TIDM888
RNS Number : 7356L
888 Holdings plc
10 September 2019
10 September 2019
888 Holdings Public Limited Company
("888" or the "Group")
Half Yearly Report for the six months ended 30 June 2019
Continued strategic progress and record H1 revenue
888, one of the world's most popular online gaming entertainment
and solutions providers, announces its half-yearly results for the
six months ended 30 June 2019 (the "period").
Financial Highlights
-- Group revenue(1) increased 2% to US$277.3 million (H1 2018:
US$273.2 million); Like for Like(*) Group revenue increased 7%:
o B2C Revenue increased 6% to US$262.5 million (H1 2018:
US$246.7 million); constant currency B2C revenue growth was 9%:
-- Casino revenue increased 9% to US$175.4 million (H1 2018:
US$161.0 million); constant currency Casino revenue growth was
14%;
-- Sport revenue increased 19% to US$44.5 million (H1 2018:
US$37.5 million); constant currency Sport revenue growth was
28%;
-- Poker revenue declined 24% year on year to US$23.1 million
(H1 2018: US$30.6 million); however, H1 2019 Poker revenue was 26%
higher when compared to H2 2018;
-- Bingo revenue increased 10% to US$19.5 million (H1 2018:
US$17.6 million); constant currency bingo revenue increased 17%
benefitting from the acquisition of a portfolio of bingo brands in
March 2019; proforma bingo revenue at constant currency declined by
3%:
o B2B revenue decreased by 44% to US$14.8 million (H1 2018:
US$26.5 million) as a result of the acquisitions of AAPN and the
Costa bingo brands which transferred from B2B to B2C revenue as
well as the migration of Cashcade bingo.
-- UK revenue increased 13% (23% increase on a Like for Like*
basis) to US$97.6 million (H1 2018: US$86.5 million) reflecting the
success of the Group's focus on recreational customers.
-- Italy revenue increased 17% (26% increase at constant
currency) driven by the success of the Group's Orbit Casino
platform.
-- Revenue from regulated and taxed markets represented the
significant majority of Group revenue at 74% (H1 2018: 70%).
-- Adjusted EBITDA(2) was US$41.8 million (H1 2018: US$52.4
million); the Adjusted EBITDA margin was 15.1% (H1 2018:
19.2%).
-- Adjusted Profit before tax(2) was US$27.1 million (H1 2018:
US$42.5 million); Profit before tax was US$22.2 million (H1 2018:
US$60.1 million).
-- Adjusted basic earnings per share was 6.7c (H1 2018: 10.5c),
basic earnings per share was 5.4c (H1 2018: 15.4c per share).
-- Interim dividend of 3.0c per share (H1 2018: 4.2c per share).
Operational Highlights
-- Strategic acquisition of a first-class sports betting
platform and team behind the BetBright brand for GBP15m in
March.
-- Acquisition of a portfolio of bingo brands including the
well-established Costa Bingo brand for GBP18m.
-- Successful launch in two new European regulated markets: Sweden and Portugal.
-- First time depositors ('FTDs') across the Group's B2C brands
increased 20% year on year reflecting increased and effective
marketing investment:
o Casino FTDs increased 49%;
o Sport FTDs increased 13%;
o FTDs in the UK increased 30%;
o FTDs in Italy increased 30%.
-- Orbit Casino platform and successful shift of strategy toward
casual customer audience continues to drive growth with active
Casino players increasing 30%.
-- Commenced the roll out of Poker 8, a new and improved Poker
platform, across several regulated markets.
-- Post the period end, launch of 888poker in Portugal and, at
the same time, introduction of 888's first ever interstate-poker
liquidity sharing network in Europe.
-- At the end of July, the Group launched the Orbit platform in
New Jersey supported by increased marketing activity in the
state.
Current trading
Trading during the second half of the financial year to date has
been in line with the Board's expectations with average daily
revenue 6% higher than Q3 2018. Constant currency revenue has
increased 9% year on year led by a 24% revenue increase in the
UK.
Itai Pazner, CEO of 888, commented:
"888 has delivered a solid performance in the first half of
2019. The Group's business in the UK has continued its recovery,
which was underpinned by exciting product innovation as well as
888's successful casual customer focus, and further expanded across
several regulated European markets including launching its offering
in Sweden and Portugal. The Group has also completed two
acquisitions including the exciting and strategic acquisition of a
first-class sports betting platform and team, thereby giving 888
complete ownership for the first time of its technology and product
development across the four key online gaming product
verticals.
First time depositors in the Group's B2C business have shown
very healthy growth of 20% driven in particular by Casino. This
very encouraging trend reflects highly effective marketing
investment as well as the benefits of Orbit, 888's latest Casino
platform, which has delivered strong results in each market where
it has been launched.
The Board continues to believe that 888 is very well positioned
for the future as a result of the Group's diversification across
products and markets, product leadership, and first-class team.
Trading during the second half of the financial year to date has
been in line with the Board's expectations with average daily
revenue 6% higher year on year representing a 9% increase at
constant currency. This has been led by a 24% year on year revenue
increase in the UK.
888 has a number of exciting growth opportunities ahead which
will leverage the Group's new product developments and marketing
innovation. As a result, the Board remains confident that the
outcome for the full year will be in line with its
expectations."
(1) Revenue in this document is before VAT accrual release in H1
2018.
(2) As defined in the financial summary below.
* At constant currency, adjusted for the migration of Cashcade
bingo and Costa Bingo brands and AAPN acquisitions.
