vtt} Annual Report and Accounts webisholdings plc vtt } www.webisholdingsplc.com Welcome to Webis Holdings plc webisholdings plc Webis Holdings plc has a growing global customer base, placing bets on a wide variety of sports, through fixed odds and pari-mutuel, as well as wagering in our casinos and games suites. CIN A R E S R O H • • G • • • FOR M G U A L 1 • PLACE YOUR BETS G R E Y HO UND RACIN Contents Business Overview Chairman’s Statement Operational Review Directors and Advisers Directors’ Report Corporate Governance Statement of Directors’ Responsibilities Report of the Remuneration Committee Report of the Independent Auditors Consolidated Income Statement Consolidated and Company Balance Sheet 14 15 16 Statement of Changes in Shareholders’ Equity 17 Consolidated Statement of Cash Flows Notes to the Accounts Notice of Meeting 18 19 34 01 02 04 06 07 09 11 12 webisholdings plc BUSINESS OVERVIEW Webis Holdings plc Annual Report and Accounts 2009 01 ••• • S I N N E T • S U • L F O OTBAL P L A C E Y O U R S P B E T S O R TS• •GOLF•• Our customers place bets on all the major global sports — football, US sports, golf, tennis, formula 1, greyhound and horse racing. Our growing range of wagering opportunities reflects the diversity of sports played around the world. Our subsidiaries are: betinternet.com (IOM) Limited European Wagering Services Limited – the operator of the betinternet.com sportsbook – the operator of the link2bet.com pari-mutuel portal, which provides opportunities for our customers to wager on an expanding variety of website and a provider of pari-mutuel technology services to our global client base, utilising our Isle of sporting events, combined with casinos, slots and Man-based totalisator hub. fixed-odds games. 16964WEBISHOL.indd 01 16964 21/09/09 Proof 6 21/09/2009 14:05 02 CHAIRMAN’S STATEMENT vtt } www.webisholdingsplc.com “It has been another positive year for Webis Holdings and to be able to report the Company’s most successful set of results ever in the face of a global downturn clearly demonstrates that the board’s strategies continue to be set correctly for the business.” Introduction It gives me great pleasure to report the results of Webis Holdings plc for the financial year ended 31 May 2009. The Company has again generated strong growth during the year and this is reflected in a 20% increase in Group turnover to £140m (2008: £117m) and a £542,000 increase in EBITDA to £757,000 (2008: £215,000). The Group also generated a pre-tax profit of £452,000 (2008: £347,000 loss). During the year, the Company made a number of advances within its pari-mutuel operation, European Wagering Services Limited (“EWS”) and its sportsbook operation, betinternet.com (IOM) Limited (“betinternet”) despite the challenging global economic climate. European Wagering Services EWS’ business model has remained resilient and the operation has successfully widened its sources of income across its call centre, internet and B2B revenue streams and is now generating good growth through the upgraded link2bet.com website, which was launched in September 2008. The strategy of bringing website development work in-house has had a positive impact as this has enabled us to maintain better control over our schedule of planned program enhancements. The board anticipates that business through the website will continue to be the key growth area for EWS in the forthcoming year and plans to invest in additional development resource to enable us to further improve our customers’ experience within a shorter timeframe. As planned, we have upgraded some of our EWS technical hardware systems to assist with the integration of additional payment solutions to the link2bet website. These upgrades have the added benefit of enhancing reliability and access to the hub for our B2B customers and provide us with a platform to build future improvements more speedily and effectively. In addition to these technical advances, increasing racetrack content has also been a continuing key focus of the EWS operation. The previously notified approval to use Churchill Downs and Magna racetrack content is still pending, whilst the board reviews the potential impact of Magna Entertainment Corp’s unexpected filing for Chapter 11 bankruptcy in the United States. We continue to monitor developments and assess our position in relation to this matter. EWS has built up a strong relationship with its California-based racetrack settlement agent and this has resulted in a more efficient and cost-effective collection process. Recently, a small number of minor racetracks in the US have entered administration, indicating how the economic downturn is impacting leisure spend in the US. EWS has a limited exposure to racetrack failures and the board regularly monitors its position on a track-by-track basis to keep this exposure to a minimum. betinternet The betinternet.com sportsbook saw growth in full year turnover, particularly during the second half as a result of an increased marketing spend and the introduction of a new affiliates’ scheme that was launched in November 2008. The Company’s strategy has been to commit to a sustained run of horse racing sponsorship to re-establish the betinternet brand in the UK and Ireland. We have now been sponsoring regularly for over 18 months, predominantly at ‘tier-one’ racetracks including Ascot, Newmarket and Sandown Park. This sponsorship brings us strongly targeted brand exposure, especially where there is the added benefit of terrestrial television coverage in the UK and it is pleasing to see that this strategy continues to attract new customers to the website. Our horse racing betting turnover has gone from zero in 2007 to represent over 11% of our overall turnover in the last month of the financial year, with the majority of this business having been generated by new customers. Another instant contributor to our sportsbook’s growth has been the introduction of an enhanced ‘In-Running’ football offering, which allows our customers the opportunity to bet on matches as they are being played. We are now able to provide 16964WEBISHOL.indd 02 16964 21/09/09 Proof 6 21/09/2009 14:05 webisholdings plc Webis Holdings plc Annual Report and Accounts 2009 03 a number of different betting markets on a substantially increased number of live matches and have recruited specific ‘In-Running’ traders to augment this improved service. Our new affiliate scheme has made a strong positive impact on our rate of customer acquisition. We are now offering a very competitive revenue share to affiliates for sign-ups through this scheme and are working closely with our affiliate partner, Income Access, to make our offering more attractive. Overview of Results The results for the financial year ended 31 May 2009 show Group turnover increased to £140m (2008: £117m) and gross profit increased by 21% to £3.4 million (2008: £2.8m), representing a slightly improved gross margin of 2.43% (2008: 2.38%). Earnings at EBITDA level increased to £757,000 (2008: £215,000) and operating profit of £475,000 (2008: £34,000) was achieved. Operating expenses rose slightly for the year to £2.6m (2008: £2.5m) as we continued with our commitment to invest in sportsbook marketing. We have also improved our technical systems by investing in hardware upgrades for both EWS and betinternet which have added resilience and enhanced security within our customer-facing systems. Excluding marketing, our general expenses are in line with 2008. The board anticipates a decrease in expenditure as our requirement for office space has significantly reduced, following the relocation off-site of our website hosting. Our existing leases are due to expire during the forthcoming year and we anticipate negotiating lower cost accommodation. Convertible Loan Note As announced in the Interim Report, the Company has agreed to extend the repayment date of a £300,000 convertible loan note with Burnbrae Ltd, from 23 February 2009 to 23 February 2011. Proposed resolutions at the forthcoming AGM At the forthcoming AGM, shareholders are being asked to consider and support a Special Resolution, the details of which are below. I would request that shareholders pay particular attention to resolution 6, which outlines the board’s intention, subject to shareholder approval, to apply for court approval in due course to cancel the share premium account, thereby partially offsetting historical accumulated losses and enabling the board to utilise any future distributable reserves for the declaration and subsequent payment of dividends, as and when appropriate. Summary It has been another positive year for Webis Holdings and to be able to report the Company’s most successful set of results ever in the face of a global downturn clearly demonstrates that the board’s strategies continue to be set correctly for the business. We expect that the forthcoming year will provide us with continued expansion opportunities within both our sportsbook and EWS operations and we approach it with buoyed confidence. My thanks go to the employees of Webis Holdings for their continued commitment and contribution throughout this successful year. Further analysis of the results is presented in the Operational Review on page 4. Denham Eke Chairman 16964WEBISHOL.indd 03 16964 21/09/09 Proof 6 21/09/2009 14:05 04 OPERATIONAL REVIEW vtt } www.webisholdingsplc.com “This year has been another period of strong growth for Webis Holdings plc, both in fi nancial and non-fi nancial terms. The Company has reached a position where it is able to take advantage of the opportunities available to an expanding global gaming company . . .” This year has been another period of strong growth for Webis Holdings plc, both in financial and non-financial terms. The Company has reached a position where it is able to take advantage of the opportunities available to an expanding global gaming company and, as outlined in further detail below, I believe that we have made good progress in capitalising on these opportunities this year, both within our pari-mutuel operation, European Wagering Services (“EWS”) and our sportsbook, betinternet.com (“betinternet”). These results, which include the Company’s highest operating profit in its history, have also been achieved in a year when the economic downturn has had a significant adverse impact on many industries. Although the gaming sector will never be completely immune to these external influences, it remains resilient, as it is able to offer alternative forms of entertainment for customers who choose to ‘stay at home’ more often than previously. With technology improving at such a fast rate, home entertainment, including online gaming, has become a compelling alternative to many traditional leisure activities. The advance of the ‘Smartphone’ now also offers the Company a new route to market that provides a significantly enhanced user experience for our customers and the Company plans to take advantage of this key growth opportunity in the new financial year. Now that the Company is cash-generative, it is also in a considerably stronger position