech Republic) during
the course of 2017 (and which therefore
did not contribute at all to the Group’s
performance during 2018), and a 16%
decrease in revenue from the UK, despite
more encouraging trends in the second
half of the year (discussed below).
This outcome from the UK business is
primarily driven by the proactive and
prudent customer protection measures
888 has taken amidst the market’s
heightened regulatory scrutiny.
1 Revenue in this document is before
VAT accrual release.
B2C – Product segmentation
888 continues to focus on growing its
B2C brands across Casino, Sport, Poker
and Bingo across global markets that
have regulated frameworks for online
gambling. The Group does this by
investing in analytics driven marketing
and product innovation as well as by
applying data-driven CRM that supports
player retention and customer “cross-sell”
between 888’s products and brands.
888’s revenue by product segment
is set out in the table below:
Revenue – B2C
• Casino
• Poker
• Sport
• Bingo
Total B2C
B2B
Revenue before VAT accrual release
VAT accrual release2
Revenue
2018
US$ million
2017
US$ million
Change
317.6
49.0
80.3
32.4
479.3
50.6
529.9
10.7
540.6
293.9
77.9
75.5
39.3
486.6
55.2
541.8
—
541.8
8%
(37%)
6%
(17%)
(2%)
(8%)
(2%)
(0%)
888 Holdings plc Annual Report & Accounts 2018
1717
Strategic Report Corporate.888.com
Business & Financial Review Continued
Product overview
and developments
In addition to being a meaningful
revenue generating product for 888,
Sport remains a highly important
customer acquisition channel for the
Group and provides additional value
by cross-selling customers into Casino
and Poker. 888 continues to invest in its
Sport proposition across product and
marketing. During 2018, 888 invested
in developing a new 888sport “front-
end” to improve functionality and the
customer experience, integrate artificial
intelligence tools and increase customer
personalisation. This is being rolled out
across the Group’s markets during 2019
and the Group is confident that this will
further differentiate 888’s Sport product
from its competitors’.
Following the completion of the
acquisition of BetBright’s platform
in March 2019, the Group will begin
the integration process of BetBright’s
technology into 888 as a soon as
practically feasible. The Group aims to
begin a phased and market-by-market
roll out of its proprietary sports book
solution once integration is completed.
The integration of BetBright’s sportsbook
into the Group will give 888 complete
ownership over its technology and
product development across all four of
its key online betting verticals for the very
first time and the Board believes that
this acquisition will enhance the Group’s
long-term prospects in the global Sports
betting market by enabling 888 to fully
leverage its marketing and analytics
capabilities, scale and unique expertise.
Casino
Results overview
Sport
Results overview
Sport revenue increased 6% to US$80.3
million (2017: US$75.5 million). This
outcome reflected the strong growth
across regulated markets excluding
the UK, partially offset by the negative
impacts of several big customer wins
as well as the proactive customer
protections measures taken by the
Group in the UK. Excluding the UK, Sport
revenues increased 18% supported by
strong performance during the FIFA
World Cup over the summer, effective
marketing investment, a greater number
of events for customers to bet on, and
increased customer personalisation. First
time depositors increased by 21% (28%
excluding the UK) and deposits increased
by 10% (18% excluding the UK) reflecting
the effectiveness of the Group’s marketing
and CRM. Mobile and, in particular, in-play
betting remain a key driver for 888sport
with approximately 70% of bet volumes
now being placed during events.
In the UK, the Group is encouraged by
positive trends witnessed during the
second half of the year. In the second half,
the Group’s refocused UK strategy saw
new Sport customers acquired increase by
15%, building a healthier customer base as
the Group moved into 2019.
In September, the Group was pleased to
launch 888sport in New Jersey, marking
the first time the Group had offered sports
betting in the regulated US market.
This marked a major milestone for the
Group and paves the way for the Group
to launch in additional US states as future
regulation allows.
In March 2019, post the year-end, the
Group was delighted to announce the
acquisition of BetBright’s sports betting
platform for £15 million. The acquisition
represented a major milestone for the
Group, strengthening 888’s product
and technology capabilities to support
the long-term development strategy
for 888sport.
Casino continued to deliver solid growth
with an 8% increase in revenue to
US$317.6 million (2017: US$293.9 million)
and a 16% increase in active players
against the prior year. Excluding the
UK, Casino revenue increased by 17%,
demonstrating the strengths of 888
innovative marketing, effective CRM and
overall customer proposition, particularly
on mobile devices.
Casino was boosted by the launch of
Orbit, a new cutting-edge web-based
Casino platform, at the end of May 2018.
The new platform, which represents 888’s
most exciting Casino product innovation
of recent years, was initially launched
across the Group’s .com markets with
a roll-out into a number of regulated
markets as the year progressed. The
Group has seen positive and encouraging
trends in first time deposits as well as
activity and retention metrics across all
markets where the new platform has
been launched.
In the UK, the new tools introduced with
the Orbit platform align with the Group’s
strategy of appealing to and attracting
an increasingly recreational “mass
audience” customer base. The Group saw
particularly positive results in the second
half of the year – having introduced the
platform in the UK in May 2018 – with
higher conversion rates, increases in the
number of games played by customers
and uplifts in new customers acquired.
Product overview
and developments
888casino offers classic table games,
such as blackjack and roulette, as well as
exclusive in-house developed proprietary
games and appealing third-party content.
The Group’s success in Casino remains
underpinned by 888’s strong brand and
focus on customer experience.
Orbit is a new web-based Casino
platform that uses artificial intelligence
(“AI”) and machine learning driven
recommendations to provide a more
personalised display and seamless
experience for customers. The result
is reduced login times and a smoother
transition between games for players.
The new platform also enables 888 to
host more games and better utilise its
ever-increasing content suite. 888 added
127 new games (both in-house developed
and third-party content) across mobile
and desktop platforms during the year.
18
888 Holdings plc Annual Report & Accounts 2018 Strategic Report
Bingo
Results overview
Bingo, which is predominantly focused
on the UK market, remained challenging
during 2018. The Group recorded Bingo
revenue of US$32.4 million (2017:
US$39.3 million) representing a 17%
decrease year on year. This performance
reflects a continued highly competitive
UK Bingo market as well as the proactive
steps 888 has taken to address the
tighter regulatory environment in the UK.
This decrease was offset by an increase
in active players of 14% during the year.
Average active days per funded player
also increased, reflecting the Group’s
effective CRM.
In February 2019, the Group announced
the acquisition of a portfolio of bingo
brands – including the well-established
Costa Bingo brand – which previously
operated as B2B brands on the Group’s
Dragonfish Platform. Management
believes that consolidating these brands
into 888’s established B2C brand
portfolio will deliver synergies and growth
opportunities through the application of
the full extent of the Group’s capabilities
in product development, marketing, and
customer relationship management to
their operations.
Product overview
and developments
888 offers online bingo entertainment
across a wide array of branded Bingo
sites, each with its own unique themes.
The Group’s Bingo brands benefit
from 888’s continuous development
with regular new content and in-
house developed games that help
to differentiate 888’s brands in the
competitive and highly fragmented
UK market.
The Group remains committed to the
Bingo vertical and introduced a number
of new features such as user-friendly
mobile verification upon registration
during this year. New game variants
were also introduced during the year to
support the Bingo performance including
a new, unique “mystery” jackpot feature
launched during the second half of
the year that increased bet volumes
per player by 20%. New customer
personalisation layers, that will leverage
smart analytics and machine learning
models, are planned to further enhance
the customer experience at 888’s bingo
brands during 2019.
Product overview
and developments
888poker focuses on recreational Poker
players and providing a range of games
and format to suit its target customers’
needs and preferences. Over recent years,
this has included an ever greater focus on
mobile devices.
During the second half of the year, 888
launched another exciting recreational
Poker feature called PKO (Progressive
Knock Out) that quickly became
an integral and leading feature of
888poker. Since launch, PKO has been
instrumental in building higher prize-
pools and engaging more players. PKO
was introduced to 888’s poker networks
in Spain and Italy and we are confident
of seeing further progress during 2019.
By the end of 2018, more than third of
888poker’s players had played PKO.
Poker 8, which was developed during
the year and which began its phased roll
out in early 2019 post the period end,
is a new and improved cross-territory
Poker platform that offers an even
more engaging, contemporary and
enjoyable experience for 888poker
players. The development of Poker 8
follows extensive ongoing research and
feedback from customers. The initial
phase of the roll-out involved upgrades
to the 888poker tables for desktop
players, with enhanced graphics,
a cleaner design and improved
functionality. Further upgrades to
the new Poker platform are planned,
including improved graphics and
enhancements to the lobby and
on mobile devices.
Poker
The Poker market remained highly
challenging during 2018. This resulted in
a revenue decrease of 37% to US$49.0
million (2017: $77.9 million). The Group’s
Poker results reflect a number of factors
including: the Group’s decision to exit
several markets (primarily Poland and
Australia) during the first half of 2017
(and which therefore did not contribute
at all to the Group’s performance during
2018); the continued challenges of the
overall Poker market; the launch of the
European interstate network creating
a new poker environment for players
in several European markets (that the
Group is yet to participate in); increased
competitor marketing activity in some of
our markets and the unilateral withdrawal
of certain payment providers and ISP
blocking in several unregulated markets.
Active poker players decreased by 8%,
however there is an encouraging trend
for players to be retained for longer on
the platform and active days per player
increased over the previous year.
Despite the revenue decline, Poker
remains a highly important customer
acquisition tool for the Group. The flow
of Poker players also playing Casino and
Sport with 888’s brands continued to
be an important element of the Group’s
overall B2C business.
The Group remains committed to the
Poker market and confident of its
long-term opportunities for 888. During
January 2018, the Group launched Poker
in Italy, bringing all three of 888’s core
gaming verticals to the Italian market.
In addition, a significant investment was
made during the year into developing
the Group’s latest poker platform, Poker
8, which began its phased roll out in
early 2019.
Following the award of the Group’s latest
licence in Portugal, the Group intends
to launch its European interstate poker
network during 2019. This will initially
pool Poker players across the Portuguese
and Spanish markets, increasing player
“shared liquidity” and therefore offering
greater availability of the games and
formats that our customers want to
play. The Group is confident that 888’s
European interstate network will provide
increased competitiveness and new
growth opportunities for the Group’s
Poker product in regulated European
markets over the coming years.
888 Holdings plc Annual Report & Accounts 2018
19
19
888 Holdings plc Annual Report & Accounts 2018Strategic Report
Corporate.888.com
Business & Financial Review Continued
B2B review
Results overview
Revenue from Dragonfish, 888’s B2B
division, decreased by 8% to US$50.6
million (2017: US$55.2 million). This
reflects a number of factors including:
the overall fiscal and regulatory
challenges facing the UK bingo market;
the reduced marketing spend by some
of our partners; and the termination of
the Group’s agreement with Cashcade,
a former B2B partner, following
Cashcade’s decision to migrate its
brands to its own proprietary platform.
Revenue from our B2B business in the US
market remained in line with the Board’s
expectations. The Group continues to
explore further partnerships and new
growth opportunities in the US.
Operational overview
and developments
The Group’s partners continue to
enjoy and benefit from new product
developments, features and functionalities
to enhance the end-user experience.
During the year these included 228 new
games, bringing the total portfolio to
more than 570 active games as well as
a number of Bingo game variations.
The Group remains confident of the
opportunities for its B2B division, which
remain underpinned by focusing on
delivering and maintaining a first-class
and full-service gaming proposition for
its partners. Post the year-end, the Group
initiated some organisational changes
at Dragonfish to bring all aspects of the
B2B offer, except marketing, into one
standalone business unit. These changes
are aimed at increasing the customer-
focus of the Group’s B2B operations as
Dragonfish refines its strategic focus
on offering an increasingly value-
added proposition to a smaller number
of larger customers (both in the UK
and international regulated markets).
Underpinned by the Group’s technology
edge and market know-how, the Board
remains confident of the B2B division’s
long-term prospects.
Regulated markets
888 remains focused on growing
in sustainable, regulated markets
where the Group can leverage its full
marketing expertise to capture growth
opportunities. Revenue from regulated
markets continued to represent the
majority of Group revenue with revenue
from regulated and taxed markets1
representing 70% of revenue (2017:
70%). Excluding the UK, the proportion
of revenue from regulated and taxed
markets increased by 5.5%.
The global regulatory landscape continues
to develop and the Group remains
focused on exploring new markets on
a case-by-case basis dependent on the
strategic and economic viability of each
new regulated market.
1 Regulated and taxed markets refer to
jurisdictions where the Group operates under
a local licence or where the Group is liable for
gaming duties or VAT (or its equivalent).
Revenue by geographic market
The below table shows the Group’s
revenue by geographical market:
EMEA (excluding the UK and Spain)1
UK
Spain
Americas
Rest of world
Revenue before VAT accrual release
VAT accrual release
Total revenue
1 During the period the Group identified that the
Europe Other Geographical segment (as was
previously presented) should in fact be referred
to as Europe, the Middle East and Africa (EMEA).
Non-European revenue included in the segment
during 2018 amount to US$45.7 million (2017:
US$35.3 million).
EMEA
(excluding the UK and Spain)
Regulated markets in Continental Europe
continued to experience healthy growth
with a revenue increase of 12% year
on year. This outcome reflects strong
progress driven by Sport and Casino
across European markets. The increase
was moderated due to the negative
performance of Poker in Spain which was
affected by the heightened competition
resulting from a new shared liquidity
regime with France, which 888 did not
participate in.
In Italy, revenue increased by 29% and
first time depositors more than doubled,
compared to 2017. This was supported by
the successful launch of Poker in Italy in
January 2018; the launch of Orbit during
the second half of 2018 which supported
a 44% increase in new Casino players;
and optimised and highly effective digital
marketing investment in light of the
industry-wide gambling advertising ban
announced by the new Government.
Revenue from the Romanian market
increased by 14% during 2018 driven by
Sport and reflecting enhanced brand
Growth
(decline)
from
previous
year
% of
reported
Revenue
(2018)
7%
(16%)
8%
4%
(10%)
(2%)
43%
32%
13%
9%
3%
100%
2018
US$
million
2017
US$
million
228.9
170.6
68.0
48.1
14.3
529.9
10.7
540.6
213.6
203.1
63.1
46.2
15.8
541.8
—
541.8
20
888 Holdings plc Annual Report & Accounts 2018 awareness. During 2019, the Group intends
to extend the successful Orbit casino
platform to the Romanian market.
At the very end of the year, the Group was
delighted to be awarded its 11th licence in
Malta, as well as its 12th licence in Sweden
which enables the Group to offer Sport,
Casino and Poker in this significant newly
regulated market. Post the year-end, the
Group received its 13th licence for Portugal,
where the Group launched 888casino in
January 2019. The Portuguese licence
provides further growth opportunities for
the Group with the forthcoming launch
of 888’s poker network that will, in time,
share player liquidity across the regulated
Spanish and Portuguese markets.
Revenue from Middle East and Africa
markets included in the EMEA segment
increased by 29% to US$45.7 million
(2017: US$35.3 million). Revenue from
Germany, which represented 8% of total,
was impacted by the uncertain regulatory
environment and challenges referred to
in the Risk Management Strategy section
below, increased in 2018 by 18%.
UK
As detailed in the product review above,
revenue trends in the UK improved during
the second half of 2018. Despite this,
UK revenue decreased by 16% year on
year to US$170.6 million (2017: US$203.1
million). This reflected revisions to the
Group’s operating practices across
product verticals to align with the
stricter regulatory environment across
the UK market (detailed below); a small
number of significant customer wins in
Sport; reduced marketing investment by
Cashcade, one of the Dragonfish Bingo
partners that terminated its activity
as of mid-November; as well as the
Group’s decision to redeploy marketing
investment into other areas of the
business where 888 is generating the
highest returns.
During the second half of 2018, the Group
witnessed certain positive indicators in its
UK B2C business as first time depositors
continued to increase (by 7% year on year,
and 12% half-year on half-year), supported
by the launch of the Orbit Casino platform
during the first half of 2018, and strong
Sport performance during the FIFA World
Cup over the summer.
The actions and changes made to the
operating processes undertaken by
888 in the UK market over recent years
have been aimed at providing the safest
possible gambling environment for players
and ensuring the Group is aligned with the
market’s stricter regulatory environment.
Changes made include the tightening
of anti-money laundering processes,
increased customer due diligence and
further customer protection tools and
protocols. Taking these actions is not only
the right thing to do but also positions
the Group for long-term development in
what remains the world’s largest regulated
online gaming market.
As a result of the dynamics in the UK
as well as the strong progress delivered
across continental European markets,
revenue from the UK represented a lower
proportion of total revenue at 32%
(2017: 37%).
Spain
In Spain, the Group’s second largest single
market, the Group delivered a revenue
increase of 8% year on year to US$68.0
million (2017: US$63.1 million). As a result,
Spain represented 13% (2017: 12%) of total
revenue. The Group’s growth reflected
continued effective marketing investment
and momentum in Casino, as well as
Sport, which benefited from a strong
FIFA World Cup. As described above,
Poker was negatively impacted by the
introduction of a shared Poker liquidity
networks between Spain and France
(that the Group has not participated in)
accompanied by significant promotions
and the large number of guaranteed
tournaments offered by our competitors.
However, we remain confident of the
opportunities presented by shared Poker
player liquidity across European markets
including Spain and Portugal due to be
launched in 2019.
The Group launched the Orbit Casino
platform in Spain in December 2018, and
saw a positive customer response, similar
to the one seen in the UK, Italy and more
recently also Denmark where first time
depositors increased by 34% during the
second half of 2018 following the launch
of Orbit in October. The Group intends to
support its product developments with
increased investment in Spain during the
current year.
US
Having operated in the regulated
US market since 2013, 888 enjoys a
unique position in that evolving market.
The Group is focused on investing in
delivering medium to long-term growth
opportunities for the business in the US
market. As a result, 2018 was a very busy
year for the Group in the US market.
In May, the Group’s long-term growth
prospects in the US market were boosted
by the US Supreme Court’s decision to
repeal PASPA, thereby clearing the path
for US states to regulate sports betting.
In September 2018, the Group launched
888sport in New Jersey, marking the
first time the Group has offered sports
betting in the United States. This launch
was followed by another first, not just for
888 but for the entire industry, as 888.com
became the first ever online casino
to partner with a National Football
League ("NFL") team when the Group
signed a sponsorship agreement with
the New York Jets.
In May the Group was pleased to
announce an extension of its contract
with the Delaware Lottery to continue
powering the state lottery platform for
a further two years.
In June, the Group announced an
extended partnership with Evolution
Gaming, a leading provider of Live Casino
solutions in New Jersey, as 888 continues
to invest in and improve its offering in the
state. During the second half of the year,
888casino launched a comprehensive
Live Casino suite of products to New
Jersey customers on desktop (via the
888casino website) and on mobile
(through the 888casino apps available
for Android and iOS). The Group intends
to launch the new Orbit Casino platform
in New Jersey during 2019.
In December, the Group was pleased to
announce the acquisition of the remaining
53% interest in AAPN, a joint venture
established with Avenue Capital in 2013.
The acquisition represented an important
strategic milestone that will facilitate the
Group’s future growth strategy in the
US by giving 888 additional operational,
technological and commercial flexibility
to deliver on multiple potential growth
opportunities. The AAPN joint venture
had been a successful endeavour for the
Group by affording 888 the flexibility and
financial capability to build a position in
the regulated US market over the last five
years whilst also investing in other global
regulated markets.
In January 2019, post the period end,
the US Department Of Justice released
an updated opinion regarding the
interpretation of the Wire Act of 1961.
This has created uncertainty across the
US market which may continue through
a legal challenge to the new opinion.
Despite this and underpinned
by the strategic progress made in the
US market during 2018, the Board believes
that the Group remains well-positioned
for future growth in the developing
US market.
21
888 Holdings plc Annual Report & Accounts 2018Strategic Report Corporate.888.com
Business & Financial Review Continued
Operating expenses
Selling and marketing expenses
The Group’s expanding Casino and Sport
offering resulted in higher commissions
and associated expenses in respect
of the Live Casino and Sport
third-party platforms.
Operating expenses* decreased by
1% to US$137.8 million (2017: US$138.8
million). The proportion of operating
expenses (which mainly comprise staff
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 increased to 26.0% (2017:
25.6%). This reflected stricter regulatory
requirements to tighten the scope of
customer related screening. Reported
operating expenses amounted to
US$158.1 million (2017: US$158.1 million).
Employee-related costs decreased by
8% compared to the prior year. The
decrease is mainly a result of a cost
reduction and headcount optimisation
plan that was executed during the
second half of 2017.
One of 888’s main objectives is cost-
efficient, effective and innovative
marketing spend. Overall marketing
expenses decreased to US$155.0 million
(2017: US$162.5 million) as a result of
lower marketing investment as well as
lower cost per player acquisition in the
UK reflecting the market environment.
In addition, the lower level of marketing
spend was driven by management’s
decision to invest in more efficient online
marketing activities and focus on high-
growth regulated European markets. The
ratio of selling and marketing expenses to
revenue reduced to 29.3% (2017: 30.0%).
Administrative expenses
Administrative expenses* amounted to
US$27.3 million (2017: US$29.2 million)
and represented a lower proportion of
revenue compared to the previous year
at 5.1% (2017: 5.4%). This was a direct
result of management’s continued efforts
to maximise operational efficiencies
and strict cost control. Reported
administrative expenses amounted to
US$36.1 million (2017: US$37.7 million).
Gaming taxes and duties
Adjusted EBITDA
Adjusted EBITDA increased by 6% to
US$107.1 million (2017: US$100.7 million)
representing a 4% increase at constant
currency. The positive result was achieved
despite the impacts of the UK market’s
heightened regulatory scrutiny and
higher UK Point of Consumption (‘POC’)
duty as a result of the new gross gaming
revenue tax base that has been effective
since the second half of 2017. Adjusted
EBITDA margin increased to 20.2% (2017:
18.6%). EBITDA for the period amounted
to US$129.1 million (2017: US$41.2 million)
as detailed in the table on page 16.
* As defined in the table set out on page 16.
Gaming duties levied in regulated and
taxed markets decreased to US$69.9
million (2017: US$75.2 million). This is a
result of the lower activity in the UK and
a reduced gaming tax rate (from 25% to
20% of gross gaming revenue) in Spain
which commenced during the second
half of 2018, offset by increased gaming
duties in Italy as a result of the Group’s
strong revenue growth and the lunch of
Poker in Italy during January 2018.
Research and
development expenses
Research and development expenses
decreased 7% to US$32.8 million (2017:
US$35.4 million). However, when adding
back capitalised development expenses,
overall research and development
spend would have decreased only 2% to
US$44.7 million (2017: US$45.5 million).
This reflects continued investment
across regulated markets and the
development of new products and games
as well as the implementation of new
technologies and tools to further enhance
customer protection. The research and
development expenses to revenue ratio
reduced to 6.2% (2017: 6.5%).
Expenses overview
The Group continues to improve
its operating efficiencies with
lower levels of expenses compared
to the prior year driven by a
continued, company-wide focus on
cost optimisation and efficiencies.
888’s continued progress in Casino
and Sport, where the Group incurs
some commissions (explained
below) and a sustained focus
on enhanced compliance and
customer protection resulted
in an increase in the ratio of
operating expenses to revenue.
22
888 Holdings plc Annual Report & Accounts 2018 Exceptional items
Finance income and expenses
Dividend
Exceptional income was US$11.1 million
(2017: Exceptional expense of US$50.8
million). The Group received tax
assessments from the tax authorities
in Germany in respect of a legacy VAT
matter relating to the provision of gaming
services in Germany prior to 2015. This
resulted in a payment of US$24.6 million
and a release of US$22.4 million of the
US$45.3 million provision which was
recorded in 2017, as described in further
detail in note 5 to the 2018 financial
statements. In addition, during the
period the Group recorded a provision of
US$10.4 million in respect of regulatory
matters related to customers’ activity in
prior periods and US$0.9 million legal
and professional costs related to aborted
M&A efforts.
Share benefit charges
Share benefit charges relate to long-
term incentive equity awards granted
to eligible employees.
Equity settled share benefit charges of
US$8.9 million (2017: US$8.5 million)
mainly comprise new awards granted
during the year and the full year effect
of awards granted in previous years.
Further details are given in the Directors’
Remuneration Report on page 60 to 76
and in note 22 to the financial statements.
Gain from re-measurement of
previously held equity interest
in joint ventures
On 10 December 2018, the Group
acquired an additional 53% interest in
the voting shares of AAPN, increasing
its ownership interest to 100% for cash
consideration of US$28.5 million. The
Group re-measured its previously held
47% equity interest in AAPN at its
acquisition-date fair value and recognised
US$9.3 million gain in the consolidated
income statement.
Finance income of US$0.6 million (2017:
US$0.6 million) less finance expenses
of US$0.7 million (2017: US$3.7 million)
resulted in a net expense of US$0.1 million
(2017: US$3.1 million). The decreased
expense compared to the previous year
is mainly attributable by the weakness
of EUR and GBP against USD in 2018
compared to 2017.
888 continually monitors foreign currency
risk and takes steps, where practical, to
ensure that net exposure is kept to an
acceptable level.
Profit before tax
Profit before tax increased to US$108.7
million (2017: US$18.8 million profit)
as a result of the exceptional income
(compared to exceptional charges
in 2017), VAT accrual release and gain
from re-measurement of previously
held equity interest in joint ventures
outlined above. Adjusted profit before
tax increased by 11% to US$86.7 million
(2017: US$78.3 million).
The Board of Directors is recommending
a final dividend of 6.0¢ per share in
accordance with 888’s dividend policy,
plus an additional one-off 2.0¢ per
share, bringing the total for the year to
12.2¢ per share (2017: 15.5¢ per share)
reflecting the performance of the Group,
recent acquisitions as well as regulatory
developments and the importance of
retaining adequate cash to fund potential
investment activities.
Cash flow
Net cash generated from operating
activities was US$42.1 million (2017:
US$95.5 million). The decrease is primarily
explained by an exceptional payment on
account of historical VAT in Germany,
higher gaming duties in respect of H2 2017
driven by increase in trading activity and
a reduction in customer deposits as
a result of a decrease in Poker activity.
Dividend payments during the year
amounted to US$56.6 million (2017:
US$70.5 million).
Taxation
Balance sheet
888’s balance sheet remains strong,
with no debt as of the date of the
financial statement and ample liquid
resources. 888’s cash position as at 31
December 2018 was US$133.0 million
(2017: US$179.6 million). The balance
owed to customers at US$57.1 million
(2017: US$71.7 million). Net cash at 31
December 2018 was US$75.9 million
(2017: US$107.9 million) after dividend
payments of US$56.6 million during
the year (2017: US$70.5 million).
In February 2019, 888 signed a revolving
credit facility (“RCF”) with Barclays Bank
plc pursuant to which 888 may borrow an
amount of up to US$50 million in order to
finance its M&A activities in the short term.
Aviad Kobrine
Chief Financial Officer
Taxation for the period was US$13.9
million (2017: US$6.2 million). The
increase is primarily a result of the higher
profit before tax during the period,
the effect of foreign currency earnings
following the strengthening of the USD
against the ILS and withholding tax on
dividend distribution by a subsidiary to
the parent company.
Adjusted Profit after tax
and Profit after tax
Adjusted profit after tax1 increased by
1% to US$72.8 million (2017: US$72.1
million). Profit after tax was US$94.8
million (2017: US$12.6 million) as a result
of the exceptional charges and gain from
re-measurement of previously held equity
interest in joint ventures outlined above.
Earnings per share
Basic earnings per share increased
to 26.3¢ (2017: 3.5¢) as a result of the
exceptional charges and gain from re-
measurement of previously held equity
interest in joint ventures outlined above.
Adjusted basic earnings per share at 20.2¢
(2017: 20.1¢). Further information on the
reconciliation of Adjusted basic earnings
per share is given in note 9 to 2018
financial statements.
1 As defined in note 9 of the financial statements.
23
888 Holdings plc Annual Report & Accounts 2018Strategic Report Corporate.888.com
Risk Management Strategy
AND MANAGING
OUR RISKS
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.
The Board acts in accordance with a
Risk Management Policy, which aims to
explicitly identify and evaluate key risks
underlying the Group’s core business
strategy and standardise the approach
to risk prioritisation and management
across 888’s operations. This 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. 888’s risk register is updated
periodically and regular discussions are
held at Board and management level of
the role of risk in 888’s business.
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 has also adopted
a Reporting and Escalation Procedure
to ensure timely reporting of internal
reportable events including bugs, technical
failures, information security malfunctions
and marketing and other operational
incidents which may affect customers.
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
2018 and up to the date of approval of
the annual report and accounts; and
• they are regularly reviewed
by the Board.
Please see page 26 for further details
of the review conducted in 2018.
24 888 Holdings plc Annual Report & Accounts 2018
24
888 Holdings plc Annual Report & Accounts 2018 Risk appetite
Addressing 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 during 2018 the
Board considered risk appetite
to ensure adequate resources are
allocated to identified 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
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 of
our operating processes are based around policies
and procedures that minimise the risk of a loss of
financial control.
Compliance
Extremely low We have an extremely low to zero tolerance when
complying with laws and regulations that relate to
bribery, corruption and anti-money laundering. 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. We are particularly sensitive to compliance
risks in our key regulated markets including the UK.
888 Holdings plc Annual Report & Accounts 2018
2525
888 Holdings plc Annual Report & Accounts 2018Strategic Report Corporate.888.com
Risk Management Strategy Continued
888 faces the following significant risks:
Regulatory risk
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 either holds
a licence or applied to obtain one. 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, including internet service provider blocking,
payments blocking, black-listing and fines. 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. Finally, changes to either the regulatory
framework or enforcement policy relating to online gaming
in certain markets may effectively force the Group out of
certain markets where it currently operates or compel it to
change its business practices or technology in a way that
would materially impact results.
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 to 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 various jurisdictions where its services
are marketed or which generate significant revenue for
the Group. 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. 888 has also implemented
organizational changes in order to strengthen regulatory
compliance oversight, as well as to improve co-operation
between the different departments and streamline processes
of settling any conflicts between them, ensuring that
888’s regulatory requirements and duty to uphold the
licensing objectives always take priority over commercial
interests. Finally, 888 blocks players from certain "blocked
jurisdictions" using multiple technological methods
as appropriate.
26
What happened in 2018
The UKGC took an increasingly strict approach towards
compliance, tightening requirements, adopting more stringent
policies and regulations, and increasing the level of oversight
over licensees. The primary areas of focus for the UKGC were
responsible gambling and prevention of underage gambling,
consumer protection, and anti-money laundering. During 2018,
the UKGC issued fines to a number of licensed operators, for
various violations and shortcomings pertaining to regulatory
compliance, signalling a tougher stance on compliance and
enforcement. The Group continued to work closely with the
UKGC on compliance matters, and also to update its policies and
procedures and to strengthen internal reporting lines to ensure
compliance within the business, investing significant resources
in regulatory compliance measures. In Germany, the Company
is subject to prohibition orders issued by various German states,
some of which have been upheld by German courts and others
which are in the process of judicial review. While the Company
continues to challenge the validity of these orders (where
possible) and is seeking relief on this matter from the German
Constitutional Court, it has been consulting closely with its
German advisers as to the appropriate operational measures
to be taken by the Group in light of the orders issued. The
Group continues to be conscious of the potential for increased
enforcement in Germany and of the impact that the current
German legal landscape may have on the willingness of payment
processors to process payments from German players. In light of
these developments, the Group continues to assess its operations
in Germany, with a view to averting legal, reputational and
operational risks. In the Netherlands, where a law was approved
in February 2019 to liberalize the market, the local regulator has
been taking a more aggressive approach towards enforcement of
existing laws against operators whose operations are conducted
in violation of the "prioritization criteria" for enforcement issued
by the authorities and updated from time to time. Several
operators received significant fines due to the conduct of
operations in a manner violating these criteria. Operators fined
may also be barred from participating in the liberalized market
or have their eligibility for licensing delayed. The Group has been
studying these developments closely. In January 2019 the US
Department of Justice issued a legal opinion on the scope of the
federal Wire Act, overturning a previous opinion from 2011, and
finding that the Act applies to all forms of gambling (not only
sports betting, as was concluded in the previous opinion.) This
reversal, and a subsequent change of enforcement policy by the
federal authorities, could have far-reaching impacts on the US
gambling industry, particularly with respect to online operations.