Financial summary
Six months ended Six months ended
30 Jun 2019(1) 30 Jun 2018(1)
US$ million US$ million Change
-------------------------------------- ---------------------- ---------------------- -------
Revenue - B2C
Casino 175.4 161.0 9%
Sport 44.5 37.5 19%
Poker 23.1 30.6 (24%)
Bingo(2) 19.5 17.6 10%
Total B2C 262.5 246.7 6%
B2B(2) 14.8 26.5 (44%)
-------------------------------------- ---------------------- -------
Revenue before VAT accrual
release 277.3 273.2 2%
-------------------------------------- ---------------------- -------
VAT accrual release (3) - 10.7
-------------------------------------- ---------------------- -------
Revenue 277.3 283.9 (2%)
-------------------------------------- ---------------------- -------
Adjustment of VAT accrual
release - (10.7)
Operating expenses(4) (71.5) (70.4) 1%
Gaming taxes and duties (44.9) (37.8) 19%
Research and development expenses(5) (18.3) (16.6) 10%
Selling and marketing expenses (84.3) (82.7) 2%
Administrative expenses(6) (16.5) (13.3) 24%
Adjusted EBITDA excluding
IFRS 16 impact(7) 41.8 52.4 (20%)
IFRS 16 impact on EBITDA 3.1 -
Adjusted EBITDA(7) 44.9 52.4 (14%)
Depreciation and amortisation (15.3) (10.1)
Finance (2.5) 0.2
--------------------------------------
Adjusted profit before tax 27.1 42.5 (36%)
--------------------------------------
Share benefit charges (3.3) (5.0)
VAT accrual release - 10.7
Exceptional items(8) (1.6) 12.0
Share of equity accounted
associates loss - (0.1)
Profit before tax 22.2 60.1 (63%)
-------------------------------------- -------
Adjusted basic earnings per
share 6.7c 10.5c (36%)
-------------------------------------- -------
Basic earnings per share 5.4c 15.4c (65%)
-------------------------------------- ---------------------- -------
Reconciliation of profit before tax to EBITDA and Adjusted
EBITDA
Six months ended Six months ended
30 Jun 2019(1) 30 Jun 2018(1)
US$ million US$ million
Profit before tax 22.2 60.1
---------------------- ----------------------
Finance 2.5 (0.2)
Depreciation 6.0 2.5
Amortisation 9.3 7.6
---------------------- ----------------------
EBITDA 40.0 70.0
---------------------- ----------------------
Exceptional items(8) 1.6 (12.0)
VAT accrual release(3) - (10.7)
Share benefit charges 3.3 5.0
Share of equity accounted
associates loss - 0.1
-------------------------------------- ----------------------
Adjusted EBITDA(7) 44.9 52.4
-------------------------------------- ----------------------
(1) Totals may not sum due to rounding.
(2) B2B in 2018 included Costa Bingo games, which is now
presented in the B2C Bingo segment due to Costa Bingo games
acquisition.
(3) Revenue in H1 2018 includes US$10.7 million in respect of
accrual release which relates to receipt of tax assessments in
respect of legacy value-added tax in Germany.
(4) Excluding depreciation of US$6.0 million (H1 2018: US$2.5
million) and amortisation of US$9.3 million (H1 2018: US$7.6
million) and adding back US$1.7 million lease costs that are
cancelled under IFRS 16 implementation.
(5) Adding back US$1.0 million lease costs cancelled under IFRS
16 implementation.
(6) Excluding share benefit charges of US$3.3 million (H1 2018:
US$5.0 million) and adding back US$0.4 million lease costs that are
cancelled under IFRS 16 implementation.
(7) 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 better reflection of the underlying
financial performance of the Group.
(8) Exceptional charges of US$1.6 million (H1 2018: exceptional
income of US$12.0 million) in respect of organizational
restructuring and legal and professional costs associated with
M&A efforts, as set out in note 5 to the financial
statements.
Sell-side analyst presentation
Itai Pazner, Chief Executive Officer, and Aviad Kobrine, Chief
Financial Officer, will host a presentation for sell-side analysts
today at 10:00 (BST) at the offices of Hudson Sandler, 25
Charterhouse Square, London EC1M 6AE. To express interest in
attending please contact 888@hudsonsandler.com or call +44 (0)207
796 4133.
An audio webcast of the presentation will be available from the
following link:
https://www.investis-live.com/888/5d5fb5d79add6d11005cb08e/djdd
A replay will be available from the investor relations section
of 888's website (http://corporate.888.com/investor-relations)
later today.
Enquiries and further information:
http://corporate.888.com/
888 Holdings Plc
Itai Pazner, Chief Executive Officer +350 200 49 800
Aviad Kobrine, Chief Financial Officer +350 200 49 800
Hudson Sandler - 888@hudsonsandler.com
Michael Sandler
Alex Brennan
Hattie Dreyfus +44(0) 207 796 4133
Bertie Berger
This announcement includes statements that are, or may be deemed
to be, "forward-looking statements". By their nature,
forward-looking statements involve risk and uncertainty since they
relate to future events and circumstances. Forward-looking
statements may and often do differ materially from actual results.
Any forward-looking statements in this announcement reflect 888's
view with respect to future events as at the date of this
announcement. Save as required by law or by the Listing Rules or
the Disclosure Guidance and Transparency Rules of the UK Listing
Authority, 888 undertakes no obligation publicly to release the
results of any revisions to any forward-looking statements in this
announcement that may occur due to any change in its expectations
or to reflect events or circumstances after the date of this
announcement.