to take advantage of this and other future developments in the sector. Our pari-mutuel business, EWS, has remained our prime source of earnings during the financial year. It has continued to provide a very stable base and the developments to our link2bet.com website have been key to generating a better balance of EWS’ revenues across our three routes to market – call centre, website and direct hub access. The implementation of easy-to-use payment solutions for our website customers has been a crucial step forward and towards the end of the reporting period, following on from the website enhancements made, we initiated some low-level targeted marketing for link2bet. We have continued to invest in EWS’ technology, installing an additional hardware component which enables us to maximise our channels of distribution for both end-user customers and B2B solutions. We expect to have our hosting solution resolved in due course and we are currently considering alternatives that had not previously been available, the overriding aim being to choose a solution that maximises the long-term benefits to the Company and our customers. The betinternet sportsbook has shown encouraging growth in turnover that bodes well for the future. In particular, we generated increased revenues in our sports betting channel, following the launch in November 2008 of our updated affiliates’ scheme. We are also pleased with the response to our new ‘In-Running’ football module that offers additional betting markets whilst matches are in progress. Since the launch of this product in February 2009, we now regularly offer ‘In-Running’ betting on approximately three times as many matches than previously and this is generating a sustained increase in betinternet’s overall turnover and margin. Another success has been the increased turnover that we are generating on horse racing. We have been promoting a number of attractive offers to customers to achieve this increase, such as ‘Best Odds Guaranteed’. Whilst these promotions have an effect on margin, the board views this investment as key to its long-term strategy for the business. Our sponsorship programme at UK racetracks has been ongoing throughout the year and continues to bring us strong brand association and recognition in our target markets. We have budgeted for a similar strategy in the forthcoming year. Although betinternet’s overall margin was impacted by a series of poor football results towards the end of the European season and a reduction in our casino contributions at around the same time, we believe that we are making good progress in taking this part of our business forward. 16964WEBISHOL.indd 04 16964 21/09/09 Proof 6 21/09/2009 14:05 webisholdings plc Webis Holdings plc Annual Report and Accounts 2009 05 Results The Group achieved a profit for the period of £452,000 compared to a loss of £347,000 last year. The Group generated an operating profit of £475,000 (2008: £34,000). Operating expenses remained in line with expectations. Within the financial year we were able to allocate funds to enable us to make a number of hardware upgrades for both EWS and betinternet. Current trading and outlook EWS’ trading has performed in line with the board’s expectations throughout the first quarter of the new financial year, despite evidence of an overall downturn in US pari- mutuel wagering. Following the re-launch of the link2bet website, EWS has tested various online marketing activities, mainly through targeted online advertising banners in thoroughbred and greyhound media. The overall effect of this activity, combined with the website improvements, has been encouraging, with a 31% increase in active customers using the link2bet service and with online turnover increasing by 26% in the first quarter compared with the same period last year. The new players recruited have generated a higher margin for EWS and are helping to move EWS’ business mix significantly away from its historical reliance on ‘high-roller’ customers. The board is optimistic about the outlook for EWS for the rest of the year. Following the positive results of the test marketing, we will be rolling out further targeted marketing activities, specifically aimed at recruiting recreational horse racing players. Our aim is to increase customer numbers on the site and improve the overall margin derived from on- line wagering. In addition, following the investment in the hardware and wagering platform, we believe that EWS is now better positioned to benefit from business development opportunities, mainly in the form of recruiting new B2B clients requiring direct access to a wagering hub. We are in the process of introducing more automated systems for betinternet that will further reduce reliance on time- consuming, labour intensive processes. This will also allow us to expand our offering to customers, especially in the ‘In Running’ area on sports other than football, which in turn will enhance our competitive position. In August 2009, we launched a ‘Smartphone’ application for betinternet that has been optimised for the iPhone and will also work on most mobile browsers. The board is of the view that most consumers will have browser-based mobile phones within the next two years and it makes most sense to develop an application that is future-proof, rather than trying to support a myriad of different handsets using differing technologies. The launch of this additional route to market has been well received by our customers, especially in Asia. Whilst there has been no major football tournament this summer, the impact on betinternet’s turnover was less than in previous years as we are now generating higher turnover from our horse racing offering than previously. We have recently commissioned external reports on the usability and search engine performance of the betinternet.com website and plan to allocate development resource with a view to identifying further improvements in these specific areas during the forthcoming year. In summary, the board believes that betinternet and EWS have the opportunity to further increase their market share in the forthcoming year. We continue to seek innovative ways to achieve this and the Group is now in a much stronger position to implement the board’s long-term strategy for the business. Garry Knowles Managing Director 16964WEBISHOL.indd 05 16964 21/09/09 Proof 6 21/09/2009 14:05 06 vtt } www.webisholdingsplc.com DIRECTORS AND ADVISERS D H N Eke, aged 58 Non-executive Chairman Denham Eke began his career in Stockbroking before moving into Corporate Planning for a major UK Insurance Broker. He is a director of many years’ standing of both Public and Private companies involved in the retail, manufacturing and financial services sectors. Mr Eke was appointed Chairman in April 2003. G Knowles, aged 42 Managing Director Garry Knowles has 20 years’ experience in the gaming industry having worked for the William Hill Organisation for 15 years, most recently as Deputy Manager for their International Call Centre in the Isle of Man. Latterly, Garry held the position of Director of Customer Relations for MGM Mirage Online before joining betinternet as Head of Trading Operations in November 2003. Mr Knowles joined the board in June 2005. J Mellon, aged 52 Non-executive Director Jim Mellon is the founding and principal shareholder and non- executive director of Regent Pacific Group Limited. In addition, he is the founding and principal shareholder and director of Charlemagne Capital Limited. Earlier in his career he worked for GT Management in the United States and in Hong Kong and later became the co-founder and managing director of Tyndall Holdings plc. He is currently a director of Fixed Odds Group Limited and a variety of other investment companies. Mr Mellon joined the board in July 2004. D Waddington, aged 38 Finance Director Damon Waddington FCCA joined the Group in February 2006 as Financial Controller. He previously held the position of Financial Controller within the Fortis Group. Prior to that Damon worked for a London-based firm of Chartered Accountants. Mr Waddington joined the board in September 2006. Directors D H N Eke, Chairman G Knowles, Managing Director J Mellon, Non-executive Director D Waddington, Finance Director Secretary D Waddington Registered Offi ce Viking House, Nelson Street Douglas, Isle of Man, IM1 2AH Principal Bankers Barclays Bank, Barclays House Victoria Street, Douglas Isle of Man, IM1 1HN Auditors KPMG Audit LLC Chartered Accountants Heritage Court, 41 Athol Street Douglas, Isle of Man, IM99 1HN Nominated Adviser and Broker Evolution Securities, Kings House 1 Kings Street, Leeds, LS1 2HH UK Transfer Agent Capita Registrars The Registry, 34 Beckenham Road Beckenham, Kent, BR3 4TU 16964WEBISHOL.indd 06 16964 21/09/09 Proof 6 21/09/2009 14:05 webisholdings plc DIRECTORS’ REPORT The di rectors present their annual report and the audited financial statements for the period ended 31 May 2009. Principal activities The Group operates as a licensed sports bookmaker providing a worldwide internet service. The Group also operates a pari- mutuel service to individual and business customers, utilising its totalisator facility in the Isle of Man. Business review The Group operates on a worldwide basis and provides internet facilities in respect of a wide variety of sporting events. A more detailed review of the business, its results and future developments is given in the Chairman’s Statement and Operational Review on pages 2 and 4, respectively. Proposed dividend The directors do not propose the payment of a dividend (2008: nil). Policy and practice on payment of creditors It is the policy of the Group to agree appropriate terms and conditions for its transactions with suppliers by means of standard written terms to individually negotiated contracts. The Group seeks to ensure that payments are always made in accordance with these terms and conditions. At the year end there were 4 days (2008: 54 days) purchases in trade creditors. Directors’ interests D H N Eke G Knowles J Mellon D Waddington Webis Holdings plc Annual Report and Accounts 2009 07 Financial risks Details relating to financial risk management are shown in note 22 to the accounts. Directors and directors’ interests The directors who held office during the period and to date were as follows: D H N Eke Chairman G Knowles Managing Director J Mellon Non-executive D Waddington Finance Director The director retiring by rotation is Mr D Waddington who, being eligible, offers himself for re-election. The directors who held office at the end of the period had the following interests in the ordinary shares of the Company and options to purchase such shares arising from incentive schemes: Ordinary Shares Options Interest at end of period 2009 — 200,000 Interest at Interest Interest at start of at end of start of period period period 2008 2009 2008 — — — — 14,000,000 14,000,000 — — — 3,000,000 108,359,465 98,510,577 18,290 18,290 Mr Mellon’s interests are more fully described in the note below (Substantial interests). Further details of the options issued to the executive directors are contained in the Report of the Remuneration Committee on pages 12 and 13. 