The Department of Justice has announced it will not be pursuing
enforcement action under the new interpretation for a 90-day
period starting on January 15, 2019. In tandem, various state
regulators have announced their position on the ramifications of
the new opinion or are in the process of studying its implications.
The Group is taking advice on this matter from its legal advisors
in the US, to ensure that its operations are consistent with
updated regulatory requirements and cannot be seen as violating
federal law. The issuance of the updated memo could have
far-reaching consequences in connection with the ability or
willingness of various crucial service providers (e.g. banks and
payment processors) to work with the gambling industry, and
the Group anticipates that the full impact of the new opinion on
its operations and on the industry will become more apparent in
the near future.
888 Holdings plc Annual Report & Accounts 2018 Brexit-related risks
The risk
The status of Gibraltar as a result of “Brexit” remains 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 licenses in
certain EU jurisdictions. Brexit may also adversely impact
economic and market conditions in the United Kingdom, and
give rise to a slowdown of UK business for the Company.
Relevance to strategy
The ability to rely on EU principles underpins 888’s
regulatory strategy regarding major EU markets.
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. 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. 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 and to the
maintenance of customer loyalty.
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 obtaining 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.
Increase Decrease
Stable
How the risk is managed
888 is not able to control political changes of this nature,
however it has obtained a gaming licence in Malta and
established a server farm in Ireland so that it can continue to
serve European markets with no disruption to its business.
888 also diversifies its geographical customer base so as to
mitigate dependency on the UK market.
What happened in 2018–19
The UK formally notified the EU in March 2017 of its intention
to withdraw from the EU, which commenced a negotiation
period which is expected to conclude in March 2019 (unless
all parties to the negotiations agree otherwise) with the
United Kingdom ceasing to be a member of the EU at the
end of March 2019. On 15 January 2019, the British House of
Commons rejected Prime Minister Theresa May’s Brexit deal
with the EU. Presently, the manner of Britain’s exit from the
EU on March 29, 2019, remains unclear.
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
service level agreement key performance indicators 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 2018
Security – Awareness training was carried out for Group
personnel at all locations by the Chief Information Security
Officer. New security practices and technologies were
implemented with a focus on DDoS mitigation and GDPR
readiness. Infrastructure – A new main data centre was built
in Dublin using advanced IT architecture and technologies.
The new data centre introduces a very high standard of
redundancy and performance, and is expected to launch in
March 2019. Operations – 888 focused on operations analytics
as the next evolution of monitoring, implementing an “elastic”
framework for near real-time log and KPI analysis.
27
888 Holdings plc Annual Report & Accounts 2018Strategic Report 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 – has become 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,
888 consults with tax advisers not only in jurisdictions in
which its Group companies are incorporated and in which
it has personnel, but also in major markets in which it has
customers, in order to comply with its legal obligations whilst
taking such action as is necessary to prevent the improper
imposition of unlawful or double taxation.
What happened in 2018
888 continues to engage with tax authorities and obtain
legal advice in order to regularise its tax position and
mitigate exposures. As regards the inquiry in Germany
regarding VAT, 888 received assessments for tax years
2010-2017 and accordingly partially released the provision
recorded in its financial statements in addition to the
contingent liability. In Israel, the local subsidiary is undergoing
a tax audit and has also appealed a withholding tax
assessment relating to tax years 2013-2016.
Corporate.888.com
Risk Management Strategy Continued
Taxation risk
The risk
Heightened attention continues to be given to matters
of cross-border taxation in line with the G20/OECD Base
Erosion and Profit Shifting recommendations. On 21 March
2018, the European Union proposed new rules to implement
“virtual permanent establishment” criteria as well as interim
measures to tax the digital economy, including a targeted
turnover-based equalisation tax and potentially an EU-wide
advertising tax, which has led to introduction of “web taxes”
in jurisdictions such as Italy and France. In the UK, new rules
have been implemented from 1 April 2019 imposing UK tax
on the receipt of royalties by offshore companies deriving
from business activity in the UK, whilst past proposals
regarding imposition in the UK of “use and enjoyment”
VAT rules with respect to UK-facing advertising have not
materially progressed. In Gibraltar, legislation has been
introduced to recover unpaid taxes following a European
Commission ruling regarding illegal state aid given between
2011-2013. Due to pressure from the European Union,
offshore jurisdictions including the British Virgin Islands have
introduced new “substance” requirements with regard to
IP companies and other entities. The likelihood of scrutiny
of tax practices by tax authorities in relevant jurisdictions
and the aggressiveness of tax authorities remains high,
with 888 receiving VAT assessments in Germany during
2018 relating to tax years 2010-2017, regarding which it had
previously recorded a provision and contingent liability in
its financial statements. A finding of taxable presence of
the Group in one or more jurisdictions (including pursuant
to revised interpretations of the permanent establishment
concept as mentioned above), a transfer pricing adjustment
with respect to attribution of profit to such jurisdiction(s),
or imposition of another form of tax as mentioned above,
may have a substantial impact on the amount of tax and
VAT paid by 888 or require significant payments by 888
in respect of historical tax liabilities. 888’s effective tax
burden also increases due to the imposition or increase of
gaming duty in markets in which the Group has customers,
including the recently announced increase in the rate of UK
remote gaming duty to 21% of GGR as from 1 April 2019,
the additional Romanian gaming tax at 2% of deposits from
2019, and the increase in Italian gaming duty to 25% of GGR
(24% for sports betting) from 2019. The Company's Israeli
subsidiary entered into an Assessment Agreement with the
Israeli Tax Authority in 2016, in which the subsidiary's transfer
pricing remuneration was agreed with regard to tax years
ending in 2015. The Company believes that the remuneration
attributed for tax purposes to its Israeli subsidiary complies
with the arm’s length standard, and therefore continues
to rely on the transfer pricing agreement with regard to
tax years following 2015, however the agreement has not
been renewed. As such, and in light of the developments in
taxation rules internationally, including in the field of transfer
pricing pursuant to which new methodologies are gaining
prominence, in the context of the tax audit detailed below,
the Israeli Tax Authority may seek to increase the level of
remuneration attributed to the Israeli subsidiary for tax
purposes commencing from the 2016 tax year, which could
have material financial consequences to the Company.
28
888 Holdings plc Annual Report & Accounts 2018
Increase Decrease
Stable
How the risk is managed
888 has undergone a robust and risk-oriented GDPR-
preparation project, pursuant to a designated GDPR Gap
Analysis that was prepared for that purpose in coordination
with its legal advisers.
What happened in 2018
888 mapped the personal data life-cycle within the
organisation, including how personal data of its customers
and EU employees is collected, stored, secured and shared
with third parties. In addition, 888 appointed a designated
internal Data Protection Officer and put in place policies and
procedures on relevant matters including exercising user
rights and data retention, data sharing with third parties,
security policies, as well as reviewing necessary product
and IT implementation. Such policies and procedures are
reviewed and updated on an ongoing basis to align with the
most up to date regulatory guidelines. 888 has also put in
place adequate contractual measures with respect to sharing
data with third parties, reviewing its privacy notices and
other customer notifications and reviewing the current data
security framework on an ongoing basis.
Data Protection risk
The risk
888 processes a large quantity of personal customer data,
including sensitive data such as name, address, age, bank
details and gaming / betting history. Such data could be
wrongfully accessed or used by employees, customers,
suppliers or third parties, or lost, disclosed or improperly
processed in breach of data protection regulations. In
particular, the European General Data Protection Regulation
(“GDPR”) entered into force in May 2018, having a significant
effect on the Company’s privacy and data protection
practices, as it introduced various changes to how personal
information should be collected, maintained, processed and
secured. Non-compliance with the GDPR may result in fines
of up to €20 million or 4% of the Company’s annual global
turnover, and the Company will be particularly exposed
to enforcement action in light of the amount of customer
data it holds and processes. In addition, various countries
in the EU have introduced domestic data protection laws
incorporating the GDPR requirements. The Company could
also be subject to private litigation and loss of customer
goodwill and confidence.
Relevance to strategy
The holding and processing of personal and sensitive data
in a lawful and robust manner is central to 888's analytics-
based business strategy. As an online B2C and B2B business,
the integrity of 888's data protection framework is crucial
to the supply of its offerings, compliance with its regulatory
obligations and maintenance of the impressive customer
loyalty with which 888 is entrusted.
29
888 Holdings plc Annual Report & Accounts 2018Strategic Report Corporate.888.com
Risk Management Strategy Continued
Reputational 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. Various regulators,
most notably the UKGC, have adopted stricter compliance
and enforcement policies, conducting more in-depth
reviews of operational practices and sanctioning operators
found to be non-compliant. There appears to be growing
sentiment in various jurisdictions that existing regulations
do not sufficiently protect minors and vulnerable players or
do enough to prevent the use of illictly obtained funds for
gambling purposes. This could result in reputational damage
to the Group, as well as in the adoption of stricter regulations
and enhanced enforcement measures.
Relevance to strategy
Underage and problem gaming, as well as the use of
illicit funds for gambling, are risks associated with any
gaming business, and ensuring compliance with regulatory
requirements for the protection of vulnerable people and
the prevention of money laundering is critical to maintaining
888’s online gaming licences.
How the risk is managed
Staff are trained to provide a safe gaming experience to
customers and to recognise and take appropriate actions
if they 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.
Partnership risks
The risk
B2B partnerships expose 888 to business risks as well as
compliance and reputational risks, with increased pressure on
888 as the licence holder, particularly from the UK Gambling
Commission, to monitor activities of its B2B partners.
Relevance to strategy
B2B remains a material part of 888’s business, particularly
for Bingo in the UK; in addition, its US B2B contracts have
strategic importance for the longer term.
What happened in 2018
During 2018, the UKGC continued its regulatory enforcement
processes and actions which resulted in several public
regulatory settlements with online operators, as published
by the Commission. Such publications raise further concerns
about the sector’s compliance with regulatory requirements
pertaining primarily to Anti-Money Laundering and Social
Responsibility. 888 continued to devote significant resources
to putting in place prevention measures coupled with strict
internal procedures to protect customers, and monitor and
update procedures to ensure that minors are unable to
access their gaming sites. 888 also completed an upgrade
of the Observer responsible gambling tool, to increase the
protection to players and ensure earlier and more efficient
detection and prevention of instances of problem gambling,
and updated its anti-money laundering policies to better
detect players suspected of using illicit funds for gambling.
888 has continued its review of all its websites and those
of its B2B partners in light of the UK Advertising Standards
Authority and Committees of Advertising Practice’s review
of gaming industry practices, with a view to ensuring that
content that may be particularly appealing to children,
whether specific games or general creative elements on
the site, have been removed or made accessible only after
a robust age verification process has been completed. 888
has also integrated with the National Online Self-Exclusion
Scheme (also known as “GAMSTOP”) to enable its customers
to self-exclude themselves on national level from all UK online
gambling operators.
How the risk is managed
888 has reduced its dependency on B2B relationships,
following the acquisition of Costa Bingo and other formerly
B2B bingo brands. Remaining B2B contracts are maintained
commercially 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 2018-19
In early 2019, 888 acquired Costa Bingo and other formerly
B2B bingo brands from its former B2B partner Jet
Management.
30
888 Holdings plc Annual Report & Accounts 2018
Increase Decrease
Stable
Acquisition risks
The risk
888 has made a number of acquisitions in the online gaming
and betting space. Acquisitions of gaming companies carry
business risks, such as overpaying for what are mainly
intangible assets, as well as legal and regulatory risks,
including the receipt of necessary regulatory approvals to
the transaction and exposure to legacy non-compliance
of the seller. Furthermore, integration of acquired entities
gives rise to a financial burden and the requirement of
management attention and operational resources.
Relevance to strategy
Ongoing consolidation of the online gaming market costs
has increased the importance of 888 being ready to acquire
smaller operators, particularly in business areas such as Sport
where 888’s activity has historically been smaller.
How the risk is managed
888’s legal, financial and tax advisers ensure that a
comprehensive due diligence is carried out on potential
acquisition targets. Generally, 888 prefers to acquire assets
rather than shares of companies, in order to mitigate
exposure to any past non-compliance issues on the part
of the seller. 888 seeks to take into account the resources
required to integrate acquired entities in its annual budgeting
and planning.
What happened in 2018–19
In early 2019, 888 acquired Costa Bingo and other
formerly B2B Bingo brands from its former partner
Jet Management, as well as acquiring
the BetBright Sport business.
Credit risks
The risk
888 has taken an RCF from Barclays
Bank plc in order to finance its activities. The credit facility
contains covenants by the Group regarding the maintenance
of certain financial ratios, as well as various regulatory
compliance matters.
Relevance to strategy
Ongoing consolidation of the online gaming market has
increased the importance of 888 being ready to acquire
smaller operators, requiring readily available cash resources.
How the risk is managed
888 monitors its ongoing compliance with the relevant
financial ratios. 888, in-house and via its legal counsel, also
monitor changes to the regulatory landscape which may have
an impact on its obligations under the credit facility.
What happened in 2018–19
In early 2019, 888 executed the revolving credit facility
with Barclays.
The Strategic Report, from pages 01 to 41, was reviewed, approved by the Board and signed on its behalf on 12 March 2019.
31
888 Holdings plc Annual Report & Accounts 2018Strategic Report Corporate.888.com
Regulation and General Regulatory Developments
IN A DYNAMIC
GLOBAL MARKET
Like its predecessor, 2018 brought
many changes to the online gaming
industry, nowhere more so than in the
United States where the overturn of
PASPA by the US Supreme Court
ushered in legal sports betting.
The 888 Group continued to seize
the increasing trend towards tailored
regulation of online gaming to increase its
presence in locally regulated markets and
grow its licensing portfolio. In the face of
regulatory reforms and increased scrutiny
from regulatory authorities, the Group
continues to adapt to shifting regulatory
environments, while striving constantly
to maintain the highest compliance
standards and to support the move
towards clearer regulation in the online
gaming industry.
We look forward to working with
our partners in the industry and with
regulators toward shaping a regulatory
landscape that is business-friendly
whilst safeguarding the objectives
of the industry's regulation.
The following paragraphs summarise the
main relevant regulatory developments
of 2018 and our expectations regarding
changes that may impact 888 in 2019.
32
32
888 Holdings plc Annual Report & Accounts 2018
888 Holdings plc Annual Report & Accounts 2018 Licences
US
Nevada
Delaware
New Jersey
Europe
2018 saw several European jurisdictions
adopting new regulatory regimes for
online gaming or significantly amending
existing regimes. Though a growing
number of European jurisdictions now
have robust regimes in place allowing for
the licensing of commercial operators
to offer various forms of online gaming,
there remain pockets within Europe where
the regulatory regimes are ambiguous,
non-compliant with EU law, or simply
ignore the technological advancements
in the industry. We perceive these as
obstacles to the growth of the industry
and also as an impediment to channelling
commerce towards secure and compliant
operators, leaving players less protected
and with less access to quality services.
We hope, therefore, that 2019 will see a
further elimination of this situation in those
jurisdictions where it persists.
Europe
UK
Gibraltar
Ireland
Romania
Spain
Italy
Denmark
Malta
Portugal
Sweden
With attention in the EU dedicated
to Brexit, there were no noticeable
developments at the pan-European level
dedicated to gambling, and regulation
continued to develop on the national
level. Similarly, 2018 saw no landmark
rulings by the European Court of Justice
on matters pertaining to gambling.
The entry into force in 2018 of the
GDPR had a significant effect on the
privacy and data protection practices
of companies dealing with information
relating to EU residents, and 888 brought
its practices and policies in line with the
requirements imposed by this Regulation.
Brexit, presently scheduled to occur in
March 2019, could see Gibraltar cease
to be a part of the EU. As a Gibraltar-
based group, with many of its licensed
subsidiaries registered in Gibraltar, the
Group commenced a restructuring of its
European-facing business during 2018, to
be completed in Q1 2019. This would see
part of the Group’s operations migrated
to other EU Member States, most
notably Malta, where the Group is now
a licensed operator. Other parts of the
Group’s business will remain in Gibraltar.
The final form of this restructuring may
be dependent on the particulars of the
UK’s departure from the EU, however
the Group has put measures in place
to ensure that its operations continue
undisturbed under any variation of Brexit.
33
888 Holdings plc Annual Report & Accounts 2018Strategic Report
Corporate.888.com
Regulation and General Regulatory Developments Continued
Europe continued
A number of regulatory developments in
European jurisdictions during 2018 have
had an effect on 888’s operations and will
continue to do so in 2019:
• In the UK, 888’s main market, the
Group continued adapting to meet
the developing and increasingly more
stringent regulatory requirements,
a process which continues to
require significant efforts and the
implementation of changes in many
areas of the business. 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.
• The UKGC placed significant
attention during 2018 on the
protection of consumers, specifically
problem gamblers and underage
gamblers, and on raising standards
in the gambling market. These focal
points will be monitored, as before,
by both the UKGC and the CMA.
888 implemented sweeping changes
to our problem gambling detection
systems, updating triggers and
introducing additional interaction
points, in an effort to better identify
potential problem gamblers and
prevent the use of our services
by those for whom they are not
appropriate.
• During 2018, the UKGC issued fines
to various operators for failings
pertaining to consumer protection,
money laundering and the use of
proceeds of crime for gambling.
We have scrutinized the UKGC’s
findings and determinations in
these cases and, where necessary,
have implemented changes in
the Group’s business modalities
to ensure they are in line with
our understanding of the UKGC’s
expectations and demands.
• The Group continued to engage
with the UKGC with respect to
cases submitted to its attention
by the UKGC and is committed to
continuing its open and productive
dialogue with the UKGC on all
matters pertaining to our operations.
• Late in the year, UK licensed
bookmakers agreed to self-impose
an advertising watershed. This
came amid calls, including within
Parliament, for the imposition
of stricter restrictions on the
advertising of gambling services.
• The UKGC has reportedly been
working with banks on a plan that
would give players the possibility
of restricting or blocking gambling-
related transactions directly from
their bank accounts. A leading
high-street bank has already made
such an option available to account
holders. This development, as well
as the introduction during 2018 of
GamSTOP (a national self-exclusion
program) could have a significant
impact on UK-licensed operators.
• In January 2019, the Group obtained a
license in Portugal in order to bring its
offering to players in this jurisdiction.
• On 1 January 2019 a new law regulating
the online gaming market came into
force in Sweden. 888 obtained a
Swedish license under this new law
and now offers its services in Sweden
under a local license and in accordance
with the new regulatory framework in
place in this jurisdiction.
• In Switzerland, voters in a referendum
upheld a new law regulating the online
gaming and betting market. This law,
which came into force on 1 January
2019 (with a 6 month transitional
period for enforcement), provides for
the licensing of land-based casinos
to offer online casino gambling.
The Group continues to investigate
potential business opportunities in
this newly regulated market and will
evaluate its strategy with respect to
the Swiss market, in light of the new
law, accordingly.
• In the Netherlands, progress towards
liberalization of the market continued,
and legislation introducing a new
regulatory framework for online
gaming was passed by Parliament
in February 2019. In the interim, the
Dutch regulator continued to update
its enforcement policy, based on the
“prioritization criteria” for enforcement,
and issued several fines, including to
large international operators, whose
operations were perceived to be in
violation of these criteria.
• Germany’s regulatory landscape
remains riddled with uncertainty,
although the market yielded a few
regulatory and legal developments
in 2018. The future of the German
Inter-State Gambling Treaty continues
to be a cause for friction between the
German states. Several German states
(including, most recently, Hesse) have
suggested they would break with the
other German states if progress was
not made towards liberalization of
the online gaming market in line with
neighbouring jurisdictions.
In March 2018, the German Federal
Administrative Court upheld the
current Treaty’s compliance with
EU law when it comes to its prohibition
of remote casinos, scratch cards and
poker games, and restricting sports
betting (contrary to previous rulings
by both German and EU courts).
This ruling, which only formally applies
with respect to a particular prohibition
order issued in a single German state,
raised concerns over a possible shift in
the approach to enforcement in other
German jurisdictions. An attempt by
the state of Lower Saxony to prevent
payment processors from processing
payments for German players has been
linked to this ruling, as have efforts
in the state of Baden Wuerttemberg
to give effect to the prohibition
orders upheld by the Federal Court.
The Company filed a petition to the
German Federal Constitutional Court
seeking to overturn the Administrative
Court ruling, and a ruling on the
admissibility of this petition is pending.
In parallel, the Company has sought
to engage in constructive dialogue
with various German authorities
with respect to its operations in this
jurisdiction. The Group also obtained
an interim license from the state of
Schleswig Holstein, whose previous
licensing regime lapsed at the end of
2018. The Group remains hopeful that,
as one of Europe’s largest jurisdictions,
Germany will make moves in 2019 to
clarify its regulatory landscape and to
adopt a regime that is beneficial for
consumers, operators and the state.
• In Italy, where 888 renewed its licensed
status after the expiry of the first
set of concessions issued under the
current law, lawmakers imposed
an extensive ban on advertising
related to gambling, which included
a gradual implementation timeline
and limited grandfathering of existing
advertising relationships. The Group
has implemented measures to comply
with the new regulations, which are
anticipated to have an impact on
the growth of this market. Other
jurisdictions in Europe where the Group
operates, including Spain, have similarly
been considering restrictions on the
advertising of gambling services.
34
888 Holdings plc Annual Report & Accounts 2018 The United States
2018 saw major shifts in the regulatory
landscape in the US. In May 2018, the US
Supreme Court issued its landmark ruling
overturning in its entirety the Professional
and Amateur Sports Protection Act
("PASPA"). As a result, states were once
again empowered to regulate sports
betting within their respective territories.
Some states whose laws already allowed
for the regulation of sports betting
subject to the removal of any federal law
impediment, proceeded shortly after
the ruling to launch regulated sports
betting activities. Others, including West
Virginia and the District of Columbia
adopted legislation introducing sports
betting to the state (in some cases this
was restricted to land-based betting only,
and in others it included online betting
as well.) In Michigan, a bill to regulate
online gambling was vetoed by the
State Governor in the last days of 2018,
returning the issue to the state legislature.
New Jersey, where 888 has been
operating for several years, launched
regulated online sports betting shortly
after the Supreme Court ruling, and
the Group commenced offering these
services in the state with its local partners.
The repeal of PASPA and the emergence
of regulated sports betting on the
state level have prompted debate in
Washington DC around new federal
legislation either banning sports betting
or imposing a federal layer of regulation
on the industry. A bill on this matter was
tabled in the US Senate in the final days
of 2018, but with the commencement of
a new session of Congress it is unclear
whether and in what form the federal
legislature will address this industry.
In 2018, Pennsylvania launched online
gambling under a 2017 law, including
casino and sports betting.
With new legislatures and new
administrations taking power in various
states following the mid-term elections,
proposed legislation to reform the
gambling landscape in some key states
is anticipated to be tabled during 2019.
Attention is focused on New York where
the public debate on the regulation of
online gambling continued in 2018.
We believe the developments in the
US have the potential to transform the
US into a major gambling (primarily
– betting) market, and 888 intends to
follow these developments as they evolve
with a view to capitalising on our strong
position in this market.
Further afield
In 2018, Australia adopted a much awaited
amendment to the 2001 Interactive Gambling
Act, providing the authorities with significant
enforcement tools against operators offering
unlicensed gambling services. The Group's
operations are fully compliant with the
amended Act.
Two heavily populated districts of Argentina
(the State and City of Buenos Aires) adopted
legislation late in 2018 introducing commercial
gambling services. Details about the licensing
structure and scope are expected in the
coming months. In parallel, the Argentinian
communications regulator has increased
efforts to block access to offshore online
gambling services, a move which may be
linked to the anticipated emergence of
a locally regulated market.
Brazil, whose antiquated gambling laws did
not specifically regulate online gambling,
adopted framework legislation late in 2018
which would bring commercial online
gambling to this significant jurisdiction. The
law gives the local authorities two years to
develop implementing regulations, a process
which has already commenced. Given the size
of this market, an accommodating regime in
Brazil could represent a significant opportunity
for the Group, though this is not likely to
materialise in 2019.
888 continues to follow these developments
to assess their impact on our business and to
identify potential opportunities for growth.
35
888 Holdings plc Annual Report & Accounts 2018Strategic Report Corporate.888.com
STATEMENT
The Directors have re-examined the time-frame for the viability
analysis of 888 pursuant to a two-stage process. The Directors
have first considered the prospects of the Company taking into
account its current position and principal risks. Second, they have
considered whether they have a reasonable expectation that
the Company will be able to continue in operation and meet its
liabilities as they fall due over the period of their assessment.
Furthermore, after careful review of the
Group’s budget for 2019, 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.
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 25.
In this light, the Directors note that the
Company operates in the online gaming
sector, which has matured substantially
since the early days of the internet and is
now focused on predominantly regulated
markets, meaning that there is now
more stability and ability to assess future
scenarios than ever before. Having said
that, the online gaming industry remains
fast-moving and dynamic, with change
ongoing in the global regulatory and
competitive landscape, and the industry
is subject to greater consolidation than
ever before, meaning that it still remains
difficult to forecast a period longer
than three years with any significant
level of certainty.
Management currently forecasts as part
of the business planning process and
capital investment cycle over a varying
period. A detailed bottom up model is
used to budget the business for a period
of one year in advance and a top down
model for a period of three years.
A longer forecasting period might be
required in the context of equity or debt
financing, however the Company has
not completed any such financing in
which forecasts were produced since its
initial public offering (“IPO”) in 2005, and
believes that the level of certainty over
any such longer period decreases to
such a level as not to be useful for
planning purposes.
On the basis that the top down model
is sufficiently detailed for the Directors
to review, the Directors consider
that a reasonable period on which
it can and should forecast is three
years. Notwithstanding, the Board
acknowledges that the Company’s
prospects should persist into the
longer term.
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.
The severe but plausible scenarios
considered by the Directors included:
exit/closure of major markets due to
regulatory or legal events, a major cyber-
attack and/or data protection violation,
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 their view that 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.
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 2021.
36
36
888 Holdings plc Annual Report & Accounts 2018 Strategic Report
888 Holdings plc Annual Report & Accounts 2018
3737
888 Holdings plc Annual Report & Accounts 2018Strategic Report Corporate.888.com
Corporate Responsibility
BUSINESS
ACTIVITIES
Employees
888’s success depends on the quality and
commitment of its people. We take our
responsibilities to our employees around
the world seriously and we 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 2018 include
the following:
Focus on talent
The acquisition of technological and
online marketing talent continues to
be competitive. Under our employer
888 branding which positions 888
as an “employer of choice”, this year
we focused our various recruitment
marketing initiatives, developing our
talent acquisition channels. Our efforts
were invested in social network presence
and campaigns, intense sourcing and
headhunting, the development of a
revamped employee referral program,
and new career websites per location.
Managing employee performance is
an important topic on the Company’s
agenda, and in 2018 we conducted a
performance-based evaluation process
focusing on our performance values to
align our focus on excellence and team
success. Ultimately this process is aimed
at achieving a more agile and goal-
oriented dialogue between managers
and employees and is intended to allow
us to better link our compensation
approach to performance.
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;
and
• 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 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 that 888 has low
emissions, that little has changed in the
way it conducts its business, 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.
$90.1 m
total fiscal contribution
42%
female Group employees
38
888 Holdings plc Annual Report & Accounts 2018 Strategic Report
Managerial development: Throughout
2018 we heavily invested in growing
managerial skills and capabilities by
addressing professional development
using external managerial experts. All
levels of the Company’s management
received attention. We deployed new
managerial workshops “Leading in a
Global Environment” to all managerial
levels across sites, and this bespoke
workshop was led by our global vendor
and HR team.
Another focus of ours is growing site
management in each of our locations.
This year we focused on Romania and
built a continuance program for all levels
to build and strengthen local leadership.
Global innovation program: During
2018, we ran our first global “Firestarter”
program, giving Group employees the
opportunity to propose innovative
solutions to the “big questions” within
our business. The winning participants
will represent the Company at a major
innovation conference in Silicon Valley,
and even more importantly – the top
ideas have all been included in the
Company’s roadmap for delivery in 2019.
To encourage our employees’ professional
growth and personal development, in
2018 we continued to focus on internal
mobility and career development.
Our internal mobility program in 2018
included over 87 employee career moves.
Finally, we continue to invest in new
managers promoted for their first
managerial role with dedicated programs
in all sites.
Employee experience
Throughout 2018, we aligned our welfare
plans across all 888 sites, celebrating
special events reinforcing our warm
and friendly organizational climate.
In addition, in 2018, we initiated global
site gatherings throughout the year,
sharing the Group’s vision.
Organisational development
As our business landscape continues
to change and adapt, so does our
organizational structure. 2018 included
many changes to our divisional working
structures allowing us to maintain our
dynamic business edge.
During 2018 our B2C marketing
division implemented a top-down
restructuring to address the market
and operational needs. This process
included the formation of a new divisional
management and brought along with it
changes in all divisional levels.
To support these organizational
changes, we devised a new cross-
company nomination process based on
standardization of roles and selection
criteria. This methodology will continue
to serve us through the years to maintain
our managerial balance and efficiency.
HR Tools
During the year we prepared for
the launch of a new HR system,
SuccessFactors, which will allow us to
streamline all HR data across sites.
In addition, and as part of our efforts
to automate HR processes, we also
introduced a new cloud-based global
recruitment system, providing related
analytical insights with the click of
a button.
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 within 888, 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 2018, there were
no material labour disputes, litigation,
or health and safety related fines or
sanctions imposed on 888. 888 has
adopted a written Board diversity policy,
in addition to statutory requirements in
this respect in certain of its locations.
During 2018, 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. 888 furthermore
makes contributions to employee
pensions in accordance with applicable
law and practice.
888 Holdings plc Annual Report & Accounts 2018
39
39
888 Holdings plc Annual Report & Accounts 2018Strategic Report Corporate.888.com
Corporate Responsibility Continued
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 within 888.
Responsible gaming
888 is constantly developing new and
innovative ways to deliver a responsible
gaming environment. Our goal is to ensure
that all those who visit our sites can do so
with confidence and that those for whom
our games are not intended, notably
underage and vulnerable individuals,
will not be drawn into the gaming
environment and those few customers
who develop a gambling problem are
quickly identified and helped. Conducting
business responsibly is fundamental to
the future success of 888, and we are
absolutely committed to a proactive policy
of corporate and social responsibility that
reflects the high professional and ethical
standards we set for ourselves across
the business.
Steps taken in 2018 included:
• Decreased the amounts customers can
deposit during various periods, through
the imposition of lower deposit limits;
• Improving anti-money laundering and
“Know Your Client” checks, including an
increase in the amount of information
and supporting documentation
requested from customers (or obtained
from third parties) earlier in the
customer life-cycle and updates to the
various circumstances which trigger
enhanced customer due diligence;
• Implementing organizational changes
in order to strengthen regulatory
compliance oversight as well as to
improve co-operation between the
different departments and streamline
the process of settling any conflicts
between them, ensuring that 888’s
regulatory requirements and duty to
uphold the licensing objectives always
take priority over commercial interests;
• Improved the “Observer” tool (888’s
proprietary customer behaviour
tracking system) so that it captures
a broader range of changes in player
behaviour. The algorithms used by
the Observer platform are periodically
updated to improve accuracy,
implement learnings from real-world
examples, and meet the evolving
regulatory requirements. This resulted in
improvement of the scope and type of
players that have been flagged for RG
review and interactions;
• Improved UK responsible gaming
related processes and procedures,
under which maximum cash-out
timeframe has been shortened,
withdrawal restriction for Jackpots
and other big wins has been removed
and self-excluded players who request
to return to gambling following the
lapse of the respective self-exclusion
period are required to provide certain
information as per the Company’s
policy;
• 888 continued its review of marketing
practices for various marketing
materials published in the UK, which
included an extensive review and
monitoring of marketing affiliates’
and B2B partners’ websites, as well as
reducing the number of affiliates so that
we can better monitor and supervise
those affiliates that remain engaged;
• 888 updated the terms and conditions
that apply to UK customers with a view
to improving the level of clarity and
enhancing compliance with consumer
protection regulations;
• Extended responsible gaming related
training programs and sessions,
through an internal annual training
session focusing on interactions with
VIP players and an additional training
session conducted by external
representatives from a responsible
gaming related organisation;
• 888 joined responsible gaming forums
to extend its involvement in initiatives
led by the UK Gambling Commission
and the online gambling industry.