Chief Executive Officer's Review
Introduction
The first half of 2019 has been a period of good strategic
progress for 888. The Group has continued the recovery of its
business in the UK, underpinned by product innovation as well as a
successful casual customer focus, and further expanded across
several regulated European markets, including launching its
offering in Sweden and Portugal. In addition, during the period 888
completed two acquisitions, including the strategic acquisition of
a first-class sports betting platform and team, thereby giving 888
complete ownership for the first time of technology and product
development across its four key online gaming product
verticals.
As a result of the Group's continued momentum during the period,
as well as its strengths as a diversified operator that now has the
capability to develop its own technology across the four major
product verticals in online gaming, the Board believes that 888 has
a unique platform to deliver continued growth and further
shareholder returns.
Financial review
Revenue
Group revenue increased by 2% to US$277.3 million (H1 2018(1) :
US$273.2 million) representing an increase of 7% on a Like for Like
basis(*) . The Group's strong momentum continued across several
regulated markets including the UK and Italy. This has been driven
by progress in Sport which recorded 19% revenue growth (28% at
constant currency) and Casino which recorded 9% revenue growth (14%
at constant currency). These positive results were partly offset by
a 24% decline in Poker revenue due in part to a general decline
trend in the overall Poker market and a challenging competitive
environment. However, encouragingly, H1 2019 Poker revenues were
26% higher when compared to H2 2018.
Reflecting the Group's continued recovery in the UK as well as
expansion in several other regulated markets, the proportion of
revenue generated from regulated and taxed markets reached a record
of 74% of Group revenue (H1 2018: 70%).
Operating Expenses
Operating Expenses(2) increased by 1% to US$71.5 million (H1
2018: US$70.4 million) with the ratio of Operating Expenses to
revenue remaining stable at 25.8% (H1 2018: 25.8%). The slight
increase in Operating Expenses is explained by the continued growth
of Casino and Sport revenue which resulted in higher charges in
respect of the Group's third-party Sport platform and game
providers, off-set in part by a decrease of 8% in employment costs
compared to H1 2018 as a result of a cost reduction and headcount
optimisation plan implemented during the period. Reported Operating
Expenses amounted to US$85.1 million (H1 2018: US$80.5
million).
(1) H1 2018 Revenue in this document is before VAT accrual
release.
(2) As defined in the table above.
* At constant currency, adjusted for the migration of Cashcade
bingo and Costa Bingo brands and AAPN acquisitions.
Gaming taxes and duties
Gaming duties substantially increased by 19% to US$44.9 million
(H1 2018: US$37.8 million). This is a result of the Group's strong
revenue growth in the UK coupled with the increase in the UK Remote
Gaming Duty rate from 15% to 21% effective from April 2019
resulting in incremental duties of US$3.8 million. In addition,
gaming duties also increased due to the Group's continued expansion
in regulated markets such as Sweden and Portugal as well as strong
revenue growth in both Italy and Romania where tax rates also
increased in January 2019 resulting in incremental duties of US$5.3
million. This was partly offset by a reduction of duties in
Spain.
Research and development expenses
Research and development ('R&D') expenses(1) increased by
10% to US$18.3 million (H1 2018: US$16.6 million) as a result of
the Group's R&D investment in the BetBright Sport platform,
which was acquired in March 2019, as well as the development of new
products, games and features that further enhance the customer
experience, with a specific emphasis on safe gaming and customer
protection. As a result, the ratio of R&D expenses to revenue
increased to 6.6% (H1 2018: 6.1%).
Selling and marketing expenses
Selling and marketing expenses increased by 2% to US$84.3
million (H1 2018: US$82.7 million). However, this remained broadly
stable as a proportion of revenue at 30.4% (H1 2018: 30.3%). The
increase in marketing investment supported a strong increase of 20%
in first time depositors in B2C. At the same time, cost per new
customer acquisition declined reflecting the effectiveness of the
Group's strict returns-driven marketing approach.
The increased marketing investment during the period reflected:
888's focus on and recovery in the UK market; the Group's launch in
the Swedish and Portuguese markets; the Group's focus on building a
wider customer base in Italy ahead of the country's advertising
ban; and investment in the US market following the Group's
acquisition to take full control of its US facing B2C operation in
late 2018.
Administrative expenses
Administrative expenses(1) amounted to US$16.5 million (H1 2018:
US$13.3 million) reflecting: increases in professional and
corporate costs relating to the Group's Brexit preparations; the
Group's launch in new regulated markets; and legal costs related to
the Group's new revolving credit facility ("RCF") with Barclays
established in February 2019 in order to provide short-term finance
for 888's M&A activities. Reported administrative expenses
amounted to US$19.4 million (H1 2018: US$18.3 million).
(1) As defined in the table above including the amounts set out
in note 7 below.
Adjusted EBITDA
Adjusted EBITDA for the period amounted to US$44.9 million (H1
2018: US$52.4 million). Adjusted EBITDA excluding the impact of
IFRS 16 (which was adopted during 2019) amounted to US$41.8 million
(H1 2018: US$52.4 million). Adjusted EBITDA was adversely impacted
by: US$3.1 million resulting from currency exchange rates when
compared to the prior year; US$7.1 million of higher gaming duties
as described above; the US$1.6 million increase in marketing
investment primarily in regulated markets; and costs relating to
the newly acquired BetBright Sport platform. The Adjusted EBITDA
margin was 16.2% and the Adjusted EBITDA margin excluding the
impact of IFRS 16 was 15.1% (H1 2018: 19.2%). EBITDA for the period
amounted to US$40.0 million (H1 2018: US$70.0 million).