16964WEBISHOL.indd 07 16964 21/09/09 Proof 6 21/09/2009 14:05 08 vtt } www.webisholdingsplc.com DIRECTORS’ REPORT continued Substantial interests On 6 August 2009 the following interests in 3% or more of the Company’s ordinary share capital had been reported: Burnbrae Limited Hargreaves Lansdown (Nominees) Limited Mill Properties Limited Rock Holding Limited % 52.38 4.91 3.22 4.46 Number of ordinary shares 108,341,465 10,153,359 6,660,125 9,228,357 The board has been informed that Mr J Mellon is a beneficiary of a trust that holds the entire share capital of Burnbrae Limited. Separately, Mr Mellon is also interested in 18,000 ordinary shares in the Company. Annual General Meeting Shareholders will be asked to approve at the Annual General Meeting certain resolutions as special business. Some of these resolutions have become routine business at the Annual General Meetings of most public companies, including your Company, and relate to the renewal of the authority for the directors to allot relevant securities and the renewal of the powers for the directors to allot equity securities for cash. Employees The Group is committed to a policy of equal opportunity in matters relating to employment, training and career development of employees and is opposed to any form of less favourable treatment afforded on the grounds of disability, sex, race or religion. The Group recognises the importance of ensuring employees are kept informed of the Group’s performance, activities and future plans. Political and charitable contributions The Group made no political contributions nor donations to charities during the year. Auditor KPMG Audit LLC, being eligible, have expressed their willingness to continue in office in accordance with Section 12(2) of the Isle of Man Companies Act 1982. By order of the board D Waddington 23 September 2009 16964WEBISHOL.indd 08 16964 21/09/09 Proof 6 21/09/2009 14:05 webisholdings plc Webis Holdings plc Annual Report and Accounts 2009 09 CORPORATE GOVERNANCE The C ompany is committed to high standards of corporate governance. The board is accountable to the Company’s shareholders for good corporate governance. This statement describes how the principles of corporate governance are applied to the Company. 1. Directors The Company is controlled through the board of directors which comprises two executive and two non-executive directors. The Chairman is mainly responsible for the conduct of the board, and he, together with the Managing Director, seeks to ensure that all directors receive sufficient relevant information on financial, business and corporate issues prior to meetings. The Managing Director, in conjunction with his executive colleague, is responsible for co-ordinating the Company’s business and implementing strategy. None of the non-executive directors are deemed to be independent, although the board intends to appoint at least one independent director at an appropriate time. Shareholders are encouraged to contact the Chairman should they require clarification on any aspect of the Company’s business. All directors are able to take independent professional advice in furtherance of their duties if necessary. The board has a formal schedule of matters reserved for it and meets six times per year. It is responsible for overall Group strategy, acquisition and divestment policy, approval of major capital expenditure projects and consideration of significant financing matters. It monitors the exposure to key business risks including legislative, jurisdictional and major liability management issues. The board approves the annual budget and the progress towards achievement of the budget. The board also considers employee issues and key appointments. It also seeks to ensure that all directors receive appropriate training on appointment and then subsequently as appropriate. All directors will submit themselves for re-election at least once every three years. The board has established two standing committees, both of which operate within defined terms of reference. The committees established are the Audit Committee and the Remuneration Committee. The board does not consider it necessary for a Company of its size to establish a standing Nominations Committee. Instead the board’s policy in relation to board appointments is for the Chairman to agree selection criteria with all board members and use independent recruitment consultants to initiate the search for candidates. The final decision on appointments rests with the full board. 2. Directors’ Remuneration The Report of the Remuneration Committee is set out on pages 12 and 13 of the report and accounts. 3. Relations with Shareholders The Company encourages two-way communication with both its institutional and private investors and attempts to respond quickly to all queries received verbally or in writing. The board has sought to use the Annual General Meeting to communicate with private investors and encourages their participation. 4. Financial Reporting The performance and financial position of the Company are provided in the Chairman’s Statement on pages 2 and 3, the Operational Review on pages 4 and 5 and the Directors’ Report on pages 7 and 8. These enable the board to present a balanced and understandable assessment of the Company’s position and prospects. The directors’ responsibilities for the financial statements are described on page 11. Internal Control The board believes it has controls in place which have established an ongoing process for identifying, evaluating and managing the significant risks faced by the Group. In this regard, the board seeks to work closely with the Company’s auditors. The board also acknowledges that it has overall responsibility for reviewing the effectiveness of internal control. It believes that senior management within the Group’s operating businesses should also contribute in a substantial way and this has been built into the process. 16964WEBISHOL.indd 09 16964 21/09/09 Proof 6 21/09/2009 14:05 10 vtt } www.webisholdingsplc.com CORPORATE GOVERNANCE continued There are inherent limitations in any system of internal control and, accordingly, even the most effective system can provide only reasonable, and not absolute, assurance with respect to the preparation of financial information and the safeguarding of assets. The system adopted by the board manages rather than eliminates the risk of failure to achieve business objectives. In carrying out its review of the effectiveness of internal control in the Group the board takes into consideration the following key features of the risk management process and system of internal control: n Risks are identified which are relevant to the Group as a whole and encompass all aspects of risk including operational, compliance, financial and strategic. n The board seeks to identify, monitor and control the significant risks to an acceptable level throughout the Group. In order to do so the Audit Committee, acting on behalf of the board, reviews risk matters at each meeting of the Audit Committee. n The Group operates a comprehensive budgeting and financial reporting system which, as a matter of routine, compares actual results with budgets. Management accounts are prepared for each operating activity and the Group on a monthly basis. Material variances from budget are thoroughly investigated. In addition, the Group’s profitability forecast is regularly updated based on actual performance as the year progresses. A thorough reforecast exercise is undertaken following production of the half-year accounts. n Cash flow forecasts are regularly prepared to ensure that the Group has adequate funds and resources for the foreseeable future. n Risks are identified and appraised through the annual process of preparing these budgets. n Steps have been taken to embed internal control and risk management into the operations of the business and to deal with areas of improvement which come to management’s and the board’s attention. This process is continuing to increase risk awareness throughout the Group. Audit Committee The Audit Committee comprises the non-executive directors and is chaired by Mr D H N Eke. The committee acts in an advisory capacity to the board and meets not less than twice a year. Its terms of reference require it to take an independent view of the appropriateness of the Group’s accounting controls, policies and procedures. The committee also reviews and approves the reports, appointment and fees of the external auditors, and meets its external auditors at least once a year. Additional meetings may be requested by the auditors. Going Concern As more fully explained in note 1.1 to the accounts on page 19, and after making enquiries, the directors have formed a judgement, at the time of approving the financial statements, that there is a reasonable expectation that the Group has adequate resources to continue in operational existence for the foreseeable future. For this reason, the directors continue to adopt the going concern basis in preparing the financial statements. Internal Audit The directors have reviewed the need for an internal audit function and believe that the Group is not of sufficient size and complexity to require such a function. 16964WEBISHOL.indd 10 16964 21/09/09 Proof 6 21/09/2009 14:05 webisholdings plc Webis Holdings plc Annual Report and Accounts 2009 11 STATEMENT OF DIRECTORS’ RESPONSIBILITIES IN RESPECT OF THE DIRECTORS’ REPORT AND THE FINANCIAL STATEMENTS The di rectors are responsible for preparing the Directors’ Report and the accounts in accordance with applicable law and regulations. Company law requires the directors to prepare accounts for each financial year, which meet the requirements of Isle of Man Company law. In addition, the directors have elected to prepare the accounts in accordance with International Financial Reporting Standards. The accounts are required by law to give a true and fair view of the state of affairs of the Group and Parent Company and of the profit or loss of the Group for that period. In preparing these accounts, the directors are required to: n select suitable accounting policies and then apply them consistently; n make judgements and estimates that are reasonable and prudent; n state whether applicable International Financial Reporting Standards have been followed, subject to any material departures disclosed and explained in the accounts; and n prepare the accounts on the going concern basis unless it is inappropriate to presume that the Group and Parent Company will continue in business. The directors are responsible for keeping proper accounting records that disclose with reasonable accuracy at any time the financial position of the Parent Company and to enable them to ensure that the financial statements comply with the Isle of Man Companies Acts 1931 to 2004. They have general responsibility for taking such steps as are reasonably open to them to safeguard the assets of the Group and to prevent and detect fraud and other irregularities. The directors are responsible for the maintenance and integrity of the corporate and financial information included on the Company’s website. Legislation governing the preparation and dissemination of financial statements may differ from one jurisdiction to another. 