During 2019, 888 intends to further
improve the “Observer” system,
improve research into effect of
customer interactions on customer
behaviour, improve customer interaction
communication, analyse and assess
possible ways to increase consumer
awareness and continue to strengthen
technological quality assurance and
processes which relate to regulation
and compliance.
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 (GB
Group) to identify and track minors if they
log into our software.
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.
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 line with the Group’s increased
awareness and focus on social
responsibility, in 2018 we continued our
internal program named GR8 PEOPLE,
allowing 888 employees to spend
time ‘giving back’ to underprivileged
sectors of the community (for example,
people from minority groups or people
with disabilities) with employees
volunteering to join one of the ongoing
activities dedicating their time and
effort throughout the year. In addition,
employees in the Group’s Israeli office
dedicated working hours to sharing their
unique knowledge, whether in the field
of online marketing, technology or other
areas, with charitable organisations.
Anti-Modern Slavery
888 has adopted an Anti-Modern Slavery
Policy, in the context of which the Group
carried out a detailed risk assessment
and is implementing various measures to
prevent Modern Slavery practices both
in its operations and through its supply
chain (including, but not limited to, the
provision of a letter to suppliers outlining
the Group’s policy, inclusion of relevant
representations and provisions in supplier
contracts and satisfactory completion of
due diligence questionnaire if deemed
required in the circumstances). During
2018, no red flag events were reported
under the Anti-Modern Slavery Policy.
40
888 Holdings plc Annual Report & Accounts 2018 Diversity
Diversity is important to us as we believe that
only through access to the most diverse pool
of people will we recruit and retain the most
talented individuals to serve our customers.
We actively seek to recruit and advance women
into our top levels of management.
When seeking to recruit new Non-Executive
Directors to the Board, the Nominations
Committee considers the benefits of all aspects
of diversity including, but not limited to, age,
gender and educational and professional
backgrounds, in order to enable it to discharge
its duties and responsibilities effectively. Board
appointments are made on merit by assessing
candidates against objective criteria in the context
of the overall balance of skills and backgrounds
that the Board needs to maintain in order to
remain effective. Where appropriate, steps are
taken to identify and remove unnecessary
or unjustifiable barriers.
A summary of the breakdown of men and women
across 888 as of 31 December 2018, is as follows:
Board of Directors
COO/Senior Vice Presidents
Vice Presidents
Other Group Employees
Men
Women
Number
Percentage
Number
Percentage
5
6
15
771
84%
75%
75%
58%
1
2
5
562
16%
25%
25%
42%
Fiscal contributions
During the year the Group made fiscal
contributions totalling US$90.1 million
(2017: US$ 92.1 million) comprising of
corporation tax of US$13.9 million
(2017: US$6.2 million), VAT of US$6.31
million (2017: US$ 10.7 million) and
gaming duties of US$69.9 million
(2017: US$75.2 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.
Anti-bribery and corruption
We are committed to operating
with integrity and complying with
all relevant laws, including all applicable
anti-corruption legislation. 888 has
a zero-tolerance approach to bribery
and corruption; a position clearly set
out in our Anti-Bribery and Corruption
Compliance Program which applies to
all 888 Group personnel. During 2018,
the internal approvals process was
implemented as regards gifts given
and received as required pursuant
to the programme.
Recognition
In January 2019, in recognition of 888’s
transparent management and clearly-
defined environmental, social and
governance criteria, 888 was admitted
to the FTSE4Good index. 888 is proud
to have been recognized for its efforts
in these areas.
On behalf of the Board:
Brian Mattingley
Chairman
12 March 2019
1 Excluding US$10.7 million VAT accrual release.
41
888 Holdings plc Annual Report & Accounts 2018Strategic Report Corporate.888.com
Board Of Directors
MANAGEMENT
1 – Brian Mattingley
Chairman
Age: 67
Relevant skills and 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.
› Read more from Brian on pages 06 and 07
3 – Itai Pazner
Chief Executive Officer
from January 2019
Age: 46
Relevant skills and experience
Mr. Pazner was appointed as COO in
November 2017 and as Chief Executive
Officer of the Company in January 2019.
He was appointed to the board in
March 2019.
He has worked for the Group since
2001, initially launching the 888.com
brand in the UK and positioning
888.com as a top 3 UK online gaming
operator. Other roles included Global
Offline Marketing Director, Senior Vice
President Head of EMEA, Senior Vice
President of B2C (Casino) and Senior
Vice President Head of B2C.
Prior to joining the Group, Mr. Pazner
held managerial positions at Internet
Gold, a leading ISP.
› Read more from Itai on pages 08 and 15
2 – Itai Frieberger
Chief Executive Officer
until January 2019
Age: 48
Relevant skills and 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 served 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 stood down from his role
as the Group’s Chief Executive Officer
in January 2019, and in order to ensure
a smooth transition will remain as a
Director for a period of up to 12 months.
4 – Aviad Kobrine
Chief Financial Officer
Age: 55
Relevant skills and 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 and 23
42
888 Holdings plc Annual Report & Accounts 2018 5 – Ron McMillan
Senior Independent Director
Age: 66
Relevant skills and 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,
SCS Plc and B&M European Value Retail SA,
and Chairman of the Audit Committee of
Homeserve plc. 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.
A
R
N
G
› Read more from Ron on pages 77
7 – Anne de Kerckhove
Independent Non-Executive Director
Age: 46
Relevant skills and experience
Anne de Kerckhove is currently the CEO
of Freespee - a fast growing company
in the communication cloud space.
Previously, she was the CEO of Iron
Capital and the Managing Director EMEA
for Videology, Global Director of Reed
Elsevier, and COO and International
Managing Director at Inspired Gaming
Group. Ms. de Kerckhove is also an angel
investor and mentor for early-stage
startups and entrepreneurial funds
including Metail, CRE and Daphni, and
holds board positions with 7digital. She
holds a Bachelor of Commerce from
McGill University and an MBA from
INSEAD. Ms. de Kerckhove is a member
of the Company’s Remuneration
Committee, Audit Committee and
Nominations Committee.
A
R
N
6 – Zvika Zivlin
Independent Non-Executive Director
Age: 53
Relevant skills and experience
Zvika Zivlin is the Founder and Managing
Partner of Tulip Capital, the exclusive
partner firm of Wells Fargo Securities in
Israel, is a strategic partner to Alias Tech
(JB Capital), and currently serves on the
advisory board of Infinidat Ltd.
Mr. Zivlin has been engaged in projects
covering the fields of insurance,
banking, real estate, technology and
communications, and was previously
Chief Executive Officer of Trans4u Ltd
and Chief Financial Officer of GSI Group.
Mr. Zivlin holds an MSc in Economics
from the London School of Economics,
an MBA from Tel Aviv University (1st
year, with distinction) and a BA in
Economics and Management from Tel
Aviv University (with distinction). Mr
Zivlin is the Chairman of the Company’s
Remuneration Committee and a member
of the Audit Committee, Nominations
Committee and Gaming Compliance
Committee.
A
R
N
G
› Read more from Zvika on pages 60 and 76
Committee Key
A
Audit Committee
R
Remuneration
Committee
N
Nominations
Committee
G
Gaming Compliance
Committee
Chairman
of Committee
Member
of Committee
43
888 Holdings plc Annual Report & Accounts 2018Governance
Corporate.888.com
Directors’ Report
The Directors submit to the members their Annual Report
and Accounts of the Group for the year ended 31 December
2018. The Strategic Report, Corporate Governance Statement
and Directors’ Remuneration Report on pages 08, 50 and 59
respectively, form part of this Directors' Report.
Results
The Group's profit after tax for the financial year of US$94.8 million
(2017: US$12.6 million) is reported in the consolidated income statement
on page 90. The Board is recommending a final dividend of 6.0¢ per
share plus an additional one-off 2.0¢ per share, which together with the
interim dividend of 4.2¢ per share equals 12.2¢ per share for the year
(2017: 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 pages 42 and 43. 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 Memorandum & Articles of Association
(“Articles”), all Directors retire at each Annual General Meeting and
those who wish to continue to serve offer themselves for re-election.
Brian Mattingley (first appointed 30 August 2005)
Itai Frieberger (first appointed 13 May 2015, stepped down
23 January 2019)
Itai Pazner (first appointed 8 March 2019)
Aviad Kobrine (first appointed 30 August 2005)
Ron McMillan (first appointed 15 May 2014)
Zvika Zivlin (first appointed 9 May 2017)
Anne de Kerckhove (first appointed
28 November 2017)
The beneficial and non-beneficial interests of the Directors and their
closely associated persons (pursuant to Article 19 of the European
Market Abuse Regulation) in shares of the Company are set out in the
Directors’ Remuneration Report on pages 60 to 76. There has been
no change in the interests of Directors in shares of the Company
between 31 December 2018 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 2018, the issued share capital of the Company comprised
364,284,539 Ordinary Shares of GBP £0.005 each (“Ordinary Shares”).
At the Annual General Meeting held in May 2018, 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 2018, provided that, in
accordance with institutional guidelines issued by the Investment
Association, this would permit up to a maximum nominal value of
£1,198,937.59 (66.66%) to be allotted pursuant to a rights issue and up
to a maximum nominal value of £599,468.79 (33.33%) to be allotted
otherwise. Furthermore, the Board was empowered to allot equity
securities of the Company for cash without application of pre-emptive
rights under the Articles, provided that such power is limited:
44
(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 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 £89,929.31; 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
£89,929.31;
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 2019.
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 2018, the Company did not exercise any of the foregoing powers
and authorities.
Share Buy Back Authority
The Directors do not have any power in relation to the buy back by
the Company of its own Ordinary Shares. In 2018, the Company did
not seek authority to and did not purchase any of its own Ordinary
Shares. The Directors intend to propose a resolution to seek authority
to purchase the Company’s own Ordinary Shares at the 2019 Annual
General Meeting.
Rights attaching to Ordinary Shares
in the Company
The rights and obligations attaching to Ordinary Shares are set out
in the Articles.
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.
888 Holdings plc Annual Report & Accounts 2018 Memorandum & Articles of Association
The Articles can only be amended by a special resolution at a general
meeting of shareholders. There were no changes to the Articles
during 2018.
Deadlines for exercising voting rights at the
2019 Annual General Meeting
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 17 May 2019. 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 16 May 2019.
Restrictions on transfer of shares and
limitations on holdings
There are no restrictions on transfer or limitations on the holding
of Ordinary Shares other than under restrictions imposed by law
or regulation (for example, insider trading laws) or pursuant to the
Company's share dealing code.
Requirements of gaming regulations
Amongst others, the Group:
(i) holds a licence from the Nevada Gaming Commission as the sole
shareholder of an Interactive Gaming Service Provider licensee,
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
Many jurisdictions require any person who acquires beneficial
ownership of more than a certain percentage (typically 5%) 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 fulfilment 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 Articles include provisions to ensure that 888 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 (as defined in the Articles) 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.
(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.
Entities holding Company shares on behalf
of Group employees
At 31 December 2018, Virtual Share Services Limited (a wholly owned
subsidiary of the Company) held 3,694,587 Ordinary Shares in its
administrative capacity in connection with the 888 Holdings plc Long-
Term Incentive Plan 2015 and Deferred Share Bonus Plan. Full details
are set out on page 63.
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.
45
888 Holdings plc Annual Report & Accounts 2018Governance Corporate.888.com
Directors’ Report Continued
Substantial shareholdings
As at 31 December 2018, 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 Financial Conduct Authority:
Principal Shareholders
Sinitus Nominees Limited in trust on behalf of Dalia Shaked
Standard Life Aberdeen plc
The Phoenix Holdings Ltd.
Number
of shares
% issued
share capital
Nature
of Holding
86,283,534
35,892,391
19,006,183
23.69%
9.85%
5.22%
Indirect
Indirect
Indirect
Between 31 December 2018 and the date of this Annual Report, no further notifications were received regarding holdings comprising 5.0% of the
Company’s issued share capital. 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
The Company is a party to a relationship agreement with, among others, Sinitus Nominees Limited as trustee for Dalia Shaked (“DS Trust”) dated
14 September 2005 which was amended on 16 July 2015 (the “Amended Relationship Agreement”). The O Shaked Shares Trust and the Ben
Yitzhak Family Shares Trust (together with Dalia Shaked Bare Trust, the “Principal Shareholder Trusts”) are also party to the Amended Relationship
Agreement but are no longer bound by certain material provisions since they are no longer shareholders of the Company.
The Amended Relationship Agreement includes the following provisions in respect of the independence of the Company (in accordance with the
UK Listing Rules) which provide that DS Trust shall, and shall procure as far as it is legally able, that its respective associates:
• 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;
• not take any action which precludes or inhibits 888 Holdings plc, or any member of the Group, from carrying on its business independently of it;
• 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
• 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 the DS Trust will not solicit Group employees without consent, that only independent directors can vote on proposals to
further amend the Amended Relationship Agreement, that the DS Trust 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 DS Trust’s power to appoint Directors and includes obligations on the DS
Trust to exercise its voting rights to ensure that the majority of the Board, excluding the Chairman, is independent.
The DS Trust 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 DS Trust whilst it holds not less than 7.5% of the issued share capital of the Company.
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.
46
888 Holdings plc Annual Report & Accounts 2018 Directors’ indemnities
The Articles 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 the Executive Directors to indemnify them to the fullest extent
permitted by applicable law and the Articles in connection with the
execution of their duties and/or exercise of their 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 Annual Report for the year ended 31 December 2011. Finally, the
Company entered into qualifying third-party indemnity arrangements
for the benefit of all of its Directors in a form and scope which comply
with the requirements of the UK Companies Act 2006 and the Gibraltar
Companies Act 2014 which were in force from 1 November 2017 (or
subsequently, with respect to subsequently appointed directors) and
remain in force.
Corporate governance
The corporate governance statement is on pages 50 to 57 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 page 36, and are incorporated in this Directors' Report by reference.
Principal subsidiary undertakings
The principal subsidiary undertakings are listed on page 120.
Confirmation of independence
As required pursuant to LR 9.8.4 R (14), the Board confirms for
that period of financial year 2018 during which the Company had
a controlling shareholder:
• the Company has complied with the independence provisions
included in the Amended Relationship Agreement;
• so far as the Company is aware, the independence provisions
included in the Amended Relationship Agreement have been
complied with by the controlling shareholders and their associates;
and
• 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.
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.
As at the date of this Annual Report, the Company has no controlling
shareholder as defined under the UK Listing Rules.
Shareholders’ Agreements
There are no known Shareholders’ Agreements in force between
shareholders of the Company.
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. The RCF between
the Company and Barclays Bank plc provides that in the event of
a change of control in the Company, the parties have 30 days to
negotiate acceptable terms to continue the facility, failing which it
will be cancelled and all outstanding amounts thereunder will be
immediately payable.
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.
Financial instruments
The Company considers the Group’s exposure to financial risks,
including exposure to specific countries and trading counterparties,
to be low. During 2018, 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 25 to the annual accounts on page 124.
47
888 Holdings plc Annual Report & Accounts 2018Governance Corporate.888.com
Directors’ Report Continued
Research and development activities
In 2018, the Group maintained its focus on enhancing the products
offered, expanding its platform which is accessible on mobile devices
and further developing its gaming platform capabilities.
Some relevant achievements during the year in the field of research and
development included:
• Implementation of a cross-Group project to ensure the Group’s
compliance with the EU General Data Protection Regulation
("GDPR")
• Development of new front end for our Sport in Casino offering
• Major investment in compliance management and monitoring
• Increased foothold in regulated markets: Portugal (Casino) and
Sweden (Sport, Casino and Poker)
• The opening of the US market for 888sport NJ betting, which gave
888 the opportunity to be amongst the first companies to operate in
this market
• Launch of a new and advanced platform for 888casino (Orbit) in
regulated markets, including full integration with registration and
cashier, new smart search, fully responsive, personalised experience,
improve user flow and interface
• Improvement of real time abilities improving player experience
of campaigns
• Integration to new Casino game providers – Pariplay, Evolution, NyX
• Major infusion of new 3rd party games to 888casino on PC and
mobile platforms.
127 unique games added to Casino platform, including 10 new Section8
games, of which 3 entered the top 15 games
• Introduced a new and exciting feature that allows Sport players to
race against each other when betting on their favourite leagues
• A new user interface for Poker DL table. Exciting user experience that
will create additional level of engagements on top of the common
poker engagement and provide to our players experience that no
other poker room has provided
• First step into the realm of AI on 888casino – a new game
recommendation model with a personal list of top picks which
suggests games to players according to a smart algorithm
• More payment capabilities in our Bingo offering, new and unique
bonuses, and more games; and
• A new tournament format “Progressive Knockout”, released in order
Post-period events
The following important events affecting the Group occurred since
31 December 2018:
• In February 2019, the Group announced the acquisition of a portfolio
of bingo brands, including Costa Bingo, as detailed on page 19
• In March 2019, the Group announced the acquisition of the BetBright
sports betting platform, as detailed on page 18
• In February 2019, 888 signed an RCF with Barclays Bank plc,
as detailed on page 23.
Future developments
Likely future developments in the business of the Group are set out in
the Market Overview on page 06.
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 2019 Annual General Meeting.
During the year ended 31 December 2018, Ernst and Young LLP were
reappointed as auditors for the purposes of the Company preparing
financial statements as required pursuant to the UK Listing Rules and
the DTRs. 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.
Details of audit and non-audit fees charged by EY to the Company are
set out on page 77 of the Audit Committee Report.
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 International Financial Reporting Standards (“IFRS”) as
adopted by the EU. A fair presentation also requires the Directors to:
to encourage Poker ecosystem growth.
• consistently select and apply appropriate accounting policies;
Greenhouse gas emissions
Details of 888’s greenhouse gas emissions are set out in the Corporate
Responsibility section of the Strategic Report on page 38.
• 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.
48
888 Holdings plc Annual Report & Accounts 2018 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 Company 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.
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,
performance, business model and strategy.
Each of the Directors confirms, to the best of his or her knowledge:
(a) the financial statements, prepared in accordance with IFRS 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 as Directors 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 Pazner
Chief Executive Officer
12 March 2019
49
888 Holdings plc Annual Report & Accounts 2018Governance Corporate.888.com
Corporate Governance Statement
The Company’s Ordinary Shares are admitted to the premium segment
of the UK Official List and to trading on the London Stock Exchange’s
main market for listed securities. 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 April 2016 applied to the financial year under review,
and the Company is committed to compliance with the version of the
Code published in July 2018 with effect from 1 January 2019.
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 2018, the Company was in material compliance with the UK
Corporate Governance Code 2014, other than as regards the following:
• The Chairman of the Board, Brian Mattingley, has been a member
of the Board since August 2005.
50
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 for
constructively challenging and helping 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 53 and
57), 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.
Board activities
During 2018, the Board assessed and monitored 888’s culture, including
in particular the further implementation of the Group’s across-the-
board compliance culture in the field of responsible gaming. Where the
Board is not satisfied that policy, practices or behaviour throughout
the business are aligned with the Company’s purpose, values and
strategy, the board seeks assurance that management has taken
corrective action. In 2018, the Board was satisfied in this respect. The
Board assessed the basis on which 888 generates and preserves value
over the long-term, including by way of growing and developing the
business in regulated markets.
888 Holdings plc Annual Report & Accounts 2018 Investing in and rewarding the workforce
The Company’s approach to investing in and rewarding its workforce
is set out under “Corporate Responsibility” on pages 38 to 41.
Shareholder engagement
During 2018, 888’s Chairman Brian Mattingley met with the Company’s
major shareholders in order to discuss the Company’s performance and
to address any concerns. Furthermore, in advance of adoption of the
Company’s revised Remuneration Policy described on pages 58 to 76,
the Company presented the proposed Policy to its major investors and
proxy voting agencies, and engaged with them accordingly.
At the 2018 Annual General Meeting, all resolutions were passed
with a high level of shareholder approval and there was no resolution
recommended by the Board which garnered 20 per cent or more votes
cast against.
Key stakeholders
The Company’s key stakeholders are its shareholders, employees and
customers as well as the communities in which it does business. The
Board takes care to engage with its stakeholders, as detailed in the
Corporate Responsibility section on page 38 and the Remuneration
Report on page 60. The interests of the Company’s key stakeholders
are considered in Board discussions and decision-making. Whilst as a
Gibraltar company, the UK Companies Act 2006 does not apply to the
Company, the matters set out in section 172 thereof, which include the
likely consequences of any decision in the long term, the interests of
the company's employees, the need to foster the company's business
relationships with suppliers, customers and others, the impact of the
company's operations on the community and the environment, the
desirability of the company maintaining a reputation for high standards
of business conduct, and the need to act fairly as between members
of the company, are taken into account by the Board in its decision-
making to the extent permitted under Gibraltar law.
The Board continually reviews its engagement mechanisms in order to
make sure that it is engaging with its stakeholders effectively.
Engagement with the workforce
888 does not currently formally consult employees on remuneration but
has a timetable and agenda of actions for 2019 to ensure it is compliant
with the new requirements of the UK Corporate Governance Code
going forwards. This will include considering workforce policies and
practices and how it can best fulfil its obligations to engage with the
wider workforce to explain the alignment of Executive Director pay to
the wider organisation.
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
The Chairman, Mr Mattingley, and the Chief Executive Officer (until
January 2019), Mr Frieberger, have had a close working relationship
to ensure the integrity of the decision-making process of the Board
and the successful delivery of 888’s strategy. The new Chief Executive
Officer Mr Pazner is similarly committed to working closely with the
Chairman in order to ensure continuity and stability for the Company;
in addition, to ensure a smooth transition, Itai Frieberger will remain as
a Director of the Group for a period of up to 12 months. There is a clear
division of responsibilities between the Chairman and the CEO, which
the Board considers an important part of its corporate governance.
Mr. Mattingley was not independent on his appointment as Executive
Chairman in March 2015 as he had previously held the role of Chief
Executive Officer. Mr. Mattingley’s appointment at the time as Executive
Chairman was approved by the Board in light of the benefits to the
Company in terms of his experience of the gaming industry, extensive
knowledge of the business, and in maintaining and developing
relationships with regulators.
Non-Executive Directors’ 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. The same is true of independent Non-Executive Directors
Zvika Zivlin and Anne de Kerckhove.
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.
51
888 Holdings plc Annual Report & Accounts 2018Governance Corporate.888.com
Corporate Governance Statement Continued
Board diversity policy
The Group has adopted a Board Diversity Policy, which sets the
Company’s aspiration for diversity of its Board without compromising
on the quality or merit of candidates including their aptitude and ability.
The policy refers to the diversity criteria of age, gender and educational
and professional backgrounds. Whilst the policy seeks to ensure that
appointments are based on the candidate's strengths set by objective
criteria including their past contributions and potential, the benefits
of diversity are also regarded and decisions are not influenced by
certain protected characteristics including gender, sexual orientation,
marital or civil partnership status, gender reassignment, pregnancy,
the undergoing of fertility or in vitro fertility treatment, parenthood,
part-time or fixed-term status, age, race, religion or belief, nationality,
ethnicity, country of origin, place of residence, views, disability, trade
union membership and political affiliation. Where appropriate, steps
are taken to identify and remove unnecessary or unjustifiable barriers.
The standards set out in the policy apply to the Board and its
committees, which are the Company’s administrative, management
and supervisory bodies.
The Board was satisfied that during 2018, steps were taken to promote
the diversity objectives of the policy. The Group’s activities detailed in
the Corporate Responsibility section on page 41 support the Group’s
diversity objectives.
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 38 to 41.
Effectiveness
Board composition
During 2018, the Board consisted of six Directors, as follows: a Chairman
(Brian Mattingley), a Senior Independent Director (Ron McMillan),
two independent Non-Executive Directors (Zvika Zivlin and Anne de
Kerckhove), and two Executive Directors (Itai Frieberger as the Chief
Executive Officer, and Aviad Kobrine as the Chief Financial Officer).
In March 2019, the new Chief Executive Officer Itai Pazner also joined
the Board.
The biographical details of all of the Directors, setting out their relevant
skills and experience and their professional commitments, are given
on pages 42 to 43.
Independent Directors
Currently, 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. In 2018, at least
half of the Directors, excluding the Chairman, were independent Non-
Executive Directors (as required by the UK Corporate Governance Code).
The role of the Senior Independent Director (Ron McMillan) 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.
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. The Nominations Committee had
a central role in succession planning for the CEO role. Over the course
of 2018, the alternatives were carefully considered and the Board
ultimately decided to appoint Itai Pazner as CEO in January 2019.
Itai Pazner has been with 888 for 18 years and previously served as
its Chief Operating Officer. Furthermore, in order to ensure a smooth
transition, it was decided that Itai Frieberger would remain as a Director
of 888 for a period of up to 12 months.
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 Chairman of
the Board Brian Mattingley (Chairman), Senior Independent Director
Ron McMillan, Independent Non-Executive Director Zvika Zivlin and
Independent Non-Executive Director Anne de Kerckhove.
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
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.
52
888 Holdings plc Annual Report & Accounts 2018 The Nominations Committee's terms of reference are available on the
Company's website, corporate.888.com.
The Nominations Committee is also responsible for pursuing diversity
within the scope of its mandate, including setting measurable
objectives and monitoring progress on achieving such objectives.
In considering new Board appointments, diversity (including of gender,
age and professional and educational background) is one of the criteria
considered by the Nominations Committee in accordance with the
Board’s Diversity Policy. The Company’s statement regarding diversity
is set out in the Corporate Responsibility section of the Strategic Report
on page 41.
During 2018, the Nominations Committee’s work included the following:
• Succession planning for the CEO role: In the present case, the
Nominations Committee considered that an internal appointment
was most appropriate. In general, the Nominations Committee
acknowledges its role in supporting the development of a diverse
pipeline of candidates for senior management
• Monitoring the board evaluation process which is described on
page 54.
• Implementing the Board’s diversity policy which is described on
page 41 (including considering the gender balance of senior
management and their direct reports).
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.
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 election or re-election by the shareholders.
Total held in year
Brian Mattingley
Itai Frieberger
Aviad Kobrine
Ron McMillan
Zvika Zivlin
Anne de Kerckhove
* Includes one meeting attended as an observer.
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.
The Chairman has disclosed details of his other significant
commitments to the Board during 2018 and these are detailed in his
biography on page 42.
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 for the Board, there
is a process in place to facilitate discussion and decision making. The
Directors regularly communicate and exchange information irrespective
of the timing of meetings.
During 2018, the Board met seven times. Set out below are details
of the Directors’ attendance record at Board and Committee meetings
in 2018.
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 or
she 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.
Total number of meetings held during the year ended
31 December 2018 and the number of meetings
attended by each Director
Board
Audit
committee
Remuneration
committee
Nominations
committee
Gaming
Compliance
committee
7
7
7
7*
7
7
7
3
N/A
N/A
N/A
3
3
3
2
N/A
N/A
N/A
2
2
2
1
1
N/A
N/A
1
1
1
5
N/A
N/A
N/A
5
5
N/A
53
888 Holdings plc Annual Report & Accounts 2018Governance Corporate.888.com
Corporate Governance Statement Continued
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 in-depth evaluation of the Board and its
Committees relating to performance in 2018 was carried out in
December 2018. This 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
questionnaires and face to face meetings with Board members,
senior management and 888’s external legal advisers. The next
Board evaluation is scheduled for the end of 2019.
The evaluation culminated in a number of recommendations, including
as regards succession planning, the structure of and preparation for
Board meetings, tracking of Board decisions, development of Company
strategy, addition of Non-Executive Directors and additional exposure
of the Non-Executive Directors to the Company’s business. 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, and proposes them for
re-election or election at the 2019 Annual General Meeting.
1 References in this Annual Report to Company Secretary refer to
Herzog Fox & Neeman. The Company secretary for Gibraltar corporate
purposes is Straits Secretaries (Gibraltar) Limited.
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
Secretary1 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 2018. Itai Pazner was
appointed as Chief Executive Officer in January 2019 and as a Director
in March 2019.
As noted above, the Chairman regularly agrees and reviews each
Director’s training and development needs. Members of the Board
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.
Conflicts of interest
Conflicts of interest of the Directors are dealt with in accordance
with the procedures set out in the Articles 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 in the Company) which is to his
knowledge material, except in specific limited circumstances.
Such procedures operated effectively during the year.
54
888 Holdings plc Annual Report & Accounts 2018 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.
Audit Committee and auditors
The Board has established an Audit Committee. Details of the Audit
Committee’s functions, together with its specific activities in 2018, are
set out in the Audit Committee Report on pages 77 to 80.
During the year the Company's Audit Committee comprised Senior
Independent Director Ron McMillan (Chair) and Independent Non-
Executive Directors Zvika Zivlin and Anne de Kerckhove.
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 2018 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;
• measures that safeguard proper IT-based processing of matters and
data relevant to accounting; and
• reporting information of companies around the Group which enable
the Company to prepare consolidated financial statements including
management accounts.
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.
During 2018, Deloitte carried out the Company’s internal audit function,
reporting to the Audit Committee; during 2018, the internal auditor
provided twelve reports to the Audit Committee and discussed the
internal audit working plan for 2019.
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 24 and 36 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 Zvika Zivlin (Chair), Senior
Independent Director Ron McMillan and Independent Non-Executive
Director Anne de Kerckhove.
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 70.
The Remuneration Committee was advised during part of 2018 by New
Bridge Street, a trading name of Aon Hewitt, being a subsidiary of Aon
plc, and the remainder of 2018 by Korn Ferry. Neither remuneration
consultant has any other connection with 888 or any of the Directors.
Further details are provided on page 76.
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).
The Directors’ Remuneration Report, which outlines the Remuneration
Committee's work and details of Directors' remuneration, is on
pages 60 to 76. The Remuneration Committee's terms of reference
are available on the Company's website, corporate.888.com.
55
888 Holdings plc Annual Report & Accounts 2018Governance Corporate.888.com
Corporate Governance Statement Continued
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 these 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. Details
of engagement with shareholders during 2018 are set out on page 76.
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.
All shareholders are welcome to attend the 2019 Annual General
Meeting (scheduled to be held on 21 May 2019) and private investors
are encouraged to take advantage of the opportunity given to ask
questions. All Board members (including the Chairs 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.
Principal risks and uncertainties
The principal risks and uncertainties faced by the Group are disclosed
in the Risk Management Strategy report on page 24.
Gaming Compliance Committee
In accordance with Nevada Gaming Control Board requirements, the
Board has appointed a Gaming Compliance Committee. Its current
members are Michael Alonso (an external consultant to the Company),
Ron McMillan and Zvika Zivlin.
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 whistle-blowing incidents were internally reported by the Company’s
employees during 2018 and up to the date of this annual report.
56
888 Holdings plc Annual Report & Accounts 2018 Corporate Social Responsibility Statement
The CEO 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 38 to 41.
Other disclosures
The following matters can be found in this report on the following pages:
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)
(7) Non pro-rata allotments for cash by major subsidiaries
(8) Parent participation in a placing by a listed subsidiary
(9) Contracts of significance
(10) Provision of services by a controlling shareholder
(11) Shareholder waivers of dividends
(12) Shareholder waivers of future dividends
(13) Agreements with controlling shareholders
On behalf of the Board:
Brian Mattingley
Chairman
12 March 2019
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
N/A
57
888 Holdings plc Annual Report & Accounts 2018Governance
Corporate.888.com
Statement by the Chairman of the Remuneration Committee
INTERESTS & THEIR
REMUNERATION
Incentive plans are aligned to profitability
of the business, long-term sustainable
growth and shareholder value, which
we believe derive from implementation
of 888’s strategy.
Zvika Zivlin
Chairman of the Remuneration Committee
Remuneration policy
and strategy
Following a review of the current policy,
the Committee has concluded that
the policy continues to support Group
strategy and that no significant changes
are required.