Exceptional items
Exceptional costs of US$1.6 million (H1 2018: Exceptional income
of US$12.0 million) consist of US$0.8 million in legal and
professional costs associated with the acquisitions of a portfolio
of bingo brands including Costa Bingo and the BetBright platform as
well as US$0.8 million in restructuring costs related to employee
redundancies as part of the Group's planned cost optimisation
project.
Share benefit charges
The Group recorded a non-cash share benefit charge of US$3.3
million (H1 2018: US$5.0 million) mainly attributed to long-term
incentive equity awards granted to eligible employees.
Finance income and expenses
Finance expenses were US$2.9 million (H1 2018: US$0.1 million).
This comprised: non-cash interest expenses of US$1.4 million and a
US$1.5 million non-cash charge relating to currency exchange rates
as a result of revaluation of IFRS 16 liabilities explained by the
strengthening of the ILS against the USD and the RCF interest.
Finance income amounted to US$0.4 million (H1 2018: US$0.3
million). Net finance expenses amounted to US$2.5 million (H1 2018:
net finance income of US$0.2 million).
Profit before tax
Profit before tax declined to US$22.2 million (H1 2018: US$60.1
million) as a result of exceptional expenses of US$1.6 million (H1
2018: exceptional income of US$12.0 million) coupled with lower
EBITDA in the period and higher amortisation charges related to the
two acquisitions of AAPN and a portfolio of bingo brands including
Costa Bingo. The Group's H1 2018 profit before tax also benefitted
from a VAT accrual release of US$10.7 million. Adjusted Profit
before tax was US$27.1 million (H1 2018: US$42.5 million).
Taxation
Taxation for the period was US$2.5 million (H1 2018: US$4.7
million). The decrease is primarily a result of the higher profit
before tax during H1 2018 and the tax impact of foreign currency
earnings in H1 2018.
Adjusted Profit after tax and Profit after tax
Adjusted profit after tax(1) was US$24.6 million (H1 2018:
US$37.8 million). Profit after tax was US$19.7 million (H1 2018: of
US$55.4 million).
(1) As defined in the table above.
Earnings per share
Basic earnings per share was 5.4c (H1 2018: 15.4c per share).
The decline is a result of lower EBITDA and higher depreciation and
amortisation in H1 2019 as well as the Exceptional items in H1
2018. Adjusted basic earnings per share was 6.7c (H1 2018: 10.5c).
Further information on the reconciliation of adjusted basic
earnings per share is provided in Note 5 to the H1 2019 financial
statements.
Dividend
The Board has declared an interim dividend of 3.0c per share (H1
2018: 4.2c per share) reflecting the solid performance of the
Group, the Board's continued confidence in the outlook as well the
cash impact of the Group's recent acquisitions.
Cash flow
Net cash generated from operating activities was US$43.7 million
(H1 2018: US$16.1 million). The increase is primarily explained by
higher payments in H1 2018 related to historical VAT in Germany as
well as gaming duties driven by an increase in trading activity in
respect of H2 2017.
Balance sheet
The Group held cash at 30 June 2019 of US$111.0 million (31
December 2018: US$133.0 million). In February 2019, 888 signed an
RCF with Barclays Bank plc enabling the Group to borrow an amount
of up to US$50 million. During May 2019, the Group drew down US$33
million in order to provide short term finance for its recent
M&A activities.
The decline in the cash balance compared to 31 December 2018 is
a result of the payment of US$29.4 million final 2018 dividend and
total payments of US$53.4 million in respect of the acquisitions of
AAPN, a portfolio of bingo brands including Costa Bingo, and
BetBright's Sport platform. Balances owed to customers were US$57.4
million (31 December 2018: US$57.1 million).
Strategic progress
888's growth strategy is aimed at achieving the Group's
significant potential across a diverse range of products and
markets by delivering organic growth as well as evaluating
attractive M&A opportunities. Underpinning this strategy are
888's core strengths including world-class technology; an
experienced dedicated management team; business analytics
expertise; CRM capabilities and highly effective marketing. 888
made further progress against each of the key pillars of its
strategy during H1 2019:
1. Continue to protect customers and act responsibly
888's objective, above all else, remains consistent: to ensure
that all those who visit the Group's websites can do so with
confidence and safety. The Group continues to invest significant
resources into ensuring that its customers have access to a safe
and secure gaming environment, its employees and suppliers enjoy an
ethical and rewarding workplace, and that the wider community -
including 888's shareholders - benefit from the Group's success.
888 continues to maintain a close dialogue with relevant
stakeholders and is committed to working with others to continually
improve operating standards across the industry.
888's approach to preventing problem gambling and keeping
underage players away from its sites is underpinned by its
proprietary technology as well as the expertise of its highly
trained customer care team. The Group has continued to develop its
unique 'Observer' software - which uses sophisticated algorithms to
measure changes in an individual customer's behaviour and playing
patterns - to better predict and identify problematic or
potentially problematic gambling in its early stages. 888 has also
invested in further training for its customer service and
responsible gaming teams.