16964WEBISHOL.indd 11 16964 21/09/09 Proof 6 21/09/2009 14:05 12 vtt } www.webisholdingsplc.com REPORT O F THE REMUNERATION COMMITTEE Introduction This report has been prepared to accord as far as possible with the Directors’ Remuneration Report Regulations 2002 which introduced new statutory requirements for UK public companies in relation to the disclosure of directors’ remuneration in respect of periods ending on or after 31 December 2002. This report also attempts to meet, as far as is practicable for a Company of Webis Holdings’ size, the relevant requirements of the Listing Rules of the UK Financial Services Authority and describes how the board has applied the Principles of Good Governance relating to directors’ remuneration. As required by the Regulations, a resolution to approve the report will be proposed at the Annual General Meeting of the Company at which the financial statements will be approved. Remuneration Committee The Company has an established Remuneration Committee which has a formal constitution and is composed of the non- executive directors of the Company under the Chairmanship of D H N Eke. No director plays a part in any discussion about his own remuneration. Remuneration Policy The Remuneration Committee’s policy is to ensure that the remuneration packages offered are competitive and designed to attract, retain and motivate executive directors of the right calibre. The major elements of the remuneration package for the executive directors are: n Basic annual salary and benefits. n Eligibility to participate in an annual bonus scheme, when such scheme operates. n Share option incentives. n Contribution to a pension plan. The committee seeks to ensure that bonus and share option incentives have a strong link with individual performance. Basic Salary The level of basic annual salary and benefits is determined by the Committee, taking into account the performance of the individual and information from independent sources on the rates of salary for similar jobs in comparable companies. Annual Bonus Payments Although no bonus scheme operated during the period under review, it is anticipated that a scheme will operate when Group profitability and cash flow allow. Bonuses for the executive directors are calculated with reference to the profit before tax as disclosed in the audited accounts of the Group, together with an assessment by the Committee of the director’s performance against agreed personal targets. Bonus payments are not pensionable. Share Options The Committee believes that share ownership by executives strengthens the link between their personal interests and those of shareholders. The Company currently operates four share option schemes, although it is intended that following the adoption of the 2005 Share Option Plan, no further options will be issued under these schemes. Options are granted to executives periodically at the discretion of the Remuneration Committee. The grant of share options is not subject to fixed performance criteria. This is deemed to be appropriate as it allows the Committee to consider the performance of the Group and the contribution of the individual executives and, as with annual bonus payments, illustrates the relative importance placed on performance related remuneration. Pensions The Group does not intend to contribute to the personal pension plans of directors in the forthcoming period. Service Contracts During the period under review, the service contract of Mr G R Knowles provided for a notice period of six months by all parties and that of Mr D Waddington for a notice period of three months by all parties. 16964WEBISHOL.indd 12 16964 21/09/09 Proof 6 21/09/2009 14:05 webisholdings plc Webis Holdings plc Annual Report and Accounts 2009 13 Aggregate Directors’ Remuneration The total amounts for directors’ remuneration were as follows: Emoluments — salaries, bonus and taxable benefits — fees Contributions to pensi on plans Directors’ Emoluments Executive D Waddington G R Knowles Non-executive D H N Eke* J Mellon Aggregate emoluments * Paid to Burnbrae Limited. Basic salary £000 85 105 — — 190 Termination payments £000 Fees £000 Taxable benefits £000 — — 24 15 39 — — — — — — — — — — Details of the options outstanding at 31 May 2009 are as follows: 2009 £000 190 39 — 229 2009 Total £000 85 105 24 15 2008 £000 173 24 — 197 2008 Total £000 77 96 24 — 229 197 Name of director G R Knowles (a) 2005 Share Option Plan (b) 2005 Share Option Plan (c) 2005 Share Option Plan D Waddington (a) 2005 Share Option Plan (Lapsed) / 25 May granted in period 2008 31 May 2009 Exercise price Date from which exercisable Expiry date 1,500,000 9,000,000 3,500,000 — 1,500,000 — 9,000,000 — 3,500,000 3,000,000 17,000,000 — 3,000,000 — 17,000,000 10.4p 5p 18 March 2015 30 March 2016 6.0565p 20 September 2009 20 September 2016 18 March 2008 30 March 2009 4.775p 7 November 2010 7 November 2017 The market price of the shares at 29 May 2009 (the last closing price prior to the period end) was 2.875p. The range during the period was 1.50p to 3.125p. Approval The report was approved by the board of directors and signed on behalf of the board. D H N Eke Chairman 23 September 2009 16964WEBISHOL.indd 13 16964 21/09/09 Proof 6 21/09/2009 14:05 14 vtt } www.webisholdingsplc.com REPORT OF THE INDEPENDENT AUDITORS, KPMG AUDIT LLC, TO THE MEMBERS OF WEBIS HOLDINGS plc We have audited the Group and Parent Company accounts (the “accounts”) of Webis Holdings plc for the period ended 31 May 2009 which comprise the Group Income Statement, the Group and Parent Company Balance Sheets, the Group Statement of Cash Flows, the Group and Parent Company Statements of Changes in Equity, and the related notes. These accounts have been prepared under the accounting policies set out therein. This report is made solely to the Company’s members, as a body, in accordance with section 15 of the Companies Act 1982. 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. Respective responsibilities of Directors and Auditors The Directors’ responsibilities for preparing the accounts in accordance with applicable Isle of Man Company law and International Financial Reporting Standards are set out in the Statement of Directors’ Responsibilities on page 11. Our responsibility is to audit the accounts in accordance with relevant legal and regulatory requirements and International Standards on Auditing (UK and Ireland). We report to you our opinion as to whether the accounts give a true and fair view and are properly prepared in accordance with the Companies Acts 1931 to 2004. We also report to you if, in our opinion, the Company has not kept proper accounting records, or if we have not received all the information and explanations we require for our audit. We read the Directors’ Report and any other information accompanying the accounts and consider whether it is consistent with the audited accounts. We consider the implications for our report if we become aware of any apparent misstatements or material inconsistencies with the audited accounts. Our responsibilities do not extend to any other information. Basis of opinion We conducted our audit in accordance with International Standards on Auditing (UK and Ireland) issued by the UK Auditing Practices Board. An audit includes examination, on a test basis, of evidence relevant to the amounts and disclosures in the financial statements. It also includes an assessment of the significant estimates and judgements made by the directors in the preparation of the accounts, and of whether the accounting policies are appropriate to the Group and Company’s circumstances, consistently applied and adequately disclosed. We planned and performed our audit so as to obtain all the information and explanations which we considered necessary in order to provide us with sufficient evidence to give reasonable assurance that the accounts are free from material misstatement, whether caused by fraud or other irregularity or error. In forming our opinion, we also evaluated the overall adequacy of the presentation of information in the accounts. Opinion In our opinion: n the accounts give a true and fair view, in accordance with International Financial Reporting Standards, of the state of the Group and Parent Company’s affairs as at 31 May 2009 and of the Group’s profit for the period then ended; and n the accounts have been properly prepared in accordance with the Isle of Man Companies Acts 1931 to 2004. KPMG Audit LLC Chartered Accountants Heritage Court, 41 Athol Street Douglas, Isle of Man, IM99 1HN 23 September 2009 16964WEBISHOL.indd 14 16964 21/09/09 Proof 6 21/09/2009 15:18 webisholdings plc Webis Holdings plc Annual Report and Accounts 2009 15 CONSOLIDATED IN COME STATEMENT for the period ended 31 May 2009 Turnover Cost of sales Betting duty paid Gross profit Administration expenses Earnings before interest, tax, depreciation and amortisation Depreciation and amortisation Share-based payment costs Total operating profit Amounts written off investments Net finance cost Tax Retained profit/(loss) for the period Basic earnings/(loss) per share (pence) Diluted earnings/(loss) per share (pence) The notes on pages 19 to 33 form part of these financial statements. Note 2 3 5 4 6 8 9 9 2009 £000 140,149 (136,718) (33) 3,398 (2,641) 757 (247) (35) 475 — (23) — 452 0.22 0.21 2008 £000 117,185 (114,402) (25) 2,758 (2,543) 215 (161) (20) 34 (321) (60) — (347) (0.17) (0.17) 16964WEBISHOL.indd 15 16964 21/09/09 Proof 6 21/09/2009 14:05 16 vtt } www.webisholdingsplc.com CONSOLIDATED AND COMPANY BALANCE SHEET as at 31 May 2009 Non-current assets Intangible assets — goodwill Intangible assets — other Property and equipment Investments Total non-current assets Current assets Trade and other receivables Cash and cash equivalents Total current assets Current liabilities Bank overdraft Trade and other payables Convertible loan note Total current liabilities Non-current liabilities Convertible loan note Total liabilities Net assets/(liabilities) Shareholders’ equity Called up share capital Share premium account Share option reserve Profit and loss account Total shareholders’ equity 2009 Group £000 2009 Company £000 2008 Group £000 2008 Company £000 Note 10 11 12 13 14 15 16 16 17 43 295 110 — 448 713 1,502 2,215 (205) (1,464) — — 4 4 701 709 31 459 490 — (1,060) — (1,669) (1,060) (300) (1,969) 694 2,068 9,927 84 (300) (1,360) (161) 2,068 9,927 84 43 231 119 — 393 647 1,018 1,665 (59) (1,492) (300) (1,851) — (1,851) 207 2,068 9,927 49 — 14 40 701 755 28 257 285 — (901) (300) (1,201) — (1,201) (161) 2,068 9,927 49 (11,385) (12,240) (11,837) (12,205) 694 (161) 207 (161) The financial statements were approved by the board of directors on 23 September 2009. D H N Eke Director G R Knowles Director The notes on pages 19 to 33 form part of these financial statements. 