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,
employees, community and act
responsibly.
Our incentive plans are aligned to
profitability of the 888 business, long-
term sustainable growth and shareholder
value, which we believe derive from
implementation of this strategy.
The Committee has taken the opportunity
to incorporate into the new policy
changes to take account of latest best
practice and the new UK Corporate
Governance Code. The changes to the
policy are set out in summary below:
• the policy currently provides for a
maximum annual pension contribution
of 15% of salary. Our new CEO, Itai
Pazner, and our CFO receive an
annual pension contribution equal
to 15% of salary, which is aligned to
the workforce average and statutory
requirement in Israel, where the Group
subsidiary which employs the most
Group personnel is located. For any
new appointments, the Committee
will align pension contributions to the
workforce level, taking into account
market practice and legal requirements
in the country of the executive and the
wider workforce.
• a two-year post-vesting holding period
will be introduced for LTIP awards
granted in or after 2019 to create a
five-year period between the grant of
awards and the earliest opportunity for
sale of vested shares (except for any
earlier sale of shares to meet any tax
liabilities triggered on vesting).
• our share ownership requirement will
be retained at 200% of base salary.
The Committee has considered
carefully the UK Corporate Governance
Code requirement to develop a policy
for post-employment shareholdings
and how to provide an appropriate
balance between aligning executives
to Company performance post-
employment, which is in part a
continuation of the business strategy
they have developed, but also taking
into account the fact that the volatility
in the market, likely future changes in
regulation and the actions of a new
management team are not under their
control. To achieve the right balance,
an updated policy on post cessation of
employment shareholdings for leavers
will require LTIP post vesting holding
periods to continue post cessation of
employment to the extent that this
provides an interest in shares for two
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 and
shareholder voting requirements
of a UK incorporated company.
At this year’s Annual General
Meeting we will seek triennial
shareholder approval to our
Directors’ Remuneration Policy and
shareholders will be provided with
a binding resolution to approve
the Policy and the usual annual
advisory vote to approve this Annual
Statement and our Annual Report
on Remuneration.
58
888 Holdings plc Annual Report & Accounts 2018 years after leaving. A good leaver
would also retain an interest in both
unvested annual bonus deferred share
awards and prorated LTIP awards post-
employment. The Committee will keep
under careful review developments
in market practice, but other than
those LTIP awards subject to a holding
period, there will be no requirement to
hold beneficially-owned shares after
cessation of employment under the
proposed policy.
• the Committee will have discretion
to adjust the formulaic outcome of
incentive awards in circumstances
where the Committee believes the
outcome is not reflective of underlying
corporate performance, the investor
experience or employee reward
outcome.
• the current clawback and malus
provisions are being broadened,
enabling the Committee to recover
and/or withhold payments in the
event of failures of risk management,
corporate failure and reputational
damage.
• dividend equivalent payments on
deferred share awards granted
under the new Policy will be made in
shares and only exceptionally where
necessary in cash (previously there was
the choice of cash or shares).
Operation of our policy
in 2019
With CEO succession we have taken the
opportunity to reduce remuneration.
Our new CEO, Itai Pazner, was appointed
on 24 January 2019 on a base salary
of ILS2,520,000 (equivalent to circa
£540,000) which will not be increased
during FY19. Our former CEO, Itai
Frieberger, will remain on his FY18 base
salary (ILS 3,275,000) for the duration of
his notice period. The CFO will receive a
salary increase of 2% for FY19 compared
to an average workforce increase of just
over 4%.
Annual bonus maximum opportunity for
FY19 will be the same as FY18 being 150%
of salary for the CEO, CFO and our former
CEO, Itai Frieberger.
Our new CEO will receive the same level
of LTIP award as our former CEO, of
200% of salary, and the CFO’s LTIP award
will be 150% of salary, in line with the
award he received in FY18. No LTIP award
will be granted to former CEO
Itai Frieberger for FY19.
The annual bonus performance condition
will continue to be based on like-for-like
adjusted EBITDA, with target payment
of 50% of maximum for achieving a
stretching budget figure, increasing
to full pay-out for a stretching target
above budget. The target range is
lower than the FY18 EBITDA figure,
recognising the currently extremely
challenging regulatory environment
and the general industry outlook for the
year ahead. The targets are, however, as
stretching as those set last year and will
be disclosed with performance against
them retrospectively in next year’s annual
report on remuneration.
We believe that a focus on EBITDA,
the most important KPI based on the
profitability of the Company, is the most
straightforward approach to ensure
a robust link between reward and
performance.
The Committee has considered carefully
the performance metrics for the 2019 LTIP
awards given the increasingly difficult
regulatory environment in which 888
operates and recognising the difficulty
to set accurate long-term financial
performance conditions for the next
3-year LTIP performance period. The
Committee has therefore determined
that the 2019 LTIP award will be based
on a performance condition comparing
888’s relative TSR to that of its gaming
industry peers, all of whose performance
is likely to be affected by similar external
industry-related factors. The Committee
believes this provides a strong alignment
of interest between executives and
shareholders. Previously, awards have
been based 50% on adjusted EPS and
50% on relative TSR. In addition to
achieving the TSR condition, there will
be an additional requirement that the
Committee is satisfied that the Company’s
TSR is reflective of underlying financial
performance.
The Committee has also reviewed the TSR
peer group, as recent corporate activity
has reduced the size of the existing group,
and concluded the current peer group of
five companies, being GVC Holdings plc,
Sportech plc, Playtech plc, Paddy Power
Betfair plc and William Hill plc, should be
expanded. Therefore, the following five
companies will be added to the current
peer group: Betsson AB, International
Game Technology plc, JPJ Group plc,
Kindred Group plc and OPAP SA. The TSR
vesting schedule will continue to be 25%
of the award vesting if 888’s TSR is equal
to the median TSR of the peer group
increasing to 100% vesting if 888’s TSR is
33% (i.e. 10% CAGR over the three-year
performance period) or more above the
TSR of the median company in the peer
group.
Pay outcomes for 2018
The Annual Report on Remuneration sets
out in detail the performance outcomes
and total remuneration paid in respect
of FY18.
The Committee noted the solid
performance of the Company and the
management team over the year, which
continued to drive growth in regulated
markets, enhance compliance and
develop product innovations.
The annual bonus was focused on the
achievement of stretching like-for-like
adjusted EBITDA growth targets. Like-for-
like adjusted EBITDA1 growth in 2018 was
6.3% resulting in bonuses to the Directors
of 43.8% of salary. As the pay-out is less
than 100% of base salary, none of the
bonus will be deferred into shares this
year. For full details of Executive Directors’
bonuses and the associated performance
delivered see page 69.
In relation to long-term incentives, the
LTIP awards granted in 2016 will vest
based on EPS growth targets for 50%
of the award and for the other 50% based
on relative TSR measured over three
financial years to 31 December 2018.
Adjusted EPS growth over this period
was 9.5% p.a. compounded, against a
target range of 5% p.a. compounded to
20% p.a. compounded. The Company’s
TSR was +11%, putting it above the target
for maximum vesting. This results in 73.8%
of the 2016 award vesting in 2019.
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 and that no discretion needed to
be exercised.
Considerations for FY19
The Terms of Reference of the Committee
have been updated to include the
broader remit of the Committee as set
out in the new UK Corporate Governance
Code. Not only does this mean that
the Committee must review and set
the remuneration for the tier of senior
management immediately below the
Executive Directors, but also that it must
review the wider group workforce policies
and practices and take these into account
when setting Executive Director pay.
The Committee has already agreed a
timetable and agenda of actions for 2019
to ensure it is fully compliant with the UK
Corporate Governance Code with regards
to this and can report its activities in the
2019 Annual Report. The Committee is
also considering how it can best fulfil
its obligations to engage with the wider
workforce to explain the alignment of
Executive Director pay to the wider
organisation.
The Committee is committed to
maintaining an open and constructive
dialogue with our shareholders on
remuneration matters. I welcome any
feedback you may have and look forward
to your support for our remuneration-
based resolutions at our 2019 AGM.
Zvika Zivlin
Chairman of the Remuneration Committee
12 March 2019
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888 Holdings plc Annual Report & Accounts 2018Governance Corporate.888.com
Directors’ Remuneration Report
Review of the Policy
During the year, the Committee carried out a detailed review of the Directors’ Remuneration Policy, taking into consideration alignment of
the policy to the Group’s strategy and long-term sustainable business success, corporate governance developments and UK best practice.
As a result of this review, the Committee is proposing the following changes to the Policy which will be brought to shareholders for approval
at the Annual General Meeting on 21 May 2019:
• A two-year post-vesting holding period will be introduced for LTIP awards granted in or after 2019
• The Committee will have discretion to adjust annual bonus payments and LTIP vesting levels in line with the Corporate Governance Code where
the formulaic outcome does not reflect underlying corporate performance, investor experience or employee reward outcome
• The circumstances in which malus and clawback may be operated for both the annual bonus and LTIP will be broadened to incorporate
corporate failure, a failure of risk management and reputational damage
• The Committee is not at this time introducing a post-employment shareholding requirement in respect of beneficially owned shares not
subject to holding periods but will keep market practice in this area under review. It is, however, ensuring that annual bonus deferred share
awards and LTIP post-vesting holding periods continue post-employment to ensure that there continues to be alignment to shareholder
interests and longer-term corporate performance post-employment
• Dividend equivalent payments on vested awards granted under the new Policy will be payable in shares and only in exceptional circumstances
in cash. Previously they could be payable in cash or shares.
Remuneration policy table
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 and shareholder voting requirements of a UK
incorporated company.
At this year’s Annual General Meeting we will seek triennial shareholder approval for our Directors’ Remuneration Policy and shareholders will be
provided with a binding resolution to approve the Policy.
The table below sets out the new remuneration policy which will be subject to a binding shareholder vote at the 2019 Annual General Meeting.
If approved, the policy will apply for a maximum of three years from the 2019 Annual General Meeting.
60
888 Holdings plc Annual Report & Accounts 2018 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.
Market competitive structure to support recruitment and retention.
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
Benefits
Purpose and
Link to Strategy
Operation
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
Operation
Opportunity
Contribution towards the funding of post-retirement life.
888 offers a defined contribution pension scheme (via outsourced pension providers) or cash in lieu
of pension.
Up to 15% of base salary. For new appointments the Committee will align pension to the workforce average
taking into account market practice and legal requirements in the country of the executive and the wider
workforce pension.
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Directors’ Remuneration Report Continued
Remuneration policy table continued
Annual bonus
Purpose and
Link to Strategy
Operation
Rewards the achievement of annual financial and non-financial strategic targets.
Bonus targets (percentage of salary) are based on objective and disclosable calculations 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. The deferral period continues on cessation of employment.
The Committee may adjust the formula-driven outturn of the annual bonus calculation in the event that
the Committee considers that it does not reflect underlying performance, overall shareholder experience
or employee reward outcome. Any such use of discretion would be detailed in the Chairman’s annual
statement and Annual Report on Remuneration.
A dividend equivalent provision operates enabling dividends to be accrued (in shares) on unvested
deferred bonus shares or options and only in truly exceptional circumstances cash.
The bonus is subject to recovery and withholding provisions which may be applied if the financial
statements of 888 were materially misstated, an error occurred in assessing the performance conditions
of a bonus, if the Executive ceased to be a Director or employee due to gross misconduct, or in an event
of corporate failure, failure of risk management or reputational damage.
Opportunity
The maximum opportunity is 150% of base salary.
The level of pay-out for the achievement of target performance, as set by the Committee is 50% of the
maximum amount. The threshold level of payment may be up to 25% of the maximum.
Performance Metrics
Financial performance
The financial component is based on 888's key financial measures of performance.
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
Non-financial performance conditions will be based on KPIs in line with the business plan which the
Committee considers will enhance future financial performance, the long-term sustainability of the business
and shareholder value.
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888 Holdings plc Annual Report & Accounts 2018 Remuneration policy table continued
Long-Term Incentives (LTIP)
Purpose and
Link to Strategy
Rewards Executive Directors for achieving superior returns and sustainable growth for shareholders over a
longer-term timeframe.
Enables Executive Directors to build a meaningful shareholding over time and align goals with
shareholders.
Operation
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.
A post-vesting holding period applies to awards granted in or after 2019, which requires vested shares (or
shares acquired on the exercise of vested options) to be retained for two years post-vesting (except for
any earlier sale of shares to meet any tax liabilities triggered on vesting). This holding period continues on
cessation of employment.
The Committee may adjust the formula-driven outturn of an LTIP award in the event that the Committee
considers that it does not reflect underlying performance, overall shareholder experience or employee
reward outcome. Any such use of discretion would be detailed in the Chairman’s annual statement and
Annual Report on Remuneration.
Awards are subject to recovery and withholding provisions which may be applied if there is a material
misstatement in 888’s financial statements, an error in the calculation of any performance conditions, if the
Executive Director ceases to be a Director or employee due to gross misconduct or in an event of a failure
of risk management, corporate failure or reputational damage.
A dividend equivalent provision operates enabling dividends to be accrued (in shares) on LTIP awards to
the extent they vest and only in truly exceptional circumstances cash.
Opportunity
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.
Performance Metrics
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 will vest based on a range of challenging financial, total shareholder return (TSR), or strategic
measures. Strategic measures, if used, will represent a minority of the award.
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 or TSR metrics with no more than 25% of the award vesting
at threshold performance.
Share Ownership Guidelines
Executive Directors are expected to build and maintain an interest equivalent in value to no less than two times salary. Beneficially owned
shares, fully vested unexercised nil-cost options (valued on a net of tax basis) and unvested awards subject to a service requirement for vesting
only (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.
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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 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 and other expenses incurred in the
performance of their duties (including any tax incurred thereon) including any expense deemed a taxable
benefit in kind and the tax payable thereon.
Opportunity
No maximum.
Discretions retained by the Committee in operating its incentive plans
The Committee will operate the annual bonus plan, deferred annual bonus plan and LTIP according to their respective rules. The Committee retains
discretion in a number of regards to the operation and administration of these plans. These include, but are not limited to, the following:
• the determination of vesting and the extent to which performance targets have been met;
• the determination of the treatments of leavers;
• determination of the extent of vesting in the event of a change of control; and
• adjustments required in certain circumstances (e.g. rights issues, corporate restructuring events and special dividends).
Approach to setting remuneration for a new recruit
The remuneration package for a new Executive Director would take into account the skills and experience of the individual, the market rate for
a candidate of that experience and the importance of securing the relevant individual. Salary would be provided at such a level as is required to
attract the most appropriate candidate while paying no more than is necessary. The annual bonus and LTIP award would be in line with the Policy.
In addition, the Committee may offer additional cash and/or share based elements to replace benefits, deferred or incentive pay forfeited by an
executive leaving a previous employer. It would ensure that these awards would be consistent with awards forfeited in terms of delivery mechanism
(cash or shares), vesting periods, expected value and performance conditions. For an internal Executive Director appointment, any variable pay
element awarded in respect of the prior role may be allowed to pay out according to its terms or adjusted as relevant to take into account the
appointment. In addition, any other ongoing remuneration obligations existing prior to appointment may continue. The Committee may agree that
888 will meet relocation expenses as appropriate.
64
888 Holdings plc Annual Report & Accounts 2018 Service contracts and loss of office payment policy for Executive Directors
Executive Directors have service contracts with up to 12-month notice periods. In the event of termination, the Executive Directors’ contracts
provide for compensation up to a maximum of base salary plus the value of any benefits (including pension), and in the case of the Chief Financial
Officer, annual bonus for the unexpired portion of the notice period. This is a legacy contractual obligation and will not be provided in the contracts
of any new appointments. 888 seeks to apply the principle of mitigation in the payment of compensation on the termination of the service contract
of any Executive Director. There are no special provisions in the service contracts for payments to Executive Directors on a change of control of
888. In the event of an exit of an Executive Director, the overriding principle will be to honour contractual remuneration entitlements and determine
on an equitable basis the appropriate treatment of deferred and performance linked elements of the package, taking account of the circumstances.
Failure will not be rewarded. If an Executive Director resigns or is summarily dismissed, salary, pension and benefits will cease on the last day of
employment and there will be no further payments. There are no other obligations to pay remuneration, or which could impact remuneration,
contained in any service contract other than the terms of the Executive Directors’ service agreements described herein. Directors’ service
agreements are available for inspection at 888’s registered office and at each annual general meeting.
Remuneration for leavers
Fixed pay
Salary, pension and benefits will be paid up to the length of the agreed notice period or agreed period of gardening leave.
Variable pay
Where a Director leaves for certain specified reasons such as retirement, as a result of injury, illness or disability or otherwise with the agreement
of the Committee (sometimes referred to as “good leaver” reasons) the following will apply:
Annual bonus and annual bonus deferred shares
Subject to performance, a bonus may be payable at the discretion of the Committee pro-rata for the portion of the financial year worked.
Unvested deferred bonus shares will ordinarily vest in full at the end of the normal vesting period. The Committee has discretion to permit in
exceptional circumstances such unvested awards to vest early rather than continue on the normal vesting timetable, taking into account the
Company’s policy for bonuses from FY19 for Executive Directors to retain an interest in shares in the Company for two years post-employment.
LTIPs
Unvested awards under the 888 Long-Term Incentive Plan 2015 would normally vest on the normal vesting date unless the Committee determines
that such awards shall instead exceptionally vest at the time of cessation, taking into account the Company’s policy for awards granted from FY19
for Executive Directors to retain an interest in shares in the Company for two years post-employment. Unvested awards will only vest to the extent
that the performance conditions have been satisfied (over the full or curtailed period as relevant). A pro-rata reduction in the size of awards would
normally apply, based upon the period of time after the grant date and ending on the date of cessation of employment relative to the normal
vesting period.
Where a Director leaves for any other reason, all annual bonus, annual bonus deferred shares and LTIP awards will lapse immediately on cessation.
Depending upon circumstances, the Committee may consider other payments to settle statutory entitlements, legal claims or potential legal claims,
in respect of an unfair dismissal award, outplacement support and assistance with legal fees, including the statutory obligation in Israel
to make a severance payment on cessation for any reason equal to one month’s gross salary for every year of service.
Terms of appointment for Non-Executive Directors
The Non-Executive Directors serve subject to letters of appointment and are appointed subject to re-election at each annual general meeting.
The Non-Executive Directors are typically expected to serve for three years, although the Board may invite a Non-Executive Director to serve
for an additional period. Their letters of appointment are available for inspection at 888’s registered office and at each annual general meeting.
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Directors’ Remuneration Report Continued
Directors’ service contracts
The unexpired term of the Directors’ service contracts or appointment letters are as follows:
Name
Brian Mattingley
Position
Chairman
Itai Pazner
Chief Executive Officer
Aviad Kobrine
Chief Financial Officer
Unexpired Term of Service Contract
Terminable at 6 months’ prior written notice. No remuneration
is payable in respect of any unexpired portion of the term of the
Chairman’s appointment, including if the Chairman is asked to
step down from the Board.
Indefinite subject to termination provisions set out in his
Agreement. Loss of office provisions are detailed above.
Indefinite subject to termination provisions set out in his
Agreement. Loss of office provisions are detailed above.
Itai Frieberger
Ron McMillan
Senior Independent Director
Executive Director
12-month notice period expires on 23 January 2020
Zvika Zivlin
Non-Executive Director
Anne de Kerckhove
Non-Executive Director
Until 15 May 2020. No remuneration is payable in respect of any
unexpired portion of the term of the Director’s appointment,
including if the Director is asked to step down from the Board.
Until 8 May 2020. No remuneration is payable in respect of any
unexpired portion of the term of the Director’s appointment,
including if the Director is asked to step down from the Board.
Until 27 November 2020. No remuneration is payable in
respect of any unexpired portion of the term of the Director’s
appointment, including if the Director is asked to step down
from the Board.
All service contracts and letters of appointment are available for inspection at the Company’s registered office and at the annual general meeting.
How the views of shareholders are taken into account when determining Directors’ pay
888 engages with significant investors regarding remuneration issues and in respect of any proposed changes to the Directors’ Remuneration
Policy and significant changes to operation of that policy and intends to continue doing so. Views of shareholders and their representative bodies
expressed at the annual general meeting and feedback received at other times will be considered by the Committee.
How the views of employees are taken into account when determining Directors’ pay
888 does not currently formally consult employees on remuneration but has a timetable and agenda of actions for 2019 to ensure it is compliant
with the new requirements of the UK Corporate Governance Code including consideration of workforce policies and practices and how it can best
fulfil its obligations to engage with the wider workforce to explain the alignment of Executive Director pay to the wider organisation.
In determining the remuneration policy for Executive Directors, the Committee takes account of the policy for employees across the workforce.
In particular, when setting base salaries for executives, the Committee takes into account the salary increases being offered to the workforce as
a whole. The overall structure of the remuneration policy for Executive Directors is broadly consistent with that for other senior employees, but
reflects the additional risks and responsibilities borne by the Executive Directors. Executive remuneration and remuneration of senior employees
is weighted towards performance-related pay. 888’s Senior Vice Presidents all participate in the same annual bonus and long-term incentive
arrangements as the Executive Directors (at varying levels of quantum) and 888’s Business Leadership Forum also participate in a long-term
equity plan.
66
888 Holdings plc Annual Report & Accounts 2018 Maximum
27%
31%
42%
$3,905k
Target
42%
25%
33%
$2,052k
Total: $3,231k
Minimum
100%
$872k
$'000
$-
$1,000
$2,000
$3,000
$4,000
Maximum
27%
31%
42%
$3,905k
Target
42%
25%
33%
$2,052k
Total: $3,231k
Fixed
Short-term Incentive
Long-term Incentive
LTIP value with 50% share price growth
Minimum
100%
$872k
$'000
$-
$1,000
$2,000
$3,000
$4,000
Fixed
Short-term Incentive
Long-term Incentive
LTIP value with 50% share price growth
Illustration of application of current remuneration policy
The following charts illustrate the operation of the Directors’ Remuneration Policy for the current Executive Directors (CEO and CFO) and former
CEO Itai Frieberger, under three different performance scenarios: ‘Fixed pay’, ‘Target’, and ‘Maximum’.
The Maximum scenario includes an additional element to represent 50% share price growth from the date of grant to vesting.
Maximum
30%
35%
$2,943k
35%
CEO – Itai Pazner
Total: $2,503k
Target
46%
27%
27%
$1,623k
CFO – Aviad Kobrine
Maximum
Minimum
27%
100%
$742k
31%
42%
$3,905k
Maximum
30%
35%
35%
$2,943k
Total: $3,231k
Total: $2,503k
Target
$'000
$-
42%
25%
33%
$2,052k
$1,000
$2,000
$3,000
$4,000
Target
46%
27%
27%
$1,623k
Fixed
Minimum
100%
Long-term Incentive
$872k
Short-term Incentive
LTIP value with 50% share price growth
Minimum
100%
$742k
$'000
$-
$1,000
$2,000
$3,000
$4,000
$'000
$-
$1,000
$2,000
$3,000
$4,000
Fixed
Short-term Incentive
Fixed
Short-term Incentive
Long-term Incentive
LTIP value with 50% share price growth
Long-term Incentive
LTIP value with 50% share price growth
Executive Director – Itai Frieberger
Maximum
47%
53%
$2,485k
Target
64%
36%
$1,828k
Maximum
30%
35%
Minimum
100%
35%
$1,171k
$2,943k
Total: $2,503k
Target
$'000
$-
46%
27%
27%
$1,000
$1,623k
$2,000
$3,000
Fixed
Minimum
100%
$742k
Long-term Incentive
Short-term Incentive
Assumptions:
• Fixed: Shows fixed remuneration only, base salary as at 1 January,
taxable benefits (as disclosed for the previous financial year)
and pension.
• Target: Shows fixed remuneration plus 50% of the maximum annual
bonus opportunity and 50% of the LTIP award.
53%
47%
Maximum
• Maximum: Shows fixed remuneration and maximum annual bonus
(150% of salary for the CEO, CFO and former CEO Itai Frieberger)
and LTIP (200% of salary for the CEO and 150% of salary for the
36%
Target
CFO, no LTIP for former CEO Itai Frieberger). The Maximum scenario
includes an additional element to represent 50% share price growth
from the date of grant of the LTIP to vesting (where applicable).
$1,171k
$2,485k
$1,828k
100%
64%
Minimum
$'000
$-
$1,000
$2,000
$3,000
$4,000
$'000
$-
$1,000
$2,000
$3,000
Annual report on remuneration
Short-term Incentive
Fixed
Fixed
Short-term Incentive
Long-term Incentive
This Annual Report on Remuneration together with the Chairman’s Annual Statement, as detailed on pages 06 to 07 will be subject to an advisory
vote at the 2019 AGM. The information on page 69 with respect to Directors’ Emoluments and onwards through page 76 has been audited.
Long-term Incentive
LTIP value with 50% share price growth
Maximum
47%
53%
$2,485k
Target
64%
36%
$1,828k
Minimum
100%
$1,171k
$'000
$-
$1,000
$2,000
$3,000
Fixed
Short-term Incentive
Long-term Incentive
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888 Holdings plc Annual Report & Accounts 2018Governance Corporate.888.com
Directors’ Remuneration Report Continued
Operation of Remuneration Policy for 2019
Set out below is the proposed application of the Remuneration Policy for 2019.
Base salaries
Salaries for 2019 are set out below:
• CEO – Itai Pazner: Salary on appointment as Chief Executive Officer of ILS 2,520,000.
• Itai Frieberger: ILS 3,275,000. Salary remains unchanged from 2018 while Mr Frieberger remains as a Director during his notice period.
• CFO – Aviad Kobrine: £460,000. Salary increased by 2% compared to an average workforce increase of 4% (2018: £450,000).
Annual bonus
The CEO, CFO and Mr Frieberger will have a maximum bonus opportunity of 150% of salary. The Annual bonus will continue to be determined
by like-for-like adjusted EBITDA with target payment of 50% of maximum for achieving a stretching budget figure increasing to full pay-out
for a stretching target above budget. For the first time this year, the target range will be lower than the prior year actual EBITDA, reflecting the
extremely challenging regulatory environment in which 888 operates and the outlook for the year ahead. The Committee considers that the
targets are as stretching as those set last year given the outlook and regulatory environment and that preserving profitability at this level would
represent an excellent result for 2019. The Committee has determined that the target range is commercially sensitive, and therefore cannot
disclose the targets in this report. However, targets and performance against them will be disclosed retrospectively in next year’s annual report
on remuneration.
Any bonus above 100% of salary will be deferred into shares in 888 which will vest in equal tranches over one, two and three years.
Long-term incentive plan
Award levels
The CEO will be granted an award under the 888 Long-Term Incentive Plan 2015 of 200% of salary, and the CFO 150% of salary.
No LTIP award will be granted to Mr Frieberger.
Performance conditions
The Committee has considered carefully the performance metrics for the 2019 LTIP awards, given the increasingly difficult regulatory environment
in which 888 operates and recognising the difficulty of setting accurate long-term financial performance conditions for the next 3-year LTIP
performance period. The Committee has, therefore, determined that all of the 2019 LTIP award will be based on a single performance condition
measuring 888’s total shareholder return performance relative to its peers. The Committee believes this approach provides a strong alignment
of interest between executives and shareholders.
Detail and target ranges
TSR targets for 2019 awards:
The Committee reviewed the relative TSR peer group to ensure it contains all relevant peers and is sufficiently large enough to provide a robust
measure of performance and has arrived at a slightly revised group with the addition of five other sector peers. The revised group will be used
for awards granted from 2019. The new peer group comprises the companies used in 2018, GVC Holdings plc, Sportech plc, Playtech plc, Paddy
Power Betfair plc and William Hill plc, with the addition of Betsson AB, International Game Technology plc, JPJ Group plc, Kindred Group plc
and OPAP SA.
25% of the award 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 compound) or more above the TSR of the median company in the comparator group (“Maximum”).
The Committee has reviewed whether the 10% out-performance requirement remains appropriate and is comfortable that, with the additional
companies in the group, the 10% stretch target is sufficiently stretching, being equivalent to upper quartile performance or above. Vesting will be
on a proportionate basis for performance between Threshold and Maximum. In addition to achieving the TSR condition, there will be an additional
requirement that the Committee is satisfied that the Company’s TSR is reflective of underlying financial performance.
The 2019 awards will be subject to a two-year post vesting holding period.
68
888 Holdings plc Annual Report & Accounts 2018 Pension and benefits
888 offers a defined contribution pension scheme (via outsourced pension providers) or cash payment in lieu of pension. In accordance with
standard practice in Israel, Itai Pazner receives personal pension scheme contributions in an amount of 14.87% of base salary, including a
contribution for loss of working capacity. Aviad Kobrine receives an annual cash payment in lieu of pension in the amount of 15% of base salary.
Benefits will continue as for 2018 with Itai Pazner receiving similar benefits to former CEO Itai Frieberger, with an approximate value of $100,000.
Itai Frieberger will continue to receive his pension in an amount of 14.87% of base salary, including a contribution for loss of working capacity and
benefits during his notice period.
Chairman and Non-Executive Directors fees
The Non-Executive Director fees were reviewed during the year, taking into account the increased workload and responsibilities for the Directors as
a result of increased regulation. As a result the Non-Executive Directors fees are increased with effect from 1 January 2019 as follows, which include
the introduction of a Board Committee membership fee:
• Chairman’s fee: £320,000 (2018: £305,000);
• Non-Executive Director fee: £90,000 (2018: £90,000);
• Senior Independent Director fee: £20,000 (2018: £20,000);
• Chairman of a Board committee (inclusive of membership fee): £15,000 (2018: £10,000); and
• Membership of Audit or Remuneration committee: £5,000 (2018: £0).
Remuneration paid to Executive Directors for service in 2018
The following table presents the Executive Directors’ emoluments in respect of the year ended 31 December 2018 (all amounts are in US$ 000).
Executive Directors
Itai Frieberger, CEO
Aviad Kobrine, CFO
Salary2
US$ 000
Taxable
benefits3
US$ 000
Annual
bonus4
US$ 000
Long-Term
Incentives5
US$ 000
Pension6
US$ 000
Total
US$ 000
2018
2017
2018
2017
912
885
601
563
170
197
55
51
387
1,371
251
885
913
8,186
532
736
136
132
90
84
2,518
10,771
1,529
2,319
1 Directors’ remuneration is converted from Sterling and New Israeli Shekels into US$ at the average rate of exchange for the relevant month it was paid save for the annual cash bonus
which is converted into US$ at the year-end exchange rate.
2 Salaries for 2018 were ILS 3,275,000 for Itai Frieberger and £450,000 for Aviad Kobrine.
3 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, car allowance as well as gross-up of car
allowance, and meal allowance.
4 A breakdown of the 2018 annual bonus targets and the extent of their achievement is set out overleaf. In 2018, a bonus of 43.8% of salary was awarded to both Itai Frieberger (ILS
1,434,452) and Aviad Kobrine (GBP 197,100) paid in cash with no deferral.
5 In previous years LTIP awards have been reported in the year of vesting. While, as a Gibraltar incorporated company, 888 is not obliged to comply with UK reporting regulations,
commencing with this year’s Annual Report on Remuneration LTIPs will be reported where the performance period ends in the year of report, in order to provide fully comparable
disclosure with other companies reporting under UK regulation.
LTIPs for the single total figure in 2017 is the value at vesting (at a share price of $2.95) of the 2015 LTIP awards that vested in 2018 and where the performance period ended on 31
December 2017 as disclosed in more detail in the 2017 Remuneration Report.
LTIPs for the single total figure in 2018 is the value of the 2016 LTIP awards that will vest in 2019 and where the performance period ended on 31 December 2018 and as disclosed
in more detailed below. The value is based on the average share price for the last three months of FY18 of $2.28 (based on the exchange rate of 1.29) as the share price of the
date of vesting is unknown. The value will be restated in the 2019 Annual Report on Remuneration using the actual share price on vesting. A restricted share award over 1,250,000
shares awarded on 28 August 2015 vested in Itai Frieberger on 28 August 2018 the value of which ($ 3,133,900 at grant) should have been reported in the 2015 Annual Report on
Remuneration being the reporting year of the date of grant.