To reinforce the Group's initiatives in this area, in February
2019 the Group appointed a new Responsible Gambling Director with
more than 15 years' experience within 888. The new Director is
leading 888's highly experienced Responsible Gaming team with
oversight of the continuous improvement of 888's responsible gaming
operations, systems and processes to further enhance customer
protection as well as collaborating with industry stakeholder
groups, including regulators. By working together with other
operators, 888 is committed to further developing safe gambling
initiatives and improving industry standards.
2. Development of 888's core B2C business
888 continues to develop leading brands across the four major
online gaming verticals (casino, sport, poker and bingo) by
focusing on providing a first-class and safe online gaming
entertainment experience for customers. The Group has ambitious
targets to develop in each of its four product verticals with a
strategic focus on expanding 888's presence amongst casual
customers across regulated markets globally.
Underpinning 888's progress and ambitions is a keen focus on new
product development which helps to drive superior user experiences
and differentiates 888's proposition from competitors. The roll-out
of Orbit, the Group's new platform initially focused on the Casino
market, commenced in May 2018 and represented the Group's most
exciting new product development of recent years. The impact of the
high-performance platform, discussed in more detail below, has
exceeded initial expectations by: enhancing the user experience
through increased interface response times; increasing customer
personalisation by leveraging artificial intelligence ("AI")
capabilities; and improving the display of games and content to
customers. The Group is seeing positive trends in customer activity
across each market where Orbit has been introduced to the 888casino
offering and it is in the process of importing several of Orbit's
exciting features and concepts into the 888's Sport, Poker and
Bingo products.
During the Period, B2C Revenue increased by 6% to US$262.5
million (H1 2018: US$246.7 million). In addition, first time
depositors across the Group's B2C brand's increased 20% year on
year reflecting increased and effective marketing investment. The
Group's progress was driven by its recovery in the UK market,
momentum in continental European regulated markets, and further
progress in Casino and Sport, partially offset by a challenging
performance in Poker.
Casino
Underpinned by the strength of 888's unique brand heritage
developed over more than 20 years in the online Casino industry in
combination with the advantages of Orbit, the Board believes that
888casino has the potential to become the world's dominant online
Casino brand.
Casino revenue increased by 9% to US$175.4 million (H1 2018:
US$161.0 million) representing an increase of 14% at constant
currency. Casino first time depositors increased by an impressive
49% demonstrating the strengths of 888's innovative marketing, CRM
and customer proposition, particularly following the introduction
of Orbit across several regulated markets during the second half of
the prior year. Active Casino players increased by 30% year on year
while average revenue per player declined by 16% reflecting the
shift of strategy toward casual customer audience.
Sport
The Group's ambition is to continue to develop 888sport as a
leading online sports book operator across global regulated
markets. Following the completion of the acquisition of BetBright's
technology and team in March 2019, the Group has started the
integration process of the acquired technology into 888's platform
with the aim to commencing a phased and market-by-market roll out
of the Group's proprietary sportsbook solution starting in early
2020. When complete, the integration of BetBright's sportsbook
technology 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. The Board believes that this
acquisition will enhance the Group's long-term prospects in the
global Sports betting market by adding a first-class team of sports
betting professionals to the Group and enabling 888 to fully
leverage its marketing and analytics capabilities, scale and unique
online gaming expertise.
888sport continued to deliver strong progress with revenue
increasing by 19% to US$44.5 million (H1 2018: US$37.5 million),
representing a 28% increase at constant currency. This growth
reflected continued expansion across regulated markets, led by the
UK where revenue increased by 50% at constant currency. This
progress was supported by a 13% increase in first time depositors,
which was achieved despite the strong prior year comparatives which
included the impact of the FIFA World Cup during H1 2018. The
Group's continued progress has been underpinned by further
investments made in the product proposition with an ever-wider
portfolio of events for customers to bet on, enhanced live betting
options, and increased personalisation for customers.
In July, post the period end, the Group started the roll-out of
its new in-house developed 888sport product interface, delivering a
better customer experience and a unified look and feel between
888's brands. The new interface was deployed across most of the
Group's markets ahead of the 2019/2020 football season in European
markets.
Poker
Poker revenue declined by 24% to US$23.1 million (H1 2018:
US$30.6 million). However, Poker revenue increased by 26% compared
to H2 2018 reflecting a stabilisation in the Group's
performance.
The Group's Poker results have been impacted by factors
including increased competitor marketing activity in some of the
Group's markets as well as the unilateral withdrawal of certain
payment providers and ISP blocking in several unregulated markets.
Encouragingly, in Italy, revenue increased 38% year on year in H1
2019.
Poker remained an important customer acquisition channel for the
Group with 18% of the Group's B2C first time depositors during the
period acquired through the Poker vertical. The flow of poker
players also playing Casino and Sport continued to be an important
element of the B2C business with revenue generated from customers
that were acquired through Poker and "cross-sold" into other
verticals declining by just 4% year on year.
Whilst active poker players declined by 11%, Poker player
retention showed an improved trend during the period and active
days per poker player increased by 5% year on year reflecting the
quality of 888's CRM and competitiveness of its product
proposition.
888 is focused on improving its performance in Poker and
maintaining its established position as a top three online poker
brand globally with strong appeal amongst recreational poker
players. In order to achieve this, the Group has been firmly
focused on investing in and delivering product enhancements that
will improve the customer experience. In March, the Group commenced
the roll out of Poker 8 over its desktop product following
extensive research and feedback from customers. The new platform
features enhanced graphics, cleaner designs and improved
functionality for players. Further upgrades to the new poker
platform are planned, including improved graphics and enhancements
to the lobby and mobile platform.