16964WEBISHOL.indd 16 16964 21/09/09 Proof 6 21/09/2009 14:05 webisholdings plc Webis Holdings plc Annual Report and Accounts 2009 17 STATEMENT OF CHANGES IN SHAREHOLDERS’ EQUITY for the period ended 31 May 2009 Group Balance as at 27 May 2007 Issue of ordinary shares Share-based payments — share options Loss for the period Balance as at 25 May 2008 Share-based payments — share options Profit for the period Balance as at 31 May 2009 Company Balance as at 27 May 2007 Issue of ordinary shares Share-based payments — share options Loss for the period Balance as at 25 May 2008 Share-based payments — share options Loss for the period Balance as at 31 May 2009 The notes on pages 19 to 33 form part of these financial statements. Called up Share Share option Regained shareholders’ Total share capital premium £000 1,970 98 — — 2,068 — — 2,068 £000 9,600 327 — — 9,927 — — 9,927 reserve £000 29 — 20 — 49 35 — 84 earnings £000 (11,490) — — (347) (11,837) — 452 (11,385) equity £000 109 425 20 (347) 207 35 452 694 Total Called up Share Share option Regained shareholders’ share capital premium £000 1,970 98 — — 2,068 — — 2,068 £000 9,600 327 — — 9,927 — — 9,927 reserve £000 29 — 20 — 49 35 — 84 earnings £000 (11,322) — — (883) (12,205) — (35) (12,240) equity £000 277 425 20 (883) (161) 35 (35) (161) 16964WEBISHOL.indd 17 16964 21/09/09 Proof 6 21/09/2009 14:05 18 vtt } www.webisholdingsplc.com CONSOLIDATED STATEMENT OF CASH FLOWS for the period ended 31 May 2009 Net cash inflow from operating activities Cash flows from investing activities Interest received Acquisition of investment Purchase of intangible assets Purchase of property and equipment Net cash outflow from investing activities Cash flows from financing activities Issue of equity shares Interest paid Net cash (outflow)/inflow from financing activities Net increase in cash and cash equivalents Cash and cash equivalents at beginning of period Net cash and cash equivalents at end of period Cash and cash equivalents comprise Cash and deposits Bank overdraft Cash generated from operations Profit from operations Adjusted for: Depreciation and amortisation Share-based payment cost (Increase)/decrease in receivables (Decrease)/increase in payables Net cash inflow from operating activities The notes on pages 19 to 33 form part of these financial statements. Note 11 12 2009 £000 663 7 — (236) (66) (295) — (30) (30) 338 959 1,297 1,502 (205) 1,297 475 247 35 (66) (28) 663 2008 £000 598 5 (8) (163) (64) (230) 425 (65) 360 728 231 959 1,018 (59) 959 34 161 20 165 218 598 16964WEBISHOL.indd 18 16964 21/09/09 Proof 6 21/09/2009 14:05 webisholdings plc Webis Holdings plc Annual Report and Accounts 2009 19 NOTES TO THE ACCOUNTS for the period ended 31 May 2009 1 Reporting entity Webis Holdings plc is a company domiciled in the Isle of Man. The address of the Company’s registered office is Viking House, Nelson Street, Douglas, Isle of Man, IM1 2AH. The Group’s consolidated financial statements as at and for the period ended 31 May 2009 consolidate those of the Company and its subsidiaries (together referred to as “the Group”). 1.1 Basis of Preparation (a) Statement of compliance The consolidated financial statements have been prepared in accordance with International Financial Reporting Standards (“IFRSs”) and its interpretations adopted by the International Accounting Standards Board (“IASB”). New significant standards and interpretations not yet adopted A number of new standards, amendments to standards and interpretations are not yet effective for the period ended 31 May 2009, and have not been applied in preparing these consolidated financial statements: International Accounting Standards (IAS/IFRS) IFRS 2 IFRS 3 IFRS 8 IAS 1 IAS 16 IAS 23 Amendments to IFRS 2: share-based payment – vesting conditions and cancellations Business combinations Operating segments Presentation of financial statements (revised) Amendments to IAS 16: property, plant and equipment Borrowing costs (revised) Effective date (accounting periods commencing on or after) 1 January 2009 1 July 2009 1 January 2009 1 January 2009 1 January 2009 1 January 2009 IFRS 8 Operating Segments introduces the “management approach” to segment reporting. IFRS 8, which becomes mandatory for the Group’s 2010 financial statements, will require the disclosure of segment information based on the internal reports regularly reviewed by the Group’s directors in order to assess each segment’s performance and to allocate resources to them. Currently the Group presents segment information in respect of its business units. Under the management approach, the Group will present information in respect of the Sportsbook and Pari-mutuel activities. Revised IAS 1 Presentation of Financial Statements (2007) introduces the term “total comprehensive income”, which represents changes in equity during a period other than those changes resulting from transactions with owners in their capacity as owners. Total comprehensive income may be presented in either a single statement of comprehensive income (effectively combining both the income statement and all non-owner changes in equity in a single statement), or in an income statement and a separate statement of comprehensive income. Revised IAS 1, which becomes mandatory for the Group’s 2010 consolidated financial statements, is expected to have a significant impact on the presentation of the consolidated financial statements. The Group plans to provide total comprehensive income in a single statement of comprehensive income for its 2010 consolidated financial statements. (b) Basis of measurement and functional currency The Group consolidated financial statements are presented in Pounds Sterling, rounded to the nearest thousand. They are prepared under the historical cost convention except where assets and liabilities are required to be stated at their fair value. (c) Use of estimates and judgement The preparation of Group financial statements in conformity with IFRS requires management to make judgements, estimates and assumptions that affect the application of policies and reported amounts of assets and liabilities, income and expenses. Although these estimates are based on management’s best knowledge and experience of current events and expected economic conditions, actual results may differ from these estimates. The directors believe the models and assumptions used to calculate the fair value of the share-based payments, outlined in note 17, are the most appropriate for the Group. The accounting policies set out below have been applied consistently to all periods presented in these consolidated financial statements. Going concern The directors have prepared projected cash flow information for the next 12 months and are satisfied that the Group has adequate resources to meets its obligations as they fall due. The directors consider that it is appropriate that these financial statements are prepared on the going concern basis. 1.2 Summary of significant accounting policies The principal accounting policies applied in the preparation of these consolidated financial statements are set below. These policies have been consistently applied to all the years presented unless otherwise stated. Basis of consolidation (i) The consolidated financial statements incorporate the results of Webis Holdings plc and its subsidiaries. Subsidiaries are consolidated from the date of acquisition, being the date on which the Group obtains control, and continue until the date that such control ceases. Control exists when the Group has the power, directly or indirectly, to govern the financial and operating policies of an entity so as to obtain benefits from its activities. 16964WEBISHOL.indd 19 16964 21/09/09 Proof 6 21/09/2009 14:05 20 vtt } www.webisholdingsplc.com NOTES TO THE ACCOUNTS continued for the period ended 31 May 2009 1.2 Summary of significant accounting policies continued (ii) Intra-group balances and transactions, and any unrealised income and expenses arising from intra-group transactions, are eliminated in preparing the consolidated financial statements and income and expenses arising from intra-group transactions are eliminated in preparing the consolidated financial statements. acquisition of subsidiaries. Goodwill is included in non-current assets. Goodwill is reviewed annually for impairment and is carried at costs less accumulated impairment losses. Goodwill arising on acquisitions before the transition date of 29 May 2006 has been retained at the previous UK GAAP value and is no longer amortised but is tested annually for impairment. Foreign currency translation The Group’s financial statements are presented in Pounds Sterling, which is the Company’s functional and presentational currency. All subsidiaries of the Group have Pounds Sterling as their functional currency. Intangible assets — Other Other intangible assets comprise website design and development costs and software licences and are stated at acquisition cost less accumulated amortisation. Carrying amounts are reviewed at each balance sheet date for impairment. Foreign currency transactions are translated into the functional currency using the approximate exchange rate prevailing at the dates of transactions. Foreign exchange gains and losses resulting from the settlement of foreign currency transactions and from the translation at the period end exchange rate of monetary assets and liabilities denominated in foreign currencies are recognised in the income statement. Non-monetary assets and liabilities that are measured in terms of historical costs in a foreign currency are translated using the exchange rate at the date of the transaction. Non-monetary assets and liabilities denominated in foreign currencies that are stated at fair value are translated into the functional currency using the exchange rates ruling at the date fair value was determined. Revenue recognition and turnover Turnover represents the amounts staked in respect of bets placed by customers on events which occurred during the period. Cost of sales represents payouts to customers, together with Betting Duty payable and commissions and royalties payable to agents and suppliers of software. Open betting positions are carried at fair market value. Segmental reporting Segmental reporting is based on the business areas in accordance with the Group’s internal reporting structure. Financing costs Interest payable on borrowings is calculated using the effective interest rate method. Deferred income tax Deferred taxation is provided in full, using the liability method, on timing differences arising between the tax bases of assets and liabilities and their carrying amounts in the consolidated financial statements. Deferred income tax is determined using tax rates (and laws) that have been enacted or substantially enacted by the balance sheet date and are expected to apply when the related deferred tax is realised. Deferred tax assets are recognised to the extent that it is probable that future taxable profit will be available against which the temporary differences can be utilised. Intangible assets — Goodwill