6 888 offers a defined contribution pension scheme (via outsourced pension providers) or cash in lieu of pension. In accordance with standard practice in Israel, Itai Frieberger is
granted personal pension scheme contributions in an amount of 14.87% of base salary, including a contribution for loss of working capacity. Aviad Kobrine receives a cash payment
in lieu of pension in the amount of 15% of base salary.
69
888 Holdings plc Annual Report & Accounts 2018Governance Corporate.888.com
Directors’ Remuneration Report Continued
Non-Executive Directors’ and Chairman’s fees
Current Non-Executive Directors
Ron McMillan
Amos Pickel
Zvika Zivlin
Anne De Kerckhove
Brian Mattingley (Executive Chairman)
Fee
US$ 000
Other
US$ 000
Total
US$ 000
2018
2017
2018
2017
2018
2017
2018
2017
2018
2017
160
148
0
38
134
81
120
14
407
374
—
—
—
—
—
—
—
—
24
23
160
148
0
38
134
81
120
14
431
397
1 "Other" for Brian Mattingley reflects reimbursement of expenses connected with his role.
2 Zvika Zivlin was appointed as a Non-Executive Director on 9 May 2017.
3 Anne de Kerckhove was appointed as a Non-Executive Director on 28 November 2017.
Annual bonus payments in respect of 2018 performance
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. Annual bonus in excess of 100% of salary is deferred into shares in one-third tranches for one, two and three years.
EBITDA performance
The extent to which the EBITDA performance conditions in respect of 2018 performance were achieved is as follows:
Performance Measures
Like-for-like adjusted EBITDA
growth per annum
Itai Frieberger
Aviad Kobrine
Threshold
(25% pay-out)
Target
(50% pay-out)
Max
(100% pay-out)
Actual
performance
% of maximum
Bonus awarded
US$ 000
5%
12.5%
20%
29.2%
387
251
To enable a like-for-like comparison with the prior year and to be comparable with the basis on which the growth targets were original set, the
Committee has determined a range of criteria, which have been applied consistently for several years. On this basis EBITDA growth is adjusted
to take into account of:
• the Group's withdrawal from any markets during the year, to provide an assessment of the underlying performance of the core business;
• changes to gaming taxes arising in the year that were not included at the start of the year when the targets were set; and
• movements in foreign exchange rates from budgeted rates (like-for-like adjusted EBITDA growth is calculated on constant currency basis).
70
888 Holdings plc Annual Report & Accounts 2018 EBITDA performance continued
The Committee agreed the following adjustments to the FY18 reported adjusted EBITDA for bonus purposes.
Reported Adjusted EBITDA
Constant currency adjustment
Partial exit in 2017 and no operations in 2018 in certain markets
Indirect tax adjustments (net)
Like-for-like Adjusted EBITDA
2018
Reported
(US$ million)
107.1
Adjustments
(US$ million)
Adjusted
EBITDA
(US$ million)
(2.3)
3.6
(1.3)
104.7
108.3
107.0
107.0
YoY%
6.4%
6.3%
Taking into account the underlying financial and operational performance of the business during the year, including the significant resources
devoted again this year by the senior management team in assessing and delivering improvements to 888’s responsible gaming tools, processes
and technology, the Committee considered that the overall bonus out-turn was reflective of the solid performance of the Company and the
management team over the year and that the pay-out levels were appropriate and that therefore no discretion was required to adjust the
formulaic outcome.
There is no bonus deferral in shares as the bonus payable is less than 100% of salary.
Long-term incentive awards with performance periods ending in the year
ended 31 December 2018
Long-Term Incentive Plan
The 2016 LTIP awards have a performance period that ended on 31 December 2018 and the awards are due to vest in 2019. The tables below set
out the achievement against the performance conditions attached to the award, resulting in aggregate vesting of 73.8%, and the actual number
of awards vesting (with their estimated value).
TSR
(relative to a comparator group of 5 gaming
companies – Bwin.Party Digital Entertainment,
Sportech, PLC, Ladbrokes PLC, Playtech Ltd and
Paddy Power PLC)1
Like-for-like EPS Growth2
Performance level
Performance required
% vesting
Performance required
% vesting
Below threshold
Threshold
Stretch or above
Actual achieved
Below median
Median = -38%
33% above median = -25.22%
11%
0%
25%
100%
100%
Below 15.76%
15.76%
72.8% or above
31%
0%
25%
100%
48%
1 Relative to a comparator group of 5 gaming companies – GVC Holdings, Ladbrokes Coral Group plc, Playtech plc, Paddy Power Betfair plc and William Hill plc. On 28 March 2018,
the acquisition of Ladbrokes plc by GVC Holdings plc was completed. As of such date, Ladbrokes plc was delisted and therefore peer group data reflects the share price of GVC
Holdings plc from 29 March 2018. In addition, during 2016, 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.
3 Like-for-like EPS growth is calculated as the growth in adjusted EPS between 2015 (the base year) and 2018 (the final year of the performance period). To ensure that the
comparison is made on a like-for-like basis, adjustments have been made to exclude the impact of the Group's withdrawal from certain markets and new gaming duties and taxes
introduced during the period.
71
888 Holdings plc Annual Report & Accounts 2018Governance Corporate.888.com
Directors’ Remuneration Report Continued
Long-term incentive awards with performance periods ending in the year
ended 31 December 2018 continued
Details of the level of vesting for each Director in respect of awards granted under the 2016 LTIP, based on the above, are shown in the table below:
Executive
Itai Frieberger
Aviad Kobrine
Number of
awards
at grant
Number of
awards
to lapse
Number of
awards
to vest
289,799
252,927
221,277
94,761
75,927
66,267
57,975
24,827
213,872
186,660
163,302
69,934
Dividend
accrual
on vested
awards
value2
US$
0
0
0
0
Value of
awards
excluding
Dividend
Accrual1
US$
487,416
425,401
372,168
159,380
1 The value of the vested shares is based on the share price of US$2.28 (based on the exchange rate of 1.29) being the average share price for the last three months of 2018.
2 Dividends accrue on awards at the date of a dividend payment to the date of vesting and upon exercise the value of the accrued dividends is paid to the employee on the number
of vested awards.
Scheme interests awarded during the year
The table below sets out the grants under the 888 Holdings plc Long-Term Incentive Plan and the Deferred Share Bonus Plan in 2018.
Executive
Itai Frieberger
Aviad Kobrine
Award type
Grant date
Number of
awards
granted
Face value
of awards
granted1
Face value
of awards
as % salary
% vesting
at threshold
performance
LTIP
Deferred share bonus
LTIP
Deferred share bonus
21-Mar-18
20-Mar-18
21-Mar-18
20-Mar-18
485,9572 US$1,855,548
117,9653 US$456,277
US$933,156
79,1093 US$305,986
244,3882
200%
N/A
150%
N/A
25%
NA
25%
NA
1 Face value was calculated using share price on the date of grant, which was £2.7 (21 March 2018) and £2.762 (20 March 2018). 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 2020. 50% of an award is subject to an EPS
performance condition requiring annual like-for-like adjusted 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 plc, Sportech 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 plus 10% p.a.).
3 Granted on 20 March 2018 by way of deferral, of the part of the 2017 annual bonus in excess of 100% of salary, into shares in accordance with the Company’s Remuneration Policy
and pursuant to the Company’s Deferred Bonus Share Plan, and vesting in equal tranches over one, two and three years. No further performance conditions apply to the vesting
of the awards.
Loss of office payments and payments to past Directors
In 2018, no loss of office payments were made to Executive Directors, and no payments were made to past Executive Directors.
On 24 January 2019 it was announced that Itai Frieberger would step down with immediate effect from the role of CEO. Itai Frieberger will remain
as an Executive Director during his 12 month notice period to ensure the smooth transition of Mr Pazner into his new role as CEO, as well as to
continue responsibility for certain key strategic initiatives and developments within the business. Mr Frieberger’s remuneration for his notice period
and the treatment of his incentive awards is set out below. Mr Frieberger has been treated as a good leaver by the Committee in respect of his
unvested incentive awards:
• salary, benefits and pension to be paid for the duration of his notice period;
• eligible to receive an annual bonus for 2019 (and for the part of 2020) for the duration of the notice period that Mr Frieberger will work, subject
to the performance targets being met and paid at the normal time. Mr Frieberger’s role as an Executive Director in the business during his notice
period and continued responsibility for certain key strategic initiatives is critical to the business and as such the Committee has agreed it is
important that he remains eligible for an annual bonus during his notice period;
• no LTIP grant for 2019;
• payment of 15 months gross pay (currently ILS 4,093,750 ($1,134,443) on the date of cessation being a statutory entitlement under Israeli law to
severance pay calculated on the basis of one month’s gross pay for every year of service and therefore for Mr Frieberger 15 months gross pay. All
unvested deferred share bonus awards will vest on the date of cessation;
• Mr Frieberger’s 2017 and 2018 LTIP awards will vest at the usual time, subject to performance and will be pro-rated to reflect the period
of service as a proportion of the total vesting period.
72
888 Holdings plc Annual Report & Accounts 2018
Directors' shareholdings and share interests
The Executive Directors are required to build and maintain a shareholding in 888 worth two times their annual salary as set out in the
Remuneration Policy.
Details of the Directors' interests in shares as at 31 December 2018 are shown in the table below. There were no changes in the Directors’ interests
in shares between 31 December 2018 and the date of this Report.
Number of Ordinary Shares
At 31 December 2018
Director
Itai Frieberger
Aviad Kobrine
Brian Mattingley
Ron McMillan
Zvika Zivlin
Anne de Kerckhove
Legally
owned5
5,210,149
—
142,857
—
—
—
Unvested
shares with
performance
conditions
Unvested
shares
without
performance
conditions
Unvested
options with
performance
conditions1
Unvested
options
without
performance
conditions1
1,544,017
—
—
—
—
—
0
—
—
—
—
—
—
800,536
—
—
—
—
205,241
132,960
—
—
—
—
Vested
unexercised
options1
43,638
3,284,379
—
—
—
—
Total
7,003,045
4,217,875
142,857
—
—
—
%
achievement
against
shareholding
guideline2
1326%
676%
N/A
N/A
N/A
N/A
1 Nil Cost Options.
2 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 and deferred bonus share awards (valued on a net of tax basis).
3 Share price at 31.12.2018 was £1.75.
4 FX ILS/GBP = 4.76.
5 Includes Closely Associated Persons in accordance with the EU Market Abuse Regulation.
No Director was materially interested during the year in any contract which was significant in relation to the business of 888.
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 – 31/12/2018 vs FTSE 250
73
888 Holdings plc Annual Report & Accounts 2018Governance Corporate.888.com
Directors’ Remuneration Report Continued
Total remuneration history for CEO
The table below sets out the total single figure remuneration for the CEOs over the last ten years with the annual bonus paid as a percentage
of the maximum and the percentage of long-term share awards where the performance period determining vesting ended in the year.
Total remuneration ($000s)
Annual bonus (%)
LTI vesting (%)
2009
1,168
100%
68%
2010
20111
20122
2013
958
100%
0%
3,783
100%
100%
1,060
100%
0%
1,275
100%
0%
2014
1,331
100%
0%
20153,4
20165
20176
5,415
100%
59%
1,855
100%
100%
10,771
100%
100%
2018
2,518
29.2%
73.8%
1 Gigi Levy was the CEO of 888 in the years 2009-2010. Mr Levy resigned as CEO of 888 as of 30 April 2011.
2 Brian Mattingley was appointed as CEO on 27 March 2012.
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 Reflects Brian Mattingley tenure as CEO until 13 May 2015.
5 Itai Frieberger was appointed as Chief Executive Officer on 2 March 2016.
The table above has been amended from last year to show the LTIP awards (and resulting total remuneration) in the year in which the performance
period that determines vesting ends.
Percentage change in CEO remuneration compared to the average for other employees
The following table sets out the percentage change in salary, taxable benefits and annual bonus from financial year 2017 to financial year 2018,
for both the CEO and employees of the Group taken as a whole. Exchange rates were normalised for 2018 in order to neutralise foreign
exchange effects.
Base salary
Benefits
Bonus
Year on year
change CEO
(2018 vs. 2017)
Year on year
change Employee
(2018 vs. 2017)
3%
-14%
-70%
3%
-4%
-9%
The salary figure includes base salary together with other payments made to the employees (e.g. sick pay, vacation pay), but excluding
discretionary bonuses.
The benefits figure includes benefits granted to employees which are not part of salary (e.g. medical insurance, meals, further education funds).
Pension amount are not included in benefits.
The short-term incentives figure solely includes bonuses, which are based on an estimation by the company based on the bonus accrual,
since bonuses are generally paid to Group employees in April in respect of the previous financial year.
Exchange rates were normalised for 2018 in order to neutralise foreign exchange effects.
74
888 Holdings plc Annual Report & Accounts 2018
Relative importance of spend on pay
The following graph sets out the actual expenditure by 888 in financial years 2017 and 2018 on items that were the most significant outgoings
for 888 in the last financial year, including on remuneration to Group employees.
Relative importance of spend on pay 2017 vs. 2018
-5%
163
155
-7%
113
105
-58%
137
57
-20%
70
57
s
n
o
i
l
l
i
m
$
S
U
180
160
140
120
100
80
60
40
20
0
Selling and
marketing expenses
Dividends
Tax**
2017
2018
* Employee pay & benefits:
Employee pay & benefit is according to note 5.
Employee pay & benefits are included SBC (Equity and Cash settled).
** Tax
Tax includes US$22.4 million release of provision following receipt of tax assessments in respect of legacy VAT relating to the provision of gaming services in Germany prior
to 2015 (2017: exceptional charges of US$45.3 million) and VAT accrual release of US$10.7 million (2017: nil).
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.
Committee members, attendees and advice
The Remuneration Committee consists solely of Non-Executive Directors, currently Zvika Zivlin (Chair), Ron McMillan and Anne de Kerckhove.
Details of attendances at Committee meetings are contained in the statement on Corporate Governance on page 53. The Chairman and Company
Secretary attend meetings by invitation.
The Remuneration Committee’s remit is set out in its Terms of Reference which are available at
https://corporate.888.com/investor-relations/corporate-governance/board-committees.
The Committee’s remit has been amended to take into account the updated UK Corporate Governance Code.
75
888 Holdings plc Annual Report & Accounts 2018Governance
Corporate.888.com
Directors’ Remuneration Report Continued
Remuneration Committee adviser
The Remuneration Committee was advised by New Bridge Street, a trading name of Aon Hewitt, being a subsidiary of Aon plc to 29 November
2018. Korn Ferry was appointed on 30 November 2018 following a tender process.
The primary role of the adviser to the Committee is to provide independent and objective advice and support to the Committee's Chair and
members and Korn Ferry has discussions with the Committee Chair on a regular basis to discuss executive and wider group remuneration matters,
reporting, regulation, investor views and process. Korn Ferry does not provide any other services to 888. The Committee undertakes due diligence
periodically to ensure that its advisers remain independent and is satisfied that the advice that it received and receives from New Bridge Street and
Korn Ferry is objective and independent. Korn Ferry and New Bridge Street are also signatories 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 2018 were £20,715
(2016: £11,730). Fees are charged on a 'time spent' basis. No fees were paid to Korn Ferry during 2018.
Engagement with shareholders
Details of votes cast for and against the resolution to approve last year’s Remuneration Report (other than that part containing the Remuneration
Policy), and separately the Remuneration Policy in 2016 are shown below.
For
Against
Vote Withheld
Advisory Vote to approve
Annual Report on Remuneration
(at 2018 Annual General Meeting)
Advisory Vote to approve
Remuneration Policy
(at 2016 Annual General Meeting)
Total number
of votes
Total number
of votes
% of votes cast
% of votes cast
271,559,788
12,355
3,359
100.00%
0.00%
278,617,899
15,900,728
37,443
94.60%
5.40%
Approved by the Board of Directors and signed on behalf of the Board:
Zvika Zivlin
Chairman of the Remuneration Committee
12 March 2019
76
888 Holdings plc Annual Report & Accounts 2018 Audit Committee Report
Whilst risk management is a Board responsibility, the Committee works closely with
the Board and Group management 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.
EY Limited, Gibraltar is the statutory auditor of the Company including for the
purposes of issuing an audit report pursuant to the Gibraltar Companies Act 2014.
Ernst and Young LLP are the auditors for the purposes of the Company preparing
financial statements as required pursuant to the UK Listing Rules and the DTRs.
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 governance 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, risk appetite and the risk register prepared by
management.
• The viability statement and going concern statement prepared by management.
• 888’s anti-bribery obligations.
• 888’s anti-money laundering obligations.
• The Group’s ongoing engagement with regulatory bodies.
• The accounting treatment of the AAPN acquisition.
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.
The Committee continues to acknowledge and embrace its role of protecting the
interests of shareholders as regards the integrity of published financial information and
the effectiveness of audit.
I am available to speak with shareholders at any time and shall also be available at the
Annual General Meeting on 21 May 2019 to answer any questions. I would like to thank
my colleagues on the Committee for their help and support.
Sincerely,
Ron McMillan
Chairman of the Audit Committee
12 March 2019
77
Letter to
Shareholders
Dear Shareholders,
During the year, the Audit
Committee has continued to
carry out a key role within the
Group’s governance framework,
supporting the Board in risk
management, internal control
and financial reporting. The
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 contained in this
Annual Report and considers that
sufficient information has been
provided by the Board to give
shareholders a fair, balanced and
understandable account of the
Group’s business.
888 Holdings plc Annual Report & Accounts 2018Governance
Corporate.888.com
Audit Committee Report Continued
Committee composition
The Committee comprises three members, Senior Independent Director
Ron McMillan (Chair), Independent Non-Executive Director Zvika Zivlin
and Independent Non-Executive Director Anne de Kerckhove.
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. The Committee as a whole has competence relevant to
the online gaming sector and all members of the Committee have an
understanding of financial reporting, 888's internal control environment,
relevant corporate legislation, the functions of internal and external
audit and the regulatory and compliance framework of the business.
Mr. Zivlin has extensive business and industry experience through
his various roles, Mr. McMillan has served in the past as the auditor of
betting and gaming companies and Ms. de Kerckhove has extensive
entrepreneurial and business experience as the founder of several
business ventures. Details of meetings of the Audit Committee are set
out in the Corporate Governance Report on page 50.
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;
• assisting the Board in its consideration of relevant risk factors and
determining appropriate mitigation actions; and
• monitoring the enforcement of the Company’s Global Code of
Conduct and the adequacy and security of its whistle-blowing
procedure.
Activities
The key matters discussed by the Committee during the year included
the following:
Legal and regulatory environment
888 operates within an increasingly regulated marketplace and is
challenged by regulatory requirements across all areas of its business.
This creates risk for the Company as non-compliance can lead to
financial penalties, reputational damage and the loss of licences to
operate. As part of this process, the Audit Committee received updates
from management and discussed follow-up actions in response to
regulatory matters relating to customer activity in prior periods. The
Group manages its regulatory risk with input from its legal advisors in
order to operate its business in compliance with relevant regulatory
requirements. The Group works with its lawyers to produce regular
updates so that the Board and Audit Committee understand what is
happening in the regulatory landscape.
During 2018, the Audit Committee received regulatory briefings 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. This notably included examination of the changing
regulatory landscape in Germany and defence of the Company’s
position in that market, the Group’s Brexit planning and implementation
of various compliance and quality assurance controls in various markets
as the regulatory regimes evolve.
Taxation
The Board oversees and sets the Group’s tax strategy and evaluates
tax risk. In undertaking this task, the Group uses its legal and tax
advisors. During the year, the Group’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 2018, the Board and Audit Committee discussed tax related matters
including the partial release of the provision for German VAT and the
removal of the related contingent liability disclosure previously recorded
in the Company’s financial statements, in light of the assessments
received by the Company from the German tax authorities for tax
years 2010-2017. Furthermore, the Board received detailed updates
regarding the progress of the Israeli tax audit of Random Logic Ltd.,
as well as the withholding tax assessments issued by the Israeli tax
authorities. The Committee noted that the Group registered for taxes in
relevant jurisdictions in order to ensure timely reporting and payment
on the correct basis, whilst reserving its position concerning contesting
possible existence of a liability in appropriate cases. For further
information, see notes 8 and 27 to the financial statements.
Goodwill and intangible assets
As set out in note 12 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 as well as the impact of the
recent regulatory developments on the business, and satisfied itself
that no impairments were required in relation to carrying values.
In addition, the committee reviewed the board paper in relation to
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.
78
888 Holdings plc Annual Report & Accounts 2018 AAPN Acquisition
In December 2018, 888 acquired the remaining 53% interest in AAPN
joint venture established in 2013, for US $28 million. The Group used
the services of an independent valuation expert to assist with the fair
valuation and purchase price allocation of AAPN. The Audit Committee
also reviewed the cash flow forecasts supporting the varying book
value of AAPN including the key assumptions and estimates and
satisfied itself with the resulted goodwill and gain.
Revenue Recognition and Development Costs
Capitalisation
Revenue recognition and the capitalisation of development costs are
areas of material risk in relation to the preparation of the financial
statements. The Committee has considered the Group’s accounting
policies in these areas and the internal controls which are in place and
has concluded that the Group’s recognition of income and capitalisation
of development costs is appropriate.
IT systems
888’s IT systems are complex and predominantly 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 as well as to ensuring a robust control environment.
During the year, the Audit Committee has reviewed reports from
management on cyber and data security and disaster recovery planning
and incident response.
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.
• 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 36.
• Review of the external audit fee.
Internal controls and risk management
The Board has overall responsibility for ensuring that the Group
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 Group 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:
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 FRC. During the year, the
Audit Committee did not advise the Board 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 received a report from management on the internal
control environment and on the basis of reviewing and challenging that
report, 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.
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; and
5. Target dates for actions to mitigate.
A description of the principal risks is set out on pages 25 to 31.
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.
Going concern and financial viability
The Committee reviewed the appropriateness of adopting the
going concern basis of accounting in preparing the full year financial
statements and assessed whether the business was viable in
accordance with the Code. The assessment included a review of the
principal risks facing the Group, their financial impact, how they are
managed, the availability of finance and the appropriate period for
assessment. The committee challenged the identification of these
significant risks and the assumptions comprising the viability analysis
carried out by management. The Group’s viability statement is on
page 36.
79
888 Holdings plc Annual Report & Accounts 2018Governance Corporate.888.com
Audit Committee Report Continued
Fair, balanced and understandable
The Committee considered whether the 2018 Annual Report is fair,
balanced and understandable, and whether it provides the necessary
information to shareholders to assess the Group’s performance,
business model and strategy. The Committee considered management’s
assessment of items included in the financial statements and the
prominence given to them. The Committee and subsequently the
Board were satisfied that, taken as a whole, the 2018 Annual Report
and Accounts are fair, balanced and understandable.
Performance of Audit Committee
The Audit Committee's performance was evaluated as part of the Board
evaluation carried out during 2018, as detailed on page 54. The overall
conclusion of the review was that the Committee remains effective in
discharging its functions and reporting to the Board.
Internal auditors
The Group’s internal audit function is outsourced to Deloitte.
The Audit Committee reviewed and monitored 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 and
regulation. In 2018, Deloitte issued reports on the Group’s billing
processes, cyber security, Gibraltar office processes, self-exclusion and
bonuses processes, implementation of Board decisions, payroll and
procurement fraud, GDPR readiness, accounts receivable and payroll
in the Group’s Romanian subsidiary office, as well as presenting the
internal audit plan. 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 Angelique
Linares, a partner in EY’s Gibraltar office, and Cameron Cartmell, a
partner in EY’s London office. Cameron Cartmell is stepping down from
the audit in 2019 due to EU rotation requirements. Angelique replaced
Jose Julio Pisharello for the year ended 31 December 2018, such that
the partner rotation was staggered rather than concurrent. Cameron
has been responsible for the audit since EY was appointed.
The FRC conducted a review of EY UK’s annual audit of 888
for the year ended 31 December 2017 and made a number of
recommendations for improvement in relation to the audit of revenue,
segmental reporting and capitalised development costs and supporting
evidence concerning legal advice received by the Group. In each of
these areas, EY has committed to making appropriate changes to the
way in which their audits of 888 are conducted and the committee will
monitor progress in relation to these.
80
The Committee has also discussed with EY the results of the latest
published review of EY as a firm, which was in relation to the period
March 2017 to February 2018, and the findings of that report. EY has
committed to making changes to the way in which it undertakes audits
and the committee will monitor progress against these plans. In relation
to its work on 888, the Committee is satisfied with the performance of
EY and recommends its reappointment.
The Committee has also reviewed the performance of EY in relation
to the 888 audit, a process which involved all Board members and
senior members of 888's finance function. Notwithstanding the items
identified by FRC in their review, 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 proposed to shareholders at the
Annual General Meeting to be held on 21 May 2019. 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. In the normal
course, Cameron Cartmell will rotate off the 888 audit at the conclusion
of this year’s audit and the Committee and EY have commenced
discussions on audit partner succession to ensure there is an orderly
and timely handover of responsibilities. The Committee notes and
confirms compliance with the other provisions of the Competition &
Markets Authority Order 2014 in respect of statutory audit services for
large companies.
The Committee reviewed the reports prepared by the external auditors
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 material internal
control weaknesses and management has committed to making
appropriate changes to controls in areas highlighted by EY.
Audit and non-audit work
The Audit Committee remains mindful of the attitude investors
have to the auditors performing non-audit services. The Committee
has clear policies relating to the auditors undertaking non-audit work
and 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 ensuring that fees for non-audit services performed
by the auditors will not exceed 70% of aggregate audit fees measured
over a three year period.
Minor non-audit work carried out by the external auditors for the
Group in 2018 amounted to £16,000 (2017: US$0.1 million). In 2018,
the Company paid the external auditors for the statutory audit of the
consolidated financial statements an amount of US$0.7 million (2017:
US$ 0.4 million).
888 Holdings plc Annual Report & Accounts 2018 Independent Auditors’ Report to the Members of 888 Holdings plc
Our opinion on the financial statements
In our opinion:
• 888 Holdings plc’s Group financial statements and parent company financial statements (the “financial statements”) give a true and fair view of
the state of the Group’s and of the parent company’s affairs as at 31 December 2018 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 parent company financial statements have been properly prepared in accordance with IFRSs as adopted by the European Union 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.
We have audited the financial statements of 888 Holdings plc which comprise:
Group
Parent company
Consolidated balance sheet as at 31 December 2018.
Balance sheet as at 31 December 2018.
Consolidated income statement for the year then ended.
Consolidated statement of comprehensive income for the year
then ended.
–
–
Consolidated statement of changes in equity for the year then ended.
Statement of changes in equity for the year then ended.
Consolidated statement of cash flows for the year then ended.
Statement of cash flows for the year then ended.
Related notes 1 to 28 to the financial statements, including a summary
of significant accounting policies.
Related notes 1 to 10 to the financial statements including a summary
of significant accounting policies.
The financial reporting framework that has been applied in their preparation is applicable law and International Financial Reporting Standards
(“IFRSs”) as adopted by the European Union and, as regards the parent company financial statements, as applied in accordance with the provisions
of the Gibraltar Companies Act 2014.
Basis for opinion
We conducted our audit in accordance with International Standards on Auditing (ISAs) and applicable law. Our responsibilities under those
standards are further described in the Auditor’s responsibilities for the audit of the financial statements section of our report below. We are
independent of the Group and parent company in accordance with the ethical requirements that are relevant to our audit of the financial
statements in the UK, including the FRC’s Ethical Standard as applied to listed public interest entities, and we have fulfilled our other ethical
responsibilities in accordance with these requirements.
We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion.
81
888 Holdings plc Annual Report & Accounts 2018Financial Statements Corporate.888.com
Independent Auditors’ Report Continued
Conclusions relating to principal risks, going concern and viability statement
We have nothing to report in respect of the following information in the annual report, in relation to which the ISAs require us to report to you
whether we have anything material to add or draw attention to:
• the disclosures in the annual report set out on page 26 that describe the principal risks and explain how they are being managed or mitigated;
• the Directors’ confirmation set out on page 25 in the annual report 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 Directors’ statement set out on page 36 in the annual report 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;
• whether the Directors’ statement in relation to going concern required under the Listing Rules in accordance with Listing Rule 9.8.6R(3) is
materially inconsistent with our knowledge obtained in the audit; or
• the Directors’ explanation set out on page 36 in the annual report 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.
Key audit matters
• Regulatory and legal risks.
• Taxation.
• Revenue recognition.
• Impairment of Bingo CGUs.
• Acquisition of AAPN.
Audit scope
• 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 or specific audit procedures accounted for the entirety of Profit before
tax adjusted for exceptional charges, Revenue and Total assets.
Materiality
• Overall Group materiality of US$3.7m which represents 5% of profit before tax adjusted for exceptional charges.
82
888 Holdings plc Annual Report & Accounts 2018 Key observations
communicated 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 provision in respect of potential
historical VAT charge and accruals
for amounts payable to regulatory
authorities are appropriate, are on the
conservative side of an acceptable range
and that the disclosures in the financial
statements were appropriate.
Risk
Our response to the risk
Regulatory and legal risks
• Given the industry and jurisdictions in which
the Group operates, as described in the
Principal Risks and Uncertainties on page
25, 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 and
gaming duties, and in certain jurisdictions
VAT or equivalent taxes.
• 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.
• At 31 December 2018 the Group has
provided US$11.3m (2017: US$47.0m) in
respect of ongoing legal disputes.
• Following the United Kingdom Gambling
Commission (“UKGC”) Licence review,
management has undertaken significant
enhancements and improvements of the
Group’s processes and controls in respect
of UK Gambling Regulation compliance,
particularly in respect of customers’ self-
exclusion and responsible gaming. Refer to
Corporate Responsibility section on page 38.
• After reaching settlement with the German
authorities, during 2018 the Group released
a portion of the German VAT provision
(US$22.4m) and a German VAT accrual of
US$10.7m. Refer to the Audit Committee
Report (page 77); significant accounting
policies (Note 2 on page 94); and Note 5
and Note 27 to the Consolidated Financial
Statements (pages 94 to 128).
• Understood the Group’s process
and related controls in respect of
regulatory and legal risks and the related
accounting, and assessed whether the
controls are designed effectively.
• Circularised legal confirmations to
significant legal management experts as
at 31 December 2018.
• Assessed the integrity and expertise of
Group’s legal advisors.
• Inquired of management and the Group's
legal advisers, HFN and local legal
counsels involved, where appropriate,
about any known instances of material
breaches in regulatory or licence
compliance that need to be disclosed or
required provisions to be recorded.
• Tested the Group’s legal expenses in
coordination with the discussions with
Group’s legal advisers.
• Reviewed the Group’s correspondence
with regulators and tax authorities.
• Understood management’s interpretation
and application of relevant laws and
regulations as well as analysis of the
risks in respect of Group’s operations in
unregulated markets.
• Challenged the appropriateness of the
Group’s assumptions and estimates in
relation to provisions and contingent
liabilities, including provisions for the
UKGC inquiries, with reference to
correspondence and communication with
the UKGC, historical payments made by
the Group and competitors, emerging
industry practice and the period to which
any provision amounts relate, including
with respect to anti-money laundering
and responsible gaming in the UK and
other markets.
• Engaged EY Germany legal specialists
to assist us in understanding the risks in
respect of online gaming prohibition in
Germany.
• Assessed appropriateness of disclosures
in the Annual Report and Accounts.
83
888 Holdings plc Annual Report & Accounts 2018Financial Statements Corporate.888.com
Independent Auditors’ Report Continued
Risk
Taxation
The Group recognised a taxation charge of
US$13.9 million in 2018 (2017: US$6.2 million)
and had income tax receivable of nil (2017:
US$1.1 million) and payable of US$11.4 million
at 31 December 2018 (2017: US$4.1 million).
The Group operates in a number of countries,
resulting in complexities in the payment of
and accounting for tax, particularly related to
Transfer Pricing and Tax Residency. 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
77); significant accounting policies (Note
2 on page 94); and Notes 8 and 14 to the
Consolidated Financial Statements (pages
109 and 117).
Revenue recognition
The Group recognised revenue of US$540.6
million in 2018 (2017: US$541.8 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 94); and Note 3 to the
Consolidated Financial Statements (page 103).