In addition to product enhancements, in July 2019, post the
period end, 888 was pleased to launch 888poker in Portugal and, at
the same time, introduce 888's first ever interstate-poker
liquidity sharing network in Europe. This has enabled 888 customers
in Spain and Portugal to play poker against each other, thereby
increasing the availability of the games and formats that 888's
customers in those markets choose to play. The Board is pleased
with the initial reaction to the 888-interstate network, with good
levels of new customer acquisition in Portugal and a considerable
increase in liquidity available for Spanish players as well. The
Board anticipates that shared liquidity will provide increased
competitiveness and new opportunities for the Group's Poker product
over the coming years.
Bingo
In March 2019, the Group acquired a portfolio of bingo brands
including the well-established Costa Bingo brand from JPJ Group Plc
for GBP18m. The Board believes that consolidating these brands,
which were previously operated as B2B brands on the Group's
Dragonfish Platform, into 888's B2C brand portfolio will deliver
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.
B2C Bingo recorded a revenue of US$19.5 million (H1 2018:
US$17.6 million), representing an increase of 17% at constant
currency, benefitting from the contribution of the enlarged
portfolio of acquired Bingo brands since mid-March. On a like for
like* basis, Bingo revenues declined 3%.
* At constant currency, adjusted for the acquisition of Costa
Bingo brands.
New customer acquisition increased by 20% (a 33% increase when
including the newly acquired brands) with average revenue per
player also increasing. The Group is continuing to focus on
effective CRM, increased personalisation and product enhancements
to its Bingo proposition with new in-house developed games and the
addition of fresh third-party content.
3. B2B - focus on profitable growth
B2B revenue declined by 44% to US$14.8 million (H1 2018: US$26.5
million) in part due to the previously announced migration of
Cashcade bingo to their proprietary platform. In addition,
Dragonfish's Bingo network has been affected by the challenges seen
across the UK bingo market with increases in gaming duties
resulting in some of the Group's brand partners prioritising
reductions in their marketing investment and optimisations to their
cost bases over investing in new customer acquisition.
Bingo customer retention on the platform has shown satisfactory
trends with revenue per player, days per player and bonus per
player metrics all improving year on year. This is a testament to
Dragonfish's continued investment in growing its games portfolio
(95 games and four new vendors were added to the platform during
H1), adding new bingo features such as the successful Mystery
Jackpot, and adding new skins to the platform (11 skins added
during H1).
Post the period end, the Group commenced the gradual roll out of
a new customer interface (known as 'SnowWhite') inspired by its
Orbit concept to enhance the customer experience, integrate
additional marketing functionalities, improved responsible gaming
monitoring and providing better user experience. By the year end
Dragonfish expect to deploy at least 50% of the brands currently
operating on its platform to SnowWhite.
The Group remains confident of the global growth opportunities
for its B2B division which remain underpinned by Dragonfish's
relentless focus on delivering and maintaining a first-class and
full-service gaming proposition for its partners. During the first
half of the year, the Group initiated organisational changes at
Dragonfish to bring all aspects of the B2B offer except marketing
into one standalone business unit. These have enhanced the
customer-focus of the Group's B2B operations in line with the
Group's strategic focus for this line of business on offering an
increasingly value-added proposition to a smaller number of larger
customers across both the UK and international markets.
Revenue from the Group's 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.
During the first half of the year, the Group launched its first
B2B Bingo network in Africa supporting local currency and customer
feedback has been positive at this early stage. In addition, the
Group, through its Dragonfish division, has teamed with a local
partner, Boldt S.A., to apply for a licence with the aim of
establishing an online presence in the province of Buenos Aires,
Argentina. These two milestones reflect the ability of Dragonfish
to explore and develop new potential markets and opportunities
outside of the UK.
4. Expansion in regulated markets
888's strategic focus remains on growing in sustainable,
regulated markets where the Group can leverage its full marketing
expertise to capture opportunities. Revenue from regulated and
taxed markets continued to represent the significant majority of
Group revenue at 74% of revenue (H1 2018: 70%). This increase
reflected the Group's progress in European regulated markets as
well as its continuing recovery in the UK market.
The table below shows the Group's revenue by geographical
market:
Growth
H1 2019 H1 2018 Growth (decline) (decline) % of reported
from previous at Constant Revenue
US$ million US$ million year Currency (H1 2019)
---------------------------- ------------ ------------ ----------------- ------------ --------------
EMEA (excluding the
UK and Spain)(1) 115.4 119.1 (3%) 1% 42%
UK 97.6 86.5 13% 19% 35%
Spain 33.3 33.5 (1%) 7% 12%
Americas 24.8 26.5 (6%) (5%) 9%
Rest of world 6.2 7.6 (19%) (20%) 2%
Revenue before VAT accrual
release 277.3 273.2 2% 6% 100%
------------ ------------ ----------------- ------------
VAT accrual release - 10.7
---------------------------- ------------ ------------ ----------------- ------------ --------------
Total revenue 277.3 283.9
---------------------------- ------------ ------------ ----------------- ------------ --------------
(1) Non-European revenue included in the segment during 2019
amount to US$20.9 million (H1 2018: US$22.1 million).
EMEA (excluding the UK and Spain)
Revenue from EMEA (excl. the UK & Spain) increased 1% at
constant currency during the first half of 2019. This was driven by
solid Casino and Sport performances across the major markets in the
region offset in part by the Group's overall Poker performance.