Goodwill represents the excess of fair value consideration over the fair value of the identifiable assets and liabilities acquired, arising on the Costs that are directly attributable to the development of websites are recognised as intangible assets provided that the intangible asset will generate probable economic benefits and income streams through external use in line with SIC 32 “Intangible assets — website costs”. Content development and operating costs are expensed as incurred. Careful judgement by the directors is applied when deciding whether recognition requirements for development costs have been met and whether the assets will generate probable future economic benefits. Amortisation is calculated using the straight-line method, at annual rates estimated to write off the assets over their expected useful lives as follows: Website design & development Software licences 33.33% 33.33% Property, plant and equipment Items of property, plant and equipment are stated at historical cost less accumulated depreciation (see below) and impairment losses. Historical cost includes expenditure that is directly attributable to the acquisition of the items. The assets’ residual values and useful lives are reviewed, and adjusted if appropriate, at the balance sheet date. An asset’s carrying amount is written down immediately to its recoverable amount if the asset’s carrying amount is greater than its estimated recoverable amount. Assets are depreciated over their expected useful lives as follows: Equipment Fixtures & fittings 33.33% 33.33% Impairment of assets Goodwill arising on acquisitions and other assets that have an indefinite useful life and are not subject to amortisation are reviewed at least annually for impairment. Other intangible assets, property, plant and equipment are reviewed for impairment whenever there is an indication that the carrying amount of the asset may not be recoverable. If the recoverable amount of an asset is less than its carrying amount, an impairment loss is recognised. Recoverable amount is the higher of fair value less costs to sell and value in use. 16964WEBISHOL.indd 20 16964 21/09/09 Proof 6 21/09/2009 14:05 webisholdings plc Webis Holdings plc Annual Report and Accounts 2009 21 1.2 Summary of significant accounting policies continued If at the Balance Sheet date there is any indication that an impairment loss is recognised in prior periods for an asset other than goodwill that no longer exists, the recoverable amount is reassessed and the asset is reflected at the recoverable amount. Share-based payments For all the employee share options granted after 7 November 2002 and vesting on or after 29 May 2006, an expense is recognised in the income statement with a corresponding credit to equity. The equity share-based payment is measured at fair value at the date of the grant. Fair value is determined by reference to option pricing models, principally the Black–Scholes model. If vesting periods or other vesting conditions apply, the expense is allocated over the vesting period, based on the best available estimate of the number of share options expected to vest. Leasing Payments made under operating leases are charged to the income statement on a straight-line basis over the period of the lease. Equity Share capital is determined using the nominal value of shares that have been issued. The share premium account includes any premiums received on the initial issuing of the share capital. Any transaction costs associated with the issuing of shares are deducted from the premium paid. Equity-settled share-based employee remuneration is credited to the share option reserve until related stock options are exercised. On exercise or lapse, amounts recognised in the share option reserve are taken to retained earnings. Retained earnings include all current and prior period results as determined in the income statement and any other gains or losses recognised in the Statement of Changes in Equity. Financial instruments Non-derivative financial instruments include trade and other receivables, cash and cash equivalents, loans and borrowings and trade and other payables. Ante-post sports bets are recognised when the Group becomes party to the contractual agreements of the instrument. Financial assets and financial liabilities are recognised on the Group’s balance sheet when the Group becomes party to the contractual terms of the instrument. Transaction costs are included in the initial measurement of financial instruments, except financial instruments classified as at fair value through profit and loss. The subsequent measurement of financial instruments is dealt with below. Trade and other receivables Trade and other receivables do not carry any interest and are stated at their nominal amounts as reduced to equal the estimated present value of the future cash flows. Cash and cash equivalents Cash and cash equivalents defined as cash in bank and in hand as well as bank deposits, money held for processors and cash balances held on behalf of players. Cash equivalents are held for the purpose of meeting short term cash commitments rather than for investment or other purposes. Bank borrowings Interest bearing bank borrowings and overdrafts are recorded at the proceeds received net of direct issue costs. Finance charges, including premiums payable on settlement or redemption and direct issue costs are charged on an accrual basis using the effective interest method and are added to the carrying amount of the instrument to the extent they are not settled in the period in which they arise. Trade and other payables Trade and other payables are non-interest bearing and are stated at amortised cost. Convertible loans Convertible loan notes are interest bearing and are stated at amortised cost. The convertible loan note has been classified fully as a liability in the balance sheet, as in the view of the directors it does not meet the definition under International Accounting Standard 32 for an element to be disclosed under equity. Equity instruments Equity instruments issued by the Group are recorded at proceeds received, net of direct costs. Ante-post sports bets The Group may have at any point in time, an exposure on ante-post sports bets. These bets meet the definition of a financial liability under International Accounting Standard 32 “Financial Instruments: Presentation”, and therefore are recorded initially at fair value, and subsequently at amortised cost using the effective interest method. 16964WEBISHOL.indd 21 16964 21/09/09 Proof 6 21/09/2009 14:05 22 vtt } www.webisholdingsplc.com NOTES TO THE ACCOUNTS continued for the period ended 31 May 2009 2 Segmental Analysis Turnover Sportsbook Pari-mutuel Profit/(loss) before tax Sportsbook Pari-mutuel Group Net assets Sportsbook Pari-mutuel Group 3 Share-based payment costs Share options Far East UK & Ireland Europe Rest of the World United States 2009 £000 80,682 9,228 11,404 6,557 32,278 140,149 (41) 531 (38) 452 21 1,115 (442) 694 2009 £000 35 35 2008 £000 66,714 9,253 8,319 2,476 30,423 117,185 (416) 393 (324) (347) 62 584 (439) 207 2008 £000 20 20 4 Amounts written off investments In November 2007 the Group wrote off its investment in Global Coreports Limited, an Isle of Man-based gaming software developer. In the absence of further funding the Company was unable to continue trading. 5 Total operating profit Group operating profit is stated after charging/(crediting): Auditors’ remuneration: Group — audit Company — audit Depreciation of property and equipment Amortisation of intangible assets Exchange (gains)/losses Operating lease rentals — other than plant and equipment Directors’ fees 2009 £000 77 52 74 172 (78) 108 39 2008 £000 73 52 59 102 53 108 24 16964WEBISHOL.indd 22 16964 21/09/09 Proof 6 21/09/2009 14:05 webisholdings plc Webis Holdings plc Annual Report and Accounts 2009 23 6 Net finance costs Bank interest receivable Bank interest payable Loan interest payable Net finance costs 7 Staff numbers and cost Average number of employees (including directors) The aggregate payroll costs of these persons were as follows: Wages and salaries Social security costs Share-based costs 2009 £000 7 7 (7) (23) (30) (23) 2009 35 2009 £000 957 98 35 2008 £000 5 5 (24) (41) (65) (60) 2008 36 2008 £000 997 100 20 1,090 1,117 8 Tax on loss on ordinary activities No provision for tax is required for either the current or previous period, due to the zero per cent corporate tax regime in the Isle of Man. Unprovided deferred tax was £nil (2008: £nil). 16964WEBISHOL.indd 23 16964 21/09/09 Proof 6 21/09/2009 14:05 24 vtt } www.webisholdingsplc.com NOTES TO THE ACCOUNTS continued for the period ended 31 May 2009 9 Earnings per ordinary share The calculation of the basic earnings per share is based on the earnings attributable to ordinary shareholders divided by the weighted average number of shares in issue during the period. The calculation of diluted earnings per share is based on the basic earnings per share, adjusted to allow for the issue of shares, on the assumed conversion of all dilutive share options. An adjustment for the dilutive effect of share options and convertible debt in the previous period has not been reflected in the calculation of the diluted loss per share, as the effect would have been anti-dilutive. Profit/(loss) for the period Weighted average number of ordinary shares in issue Diluted number of ordinary shares Basic earnings/(loss) per share Diluted earnings/(loss) per share 10 Intangible assets — Goodwill Group Cost Balance at 25 May 2008 Additions during the period Balance at 31 May 2009 Amortisation and impairment At 25 May 2008 Amortisation for the period At 31 May 2009 Net book value At 25 May 2008 and 31 May 2009 2009 £000 452 No. 2008 £000 (347) No. 206,826,667 200,674,485 226,498,798 200,674,485 0.22 0.21 (0.17) (0.17) Goodwill £000 43 — 43 — — — 43 The above goodwill relates to the acquisition of the pari-mutuel business which is both a cash generating unit and a reportable segment. The recoverable amount of goodwill on the pari-mutuel business unit has been determined based on a value in use calculation using cash flow projections based on financial budgets approved by the directors. 