Our response to the risk
• 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.
• Obtained and read the results of the
third-party tax studies obtained by the
Group and reviewed 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 challenged the
appropriateness of its assumptions and
estimates in relation to provisions and
contingent liabilities.
• We reviewed the Group Transfer Pricing
policy and permanent establishment risk
assessment prepared by management
and their legal advisor.
• We considered whether the Group’s
disclosures of its tax estimates and
judgements are in accordance with
IFRS requirements.
• We understood and tested the key
application and manual controls over the
Group’s principal gaming systems and
then applied IT-based auditing techniques
to re-perform the reconciliation between
the Group’s gaming revenue, cash and
customer accounts for 12 months ended
31 December 2018.
• We also performed the testing of “Test
accounts” in live gaming environment for
each revenue stream to test the interface
between gaming servers, production
systems and cash processing system with
the Datawarehouse.
• We performed detailed substantive
testing on a sample of revenue
transactions, including validation of bets/
wins and deposits/withdrawals.
• 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 IFRS 15.
• We audited other material
manual adjustments.
84
Key observations
communicated to
the Audit Committee
• With assistance from tax specialists
in each major jurisdiction, We have
concluded that management’s
judgements in relation to the taxation
charge, provisions and the related
disclosures are appropriate.
• We did not identify any differences as
part of our testing and considered the
accounting for revenue to be appropriate.
• We concluded that the adoption of IFRS
15 would not have any impact on the
recognition for the Group revenue.
888 Holdings plc Annual Report & Accounts 2018 Key observations
communicated to
the Audit Committee
• Based on our audit work, including the
sensitivities applied, we are satisfied that
no impairment exists, however, given
the limited headroom for the B2B CGU
in relation to short-term growth rates
and reducing the FX rate, additional
disclosures are required in the ARA as
a reasonable possible change could lead
to an impairment.
• Based on our audit work, we were
satisfied the acquisition of AAPN has
been correctly accounted for and the
intangible assets have been appropriately
valued.
• Based on our audit work, including the
sensitivities applied, we are satisfied
that no impairment exists, however
a reasonable possible change in the
assumptions could lead to an impairment.
Risk
Our response to the risk
Impairment of Bingo
cash generating units
The Group has goodwill relating to Bingo B2C
of US$95.3m and Bingo B2B of US$29.7m,
arising from the acquisitions Globalcom (2007)
and Wink (2009), and intangible assets of
US$3.6m (2017: US$3.6m), the majority of
which relates to the Bingo B2C business.
As revenue and profit from the Bingo segment
decreased in 2018, there is a risk that these
assets are not supported by either the future
cash flows they are expected to generate
or their fair value, resulting in an impairment
charge that has not been recognised by
management.
• We challenged the assumptions used by
management, particularly in respect of
forecast growth rates and discount rates,
and performed sensitivity analysis where
there is limited headroom.
• We compared the valuations to current
trading conditions and revised forecasts.
• We involved valuation specialists to
assess the discount rate.
• We validated the appropriateness of
disclosures in the Annual Report and
Accounts.
Acquisition of All American
Poker Network
The fair valuation of 100% of the AAPN
business requires judgement regarding the
level of control premium paid for the 53%.
The identification of intangibles assets
and their associated fair valuation requires
judgement. The goodwill associated with the
deal must be tested for impairment before
the end of the period in which the business
combination occurs.
There is a risk that these assets are not
supported resulting in an impairment charge
that has not been recognised by management.
• We assessed management’s accounting
and calculation of the acquisition of the
remaining share in AAPN joint venture.
• We assessed the integrity and expertise
of Group’s valuation advisors, D&P.
• We tested the valuation report and
purchase price allocation prepared by
management, in combination with Duff &
Phelps (“D&P”).
• We ensured that this is reflected and
disclosed correctly in the financial
statements, specifically under IFRS 3 for
the acquisition of AAPN in regards to the
business combination achieved in stages.
The key judgements in relation to this risk
relate to the overall potential size of the US
market, 888’s forecast market share, and the
speed with which the market grows.
• We challenged the assumptions used by
management, particularly in respect of
forecast growth rates and discount rates,
and performed sensitivity analysis.
The recognition of the US$9.3m gain on
acquisition is also similarly dependent on the
value of AAPN at acquisition which is in turn
dependent on the future assumed cash flows.
• We audited the inputs to the calculations
where possible, including the populations
by state, the New Jersey market history.
• We corroborated the market size
assumptions, and speed of markets
opening with externally available reports,
where possible.
85
888 Holdings plc Annual Report & Accounts 2018Financial Statements Corporate.888.com
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 primary audit engagement 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. Non-statutory and statutory audit partners visited both
locations at the planning, interim and year-end phases of the audit. During these visits they 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 with the component audit team 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 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$3.7 million (2017: US$3.4 million), which is 5% (2017: 5%) of profit before tax adjusted for
exceptional charges.
We believe that profit before tax, adjusted for the exceptional charges 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 the continued growth achieved by the Group.
Starting basis
• Profit before tax – US$108.7 million (2017: US$18.8 million)
• Exceptional items – US$11.1million credit (2017: US$50.8 million charge)
Adjustments
• VAT release US$10.7million (2017: nil)
• Gain on re-measurement US$9.3 million
Materiality
• Total profit before tax adjusted for exceptional charges US$77.6 million (2017: US$69.6 million)
• Materiality of US$3.7 million (2017: US$3.4 million), representing 5% of materiality basis (2017: 5%)
86
888 Holdings plc Annual Report & Accounts 2018 We determined materiality for the Parent Company to be US$1.35 million (2017: US$1.0 million), which is 2% (2017: 2%) of net assets.
During the course of our audit, we reassessed initial materiality and did not identify significant changes.
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% (2016: 75%) of our planning materiality, namely US$2.8 million (2017: US$2.5 million). We have set performance
materiality at this percentage due to our past experience of the audit, low number of misstatements and overall effective internal controls.
Audit work at component locations 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 each component is based on the relative scale and risk of
the component 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 Israeli component was US$1.6 million (2017: US$1.4 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$188,000 (2016: US$168,000),
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.
Other information
The other information comprises the information included in the annual report set out on pages 01 to 36, including Strategic Report, the Directors’
Report and the Corporate Governance Report set out on pages 42 to 77, other than the financial statements and our auditor’s report thereon.
The Directors are responsible for the other information.
Our opinion on the financial statements does not cover the other information and, except to the extent otherwise explicitly stated in this report,
we do not express any form of assurance conclusion thereon.
In connection with our audit of the financial statements, our responsibility is to read the other information and, in doing so, consider whether
the other information is materially inconsistent with the financial statements or our knowledge obtained in the audit or otherwise appears to be
materially misstated. If we identify such material inconsistencies or apparent material misstatements, we are required to determine whether there
is a material misstatement in the financial statements or a material misstatement of the other information. If, based on the work we have performed,
we conclude that there is a material misstatement of the other information, we are required to report that fact. We have nothing to report in this
regard.
In this context, we also have nothing to report in regard to our responsibility to specifically address the following items in the other information
and to report as uncorrected material misstatements of the other information where we conclude that those items meet the following conditions:
• Fair, balanced and understandable set out on pages 48 to 49 – the statement given by the Directors that they consider the annual report and
financial statements taken as a whole is fair, balanced and understandable and provides the information necessary for shareholders to assess the
Group’s performance, business model and strategy, is materially inconsistent with our knowledge obtained in the audit; or
• Audit committee reporting set out on pages 77 to 80 – the section describing the work of the audit committee does not appropriately address
matters communicated by us to the audit committee; or
• Directors’ statement of compliance with the UK Corporate Governance Code set out on page 50 – the parts of the Directors’ statement
required under the Listing Rules relating to the company’s compliance with the UK Corporate Governance Code containing provisions specified
for review by the auditor in accordance with Listing Rule 9.8.10R(2) do not properly disclose a departure from a relevant provision of the UK
Corporate Governance Code.
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.
87
888 Holdings plc Annual Report & Accounts 2018Financial Statements Corporate.888.com
Independent Auditors’ Report Continued
Opinions on other matters as per the terms of our engagement letter with the Company
In our opinion, the part of the Directors’ remuneration report to be audited has been properly prepared in accordance with
the Companies Act 2006.
In our opinion, based on the work undertaken in the course of the audit:
• 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
• the strategic report and the Directors’ report have been prepared in accordance with applicable legal requirements.
Matters on which we are required to report by exception
We are required to report to you if, in our opinion:
• 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.
Matters on which we are required to report by exception as per the terms of our engagement letter with the Company
In the light of the knowledge and understanding of the Group and the parent company and its environment obtained in the course of the audit,
we have not identified material misstatements in the strategic report or the Directors’ report.
We have nothing to report in respect of the following matters which we have been instructed to report to you if, in our opinion:
• adequate accounting records have not been kept by the parent company, or returns adequate for our audit have not been received from
branches not visited by us; or
• the parent company financial statements and the part of the Directors’ Remuneration Report to be audited are not in agreement with the
accounting records and returns; or
• certain disclosures of Directors’ remuneration specified by law are not made; or
• we have not received all the information and explanations we require for our audit.
Responsibilities of Directors
As explained more fully in the Directors’ responsibilities statement set out on pages 48 to 49, the Directors are responsible for the preparation
of the financial statements and for being satisfied that they give a true and fair view, and for such internal control as the Directors determine is
necessary to enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error.
In preparing the financial statements, the Directors are responsible for assessing the Group and parent company’s ability to continue as a going
concern, disclosing, as applicable, matters related to going concern and using the going concern basis of accounting unless the Directors either
intend to liquidate the Group or the parent company or to cease operations, or have no realistic alternative but to do so.
Auditor’s responsibilities for the audit of the financial statements
Our objectives are to obtain reasonable assurance about whether the financial statements as a whole are free from material misstatement, whether
due to fraud or error, and to issue an auditor’s report that includes our opinion. Reasonable assurance is a high level of assurance, but is not a
guarantee that an audit conducted in accordance with ISAs will always detect a material misstatement when it exists. Misstatements can arise
from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic
decisions of users taken on the basis of these financial statements.
Explanation as to what extent the audit was considered capable of detecting irregularities, including fraud
The objectives of our audit, in respect to fraud, are; to identify and assess the risks of material misstatement of the financial statements due to
fraud; to obtain sufficient appropriate audit evidence regarding the assessed risks of material misstatement due to fraud, through designing and
implementing appropriate responses; and to respond appropriately to fraud or suspected fraud identified during the audit. However, the primary
responsibility for the prevention and detection of fraud rests with both those charged with governance of the entity and management.
Our approach was as follows:
• We obtained an understanding of the legal and regulatory frameworks that are applicable to the Group and determined that the most significant
are those related to Gambling Regulations and related gaming and indirect taxes in different countries where the Group is operating, including
the UK, Spain and Germany and other countries, those related to relevant tax compliance regulations in Gibraltar and Israel and related to the
financial reporting framework (IFRS as adopted by the EU, UK Corporate Governance Code, Gibraltar Companies Act 2014 the Listing Rules of
the London Stock Exchange and the Bribery Act 2010).
• We understood how 888 Holdings plc is complying with those frameworks by making enquiries of management and the company’s legal
counsel (HFN). We corroborated our enquiries through our review of board minutes, discussion with audit committee and any correspondence
with regulatory bodies, our audit procedures in respect of “Regulatory and legal risk” and “Taxation” significant risks, as described above.
88
888 Holdings plc Annual Report & Accounts 2018 • We assessed the susceptibility of the Group’s financial statements to material misstatement, including how fraud might occur by meeting
with management to understand where they considered there was susceptibility to fraud, including in respect of revenue recognition. We
also considered performance targets and their influence on efforts made by management to manage earnings or influence the perceptions of
analysts. Where this risk was considered to be higher, we performed audit procedures to address each identified fraud risk. These procedures
included testing manual journal entries.
• Based on this understanding we designed our audit procedures to identify non-compliance with such laws and regulations, including anti-
money laundering. Our procedures involved audit procedures in respect of “Regulatory and legal risk” and “Taxation” significant risks (as
described above), as well as review of board minutes to identify non-compliance with such laws and regulations, review of reporting to the Audit
Committee on compliance with regulations and enquires of the management and HFN.
• In respect to the Israeli component, any instances of non-compliance with laws and regulations were communicated to the Primary team as they
arose and were followed up with management by the Primary team.
• The Group operates in the gaming industry which is a highly regulated environment. The non-statutory audit partner has specialised in the
betting and gaming sector for many years and has experience of working with both online and physical gaming operators in a variety of
regulatory environments. He reviewed the experience and expertise of the engagement team to ensure that the team had the appropriate
competence and capabilities, which included the use of a specialist where appropriate. The team had discussions during planning and
throughout the audit in respect of the evolving gaming regulatory environment and the audit engagement partner provided briefings regarding
the UKGC Licence review to the team.
• As part of our audit procedures we identified non-compliance with UK Gambling Regulation in respect of customers’ self-exclusion process and
responsible gaming. We had discussions with management and legal counsel to assess and understand the implications on our audit procedures.
We revised our audit procedures in respect of “Regulatory and Legal risk” significant risk as described above in “Key audit matters” section.
A further description of our responsibilities for the audit of the financial statements is located on the Financial Reporting Council’s website at
https://www.frc.org.uk/auditorsresponsibilities. This description forms part of our auditor’s report.
Other matters we are required to address
• We were appointed by the company on 9 May 2018 to audit the financial statements for the year ending 31 December 2018 and no subsequent
financial periods. We signed an engagement letter on 23 January 2018.
• The period of total uninterrupted engagement including previous renewals and reappointments is 5 years, covering the years ending
31 December 2014 to 31 December 2018.
• The non-audit services prohibited by the FRC’s Ethical Standard were not provided to the Group or the parent company and we remain
independent of the Group and the parent company in conducting the audit.
• The audit opinion is consistent with the additional report to the audit committee.
Use of our report
• This report is made solely to the company’s members, as a body, in accordance with Chapter 3 of Part 16 of the Companies Act 2006. 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.
Cameron Cartmell
(Non-Statutory Auditor)
Ernst & Young LLP
London
12 March 2019
Angelique Linares
(Statutory Auditor)
For and on behalf of EY Limited, Registered Auditors
Gibraltar
12 March 2019
The maintenance and integrity of the 888 Holdings plc web site is the responsibility of the Directors; the work carried out by the auditors does
not involve consideration of these matters and, accordingly, the auditors accept no responsibility for any changes that may have occurred to the
financial statements since they were initially presented on the website.
89
888 Holdings plc Annual Report & Accounts 2018Financial Statements
Corporate.888.com
Consolidated Income Statement
For the year ended 31 December 2018
Note
2018
US$ million
2017
US$ million
3
19
4
5
5
22
4
7
7
11
14
8
9
529.9
10.7
540.6
(158.1)
(69.9)
(32.8)
(155.0)
(36.2)
11.1
86.8
11.1
10.7
(8.9)
99.7
0.6
(0.7)
9.3
(0.2)
108.7
(13.9)
94.8
26.3¢
25.8¢
541.8
—
541.8
(158.1)
(75.2)
(35.4)
(162.5)
(37.7)
(50.8)
81.4
(50.8)
—
(8.5)
22.1
0.6
(3.7)
—
(0.2)
18.8
(6.2)
12.6
3.5¢
3.4¢
Note
2018
US$ million
2017
US$ million
6
94.8
(0.4)
1.1
0.7
95.5
12.6
0.8
(1.4)
(0.6)
12.0
Revenue before VAT accrual release
VAT accrual release
Revenue
Operating expenses
Gaming duties
Research and development expenses
Selling and marketing expenses
Administrative expenses
Exceptional items
Operating profit before exceptional items, VAT accrual release and share benefit charge
Exceptional items
VAT accrual release
Share benefit charge
Operating profit
Finance income
Finance expenses
Gain from remeasurement of previously held equity interest in joint ventures
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
Consolidated Statement of Comprehensive Income
For the year ended 31 December 2018
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
Total other comprehensive expense for the year
Total comprehensive income for the year attributable
to equity holders of the parent
The notes on pages 94 to 128 form part of these consolidated financial statements.
90
888 Holdings plc Annual Report & Accounts 2018 Consolidated Balance Sheet
At 31 December 2018
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
Foreign currency translation reserve
Treasury shares
Retained earnings
Total equity attributable to equity holders of the parent
Liabilities
Current liabilities
Trade and other payables
Provisions
Income tax payable
Deferred tax liability
Severance pay liability
Customer deposits
Total equity and liabilities
Note
2018
US$ million
2017
US$ million
12
13
14
17
15
16
17
18
18
22
19
19
8
6
20
200.3
11.0
1.1
0.8
1.4
214.6
133.0
33.0
—
166.0
380.6
3.3
3.6
(2.0)
(1.2)
156.6
160.3
136.0
11.3
11.4
2.3
2.2
57.1
220.3
380.6
159.8
9.0
1.3
0.8
1.5
172.4
179.6
43.1
1.1
223.8
396.2
3.3
3.5
(1.6)
(0.7)
108.7
113.2
156.9
47.0
4.1
—
3.3
71.7
283.0
396.2
The consolidated financial statements on pages 90 to 128 were approved and authorised for issue by the Board of Directors on 12 March 2019 and
were signed on its behalf by:
Itai Pazner
Chief Executive Officer
Aviad Kobrine
Chief Financial Officer
The notes on pages 94 to 128 form part of these consolidated financial statements.
91
888 Holdings plc Annual Report & Accounts 2018Financial Statements
Corporate.888.com
Consolidated Statement of Changes in Equity
For the year ended 31 December 2018
Share
capital
US$ million
Share
premium
US$ million
Treasury
shares
US$ million
Retained
earnings
US$ million
Foreign
currency
translation
reserve
US$ million
Total
US$ million
Balance at 1 January 2017
3.2
3.3
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 22)
Acquisition of treasury shares
Issue of shares to cover employee
share schemes (note 18)
Balance at 31 December 2017
Profit after tax for the year attributable
to equity holders of the parent
Other comprehensive (expense) income for the year
Total comprehensive income
Dividend paid (note 10)
Equity settled share benefit charges (note 22)
Acquisition of treasury shares
Exercise of deferred share bonus plan
Issue of shares to cover employee
share schemes (note 18)
Balance at 31 December 2018
—
—
—
—
—
—
0.1
3.3
—
—
—
—
—
—
—
—
3.3
—
—
—
—
—
—
0.2
3.5
—
—
—
—
—
—
—
0.1
3.6
—
—
—
—
—
—
(0.7)
—
(0.7)
—
—
—
—
—
(0.8)
0.3
—
(1.2)
159.5
(2.4)
163.6
12.6
(1.4)
11.2
(70.5)
8.5
—
—
108.7
94.8
1.1
95.9
(56.6)
8.9
—
(0.3)
—
156.6
—
0.8
0.8
—
—
—
—
(1.6)
—
(0.4)
(0.4)
—
—
—
—
—
(2.0)
12.6
(0.6)
12.0
(70.5)
8.5
(0.7)
0.3
113.2
94.8
0.7
95.5
(56.6)
8.9
(0.8)
—
0.1
160.3
The following describes the nature and purpose of each reserve within equity.
Share capital – represents the nominal value of shares allotted, called-up and fully paid.
Share premium – represents the amount subscribed for share capital in excess of nominal value.
Treasury shares – represent reacquired own equity instruments. Treasury shares are recognised at cost and deducted from equity.
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$.
The notes on pages 94 to 128 form part of these consolidated financial statements.
92
888 Holdings plc Annual Report & Accounts 2018 Consolidated Statement of Cash Flows
For the year ended 31 December 2018
Cash flows from operating activities
Profit before income tax
Adjustments for:
Depreciation
Amortisation
Interest income
Gain from remeasurement of previously held equity interest in joint ventures
Share of post-tax loss of equity accounted associates
Exceptional items
VAT accrual release
Share benefit charges
Profit before income tax after adjustments
Decrease (increase) in trade receivables
Increase in other receivables
Decrease in customer deposits
(Decrease) Increase in trade and other payables
Decrease in provisions
Cash generated from operating activities
Income tax paid
Net cash generated from operating activities
Cash flows from investing activities
Acquisition of property, plant and equipment
Interest received
Acquisition of intangible assets
Acquisition of subsidiaries, net of cash acquired
Internally generated intangible assets
Net cash used in investing activities
Cash flows from financing activities
Issue of shares to cover employee share schemes
Acquisition of treasury shares
Dividends paid
Net cash used in financing activities
Net (decrease) increase in cash and cash equivalents
Net foreign exchange difference
Cash and cash equivalents at the beginning of the year
Cash and cash equivalents at the end of the year1
Note
2018
US$ million
2017
US$ million
108.7
5.3
15.0
(0.6)
(9.3)
0.2
(11.1)
(10.7)
8.9
106.4
8.4
(1.3)
(12.1)
(29.1)
(24.6)
47.7
(5.6)
42.1
(7.3)
0.6
(2.7)
(9.2)
(12.0)
(30.6)
0.1
(0.8)
(56.6)
(57.3)
(45.8)
(0.8)
179.6
133.0
18.8
5.7
13.6
(0.6)
—
0.2
50.8
—
8.5
97.0
(7.2)
(1.1)
(2.9)
17.7
(3.8)
99.7
(4.2)
95.5
(5.6)
0.6
(3.6)
—
(11.2)
(19.8)
0.3
(0.7)
(70.5)
(70.9)
4.8
2.2
172.6
179.6
13
12
7
11
14
22
13
7
12
11
12
18
22
10
16
16
1 Cash and cash equivalents includes restricted short-term deposits of US$1.5 million (2017: US$1.2 million) (see note 16).
Net cash generated from operating activities is presented after deduction of US$24.6 million paid during 2018 in respect of exceptional items
(2017: US$6.2 million).
The notes on pages 94 to 128 form part of these consolidated financial statements.
93
888 Holdings plc Annual Report & Accounts 2018Financial Statements Corporate.888.com
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, Sport, Bingo, 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:
2.1 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 equity investments which have been measured at fair value.
The consolidated financial statements are presented in US Dollars because that is the currency in which the Group primarily operates. All values are
rounded to the closest million except when otherwise indicated.
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 effective for the annual periods beginning
on 1 January 2018. These are described in more detail on the next following pages.
2.2 New standards, interpretations and amendments adopted by the Group
The following interpretation and amendments to International Financial Reporting Standards, issued by the IASB and adopted by the EU, were
effective from 1 January 2018 and have been adopted by the Group during the year with no significant impact on the parent company or on the
consolidated results or financial position:
• Amendments to IFRS 2 – Classification and Measurement of Share-based Payment Transactions.
• IFRIC Interpretation 22 – Foreign Currency Transactions and Advance Consideration.
• Annual Improvements to IFRS Standards 2014-2016 Cycle: Clarification in IAS 28 that measuring investees at fair value through profit or loss
is an investment-by-investment choice.
94
888 Holdings plc Annual Report & Accounts 2018 2 Significant accounting policies continued
2.2 New standards, interpretations and amendments adopted by the Group continued
The Group had applied, for the first time, IFRS 9 - Financial Instruments and IFRS 15 - Revenue from Contracts with Customers, that require
restatement of previous financial statements.
• IFRS 9 – IFRS 9 Financial Instruments replaces IAS 39 Financial Instruments: Recognition and Measurement for annual periods beginning on or
after 1 January 2018, bringing together all three aspects of the accounting for financial instruments: classification and measurement; impairment;
and hedge accounting.
The Group has applied IFRS 9 retrospectively with no material impact on the financial statements of the Group.
(a) Classification and measurement
The Group’s income earned from Casino, Bingo and Sports falls within the scope of IFRS 9, which did not result in material impact on accounting
or presentation of this income. There were no changes in classification and measurement of other financial assets and liabilities.
(b) Impairment
The adoption of IFRS 9 has fundamentally changed the Group’s accounting for impairment losses for financial assets by replacing IAS 39’s
incurred loss approach with a forward looking expected credit loss (ECL). IFRS 9 application did not result in material changes to Group’s
financial statements.
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 ePayment companies. The Group has applied the standard’s simplified approach and has calculated the ECLs
based on lifetime of expected credit losses. This did not result in material changes to Group’s financial statements. Bad debts are written off
when there is objective evidence that the full amount may not be collected.
Equity instruments designated at fair value through OCI
Under IFRS 9 equity investments are measured at fair value through other comprehensive income (FVOCI) without subsequent recycling to
income statement. Equity instruments at FVOCI are not subject to an impairment assessment under IFRS 9. Under IAS 39, these were classified
as available for sale financial assets. The impact is not material.
Financial liabilities
The accounting for Group’s financial liabilities remains largely the same as it was under IAS 39.
• IFRS 15 – supersedes IAS 11 Construction Contracts, IAS 18 Revenue and related Interpretations and it applies to all revenue arising from contracts
with customers, unless those contracts are in the scope of other standards. The new standard establishes a five-step model to account for
revenue arising from contracts with customers. Under IFRS 15, revenue is recognised at an amount that reflects the consideration to which an
entity expects to be entitled in exchange for transferring goods or services to a customer.
The standard requires entities to exercise judgement, taking into consideration all of the relevant facts and circumstances when applying each
step of the model to contracts with their customers. The standard also specifies the accounting for the incremental costs of obtaining a contract
and the costs directly related to fulfilling a contract.
The Group adopted IFRS 15 using the full retrospective method of adoption with no material impact on the financial statements of the Group:
(a) Casino, Bingo and Sports
The Group’s income earned from Casino, Bingo and Sports does not fall within the scope of IFRS 15. Income from these online activities is
disclosed as revenue although these are accounted for and meet the definition of a gain under IFRS 9.
95
888 Holdings plc Annual Report & Accounts 2018Financial Statements Corporate.888.com
Notes to the Consolidated Financial Statements Continued
2 Significant accounting policies continued
2.2 New standards, interpretations and amendments adopted by the Group continued
(b) Poker and B2B revenue
Poker revenue represents 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 certain promotional costs
are accounted for, and entry fee revenue is recognised when the tournament has concluded. IFRS 15 adoption did not have impact on Group’s
Poker revenue.
Revenue from B2B is mainly comprised of services provided to business partners and brand licensing on third-party platforms. IFRS 15 adoption
did not have an impact on Group’s B2B revenue recognition policy including assessment whether the Group is acting as principal or agent in the
relevant contracts.
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,
identifying the specified services and determine which party controls such services before they are transferred to the customer. If control
assessment is not clear, the Group considers the principal indicators such as 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.
(c) Presentation and disclosure requirements
The Group disclosed disaggregated revenue recognised from contracts with customers and revenue from other online activities in note 3
Segment Information.
2.3 New standards that have not been adopted by the Group as they were not effective for the year
The new standard applies to annual reporting periods beginning on or after 1 January 2019. The Group has not early adopted IFRS 16.
IFRS 16 Leases – IFRS 16 was issued in January 2016 and it replaces IAS 17 Leases, IFRIC 4 Determining whether an Arrangement contains a Lease,
SIC-15 Operating Leases-Incentives and SIC-27 Evaluating the Substance of Transactions Involving the Legal Form of a Lease. IFRS 16 Leases
requires lessees to recognise right-of-use assets and lease liabilities for most leases. A contract is (or contains) a lease if it conveys the right to
control the use of an identified asset for a period of time in exchange for consideration.
Right-of-use assets are initially measured at cost and depreciated by the earlier of the end of the useful life of the right-of-use asset or the end
of the lease term. The cost of right-of-use assets comprises of initial measurement of the lease liability, any lease payments made before or at the
commencement date and initial direct costs. The lease liability is initially measured at the present value of the lease payments that are not paid
at the commencement date and subsequently measured at amortised cost with the interest expense recognised within finance income (expense)
in the consolidated statement of income.
In accordance with the transition provisions in IFRS 16, the Group is entitled to choose to apply the modified retrospective approach. Under this
approach, a lessee does not restate comparative information and recognise the cumulative effect of initially applying IFRS 16 as an adjustment
to the opening balance of retained earnings at the date of initial application.
During 2018, the Group has performed a detailed impact assessment of IFRS 16. In summary the impact of IFRS 16 adoption is expected to be
as follows:
Impact on the statement of financial position as at 31 December 2018:
Assets
Property, plant and equipment (right-of-use assets)
Liabilities
Current Lease liabilities
Non-current Lease liabilities
Net impact on equity
Expected impact on the statement of profit or loss for 2019:
Depreciation expense
Operating lease expense
Operating profit
Finance costs
Profit for the year
US$ million
27.2
(5.1)
(22.1)
—
US$ million
(5.2)
5.9
0.7
(0.9)
(0.2)
Following the adoption of IFRS 16, the Group’s operating profit will improve, while its interest expense will increase. This is due to the change in the
accounting for expenses of leases that were classified as operating leases under IAS 17.
96
888 Holdings plc Annual Report & Accounts 2018 2 Significant accounting policies continued
2.3 New standards that have not been adopted by the Group as they were not effective for the year continued
The following relevant interpretations and amendments to existing standards issued by the IASB, have not been adopted by the Group as they
were either not effective for the year or not yet endorsed for use in the EU. The Group is currently assessing the impact of these interpretations
and amendments will have on the presentation of, and recognition in, parent company or consolidated results or financial position in future periods:
• Amendments to IAS 28 – Long-term Interests in Associates and Joint Ventures (effective for accounting periods beginning on or after
1 January 2019).
• Annual Improvements to IFRS Standards 2015-2017 Cycle (issued on 12 December 2017) (effective for accounting periods beginning on or after
1 January 2019).
• IFRIC Interpretation 23 – Uncertainty over Income Tax Treatments (effective for accounting periods beginning on or after 1 January 2019).
• Amendments to IAS 19: Plan Amendment, Curtailment or Settlement (effective for accounting periods beginning on or after 1 January 2019).
Amendments to IFRS 9: Prepayment Features with Negative Compensation (effective for accounting periods beginning on or after 1 January 2019).
Critical accounting estimates and judgements
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:
Critical judgements
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.
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 12.
Key accounting estimates
The Group’s response to Brexit is shown on risk management strategy report. Given the level of uncertainty which still remains in relation to the
nature of Brexit and how it might apply to online gambling companies its effect on the carrying values of assets and liabilities cannot be quantified.
Brexit has been considered when assessing other key accounting estimates.
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. The Group believes that its accruals for tax
liabilities are appropriate. For further information see note 8.
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 12.
Provisions, contingent liabilities and regulatory matters
The Group makes a number of estimates 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 27.
97
888 Holdings plc Annual Report & Accounts 2018Financial Statements
Corporate.888.com
Notes to the Consolidated Financial Statements Continued
2 Significant accounting policies continued
2.3 New standards that have not been adopted by the Group as they were not effective for the year continued
Basis of consolidation
The consolidated financial statements include the accounts of the Company and its subsidiaries. The subsidiaries are companies controlled by
888 Holdings Public Limited Company. Control exists where the Company has 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 (IFRS 9)
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.
Social games revenue represents the Group’s share from the sale of virtual goods to customers playing the Group’s games.
Sport (IFRS 9)
Sport online gaming revenue comprises bets placed less payouts to customers, adjusted for the fair value of open betting positions.
Poker (IFRS 15)
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 certain promotional
costs are accounted for, and entry fee revenue is recognised when the tournament has concluded.
B2B (IFRS 15)
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.
98
888 Holdings plc Annual Report & Accounts 2018 2 Significant accounting policies continued
2.3 New standards that have not been adopted by the Group as they were not effective for the year continued
Operating expenses
Operating expenses consists primarily of staff costs, payment service providers' commissions, chargebacks, commission and royalties payable
to third parties, all of which are recognised on an accruals basis, and depreciation and amortisation.
Administrative expenses
Administrative expenses consist primarily of staff costs and corporate professional expenses, both of which are recognised on an accruals basis.
Exceptional items and adjusted performance measures
The Group classifies and presents certain items of income and expense as exceptional items. The Group presents adjusted performance measures
which differ from statutory measures due to exclusion of exceptional items and certain non-cash items as the Group considers that it allows
a further understanding of the underlying financial performance of the Group. These measures are described as “adjusted” and are used by
management to measure and monitor the Group’s underlying financial performance. Non-cash items that are excluded from adjusted performance
measures of underlying financial performance include share benefit charge and share of post-tax loss of equity accounted joint ventures and
associates. The Group also seeks to present a measure of underlying performance which is not impacted by exceptional items. 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.