Italy delivered stellar 17% revenue growth (26% at constant
currency) supported by the roll out of the Group's Orbit Casino
platform. 888.it delivered a 30% increase in first time depositors
during the period despite the strong comparatives in H1 2018 which
included the positive impact of the 2018 FIFA World Cup.
Good progress was made in the Danish market in particular with
Casino following the launch of Orbit in October 2018 supporting a
19% increase in first time depositors.
Revenue from the Romanian market increased by 20% (30% at
constant currency) during the first half of 2019 driven by momentum
in Sport and Casino. The launch of the Orbit casino platform in the
Romanian market took place at the beginning of August, post the
period end.
During the period the Group successfully launched in two new
regulated European markets. In January, 888 launched Sport, Casino
and Poker in the regulated Swedish market and the Board has been
pleased with the Group's early performance in this significant
online gaming market with customer acquisition significantly ahead
of initial expectations.
The Group was awarded its 13(th) geographic licence in Portugal
at the beginning of the year and successfully launched 888casino in
Portugal in January. This was followed by 888poker post the period
end in July. The launch of Poker in Portugal has enabled the Group
to establish its first European interstate poker network and pool
poker players across the Spanish and Portuguese markets for the
very first time.
Revenue from Germany declined as a result of the restrictions
and/or withdrawal of certain payment providers from the market and
represented 6% of Group revenue during H1 2019.
UK
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 the introduction of further customer protection
tools and protocols. Undertaking these changes and improvements has
not only been the right thing to do in order to provide a safe
environment for 888's customers but also positions the Group for
long-term development in what remains the world's largest regulated
online gaming market. 888 has continued to invest in improving
customer safety by developing technology and continually enhancing
the Group's safety-first culture in line with 888's increased
customer focus on recreational players.
UK revenue increased by 13% (23% on a Like for Like* basis)
compared to the same period last year to US$97.6 million (H1 2018:
US$86.5 million). This was driven by a 31% Like for Like*revenue
increase in the Group's B2C business reflecting constant currency
revenue growth of more than 50% in both Casino and Sport during the
period. 888's continuing recovery in the UK reflects the success of
the Group's refined focus on recreational customers, increased and
effective marketing investment, and the appeal of the Group's
revamped Casino proposition on the Orbit platform.
The UK now represents 35.2% (H1 2018: 31.7%) of Group revenue.
Pleasingly, in line with the Group's customer focus, UK revenue
generated by recreational players is increasing. First time
depositors in the UK increased by 30% year on year reflecting the
Group's effective marketing investment and signalling encouraging
future growth prospects for 888 in the UK.
*At constant currency, adjusted for the migration of Cashcade
bingo and Cost Bingo brands acquisition and in the case of B2C no
adjustment was made for the B2B migration of Cashcade bingo.
Spain
Revenue from Spain declined by 1% to US$33.3 million (H1 2018:
US$33.5 million) but increased 7% at constant currency against a
strong prior year comparative. Spain represented 12.0% of Group
revenue during the period (H1 2018: 12.3%).
The Group's momentum in Spain was moderated during the period by
weaker Poker activity, which was adversely impacted by heightened
competition from operators that offered shared liquidity with
France (launched in 2018), which 888 did not participate in. In
addition, the Group's poker performance adversely impacted customer
cross-sell into 888casino.
The Board remains confident that 888poker.es remains a highly
credible destination for recreational poker players evidenced by a
10% increase in new customer acquisition during the period against
H1 2018. As described above, in July, 888 launched Poker in
Portugal and shared liquidity between Spain and Portugal for the
first time with encouraging early signs. It is anticipated that
this will inject increased momentum to 888's offering in the
Spanish market during the second half of the year.
Sport revenue increased 18% in Spain against H1 2018.
The Group launched its Orbit Casino platform at the end of 2018
and this supported a strong Casino performance during the period
with new customer acquisition to Casino increasing by 28% year on
year.
US
The Group remains focused on investing to deliver the
medium-to-long-term growth opportunities for 888 in the US market.
The Board continues to appraise opportunities to provide both brand
building and market access opportunities for 888 in the developing
North American online gaming market.
888 is continuing to invest in its product proposition in the US
to align it with the quality and flexibility of the Group's
products across other regulated markets globally. The Board is
encouraged by the launch of the Group's Orbit platform in New
Jersey at the end of July, which has been supported by increased
marketing activity in the state.
5. Enhancing efficiencies
The Board and 888's management teams have maintained focus on
maximising operational efficiencies and maintaining cost control by
ensuring that the Group has the right structure, teams and
operations for success across its global markets. During the
Period, the Board took the decision to expand 888's operations in
Romania to support the Group's continued delivery against its
long-term growth strategy and further enhance organisational
efficiencies. The Group's team of more than 300 employees in
Bucharest has been expanded through the transfer of a number of
888's technology team from Israel as well as a number of new
hires.
The continued expansion of 888's Bucharest operations reflects
the outstanding research and development and IT talent available to
the Group in the Romanian job market. By streamlining and focusing
the Group's world-class Israeli technology hub the Board believes
that 888 will deliver important operational efficiencies and
further improve working practices to support the Group's long-term
growth.
Team
In March 888 was delighted to welcome approximately 90 new
colleagues to the Group following the acquisition of the BetBright
platform. The BetBright sportsbook has been developed by a
fantastic team and the new colleagues joining from BetBright have
already significantly strengthened 888's sports betting expertise
and industry know-how.