16964WEBISHOL.indd 24 16964 21/09/09 Proof 6 21/09/2009 14:05 webisholdings plc Webis Holdings plc Annual Report and Accounts 2009 25 11 Intangible assets — Other Cost Balance at 25 May 2008 Additions during the period Balance at 31 May 2009 Amortisation and Impairment At 25 May 2008 Amortisation for the period At 31 May 2009 Net book value At 31 May 2009 At 25 May 2008 12 Property and equipment Group Cost At 25 May 2008 Additions Disposals At 31 May 2009 Depreciation At 25 May 2008 Charge for the period At 25 May 2009 Net book value At 31 May 2009 At 25 May 2008 Company Cost At 25 May 2008 Additions Disposals At 31 May 2009 At 25 May 2008 Charge Disposals At 31 May 2009 Net book value At 31 May 2009 At 25 May 2008 Software & development costs Group £000 Company £000 2,070 236 2,306 1,839 172 2,011 295 231 Computer Fixtures & equipment £000 fittings £000 1,171 45 — 1,216 1,070 62 1,132 84 101 260 21 — 281 242 13 255 26 18 Computer Fixtures & equipment £000 fittings £000 263 — — 263 223 36 — 259 4 40 79 — — 79 79 — — 79 — — 29 — 29 15 10 25 4 14 Total £000 1,431 66 — 1,497 1,312 75 1,387 110 119 Total £000 342 — — 342 302 36 — 338 4 40 16964WEBISHOL.indd 25 16964 21/09/09 Proof 6 21/09/2009 14:05 26 vtt } www.webisholdingsplc.com NOTES TO THE ACCOUNTS continued for the period ended 31 May 2009 13 Investments Company As at 25 May 2008 and 31 May 2009 Details of investments at 31 May 2009 are as follows: Investment in subsidiary companies £000 701 Subsidiaries Country of incorporation Activity Holding (%) European Wagering Services Limited Isle of Man Operation of interactive wagering totaliser hub Technical Facilities & Services Limited Isle of Man Provision of IT & betting systems to betinternet.com (IOM) Limited betinternet UK.com Limited Isle of Man England Group companies Sportsbook trading company Holder of UK bookmaker’s permit non-trading betinternet.com NV Netherlands Antilles Licence holder for games and casinos 14 Trade and other receivables Trade receivables VAT recoverable Other receivables and prepayments 15 Trade and other payables Trade payables Amounts due to Group undertakings Deferred income Income tax and national insurance Accruals and other payables Group Company 2008 £000 581 12 54 647 2009 £000 1 — 30 31 Group Company 2008 £’000 1,145 — 31 36 280 1,492 2009 £’000 — 917 — — 143 1,060 2009 £000 579 — 134 713 2009 £’000 1,235 — 7 8 214 1,464 Amounts due to Group undertakings are unsecured, interest free and repayable on demand. 100 100 100 100 100 2008 £000 4 2 22 28 2008 £’000 140 595 — — 166 901 16964WEBISHOL.indd 26 16964 21/09/09 Proof 6 21/09/2009 14:05 webisholdings plc Webis Holdings plc Annual Report and Accounts 2009 27 16 Convertible loan note Convertible loan note Group and Company 2009 £’000 300 2008 £’000 300 The Group issued a £300,000 secured convertible loan note to Burnbrae Limited on 23 February 2007. The loan note is secured over all the assets and undertakings of the Group and bears interest at LIBOR plus 4%. The loan was due to be repaid on 23 February 2009 but the Group has agreed with Burnbrae Limited to extend the loan facility, under the same terms, for a further two years and it is now repayable on 25 February 2011. 17 Share Capital Authorised Ordinary shares of 1p each Allotted, issued and fully paid At 25 May 2008: ordinary shares of 1p each Issued during the period At 31 May 2009: ordinary shares of 1p each Options Movements in share options during the period ended 31 May 2009 were as follows: At 25 May 2008 — 1p ordinary shares Options granted Options lapsed Options exercised At 31 May 2009 — 1p ordinary shares Details of options at 31 May 2009 were as follows: 1998 Share Option Plan 1998 Share Option Plan 2005 Share Option Plan 2005 Share Option Plan 2005 Share Option Plan 2005 Share Option Plan Price per share Options granted 23.15p 23.15p 10.4p 5.0p 6.0565p 4.775p 56,000 32,000 1,500,000 9,000,000 3,500,000 3,000,000 17,088,000 No. 400,000,000 206,826,667 — 206,826,667 2009 £000 4,000 2,068 — 2,068 2008 £000 4,000 1,970 98 2,068 No. 17,588,000 — (500,000) — 17,088,000 Exercisable between September 2003 and September 2010 April 2003 and April 2010 March 2008 and March 2015 March 2009 and March 2016 September 2009 and September 2016 November 2010 and November 2017 16964WEBISHOL.indd 27 16964 21/09/09 Proof 6 21/09/2009 14:05 28 vtt } www.webisholdingsplc.com NOTES TO THE ACCOUNTS continued for the period ended 31 May 2009 17 Share Capital continued In April 2009, options to subscribe for 500,000 Ordinary 1p shares, which were exercisable from April 2002 to April 2009, and granted under the terms of the 1998 Share Option Plan, lapsed. The fair value of services received in return for share options granted is based on the fair value of share options granted, measured using the Black–Scholes model with the following inputs: Share price at date of grant Option exercise price at date of grant Expected volatility Option life Expected dividends Risk-free interest rate varies from varies from 2005 Share Option Plan 0.04775 to 0.104p 0.04775 to 0.104p 20% 3.5 years 0% 4.60% Expected volatility was determined by calculating the historical volatility of the Company’s weighted average share price over the period. The expected life used has been adjusted based on management’s best estimate for the effects of non-transferability, exercise restrictions and behavioural considerations. Expense in profit and loss account: Share options 2009 £000 35 35 2008 £000 20 20 18 Contingent Liabilities By the nature of the business, a stake can be received from a customer in respect of some event happening in the future, and hence the level of any actual liability to the Group cannot be assessed until after that event has occurred, although the maximum potential liability can be determined. As at the balance sheet date there were £7,333 (2008: £31,410) of such stakes that had been received where the event to which they related was after the balance shee date. Accordingly, such amount has been reflected as deferred income in the balance sheet (see note 15). The maximum possible liability on deferred bets is £0.07m (2008: £5.16m). 19 Capital Commitments As at 31 May 2009, the Group had no capital commitments (2008: £nil). 20 Operating lease commitments At 31 May 2009, the Group was committed to making the following payments during the next period in respect of operating leases: Leases which expire within one year Leases which expire between one and two years Leases which expire between two and five years 2009 £000 73 — — 2008 £000 — 108 — 16964WEBISHOL.indd 28 16964 21/09/09 Proof 6 21/09/2009 14:05 webisholdings plc Webis Holdings plc Annual Report and Accounts 2009 29 21 Related party transactions Rental and service charges of £87,740 (2008: £107,369) and loan interest of £22,919 (2008: £41,101) were charged by Burnbrae Limited during the period. 22 Financial risk management Capital structure The Group’s capital structure is as follows: Cash and cash equivalents Loans and similar income Net funds Shareholders’ equity Capital employed 2009 £000 (1,297) 300 (997) 694 (303) 2008 £000 (959) 300 (659) 207 (452) The Group’s principal financial instruments comprise cash and cash equivalents, trade receivables and payables that arise directly from its operations. The Group also has a bank overdraft facility and convertible loan note. The main purpose of these financial instruments is to finance the Company’s operations. The existence of the financial instruments exposes the Group to a number of financial risks, which are described in more detail below. The principal risks which the Group is exposed to relate to liquidity risks, credit risks, interest rate risks and foreign exchange risks. Liquidity risk Liquidity risk is the risk that the Group will be unable to meet its financial obligations as they fall due. The Group’s objective is to maintain continuity of funding through trading and share issues but to also retain flexibility through the use of an overdraft facility and short term loans. Management controls and monitors the Group’s cash flow on a regular basis, including forecasting future cash flow. Banking facilities are kept under review and renegotiated where necessary to meet the Group’s requirements. In order to provide customers with the reassurance that repayment requests are immediately met, the Group seeks to ensure that its cash balances plus amounts held by host tracks on behalf of customers exceed the balances due to customers. On this measure there was a surplus of £519,000 (2008: surplus of £548,000) at the period end. The directors anticipate that the business will continue to generate positive cash flow in the forthcoming period to meet any of its obligations to customers. At the period end the Group had an ongoing overdraft facility, at an interest rate of base plus 1%, of £400,000 (2008: £400,000). 16964WEBISHOL.indd 29 16964 21/09/09 Proof 6 21/09/2009 14:05 30 vtt } www.webisholdingsplc.com NOTES TO THE ACCOUNTS continued for the period ended 31 May 2009 22 Financial risk management continued The following are the contractual maturities of financial liabilities: 2009 Financial liabilities Trade creditors Bank overdraft Other creditors Convertible loan note 2008 Financial liabilities Trade creditors Bank overdraft Other creditors Convertible loan note Carrying Contractual 6 months amount cash flow or less up to 1 year 1–5 years £000 1,235 205 74 300 £000 (1,235) (205) (74) (326) £000 (1,235) (205) (74) — 1,814 (1,840) (1,514) £000 £000 — — — — — — — — (326) (326) Carrying Contractual 6 months amount cash flow or less up to 1 year 1–5 years £000 1,145 59 166 300 £000 (1,145) (61) (166) (329) £000 (1,145) (61) (166) (14) 1,670 (1,701) (1,386) £000 £000 — — — (329) (329) — — — — — 16964WEBISHOL.indd 30 16964 21/09/09 Proof 6 21/09/2009 14:05 webisholdings plc Webis Holdings plc Annual Report and Accounts 2009 31 22 Financial risk management continued Credit risk Credit risk is the risk that one party to a financial instrument will cause a financial loss for the other party by failing to discharge an obligation. Classes of financial assets — carrying amounts Cash and cash equivalents Trade and other receivables 2009 £000 1,502 713 2,215 2008 £000 1018 647 1665 Generally, the maximum credit risk exposure of financial assets is the carrying amount of the financial assets as shown on the face of the balance sheet (or in the notes to the accounts). Credit risk, therefore, is only disclosed in circumstances where the maximum potential loss differs significantly from the financial asset’s carrying amount. The maximum exposure to credit risks for trade receivables business segment:– Pari-mutuel Sportsbook 2009 £000 590 123 713 2008 £000 580 67 647 Of the above receivables, £577,000 (2008: £578,000) relates to amounts owed from US horse racing tracks. These receivables are actively monitored to avoid significant concentration of credit risk and the Directors consider there to be no significant concentration of credit risk. The Directors consider that all the above financial assets that are not impaired for each of the reporting dates under review are of good credit quality. No amounts were considered past due at the period end (2008: £nil). The credit risk for liquid funds and other short-term assets is considered negligible, since the counterparties are reputable banks with high quality external credit ratings. 