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.
99
888 Holdings plc Annual Report & Accounts 2018Financial Statements Corporate.888.com
Notes to the Consolidated Financial Statements Continued
2 Significant accounting policies continued
2.3 New standards that have not been adopted by the Group as they were not effective for the year continued
Goodwill
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 historical 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
Impairment of non-financial assets
33%
7-15%
15%
Over the shorter of the term of the lease or useful lives
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).
Investment in equity accounted joint ventures and associates
Joint ventures are those entities over whose 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.
100
888 Holdings plc Annual Report & Accounts 2018 2 Significant accounting policies continued
2.3 New standards that have not been adopted by the Group as they were not effective for the year continued
Business combination achieved in stages
Business combination achieved in stages refers to transactions which the Group obtains control in entities which it held an equity interest
immediately before the acquisition date. The Group remeasure its previously held equity interest in the acquiree at its acquisition-date fair value
and recognise the resulting gain or loss, if any, in the income statement.
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. The Group has applied the standard’s simplified approach and has calculated the ECLs
based on lifetime of expected credit losses. 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 equity investments, at fair value at each balance sheet date. The fair
value related disclosures are included in notes 25 and 26. 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
From time to time 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.
Equity
Equity issued by the Company is recorded as the proceeds received from the issue of shares, net of direct issue costs.
Treasury shares
Own equity instruments that are reacquired (treasury shares) are recognised at cost and deducted from equity. No gain or loss is recognised
in profit or loss on the purchase, sale, issue or cancellation of the Group’s own equity instruments. Any difference between the carrying amount
and the consideration, if reissued, is recognised in the share premium account.
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.
101
888 Holdings plc Annual Report & Accounts 2018Financial Statements Corporate.888.com
Notes to the Consolidated Financial Statements Continued
2 Significant accounting policies continued
2.3 New standards that have not been adopted by the Group as they were not effective for the year continued
Leases
Leases are classified as finance leases wherever the terms of the lease transfer substantially all the risks and rewards of ownership to the Group.
All other leases are classified as operating leases and rentals payable are charged to 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.
Equity-settled Share benefit charges
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.
Severance pay schemes
The Group operates two severance pay schemes:
Defined benefit severance pay scheme
The Group operates a defined benefit severance pay scheme pursuant to the Severance Pay Law in Israel. Under this scheme Group employees
are entitled to severance pay upon redundancy or retirement. The liability for termination of employment is measured using the projected unit
credit method.
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.
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.
Defined contribution severance pay scheme
In 2017 the Group introduced defined contribution plan pursuant to section 14 to the Severance Pay Law. Under this scheme the Group pays fixed
monthly contributions. Payments to defined contribution plans are charged as an expense as they fall due.
102
888 Holdings plc Annual Report & Accounts 2018 3 Segment information
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, Sport, Bingo; 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.
2018
Casino
US$ million
Poker
US$ million
Sport
US$ million
Bingo
US$ million
Total B2C
US$ million
US$ million
US$ million
B2C
B2B
Consolidated
Segment revenue before VAT accrual
VAT accrual release
317.6
—
49.0
—
80.3
—
32.4
—
Segment revenue
Segment result2
Unallocated corporate expenses3
Exceptional items
Operating profit
Finance income
Finance expenses
Gain from remeasurement of previously
held equity interest in joint ventures
Share of post-tax loss of equity accounted
joint ventures and associates
Taxation
Profit after tax for the year
Adjusted profit after tax for the year4
Assets
Unallocated corporate assets
Total assets
Liabilities
Segment liabilities
Unallocated corporate liabilities
Total liabilities
479.3
10.7
490.0
218.7
50.61
—
50.6
25.4
55.5
1.6
1 Revenue recognised in accordance with IFRS 15 – Revenue from contracts with customers.
2 Revenue net of chargebacks, payment service providers' commissions, gaming duties, royalties payable to third parties and selling and marketing expenses.
3 Including staff costs, corporate professional expenses, other administrative expenses, depreciation, amortisation and share benefit charges.
4 As defined in note 9.
529.9
10.7
540.6
244.1
(155.5)
11.1
99.7
0.6
(0.7)
9.3
(0.2)
(13.9)
94.8
72.8
380.6
380.6
57.1
163.2
220.3
103
888 Holdings plc Annual Report & Accounts 2018Financial Statements
Corporate.888.com
Notes to the Consolidated Financial Statements Continued
3 Segment information continued
2017
Segment revenue
Segment result1
Unallocated corporate expenses2
Exceptional items
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
Adjusted profit after tax for the year3
Assets
Unallocated corporate assets
Total assets
Liabilities
Segment liabilities
Unallocated corporate liabilities
Total liabilities
B2C
B2B
Consolidated
Casino
US$ million
Poker
US$ million
Sport
US$ million
Bingo
US$ million
Total B2C
US$ million
US$ million
US$ million
293.9
77.9
75.5
39.3
486.6
213.7
55.2
22.3
67.1
4.6
541.8
236.0
(163.1)
(50.8)
22.1
0.6
(3.7)
(0.2)
(6.2)
12.6
72.1
396.2
71.7
211.3
283.0
1 Revenue net of chargebacks, payment service providers' commissions, gaming duties, royalties payable to third parties and selling and marketing expenses.
2 Including staff costs, corporate professional expenses, other administrative expenses, depreciation, amortisation and share benefit charges.
3 As defined in note 9.
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)
EMEA (excluding the UK and Spain)1
UK
Spain
Americas
Rest of world
Revenue before VAT accrual release
VAT accrual release
Total revenue
2018
US$ million
2017
US$ million
228.9
170.6
68.0
48.1
14.3
529.9
10.7
540.6
213.6
203.1
63.1
46.2
15.8
541.8
—
541.8
1 During the period the Group identified that the Europe Other Geographical segment used in 2017 financial statements should in fact be referred to as Europe, the Middle East and
Africa (EMEA). Non-European revenue included in the segment during 2018 amount to US$45.7 million (2017: US$35.3 million).
104
888 Holdings plc Annual Report & Accounts 2018 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$1.4 million (2017: US$1.5 million).
4 Operating profit
Operating profit is stated after charging:
Staff costs (including Executive Directors)
Gaming duties
Selling and marketing expenses
Exceptional items
Fees payable to EY Limited, Ernst & Young LLP and its affiliates:
Statutory audit of the consolidated financial statements
Other assurance services
Depreciation (within operating expenses)
Amortisation (within operating expenses)
Chargebacks
Payment of service providers’ commissions
Carrying amount of
non-current assets by location
2018
US$ million
2017
US$ million
135.6
77.6
213.2
138.8
32.1
170.9
Note
2018
US$ million
2017
US$ million
6
5
13
12
95.7
69.9
155.0
(11.1)
0.7
—
5.3
15.0
2.8
23.2
104.2
75.2
162.5
50.8
0.4
0.1
5.7
13.6
2.7
23.4
5 Exceptional items
The Group classifies certain items of income and expense as exceptional, as the Group considers that it allows for a further understanding of
the underlying financial 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.
Historical VAT
Provision – regulatory matters
Exceptional legal and professional costs
UKGC – payments in lieu of a fine
Total exceptional items1
1 Tax effect of the exceptional items is US$0.3 million credit (2017: US$1.3 million tax charge).
Historical VAT
2018
US$ million
2017
US$ million
(22.4)
10.4
0.9
—
(11.1)
45.3
—
—
5.5
50.8
During 2017, the Group recorded a provision for exceptional items of US$45.3 million in respect of historical value added tax relating to the
provision of gaming services in Germany prior to 2015. During 2018, following receipt of tax assessments from the Tax Authorities in Germany,
the Group paid US$24.6 million on account of this provision and released US$22.4 million of the provision as described in note 19 below.
Provision – regulatory matters
During the year, the Group recorded a provision of US$10.4 million (2017: nil) in respect of regulatory matters related to legacy customers’ activity
in prior periods. This amount represents management’s best estimate of probable cash outflows related to these matters, which are closely
monitored by the Group. See also note 19.
105
888 Holdings plc Annual Report & Accounts 2018Financial Statements Corporate.888.com
Notes to the Consolidated Financial Statements Continued
5 Exceptional items continued
Exceptional legal and professional costs
During the year, the Group incurred legal and professional costs of US$0.9 million (2017: nil) associated with M&A activity.
UKGC – payments in lieu of a fine
During 2017 the UK Gambling Commission (UKGC) conducted a review of the manner in which the Group has carried on its licensed activities
in the United Kingdom.
The Group worked cooperatively with the UKGC throughout its review and took actions to address the concerns raised therein and entered into
a voluntary regulatory settlement involving a payment in lieu of fine of US$5.5 million. In respect of this settlement, the Group recorded exceptional
items in 2017 consolidated income statement of US$5.5 million. The payment was made on 26 October 2017.
6 Employee benefits
Staff costs, including Executive Directors' remuneration, comprises the following elements:
Wages and salaries
Social security
Employee benefits and severance pay scheme costs
Staff costs capitalised in respect of internally generated intangible assets
2018
US$ million
2017
US$ million
94.6
4.9
8.0
107.5
(11.8)
95.7
98.5
5.5
9.1
113.1
(8.9)
104.2
In the consolidated income statement total staff costs, excluding share benefit charges of US$8.9 million (2017: US$8.5 million), are included within
the following expenditure categories:
Operating expenses
Research and development expenses
Administrative expenses
The average number of employees by category was as follows:
Operations
Research and development
Administration
At 31 December 2018 the Group employed 1,364 (2017: 1,310) staff.
At 31 December 2018 the Group used the services of 210 chat moderators (2017: 229) and 82 contractors (2017: 61).
2018
US$ million
2017
US$ million
51.9
25.6
18.2
95.7
56.3
29.1
18.8
104.2
2018
Number
2017
Number
805
388
127
1,320
838
383
129
1,350
106
888 Holdings plc Annual Report & Accounts 2018 6 Employee benefits continued
Severance pay scheme – Israel
The Group has defined contribution plan pursuant to section 14 to the Severance Pay Law under which the Group pays fixed contributions and
will have no legal or constructive obligation to pay further contributions if the fund does not hold sufficient amounts to pay all employee benefits
relating to employee service at the date of their departure. The Group recognised an expense in respect of contribution to the defined contribution
plan during the year of US$0.8 million (2017: US$0.3 million).
The Group's employees in Israel, which are not subject to section 14 to the Severance Pay Law, are eligible to receive certain benefits from
the Group in specific circumstances on leaving the Group. As such the Group operates a defined benefit severance pay plan which requires
contributions to be made to separately administered funds. The funds are held by an independent third-party company.
The current service cost and the present value of the defined benefit obligation are measured using the projected unit credit method. Under this
schedule, the Company contributes on a monthly basis at the rate of 8.3% per cent of the aggregate of members’ salaries.
The disclosures set out below are based on calculations carried out as at 31 December 2018 by a qualified independent actuary.
The following table summarises the employee benefits figures as included in the consolidated financial statements:
Included in the balance sheet:
Severance pay scheme liability (within trade and other payables)
Included in the income statement:
Current service costs (within operating expenses)
Current service costs (within research and development)
Current service costs (within administrative expenses)
Included in the statement of comprehensive income:
Remeasurement of severance pay scheme liability
Movement in severance pay scheme liability:
Severance pay scheme assets
At beginning of year
Interest income
Contributions by the Group
Benefits paid
Return on assets less interest income already recorded
Exchange differences
At end of year
Severance pay plan liabilities
At beginning of year
Interest expense
Current service costs
Benefits paid
Actuarial gain on past experience
Actuarial loss on changes in financial assumptions
Exchange differences
At end of year
2018
US$ million
2017
US$ million
2.2
1.6
1.5
0.7
(1.1)
3.3
2.0
1.8
0.8
1.4
2018
US$ million
2017
US$ million
22.5
0.8
3.6
(3.2)
(0.2)
(1.6)
21.9
18.8
0.9
4.3
(3.8)
0.2
2.1
22.5
2018
US$ million
2017
US$ million
25.8
0.9
3.8
(3.2)
(0.2)
(1.2)
(1.8)
24.1
20.4
0.9
4.6
(3.9)
0.3
1.2
2.3
25.8
As at 31 December 2018 the net accounting deficit of the defined benefit severance pay plan was US$2.2 million (2017: US$3.3 million). The Scheme
is backed by substantial assets amounting to US$21.9 million at 31 December 2018 (2017: US$22.5 million). The net accounting deficit of defined
benefit severance plan is a result of two elements:
• Potential liability to pay further contributions to employees who will be made redundant, if the fund does not hold sufficient assets to pay all
benefits relating to employee service at the date of their departure.
• Volatility of Israeli government bond rates may have substantial impact in absolute terms on the net liability. A decrease in the discount rate by
0.25% per annum (i.e. 4.46% to 4.21%) would increase the plan liabilities by US$0.5 million (2017: US$0.6 million).
107
888 Holdings plc Annual Report & Accounts 2018Financial Statements Corporate.888.com
Notes to the Consolidated Financial Statements Continued
6 Employee benefits continued
Severance pay scheme – Israel continued
The impact of the severance deficit on the level of distributable reserves is monitored on an on-going basis. Monitoring enables planning for any
potential adverse volatility and helps the Group to assess the likely impact on distributable reserves.
Employees can determine individually into which type of investment their share of the plan assets are invested and, therefore the Group is unable
to accurately disclose the proportions of the plan assets invested in each class of asset.
The expected contribution for 2019 is US$3.8 million.
The main actuarial assumptions used in determining the fair value of the Group's severance pay plan are shown below:
Discount rate (nominal)
Estimated increase in employee benefits costs
Voluntary termination rate
Inflation rates based on Israeli bonds
Sensitivity of balance sheet at 31 December 2018
2018
%
4.46
5.14
75
1.52
2017
%
3.87
5.14
75
1.55
The results of the calculations are sensitive to the assumptions used. The balance sheet position revealed by IAS 19 calculations must be expected
to be volatile, principally because the market value of assets (with significant exposure to equities) is being compared with a liability assessment
derived from corporate bond yields.
The table below shows the sensitivity of the IAS 19 balance sheet position to small changes in some of the assumptions. Where one assumption has
been changed all the other assumptions are kept as disclosed above.
Discount rate less 0.25%
Estimated increase in employee benefits costs plus 1%
Voluntary termination rate decrease 5%
Inflation rates up 0.25%
Resulted
(surplus)/
deficit
Change
from
disclosed
US$ million
US$ million
(2.7)
(3.9)
(2.3)
(1.9)
(0.5)
(1.7)
(0.1)
0.3
108
888 Holdings plc Annual Report & Accounts 2018 7 Finance income and finance expenses
Finance income:
Interest income
Finance income
Finance expenses:
Foreign exchange losses
Finance expenses
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
2018
US$ million
2017
US$ million
0.6
0.6
0.6
0.6
2018
US$ million
2017
US$ million
0.7
0.7
3.7
3.7
2018
US$ million
2017
US$ million
2.2
11.9
(0.2)
13.9
—
13.9
0.2
8.1
0.1
8.4
(2.2)
6.2
109
888 Holdings plc Annual Report & Accounts 2018Financial Statements Corporate.888.com
Notes to the Consolidated Financial Statements Continued
8 Taxation continued
Corporate taxes continued
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 (2018: 10%, 2017: 10%)
Higher effective tax rate on other jurisdictions
Tax on dividend distribution from other jurisdictions
Deferred tax on intragroup transfer
Expenses not allowed for taxation
Capital allowances in excess of depreciation
Non-taxable revaluation of equity interest
Non-taxable income
Adjustments to prior years’ tax charges
Total tax charge for the year
2018
US$ million
2017
US$ million
108.7
10.9
4.1
5.5
—
1.8
(0.8)
(0.9)
(6.5)
(0.2)
13.9
18.8
1.9
0.8
5.0
(1.9)
1.3
(0.5)
—
(0.5)
0.1
6.2
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%. Gibraltar corporate tax expenses for the year are significantly higher compared to
2017, as a result of higher profit before tax, partially derived from the release of provision for historical VAT recorded in 2017, as described in note 5.
Israel
The domestic corporate tax rate in Israel in 2018 is 23% (2017: 24%). 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.
UK
The Group’s subsidiary in the UK is subject to a corporate tax rate of 19% (2017: 19.25%). 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.
Romania
The Group’s subsidiary in Romania is subject to a corporate tax rate of 16% (2017: 16%).
US
The Group’s subsidiaries in US are subject to federal corporate tax rate of 21% (2017: 34%), and state (New Jersey) tax rate of 9% (2017: 9%).
Sensitivity analysis
The key operating companies in the Group are incorporated, managed and controlled and tax resident in Gibraltar. The Group’s subsidiaries are
located in different jurisdictions and these subsidiaries are taxed locally on their respective profits which are determined with reference to transfer
pricing agreements. Effective tax rate increased by 1% would result in an increase in the tax charge (and associated provision) of US$1.1 million
(2017: US$0.2 million).
110
888 Holdings plc Annual Report & Accounts 2018 9 Earnings per share
Basic earnings per share
Basic earnings per share (“EPS”) has been calculated by dividing the profit attributable to ordinary shareholders by the weighted average number
of shares in issue and outstanding during the year during the year.
Diluted earnings per share
The weighted average number of shares for diluted earnings per share takes into account all potentially dilutive equity instruments granted,
which are not included in the number of shares for basic earnings per share. Certain equity instruments have been excluded from the calculation
of diluted EPS as their conditions of being issued were not deemed to satisfy the performance conditions at the end of the period or it will not
be advantageous for holders to exercise them into shares, in the case of options. The number of equity instruments included in the diluted EPS
calculation consist of 5,759,968 Ordinary Shares (2017: 8,840,298) and 18,481 market-value options (2017: 49,353).
The number of equity instruments excluded from the diluted EPS calculation is 2,078,991 (2017: 1,431,143).
Profit for the period attributable to equity holders of the parent (US$ million)
Weighted average number of Ordinary Shares in issue and oustanding
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
2018
2017
94.8
361,122,725
5,778,449
366,901,174
12.6
359,260,003
8,889,651
368,149,654
26.3¢
25.8¢
3.5¢
3.4¢
The Directors believe that EPS excluding VAT accrual release, exceptional items, share benefit charges, gain from remeasurement of previously held
equity interest in joint ventures and share of post- tax loss of equity accounted joint ventures and associates ("Adjusted EPS") allows for a further
understanding of 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, gain from remeasurement of previously held equity interest in
joint ventures and share of post-tax loss of equity accounted joint ventures and associates ("Adjusted profit"):
Profit for the period attributable to equity holders of the parent
VAT accrual release
Exceptional items (see note 5)
Share benefit charges (see note 22)
Gain from remeasurement of previously held equity interest in joint ventures
Share of post-tax loss of equity accounted associates (see note 14)
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
2018
US$ million
2017
US$ million
94.8
(10.7)
(11.1)
8.9
(9.3)
0.2
72.8
12.6
—
50.8
8.5
—
0.2
72.1
361,122,725
366,901,174
359,260,003
368,149,654
20.2¢
19.8¢
20.1¢
19.6¢
111
888 Holdings plc Annual Report & Accounts 2018Financial Statements Corporate.888.com
Notes to the Consolidated Financial Statements Continued
10 Dividends
Dividends paid
2018
US$ million
2017
US$ million
56.6
70.5
An interim dividend of 4.2¢ per share was paid on 31 October 2018 (US$15.2 million). The Board of Directors will recommend to the shareholders
a final dividend in respect of the year ended 31 December 2018 comprising 6.0¢ per share, and an additional one-off dividend of 2.0¢ per share,
both of which will be recognised in the 2019 financial statements once approved.
In 2017 an interim dividend of 4.0¢ per share was paid on 11 October 2017 (US$14.4 million) and a final dividend of 5.9¢ per share plus an additional
one-off 5.6¢ per share were paid on 11 May 2018 (US$41.4 million).
11 Business combinations
Acquisition of additional interest in AAPN Holdings LLC
On 10 December 2018, the Group acquired an additional 53% interest in the voting shares of AAPN Holdings LLC (“AAPN”), increasing its
ownership interest to 100% for a cash consideration of US$28.5 million. US$10.0 million was paid on the day of acquisition and additional US$18.5
million to be paid during the first quarter of 2019 included in other payables as at 31 December 2018, see note 19.
The acquisition represented an important strategic milestone that will facilitate the Group’s future growth strategy in the US by giving 888
additional operational, technological and commercial flexibility to deliver on multiple potential growth opportunities.
The Group remeasured its previously held 47% equity interest in AAPN at its acquisition-date fair value and recognised US$9.3 million gain in the
consolidated income statement. The goodwill recognised of US$30.9 million represents the potential revenues from the US market as the states
regulate online gambling. No goodwill is expected to be deductible for tax purposes. The fair value of the identifiable assets and liabilities of AAPN
as at the date of acquisition were:
Assets
Other intangible assets
Cash and cash equivalents
Trade and other receivables
Total assets
Liabilities
Trade and other payables
Deferred tax liability
Total liabilities
Total identifiable net assets at fair value
Goodwill arising on acquisition
Purchase consideration transferred
Gain from remeasurement of previously held equity interest in joint ventures
Fair value of purchase consideration
Net cash acquired with the subsidiary
Cash paid
Net cash flow on acquisition
112
Fair value
recognised on
acquisition
US$ million
9.9
0.8
0.3
11.0
1.8
2.3
4.1
6.9
30.9
28.5
9.3
37.8
Cash flow
on acquisition
US$ million
0.8
(10.0)
(9.2)
888 Holdings plc Annual Report & Accounts 2018
12 Goodwill and other intangible assets
Cost or valuation
At 1 January 2017
Additions
Disposals
At 31 December 2017
Additions
Acquisition of a subsidiary (AAPN buyout)
At 31 December 2018
Amortisation and impairments:
At 1 January 2017
Amortisation charge for the year
Disposals
At 31 December 2017
Amortisation charge for the year
At 31 December 2018
Carrying amounts
At 31 December 2018
At 31 December 2017
At 1 January 2017
Acquired
intangible
assets
US$ million
Internally
generated
intangible
assets
US$ million
Total
US$ million
Goodwill
US$ million
146.1
—
—
146.1
—
30.9
177.0
20.7
—
—
20.7
—
20.7
156.3
125.4
125.4
18.8
3.6
(0.8)
21.6
2.7
9.9
34.2
14.4
2.6
(0.8)
16.2
3.2
19.4
14.8
5.4
4.4
69.4
11.2
—
80.6
12.0
—
92.6
40.6
11.0
—
51.6
11.8
63.4
29.2
29.0
28.8
234.3
14.8
(0.8)
248.3
14.7
40.8
303.8
75.7
13.6
(0.8)
88.5
15.0
103.5
200.3
159.8
158.6
Following a review of fully written down assets, assets no longer in use with a total cost and accumulated depreciation of nil were written off in
2018 (2017: US$0.8 million).
Acquisition during the year
Fair Value of acquired intangible assets recognised on acquisition of AAPN includes licence to operate, trade names and customer relationships.
The estimated remaining useful life of the acquired intangible assets is 5 years, 5 years and up to 12 years, respectively.
Internally generated intangible assets
This category of assets includes capitalised development costs in accordance with IAS 38. The material projects as included within the carrying
amount above include compliance with local regulatory requirements in certain jurisdictions US$5.6 million (2017: US$6.6 million) and a major
upgrade to the gaming systems platform US$23.5 million (2017: $22.4 million). No impairment tests were considered to be required at 31 December
2018 and the carrying value of internally generated intangible assets is considered to be appropriate. At 31 December 2018 there were projects
with carrying value US$4.3 million (2017: US$3.1 million) which were not completed and therefore not being amortised. All of these projects are
expected to complete and commence amortisation in 2019.
113
888 Holdings plc Annual Report & Accounts 2018Financial Statements
Corporate.888.com
Notes to the Consolidated Financial Statements Continued
12 Goodwill and other intangible assets continued
Analysis of goodwill by cash generating units:
B2C
B2B
Consolidated
Bingo
US$ million
AAPN
US$ million
Other
US$ million
Bingo
US$ million
Total
goodwill
US$ million
Carrying value at 31 December 2018
Carrying value at 31 December 2017
95.4
95.4
30.9
—
0.3
0.3
29.7
29.7
156.3
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 B2C and B2B 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. In previous years these have been considered together
as the risks and rewards associated with those income streams are deemed to be sufficiently similar. In 2018 Bingo B2C and Bingo B2B revenue
streams were separated following the decline in Bingo revenue mainly due to the regulatory challenges facing the UK Bingo market and the
termination of contract with one of the B2B partners which resulted in a decreased available headroom.
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 which applies for each of B2B and B2C, have been applied to revenue and are based on past experience,
including the results in 2018 and 2017 and projections of future changes in the UK online bingo gaming market. B2B contracts that will not be
renewed were projected accordingly. Key assumptions in preparing these cash flow projections include moderate growth in revenue, a stable level
of costs per customer acquisition, stable exchange rate for GBP/US$ and the expectation that the Group will continue to operate and be subject to
gaming duties 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
discount rate
applied1
Underlying
growth rate2
year 1
Underlying
growth rate
years 2-5
Long-term
growth rate
year 6+
At 31 December 2018
At 31 December 2017
9%
9%
2%
3%
3%
1%
2%
2%
Operating
expenses
increase
years 1-5
2%
1%
GBP/US$
exchange
rate used
in the model
for future
periods
Operating
expenses
increase
year 6+
2%
2%
1.30
1.35
1 The pre-tax discount rate is recalculated 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 The underlying growth rate in 2018 was calculated excluding the effect of certain B2B contracts which were terminated during 2018 and excluding the full effect of newly acquired
Bingo brands. For further information see note 28.
The calculation of value in use for Bingo B2C and Bingo B2B units is most sensitive to the following assumptions:
(i) Revenue growth rates – growth rates are based on past experience and projections of future changes in the online gaming market.
The continued highly competitive UK Bingo market as well as the proactive steps 888 has taken to address the tighter regulatory
environment in the UK adversely impacted 2018 revenue growth. A reduction of 1.3% and 1.9% in the long-term growth rates for each of B2B
and B2C would result in zero headroom for Bingo B2B and Bingo B2C, respectively.
(ii) Cash flow forecast – cash flow projections may be affected by changes in the UK gaming market including possible economic slowdown as a
result of Brexit. A reduction of 10% and 17% in the cash flow projections for each of B2B and B2C would result in zero headroom for Bingo B2B
and Bingo B2C, respectively.
(iii) Exchange rate – Management recognises that a change in GBP/US$ currency rate can have a significant impact on available headroom.
A reduction by 2% and 11%in the GBP/US$ currency rates for each of B2B and B2C would result in zero headroom for Bingo B2B and Bingo
B2C, respectively.
114
888 Holdings plc Annual Report & Accounts 2018 12 Goodwill and other intangible assets continued
Goodwill – AAPN
The Group recognised goodwill of US$30.9 million following the acquisition of additional 53% interest in the voting shares of AAPN during
December 2018, increasing the Group’s ownership interest to 100%. The recognised goodwill reflects the potentially significant opportunities in the
US to create additional value for the Group.
Key assumptions and inputs used
The recoverable amount of the AAPN CGU has been determined from value in use calculations based on cash flow projections from formally
approved budgets. Beyond the forecast period, management has applied an annual growth rate of 2%. The forecast cash flows are particularly
uncertain as the rate of market growth in the US is dependent on both the timing of markets opening, as well as their forecast growth rates and
888’s share of those markets. Management has applied a discount rate to the cash flows which reflect the additional risks specific to the US online
gambling market. Management analysis shows the value in use is highly sensitive and reasonably possible changes in the US market size and 888’s
market share could result in an impairment of the goodwill.
Acquired intangible assets
Software licences
No impairment tests were considered to be required at 31 December 2018 and the carrying value of licences is considered to be appropriate.
Other intangible assets
No impairment tests were considered to be required at 31 December 2018 and the carrying value of other intangible assets is considered
to be appropriate.
13 Property, plant and equipment
Cost
At 1 January 2017
Additions
Disposals
At 31 December 2017
Additions
Disposals
At 31 December 2018
Accumulated depreciation
At 1 January 2017
Charge for the year
Disposals
At 31 December 2017
Charge for the year
Disposals
At 31 December 2018
Carrying amounts
At 31 December 2018
At 31 December 2017
At 1 January 2017
IT equipment
US$ million
Office furniture,
equipment and
motor vehicles
US$ million
Leasehold
improvements
US$ million
Total
US$ million
49.9
4.1
(9.9)
44.1
6.4
(3.5)
47.0
43.6
4.9
(9.9)
38.6
4.4
(3.5)
39.5
7.5
5.5
6.3
4.4
1.2
(0.1)
5.5
0.6
—
6.1
3.3
0.4
(0.1)
3.6
0.5
—
4.1
2.0
1.9
1.1
15.1
0.3
(0.2)
15.2
0.3
—
15.5
13.4
0.4
(0.2)
13.6
0.4
—
14.0
1.5
1.6
1.7
69.4
5.6
(10.2)
64.8
7.3
(3.5)
68.6
60.3
5.7
(10.2)
55.8
5.3
(3.5)
57.6
11.0
9.0
9.1
Following a review of fully written down assets, assets no longer in use with a total cost and accumulated depreciation of US$3.5 million were
written off in 2018 (2017: US$10.2 million).
115
888 Holdings plc Annual Report & Accounts 2018Financial Statements
Corporate.888.com
Notes to the Consolidated Financial Statements Continued
14 Investments
Investments in associate
The following entities meet the definition of an associate and have been equity accounted in the consolidated financial statements:
Name
Come2Play Limited
Relationship
incorporation
Country of
Effective
interest
31 December
2018
Effective
interest
31 December
2017
Associate
Israel
20%
20%
On 15 April 2015 the Group acquired 20% of the Ordinary Shares of Come2Play Limited for a cash payment of US$1.5 million. As at 31 December
2018 the Group had investment in associate of US$0.9 million (2017: US$1.1million). Further disclosures have not been provided as the investment
is not material to the Group.
A reconciliation of the movements in the Group’s interest in equity accounted associates is shown below:
At 1 January 2017
Share of post-tax loss of equity accounted joint ventures and associates
At 31 December 2017
Share of post-tax loss of equity accounted joint ventures and associates
At 31 December 2018
Investments in US joint ventures
Associates
US$ million
1.3
(0.2)
1.1
(0.2)
0.9
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 had 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.
AAPN has been equity accounted for, reflecting the Group's effective 47% interest in their consolidated results and assets.
On 10 December 2018 (“AAPN buyout day”), the Group acquired an additional 53% interest in the voting shares of AAPN Holdings LLC (‘‘AAPN”),
increasing its ownership interest to 100% for cash consideration of US$28.5 million. US$10.0 million was paid to the non-controlling shareholders
on the day of acquisition and additional US$18.5 million to be paid during the first quarter of 2019, included in the other payables as at
31 December 2018.
AAPN assets and liabilities as of 31 December 2018 are included in the consolidated balance sheet for further information, see note 11.
AAPN results were under the joint venture framework until AAPN buyout day. Starting 11 December 2018 AAPN results are included in the
consolidated income statement, the impact on 2018 consolidated income statement is not material.
Group’s share of net assets of the joint ventures as of 31 December 2017 are as follows:
Net assets of US joint ventures
Non-current assets
Current assets
Current liabilities
Net assets of joint ventures
Assets attributed to class B holders
Net assets of joint ventures attributed to the Group
Group effective interest in joint ventures
Group share of net assets of joint ventures
116
2017
US$ million
2.5
7.5
(1.1)
8.9
(8.9)
—
47%
—
888 Holdings plc Annual Report & Accounts 2018 14 Investments continued
Investments in US joint ventures continued
Group’s share of post-tax losses of the joint ventures as are as follows:
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
1 Jan 2018 –
10 Dec 2018
US$ million
2017
US$ million
2.7
(10.8)
(8.1)
(2.0)
(10.1)
47%
(4.7)
2.6
(6.1)
(3.5)
(2.0)
(5.5)
47%
(2.6)
1 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 2018 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$4.7 million
in its consolidated income statement in 2018 (2017: US$2.6 million). The total amount of unrecognised loss as of AAPN buyout day is US$13.2 million (2017: US$8.5 million).
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, is 100% owned by the Group. However, the Group considers that due to the manner in which AGN was operated under the contractual
arrangements in the JVA, it was regarded as a joint venture. During 2016 AGN surrendered its Nevada licence and ceased operation and winded
down as of 31 December 2017.
Other investments
The Group holds equity instruments designated at fair value through OCI of US$0.2 million at 31 December 2018 (31 December 2017: US$0.2 million).
15 Deferred taxes
Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial
reporting purposes and the amounts used for income tax purposes. The Group's deferred tax assets and liabilities resulting from temporary
differences, some of which are expected to be settled on a net basis, are as follows:
Deferred tax relates to the following:
Accrued severance pay
Vacation pay accrual
Property, plant and equipment
Intangible assets
Reflected in the statement of financial position as follows:
Deferred tax assets
Deferred tax liabilities
2018
US$ million
2017
US$ million
0.2
0.5
1.0
(2.6)
(0.9)
1.4
(2.3)
0.2
0.6
1.1
(0.4)
1.5
1.5
—
The Group has no tax losses at 31 December 2018 (2017: nil) that are available indefinitely for offset against future taxable profits of the companies
in which the losses arose.
Deferred tax liabilities of US$2.3 million have been recognised in respect of the fair value of acquired intangible assets recognised on acquisition
of AAPN.
117
888 Holdings plc Annual Report & Accounts 2018Financial Statements Corporate.888.com
Notes to the Consolidated Financial Statements Continued
16 Cash and cash equivalents
Cash and short-term deposits
Customer funds
Restricted short-term deposits
2018
US$ million
2017
US$ million
74.4
57.1
1.5
133.0
106.7
71.7
1.2
179.6
Customer funds represent bank deposits matched by liabilities to customers and progressive prize pools of an equal value (see note 20). Restricted
short-term deposits represent amounts held by banks primarily to support guarantees in respect of regulated markets licence requirements.
17 Trade and other receivables
Trade receivables
Other receivables
Prepayments
Current trade and other receivables
Non-current prepayments
2018
US$ million
2017
US$ million
19.0
10.3
3.7
33.0
0.8
33.8
27.8
11.4
3.9
43.1
0.8
43.9
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 25
provides credit risk disclosures on trade and other receivables.
18 Share capital
Share capital comprises the following:
Ordinary Shares of £0.005 each
1,026,387,500 1,026,387,500
8.1
8.1
Authorised
31 December
2018
Number
31 December
2017
Number
31 December
2018
US$ million
31 December
2017
US$ million
Ordinary Shares of £0.005 each at beginning of year
Issue of Ordinary Shares of £0.005 each
Ordinary Shares of £0.005 each at end of year
Allotted, called up and fully paid
31 December
2018
Number
31 December
2017
Number
31 December
2018
US$ million
31 December
2017
US$ million
359,679,561
4,604,978
358,585,958
1,093,603
364,284,539
359,679,561
3.3
—
3.3
3.2
0.1
3.3
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 22)
during 2018 and 2017:
During 2018, the Company issued 4,604,978 shares (2017: 1,093,603) out of which 60,182 shares (2017: 155,603) were issued in respect of
employees' exercising market value options giving rise to an increase in share premium of US$0.1 million (2017: US$0.2 million).
Shares issued are converted into US$ at the exchange rate prevailing on the date of issue. The issued and fully paid share capital of the Group
amounts to US$3.3 million (2017: US$3.3 million) and is split into 364,284,539 (2017: 359,679,561) Ordinary Shares. The share capital in UK sterling
(GBP) is £1.8 million (2017: £1.8 million).
118
888 Holdings plc Annual Report & Accounts 2018 19 Trade, other payables and provisions
Trade payables
Accrued expenses1
Liability in respect of AAPN buyout2
Other payables
Total trade and other payables
Provisions3
2018
US$ million
2017
US$ million
30.8
63.6
18.5
23.1
136.0
11.3
147.3
38.4
87.3
—
31.2
156.9
47.0
203.9
1 Following the receipt of tax assessments from the German tax authorities position in respect of 2015-2017 period the Group released US$10.7 million of accrual liability in respect
of VAT due relating to this period.
2 The Group acquired additional 53% interest in the voting shares of AAPN for cash consideration of US$28.5 million. US$10.0 million was paid on the day of acquisition and
additional US$18.5 million to be paid during the first quarter of 2019.
3 Includes mainly provisions in respect of regulatory matters related to legacy customers’ activity in prior periods (2017: US$47.0 million in respect of historical value added tax
relating to the provision of gaming services in Germany prior to 2015).
The carrying value of trade and other payables approximates to their fair value given the short maturity date of these balances.
Provisions
During the year, the Group recorded a provision of US$10.4 million in respect of regulatory matters related to legacy customers’ activity in prior
periods. This amount represents management’s best estimate of probable cash outflows related to these matters, which are closely monitored by
the Group.
During 2017, the Group recorded a provision for exceptional items of US$45.3 million in respect of historical value added tax relating to the
provision of gaming services in Germany prior to 2015. During 2018, following receipt of tax assessments from the Tax Authorities in Germany,
the Group paid US$24.6 million on account of this provision and released US$22.4 million of the provision, as described in note 5.
Movement in the provision during the year is as follows:
At 1 January 2018
Arising during the year
Paid during the year
Released to income statement during the period
Exchange rate
At 31 December 2018
Current
Non-current
20 Liabilities to customers and progressive prize pools
Liabilities to customers
Progressive prize pools
Total
US$ million
47.0
10.4
(24.6)
(22.4)
0.9
11.3
11.3
—
2018
US$ million
2017
US$ million
49.5
7.6
57.1
65.1
6.6
71.7
119
888 Holdings plc Annual Report & Accounts 2018Financial Statements Corporate.888.com
Notes to the Consolidated Financial Statements Continued
21 Investments in significant subsidiaries
The consolidated financial statements include the following principal subsidiaries of 888 Holdings plc:
Country of
incorporation
Percentage of
equity interest
2018
%
Name
VHL Financing Limited
VHL Financing (Malta) Limited
Cassava Enterprises (Gibraltar) Limited
Virtual Digital Services Limited
Brigend Limited
Fordart Limited
888 UK Limited
Virtual Marketing Services Italia Limited
888 Spain Public Limited Company
888 US Limited
888 Atlantic Limited
888 Liberty Limited
888 Romania Limited
888 (Ireland) Limited
888 Denmark Limited
888 Portugal Limited
888 Sweden Limited
Virtual Emerging Entertainment Limited
Gisland Limited
Virtual IP Assets Limited
Virtual Marketing Services (Gibraltar) Limited
Virtual Marketing Services (UK) Limited
Gibraltar
Malta
Gibraltar
Gibraltar
Gibraltar
Gibraltar
Gibraltar
Gibraltar
Gibraltar
Gibraltar
Gibraltar
Gibraltar
Gibraltar
Gibraltar
Gibraltar
Malta
Malta
Gibraltar
Gibraltar
BVI
Gibraltar
UK
888 US Services Inc.
New Jersey, USA
Dixie Operations Limited
Random Logic Limited
Random Logic Ventures Limited
Sparkware Technologies SRL
Virtual Internet Services Limited
Virtual Internet Services (Ireland) Limited
Virtual Share Services Limited
888 US Inc.
888 US Holdings Inc.
AAPN Holdings, LLC
AAPN New Jersey LLC
120
Antigua
Israel
Israel
Romania
Gibraltar
Ireland
Gibraltar
Delaware, USA
Delaware, USA
Delaware, USA
New Jersey, USA
Percentage of
equity interest
2017
% Nature of business
100 Holding company
100 Holding company
100 Holder of gaming licences in Gibraltar
100 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 Holder of Italian online gaming licence
100 Holder of Spanish online gaming licence
100 Holder of Interactive Gaming Service
Provider and Manufacturer licence
in the state of Nevada
100 Holder of Transactional Waiver pending
application for full licensing in the state
of New Jersey
100 Holder of Gaming Vendor License in the
state of Delaware
100 Holder of Romanian online gaming
licence
100 Holder of Irish online betting licence
100 Holder of Danish online gaming licence
100 Holder of Portuguese online
gaming licence
100 Holder of Swedish online gaming licence
100 Trademark licensor
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 Investment holding company
100 Software development
100 Data hosting and development services
100 Data hosting services
100 Administration of employee equity
schemes
100 Holder of AAPN
100 Holder of AAPN
47 Holding company (Joint venture in 2017)
47 Holder of Casino Service Industry
Enterprise licence in New Jersey (Joint
venture in 2017)
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
888 Holdings plc Annual Report & Accounts 2018 22 Share benefit charges
Equity-settled share benefit charges
As at 31 December 2018 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 (“AEP”), which expired according to its terms in August 2015, and the 888 Long-Term Incentive
Plan 2015 (“LTIP”) 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 pages 60 to 76.
In addition, on 8 May 2017, the Board adopted a Deferred Share Bonus Plan (“DSBP”) in order to allow the Company to comply with the
requirement contained in its Remuneration Policy pursuant to which any annual bonus payment made to an Executive Director in excess of 100%
of such Executive Director’s annual salary is deferred into equity awards of the Company in the form of nil cost options or share awards.
Details of equity settled shares and share options granted as part of the AEP, the LTIP and the DSBP are set out below. Shares are granted to
employees for nil consideration.
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
2018
2017
Weighted
average
exercise
price
£1.26
£1.08
£1.38
£1.08
Weighted
average
exercise
price
£1.27
£1.15
£1.28
£1.26
Number
97,968
(4,694)
(60,182)
33,092
Number
259,981
(6,410)
(155,603)
97,968
1 Of the total number of options outstanding at 31 December 2018, 33,092 had vested and were exercisable (2017: 97,968).
2 The range of exercise prices for options outstanding at 31 December 2018 is £1.02-£1.11 (2017: £1.02-£1.50).
3 The weighted average remaining contractual life at the year-end was 0.79 years (2017: 1.22 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
2018
Number
4,083,372
910,159
(141,397)
(1,273,858)
3,578,276
0.59 years
2017
Number
4,240,266
35,652
(169,213)
(23,333)
4,083,372
1.09 years
121
888 Holdings plc Annual Report & Accounts 2018Financial Statements Corporate.888.com
Notes to the Consolidated Financial Statements Continued
22 Share benefit charges continued
Deferred Share Bonus Plan
Outstanding at the beginning of the year
Shares granted during the year
Lapsed future vesting shares
Shares exercised during the year
Outstanding at the end of the year
Averaged remaining life until vesting
2018
Number
211,691
197,074
—
(70,564)
2017
Number
—
211,691
—
—
338,201
1.02 years
211,691
1.22 years
The aforementioned grants under the DSBP were approved by the Board as part of the annual bonus award to the Executive Directors for
2016-2018, pursuant to which an amount equal to 100% of salary was granted in cash, with the additional 50% of salary deferred into shares
of the Company. These grants were made on 21 March 2018 to the CEO (117,965 Shares) and CFO (79,109 Shares) and 28 June 2017 to the CEO
(130,914 Shares) and CFO (80,777 Shares), with the shares vesting in equal tranches over three years. Ordinary Shares granted for future vesting
are valued at the share price at grant date, which the Group considers approximates to the fair value. On 28 March 2018, the Group purchased
197,074 shares and on 29-30 June 2017 the Group purchased 211,691 shares on the open market at an average price of 277.9¢ per share and
255.31¢ per share, respectively, all of which were recognised as treasury shares as of 31 December 2018.
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
2018
Number
5,991,889
1,372,015
—
(3,221,775)
4,142,129
1.25 years
2017
Number
5,573,612
1,332,944
—
(914,667)
5,991,889
1.17 years
Of these grants, 50% of each are dependent on an EPS growth target, and 50% on total shareholder return (“TSR”) compared to a peer group
of companies. Further details of performance conditions that have to be satisfied on these awards are set out in the Directors’ remuneration
report on pages 60 to 76. 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.
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
2018
2017
Monte Carlo
£1.72
686,008
0.98%
26%
29%
Monte Carlo
£1.72
666,472
0.16%
31%
29%
122
888 Holdings plc Annual Report & Accounts 2018 22 Share benefit charges continued
Valuation information – shares granted
Weighted average share price at grant date
Weighted average share price at issue of shares
2018
2017
Without
performance
conditions
With
performance
conditions
Without
performance
conditions
With
performance
conditions
£2.76
£2.29
£2.70
£2.30
£2.73
£2.65
£2.73
£2.71
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 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.
Share benefit charges
Equity-settled
Equity-settled charge for the year
Total share benefit charges
2018
US$ million
2017
US$ million
8.9
8.9
8.5
8.5
23 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
2018
US$ million
2017
US$ million
3.2
0.2
4.2
7.6
4.6
0.2
4.7
9.5
Further details on Directors' remuneration are given in the Directors' Remuneration Report on pages 60 to 76.
US joint ventures
During 2018 the Group charged the US joint ventures for reimbursement of costs of US$3.9 million (2017: US$2.1 million).
123
888 Holdings plc Annual Report & Accounts 2018Financial Statements Corporate.888.com
Notes to the Consolidated Financial Statements Continued
24 Commitments
Lease commitments
Future minimum lease commitments under operating leases on properties occupied by the Group at the year-end are as follows:
Within one year
Between two and five years
More than 5 years
2018
US$ million
2017
US$ million
5.4
14.9
8.9
29.2
4.9
17.7
11.8
34.4
The expense relating to operating leases recorded in the consolidated income statement in the year was US$5.1 million (2017: US$5.1 million).
The disclosure in respect of transition to IFRS 16 is provided in note 2.
25 Financial risk management
The Group is exposed through its operations to risks that arise from use of its financial instruments. Policies and procedures for managing these
risks are set by the Board following recommendations from the Chief Financial Officer. The Board reviews the effectiveness of these procedures
and, if required, approves specific policies and procedures in order to mitigate these risks.
• The main financial instruments used by the Group, on which financial risk arises, are as follows:
• Cash and cash equivalents;
• Trade and other receivables;
• Trade and other payables;
• Customer deposits;
• Equity instruments designated at fair value through OCI.
Detailed analysis of these financial instruments is as follows:
Financial assets
Trade and other receivables1 (note 17)
Cash and cash equivalents (note 16)
Equity (note 14)
1 Excludes prepayments and non-current other receivables.
2018
US$ million
2017
US$ million
29.3
133.0
0.2
162.5
39.2
179.6
0.2
219.0
In accordance with IFRS 9, all financial assets are classified as loans and receivables. Equity investments are measured at fair value through other
comprehensive income (“FVOCI”) without subsequent recycling to income statement.
Financial liabilities
Trade and other payables1 (note 19)
Customer deposits (note 20)
1 Excludes taxes payable.
In accordance with IFRS 9, all financial liabilities are held at amortised cost.
2018
US$ million
2017
US$ million
100.7
57.1
157.8
93.8
71.7
165.5
124
888 Holdings plc Annual Report & Accounts 2018 25 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. 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 as at year-end amounting to US$0.1 million arising from a PSP failing to discharge its obligation (2017: 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 2018 was US$1.1 million (2017: US$1.4 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 the majority of its funds with highly reputable financial institutions and will not hold funds with financial institutions with a low
credit rating save for limited balances for specific operational needs. 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$162.5 million (2017: US$219.0 million).
125
888 Holdings plc Annual Report & Accounts 2018Financial Statements Corporate.888.com
Notes to the Consolidated Financial Statements Continued
25 Financial risk management continued
Liquidity risk
Liquidity risk exists where the Group might encounter difficulties in meeting its financial obligations as they become due. The Group monitors its
liquidity in order to ensure that sufficient liquid resources are available to allow it to meet its obligations.
The following table details the contractual maturity analysis of the Group's financial liabilities:
On demand
US$ million
In 3 months
US$ million
11.6
57.1
68.7
83.1
—
83.1
On demand
US$ million
In 3 months
US$ million
11.2
71.7
82.9
68.7
—
68.7
2018
Between
3 months
and 1 year
US$ million
6.0
—
6.0
2017
Between
3 months
and 1 year
US$ million
13.9
—
13.9
More than
1 year
US$ million
Total
US$ million
—
—
—
100.7
57.1
157.8
More than
1 year
US$ million
Total
US$ million
—
—
—
93.8
71.7
165.5
Trade and other payables1
Customer deposits
1 Excludes taxes payable.
Trade and other payables1
Customer deposits
1 Excludes taxes payable.
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 potential use of foreign exchange forward contracts designed to fix the economic impact of known
liabilities when considered appropriate.
At 31 December 2018 the Group does not have any open foreign exchange forward contracts.
126
888 Holdings plc Annual Report & Accounts 2018 25 Financial risk management continued
Market risk continued
Currency risk continued
The tables below detail the monetary assets and liabilities by currency:
GBP
US$ million
EUR
US$ million
ILS
US$ million
USD
US$ million
Other
US$ million
Total
US$ million
2018
Cash and cash equivalents
Trade and other receivables
Equity instruments designated at fair value
through OCI
Monetary assets
Trade and other payables
Customer deposits
Monetary liabilities
Net financial position
37.8
6.2
—
44.0
(16.2)
(8.7)
(24.9)
19.1
38.6
14.9
—
53.5
(16.1)
(17.6)
(33.7)
19.8
39.7
2.3
0.2
42.2
(46.9)
(29.0)
(75.9)
(33.7)
13.2
0.5
—
13.7
(19.9)
—
(19.9)
(6.2)
2017
3.7
5.4
—
9.1
(1.6)
(1.8)
(3.4)
5.7
133.0
29.3
0.2
162.5
(100.7)
(57.1)
(157.8)
4.7
Cash and cash equivalents
Trade and other receivables
Equity instruments designated at fair value
through OCI
Monetary assets
Trade and other payables
Customer deposits
Monetary liabilities
Net financial position
Sensitivity analysis
GBP
US$ million
EUR
US$ million
ILS
US$ million
USD
US$ million
Other
US$ million
Total
US$ million
29.5
13.9
—
43.4
(28.4)
(12.5)
(40.9)
2.5
59.5
17.3
—
76.8
(11.3)
(14.1)
(25.4)
51.4
25.8
0.4
—
26.2
(30.5)
—
(30.5)
(4.3)
56.7
2.2
0.2
59.1
(21.4)
(41.0)
(62.4)
(3.3)
8.1
5.4
—
13.5
(2.2)
(4.1)
(6.3)
7.2
179.6
39.2
0.2
219.0
(93.8)
(71.7)
(165.5)
53.5
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:
10% strengthening
10% weakening
10% strengthening
10% weakening
Interest rate risk
Year ended 31 December 2018
GBP
US$ million
EUR
US$ million
ILS
US$ million
(1.9)
1.9
(2.0)
2.0
0.6
(0.6)
Year ended 31 December 2017
GBP
US$ million
EUR
US$ million
ILS
US$ million
(0.3)
0.3
(5.1)
5.1
0.4
(0.4)
At present the Group has no borrowing. Once the Group utilise the RCF (see note 28) it will be exposed to floating rate risk however given the
magnitude of the max drawable amount under the RCF interest rate fluctuations are not expected to be significant.
The Group's exposure to interest rate risk is limited to the interest bearing deposits in which the Group invests surplus funds.
127
888 Holdings plc Annual Report & Accounts 2018Financial Statements Corporate.888.com
Notes to the Consolidated Financial Statements Continued
25 Financial risk management continued
Market risk continued
Currency risk continued
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$0.3 million (2017: US$0.35 million).
26 Fair value measurements
At 31 December 2018 and 2017, the Group’s equity investment is measured at fair value (level 2). For the remaining financial assets and liabilities,
the Group considers that the book value approximates to fair value.
There were no changes in valuation techniques or transfers between categories in the period.
27 Provisions, contingent liabilities and regulatory issues
(a) The Group operates in numerous jurisdictions. Accordingly, the Group files tax returns, provides for and pays all taxes and duties it believes
are due based on local tax laws, transfer pricing agreements and tax advice obtained. The Group is also periodically subject to audits and
assessments by local taxing authorities. Other than as provided in the Group financial statements, the Board is unable to quantify reliably any
exposure for additional taxes, if any, that may arise from the final settlement of such assessments and considers it unlikely that any further
liability will arise.
(b) In 2017, in response to an inquiry from the tax authorities in Germany relating to a legacy VAT matter, the Group disclosed a contingent liability
of US$18.5 million, relating to issues on which the Group considered that it has strong arguments but regarding which it remained possible
that there would be a cash outflow. During 2018 following further discussions with tax authorities in Germany culminating in the issuance of
tax assessments, the Board, supported by their updated legal advice, considered that the risk of cash outflow in respect of these services is
remote, and therefore the contingent liability no longer exists. The Board has reserved its position and all legal rights, based on the legal advice
received. The foregoing is in addition to a provision of US$45.3 million (39.6 million Euro) recorded in the 2017 consolidated income statement,
on account of which the Group paid US$24.6 million and released US$22.4 million during the year.
(c) 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.
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 the outflow of funds that may result, if any. For matters where an outflow of
funds is probable and can be measured reliably, amounts have been recognised in the financial statements within Provisions. Except for the
regulatory matters described in notes 5 and 19, these amounts are not material at 31 December 2018,
28 Events after the reporting period
Acquisitions after the reporting period
On 19 February 2019, the Group announced the signing of an agreement for the acquisition of certain assets of Jet Management Group Limited
and Jet Media Limited (together, "Jet") for consideration of £18.0 million. Jet is part of the group of companies headed by JPJ Group plc, which
owns the Jackpotjoy brands. The consideration of £18.0 million will be satisfied all in cash, with £12.0 million being paid to Jet upon closing of the
acquisition and the remainder of £6.0 million to be paid in September 2019.
Jet has been a partner of Dragonfish, the Group's B2B Bingo division, since 2009 with brands including Costa Bingo, City Bingo and Sing Bingo.
The acquisition will give the Group full control of these successful brands from a marketing perspective to support and further strengthen the
Group's position in the UK online bingo market.
On 4 March 2019, the Group announced the acquisition of BetBright's sports betting platform for £15.0 million. The acquisition strengthens 888's
product and technology capabilities and will support the long-term development strategy for 888sport.
The Directors are still in the process of performing a fair valuation of the acquisitions.
Revolving credit facility
During 2019, 888 has finalised a revolving credit facility with Barclays Bank plc of up to US$50.0 million in order to finance its M&A activities in
the short term.
128
888 Holdings plc Annual Report & Accounts 2018
Company Balance Sheet
At 31 December 2018
Assets
Non-current assets
Investments in subsidiaries
Deferred tax assets
Current assets
Trade and other receivables
Income tax receivable
Cash and cash equivalents
Total assets
Equity and liabilities
Equity
Share capital
Share premium
Treasury shares
Retained earnings1
Total equity
Liabilities
Current liabilities
Trade and other payables
Income tax payable
Non-current liabilities
Loan payable to subsidiaries
Total liabilities
Total equity and liabilities
Note
2018
US$ million
2017
US$ million
2
10
3
4
4
4
5
9
48.3
0.7
49.0
78.9
—
—
78.9
127.9
3.3
3.6
(1.2)
61.8
67.5
19.5
10.5
30.0
30.4
60.4
127.9
40.5
0.6
41.1
27.9
1.0
0.1
29.0
70.1
3.3
3.5
(0.7)
45.6
51.7
13.4
5.0
18.4
—
18.4
70.1
1
Includes net profit of the Company for the year ended 31 December 2018 of US$64.2 million (31 December 2017: US$22.2 million).
The financial statements on pages 129 to 133 were approved and authorised for issue by the Board of Directors on 12 March 2019 and were signed
on its behalf by:
Itai Pazner
Chief Executive Officer
Aviad Kobrine
Chief Financial Officer
The notes on pages 132 and 133 form part of these financial statements.
129
888 Holdings plc Annual Report & Accounts 2018Financial Statements
Corporate.888.com
Company Statement of Changes in Equity
For the year ended 31 December 2018
Balance at 1 January 2017
Profit and total comprehensive income for the year
Dividend paid (note 9)
Issue of shares (note 4)
Acquisition of treasury shares (note 4)
Equity settled share benefit charges (note 8)
Balance at 31 December 2017
Profit and total comprehensive income for the year
Dividend paid (note 9)
Issue of shares (note 4)
Acquisition of treasury shares (note 4)
Exercise of deferred share bonus plan
Equity settled share benefit charges (note 8)
Balance at 31 December 2018
Share
capital
US$ million
Share
premium
US$ million
Treasury
shares
US$ million
Retained
earnings
US$ million
Total
U $ million
3.2
—
—
0.1
—
—
3.3
—
—
—
—
—
—
3.3
3.3
—
—
0.2
—
—
3.5
—
—
0.1
—
—
—
3.6
—
—
—
—
(0.7)
—
(0.7)
—
—
—
(0.8)
0.3
—
(1.2)
85.4
22.2
(70.5)
—
—
8.5
45.6
64.2
(56.6)
—
—
(0.3)
8.9
61.8
91.9
22.2
(70.5)
0.3
(0.7)
8.5
51.7
64.2
(56.6)
0.1
(0.8)
—
8.9
67.5
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.
Treasury shares – represent reacquired own equity instruments. Treasury shares are recognised at cost and deducted from equity.
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 132 and 133 form part of these financial statements.
130
888 Holdings plc Annual Report & Accounts 2018 Company Statement of Cash Flows
For the year ended 31 December 2018
Cash flows from operating activities:
Profit before tax
Adjustments for:
Share benefit charges
Interest costs
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
Acquisition of treasury shares
Loan received from subsidiaries
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 132 and 133 form part of these financial statements.
Note
2018
US $ million
2017
US $ million
8
3, 5
3
5
4
4
9
9
71.3
0.8
0.4
(42.8)
0.2
(2.0)
27.9
(0.7)
27.2
0.1
(0.8)
30.0
(56.6)
(27.3)
(0.1)
0.1
—
24.9
0.6
—
46.4
(0.1)
(0.8)
71.0
—
71.0
0.3
(0.7)
—
(70.5)
(70.9)
0.1
—
0.1
131
888 Holdings plc Annual Report & Accounts 2018Financial Statements
Corporate.888.com
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 cost 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.
Under Section 288 of the Gibraltar Companies Act 2014, the Company is exempt from the requirement to present its own income statement.
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.
2 Investments in subsidiaries
The Company's principal subsidiaries are listed in note 21 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 net movement in investment in subsidiaries during the year was US$7.8 million (2017: US$2.6
million) included within this were share-based payment charges of US$7.8 million in 2017 (2017: US$2.3 million), which is net of US$0.3 million
intragroup recharges related to share based payment schemes (2017: US$5.5 million). No capital contribution during the year (2017: US$0.3m) in
respect of incorporation of a new subsidiary.
3 Trade and other receivables
Amounts due from subsidiaries
Other receivables and prepayments
2018
US$ million
2017
US$ million
78.7
0.2
78.9
27.5
0.4
27.9
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 18 to the consolidated financial statements are consistent with those for the Company, including capital management in
note 25 to the consolidated financial statements.
132
888 Holdings plc Annual Report & Accounts 2018 5 Trade and other payables
Trade payables
Amounts due to subsidiaries
Other payables and accrued expenses
2018
US$ million
2017
US$ million
0.6
16.3
2.6
19.5
0.1
8.2
5.1
13.4
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.
6 Financial risk management
To the extent relevant to Company’s financial assets and liabilities (see notes 2, 3 and 5), the Company’s financial risk management objectives and
policies are consistent with those of the Group as disclosed in note 25 to the consolidated financial statements.
7 Contingent liabilities
The disclosures in note 27 to the consolidated financial statements are consistent with those for the Company.
Loan payable to subsidiaries are made on terms equivalent to those that prevail in arm’s length transactions.
8 Share benefit charges
The disclosures in note 22 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 23 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$72.2 million (2017: US$22.2 million) and paid to its shareholders dividends totalling US$56.6 million (2017: US$70.5 million). See note 10 to the
consolidated financial statements.
Share benefit charges in respect of options and shares of the Company awarded to employees of subsidiaries totalled US$8.1 million (2017: US$7.9
million). During the year the Company charged its subsidiary for cost of awards for US$0.3 million (2017: US$5.5 million).
During the year the Company borrowed a US$30.0 million from its subsidiaries and recorded a US$0.4 million interest expenses in respect of
the loan. During 2017 subsidiaries of the company supported it in funding US$2.9 million of the Company’s costs. At 31 December 2018, the net
amounts owed by subsidiaries to the Company were US$62.4 million (2017: US$19.3 million).
10 Deferred taxes
Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial
reporting purposes and the amounts used for income tax purposes. The Company's deferred tax assets and liabilities resulting from temporary
differences, some of which are expected to be settled on a net basis, are as follows:
Deferred tax assets (liabilities)
Property, plant and equipment
Intangible assets
2018
US$ million
2017
US$ million
1.0
(0.3)
0.7
1.0
(0.4)
0.6
133
888 Holdings plc Annual Report & Accounts 2018Financial Statements Corporate.888.com
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:
• Latest information on the Group's
share price
• Information on the Group's
financial performance
• News and events
The following websites can also be accessed
through the Group's main website
www.888.com or are available directly.
Casino
888's Casino games are offered through its
888casino, live casino and Costacasino:
• 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.888vipcasinoclub.com
• www.costagames.com
• www.slotcrazy.com
• www.fantasticspins.com
• www.skyhighslots.com
• www.slotsforce.com
• www.costagames.com
• www.slotcrazy.com
• www.fantasticspins.com
• www.skyhighslots.com
• www.slotsforce.com
Bingo
888's Bingo offering is through 888ladies,
Wink and Costabingo and others:
Italy
888's Italy Casino games and Sport are offered
through its Italian regulated website
• www.888ladies.com
• www.winkbingo.com
• www.poshbingo.co.uk
• www.tastybingo.com
• www.redbusbingo.com
• www.bingostreet.com
• www.bigbrotherbingo.com
• www.jammyduck.com
• www.daisybingo.com
• www.888bingo.com
• www.deepseabingo.com
• www.sweetshopbingo.com
• www.costabingo.com
• www.realdealbingo.com
• www.singbingo.com
• www.citybingo.com
• www.riobingo.com
• www.wishbingo.com
• www.angrybingo.com
• www.treasurebingo.com
• www.monkeybingo.com
• www.giantbingo.com
• www.dinobingo.com
• www.sparklybingo.com
• www.frozenbingo.com
• www.farmyardbingo.com
• www.seasonbingo.com
• www.crocodilebingo.com
• www.kingdomofbingo.com
• www.rewindbingo.com
• www.bringobingo.com
• www.fancybingo.com
Sportsbook
888's Sportsbook offering is through 888sport
• 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.888games.com
Responsible gaming:
The Group's dedicated site focusing
on responsible gaming
• www.888responsible.com
Poker
888's Poker offering is through 888poker
• www.888sport.com
USA
888's New Jersey Poker and Casino games
are offered through its US regulated website
• US.888Poker.com
• US.888Casino.com
• US.888.com
Spain
888's Spain Poker, Casino games and
Sport are offered through its Spanish
regulated website
• www.888.es
• www.888poker.es
• www.888casino.es
• www.888sport.es
• www.888poker.com
• www.PacificPoker.com
134
888 Holdings plc Annual Report & Accounts 2018 Notes
135
888 Holdings plc Annual Report & Accounts 2018Financial Statements Corporate.888.com
Notes
136
888 Holdings plc Annual Report & Accounts 2018 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
Link Asset Services
The Registry
34 Beckenham Road
Beckenham
Kent
BR3 4TU
UK
Tel: 0871 664 0300
www.signalshares.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
Latham & Watkins
99 Bishopsgate
London
EC2M 3XF
UK
Hassans
7/63 Line Wall Road
Gibraltar
Herzog Fox Neeman
Asia House
4 Weizman Street
Tel Aviv
Israel 64239
Design & Production
www.carrkamasa.co.uk
Corporate.888.com
888 Holdings plc
Suite 601/701 Europort
Europort Road
Gibraltar
T +350 20049800
F +350 20048280
E info@888holdingsplc.com
corporate.888.com
138
888 Holdings plc Annual Report & Accounts 2018