16964WEBISHOL.indd 31 16964 21/09/09 Proof 6 21/09/2009 14:05 32 vtt } www.webisholdingsplc.com NOTES TO THE ACCOUNTS continued for the period ended 31 May 2009 22 Financial risk management continued Interest rate risk The Group finances its operations mainly through capital with limited levels of borrowings. Cash at bank and in hand earns interest at floating rates, based principally on short term inter bank rates. The Group is exposed to downside interest rate risk on its overdraft facility, where the Group is charged Base rate + 1%, but this is only a temporary facility caused by timing differences associated with cash in transit. Any movement in interest rates would not be considered to have any significant impact on net assets at the balance sheet date. Accordingly, no sensitivity analysis is provided. Foreign Currency risks The Group operates internationally and is subject to transactional foreign currency exposures primarily with respect to the Euro, US Dollar and Singapore Dollar. The Group does not actively manage the exposures but regularly monitors the Group’s currency position and exchange rate movements and makes decisions as appropriate. At the balance sheet date the Group had the following exposure: 2009 HKD £000 GBP £000 Current assets 57 2,411 Current liabilities (38) (1,853) Short term exposure 19 558 2008 Current assets Current liabilities HKD £000 35 (19) Non-current liabilities — Short term exposure 16 GBP £000 216 (968) — (752) Euro £000 106 (158) (52) USD £000 1,440 (707) 733 Euro £000 USD £000 48 1,090 (164) — (116) (433) — 657 SGD £000 202 (92) 110 SGD £000 193 (82) — 111 NOK £000 33 (11) 22 NOK £000 22 (16) — 6 DKK £000 AUD £000 CAD £000 CHF £000 SEK £000 15 (3) 12 DKK £000 2 (3) — (1) 11 (2) 9 AUD £000 — — — — 7 (2) 5 CAD £000 — — — — 2 (0) 2 CHF £000 — — — — 2 (7) (5) SEK £000 8 (21) — (13) Total £000 4,286 (2,873) 1,413 Total £000 1,614 (1,706) — (92) 16964WEBISHOL.indd 32 16964 21/09/09 Proof 6 21/09/2009 14:05 webisholdings plc Webis Holdings plc Annual Report and Accounts 2009 33 22 Financial risk management continued The following table illustrates the sensitivity of the net result for the period and equity in regards to the Group’s financial assets and financial liabilities and the Sterling–US Dollar exchange rate, Sterling–Euro exchange rate and Sterling–Singapore Dollar exchange rate. A 5% weakening of Sterling against the following currencies at 31 May would have increased equity and profit and loss by the amounts shown below: 2009 Current assets Current liabilities Net assets/(liabilities) 2008 Current assets Current liabilities Net assets/(liabilities) USD £000 72 (35) 37 USD £000 55 (22) 33 Euro £000 5 (8) (3) Euro £000 2 (8) (6) SGD £000 10 (5) 5 SGD £000 10 (4) 6 Total £000 87 (48) 39 Total £000 67 (34) 33 A 5% strengthening of Sterling against the above currencies would have had the equal but opposite effect on the above currencies to the amounts shown above on the basis that all other variables remain constant. 23 Controlling party and ultimate controlling party The directors consider the ultimate controlling party to be Burnbrae Limited and its beneficial owner, Jim Mellon, by virtue of their combined shareholding of 52.4%. 16964WEBISHOL.indd 33 16964 21/09/09 Proof 6 21/09/2009 14:05 34 NOTICE OF MEETING vtt } www.webisholdingsplc.com NOTICE IS HEREBY GIVEN that the Annual General Meeting of Webis Holdings plc (“the Company”) will be held at The Claremont Hotel, 18/19 Loch Promenade, Douglas, Isle of Man, on 23 October 2009 at 11 am for the purpose of transacting the following business: (iii) the allotment (otherwise than pursuant to paragraphs (i) or (ii) above) of equity securities up to a maximum aggregate nominal value equal to 15% of the issued ordinary share capital of the Company for the time being. Ordinary Business 1 To receive and adopt the report of the directors and the accounts for the period ended 31 May 2009. 2 3 To re-elect as a director Mr D Waddington who retires by rotation and, being eligible, offers himself for re-election in accordance with the Company’s Articles of Association. To reappoint KPMG Audit LLC as auditors and to authorise the directors to determine their remuneration. Special Business To consider and, if thought fit, to pass the following resolutions: As an Ordinary Resolution 4 That the authority granted by special resolution to the directors of the Company to allot relevant securities up to an amount equal to but not exceeding the authorised but unissued share capital of the Company for the time being which was passed at the Annual General Meeting of the Company held on 9 December 2002 be renewed pursuant to the power provided by Article 6(C) of the Company’s Articles of Association, that such renewal of authority be for the exercise of that power generally and unconditionally and in all respects in the same terms as originally granted, and that such authority shall expire at the conclusion of the next Annual General Meeting of the Company after the date of passing of this Resolution unless renewed, varied or revoked by the Company in General Meeting. As a Special Resolution 5 The directors of the Company be and they are hereby empowered pursuant to Article 8 of the Articles of Association of the Company (the “Articles”) to allot equity securities (as defined in Article 7(H) of the Articles) pursuant to the authority conferred on the directors to allot relevant securities by Resolution 4 above as if Article 7(A) of the Articles did not apply to such allotment PROVIDED THAT this power shall be limited to: (i) the allotment of equity securities in connection with a rights issue in favour of ordinary shareholders where the equity securities are issued proportionally (or as nearly as may be) to the respective number of ordinary shares held by such shareholders (but subject to such exclusions or other arrangements as the directors may deem necessary or expedient to deal with issues arising under the laws of any territory or the requirements of any regulatory body or any stock exchange in any territory or the fixing of exchange rates applicable to any such equity securities where such equity securities are to be issued to shareholders in more than one territory, or legal or practical problems in respect of overseas shareholders, fractional entitlements or otherwise howsoever); (ii) the allotment of equity securities to holders of any options under any share option scheme of the Company for the time being in force, on the exercise by them of any such options; and The power hereby conferred shall expire at the conclusion of the next Annual General Meeting of the Company after the date of passing of this Resolution unless such power shall be renewed in accordance with and subject to the provisions of the said Article 8, 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 directors may allot equity securities pursuant to such offer or agreement as if the power conferred hereby had not expired. 6 That, subject to the confirmation of the High Court of Justice of the Isle of Man pursuant to Section 57 Companies Act 1931, the share premium account of the Company be cancelled and reduced to nil and that all sums standing to the credit of the share premium account as at the date of this resolution be transferred to distributable reserves. As Ordinary Resolutions 7 That in accordance with Article 12 of the Company’s Articles of Association and with Section 13 of the Companies Act 1992 the Company be generally and unconditionally authorised to make market purchases (as defined by Section 13(2) of the Companies Act 1992) of ordinary shares of 1 pence each in its capital, provided that: (a) the maximum number of shares that may be acquired is 20,683,000; (b) the minimum price that may be paid for the shares is 1 pence; (c) (d) the maximum price that may be paid is, for a share the Company contracts to purchase on any day, a sum equal to 105% of the average of the upper and lower quotations on the Daily Official List of the London Stock Exchange for the ordinary shares of the Company on the five business days immediately preceding that day; and the authority conferred by this resolution shall expire at the conclusion of the next Annual General Meeting of the Company after the date of the passing of this Resolution unless renewed, varied or revoked by the Company in General Meeting, but not so as to prejudice the completion of a purchase contracted before that date. 8 That the Report of the remuneration committee be received and adopted. By order of the Board D Waddington Secretary 23 September 2009 Registered Office: Viking House, Nelson Street, Douglas, Isle of Man, IM1 2AH 16964WEBISHOL.indd 34 16964 21/09/09 Proof 6 21/09/2009 14:05 webisholdings plc Webis Holdings plc Annual Report and Accounts 2009 35 Notes 1. Members are entitled to appoint a proxy to exercise all or any of their rights to attend and to vote on their behalf at the meeting. A proxy need not be a shareholder of the Company. A shareholder may appoint more than one proxy in relation to the Annual General Meeting provided that each proxy is appointed to exercise the rights attached to a different share or shares held by that shareholder. Should you wish to appoint more than one proxy please return this form and attach to it a schedule detailing the names of the proxies you wish to appoint, the number of shares each proxy will represent and the way in which you wish them to vote on the resolutions that are to be proposed. To be valid, the form of proxy and the power of attorney or other authority (if any) under which it is signed or a certified copy of such power or authority must be lodged at the offices of the Company’s registrars, Capita Registrars, The Registry, 34 Beckenham Road, Beckenham, Kent BR3 4TU by hand, or sent by post, so as to be received not less than 48 hours before the time fixed for the holding of the meeting or any adjournment thereof (as the case may be). 2. The completion and return of a form of proxy will not preclude a member from attending in person at the meeting and voting should he wish to do so. 3. Pursuant to regulation 22 of the Uncertificated Securities Regulations 2005, the Company has specified that only those members entered on the register of members at 6 pm on 21 October 2009 shall be entitled to attend and vote at the meeting. Changes to the register after 6 pm on 21 October 2009 shall be disregarded in determining the rights of any person to attend and vote at the meeting. 4. A copy of the contracts of service between each of the current directors of the Company and the Company will be available for inspection at the Meeting from 15 minutes prior to and until the conclusion of the Meeting. 5. The register of directors’ interests and particulars of directors’ transactions in the share capital of the Company and its subsidiary companies will be available for inspection at the Meeting from 15 minutes prior to and until the conclusion of the Meeting. Otherwise they will be open for inspection at the Registered Office of the Company during normal business hours on any weekday (Saturdays and Isle of Man public holidays excluded) from the date of this notice until the date of the Meeting. 16964WEBISHOL.indd 35 16964 21/09/09 Proof 6 21/09/2009 14:05 36 SHAREHOLDER NOTES vtt } www.webisholdingsplc.com 16964WEBISHOL.indd 36 16964 21/09/09 Proof 6 21/09/2009 14:05 webisholdings plc Created by www.jonesandpalmer.co.uk Webis Holdings plc Viking House, Nelson Street Douglas, Isle of Man IM1 2AH, British Isles Tel: +44 (0) 1624 698141 Fax: +44 (0) 1624 698134 Email: info@betinternet.com Website: www.webisholdingsplc.com webisholdings plc