888 has a brilliant team and culture across the business, which
is led by a talented and vastly experienced operational management
team. The Board would like to thank all colleagues across the world
for their contributions to the Group's good progress during the
first half of the financial year.
Going concern
In considering the going concern basis, the directors reviewed
the Group's operations, its financial position, its forecasts and
the Group's financial risk management. The directors consider that
the Group has adequate resources to continue in operational
existence for at least 12 months from the date these interim
financial statements are authorised for issue and that it is,
therefore, appropriate to adopt the going concern basis in
preparing these financial statements.
Current trading and outlook
Trading during the second half of the financial year to date*
has been in line with the Board's expectations with average daily
revenue 6% higher year on year representing a 9% increase at
constant currency. This has been led by a 24% year on year revenue
increase in the UK.
888 is continuing to integrate BetBright's sports betting
technology and team into the Group and is confident of launching a
proprietary sportsbook operating in certain regulated markets
during Q1 2020.
The Group is continuing to invest in developing 888's presence
in the evolving US market and the Board is pleased with the initial
impact of the migration of 888casino in New Jersey on to the Orbit
platform in July.
888 has an ambitious vision and several clear growth
opportunities which are underpinned by the Group's unique products
and first-class marketing capabilities. The Board continues to
believe that with the Group's diversification, technology
leadership, and first-class team, 888 remains very well positioned
to continue to deliver its strategic objectives and achieve its
expectations for the full year.
_____________________
Itai Pazner
Chief Executive Officer
*Period from 1(st) July 2019 to 7(th) September 2019.
Principal risks and uncertainties
In addition to the risks faced by businesses generally and
online businesses in particular, the Group is exposed to specific
risks arising from its operations. The key principal risks and
uncertainties remain consistent with those included on pages 26-31
of the 2018 Annual Report and Accounts. The Board has reconsidered
and updated the Group's key risks with those appropriate for the
remaining six months period to 31 December 2019.
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 holds a licence. 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. The Group continues 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.
What happened in H1 2019: The UKGC continued to take 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 continue to be responsible gambling and
prevention of underage gambling, consumer protection, advertising
and anti-money laundering. For example, in H1 2019 the UKGC revoked
the license of a remote casino operator (Maxent Limited) for
failures in its dealings with the Commission, and issued a warning
and financial penalty to a remote casino operator (Bestbet Limited)
for inadequate anti-money laundering controls. These follow similar
enforcement actions taken during 2018. The Commission also updated
the Licensing Conditions and Codes of Practice to impose stricter
controls related to age and identity verification, and published a
harm reduction strategy that is likely to result in stricter
requirements and enhanced enforcement action. 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. The UKGC
conducted a "Call for Evidence" in Q1 2019 regarding the use of
credit cards for gambling; subsequently the Commission has
announced it will be holding a formal consultation on this matter
to commence in Q3 2019. Should the Commission implement material
restrictions on the use of credit cards for online gambling and
betting, this could have an adverse impact on the Group's business
in the UK market.
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. 2019 to
date has seen what appears to be a slight uptick in enforcement
efforts by the German authorities, both in connection with the
issuance and enforcement of prohibition orders against operators
and in connection with efforts by the German authorities to block
payments to gambling operators. A large scale processor servicing
the German market has already decided to discontinue processing
payments related to casino and poker in this market due to
regulatory risk management. Furthermore, the Group notes a growing
trend in Germany of players filing civil suits against payment
processors seeking the return of funds processed for gambling
purposes, such suits being based on the current regulatory
landscape. Should this trend grow, it could further adversely
impact the willingness of processors to continue processing
gambling-related payments in this market. In light of these
developments, the Group continues to assess its operations in
Germany, with a view to averting legal, reputational and
operational risks. The Group is also assessing the potential impact
of a change to the German regulatory landscape, presently in the
process of approval by the various German states, which would
introduce an interim federal licensing regime for online sports
betting, but could negatively impact the German casino and poker
market and could result in further enhanced enforcement against
operators offering these products. The particulars of the licensing
process remain presently unknown, including what limitations will
be applied to licensed operators' offering, however the legislation
establishing the interim licensing regime requires operators to
undertake not to offer "unlawful gambling" in addition to their
licensed offering.
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. Draft guidance published by the regulator
in 2019 suggests that operators found to have violated the
"prioritization criteria" in the two-year period prior to their
application will be subject to a six month "cooling off" period
prior to being awarded a license. The manner in which such
suitability will be evaluated, the basis for evaluation and the
strictness of the authorities in applying this restriction are all
presently unknown, as are the final details of the regulatory
position on this matter. The regulator has, however, made public
comments suggesting that many applicants may not be considered
eligible for licensing, inter alia on the grounds that they were
present in the market in a manner violating the existing
"prioritization criteria". The Group has been studying these
developments closely.
In Sweden, where the Group holds a license, the local regulator
has issued numerous hefty fines against large operators, primarily
for violations of advertising and bonus rules, and for accepting
bets on under 18 sporting events. It appears some of the fines
issued relate to interpretations by the regulator of various
discretionary regulatory provisions. Furthermore, the Swedish
regulator has also taken harsher measures, revoking the license of
an operator (Ninja Casino) found to be non-compliant. The Group
conducts its operations in Sweden in accordance with guidance
received from local counsel, and continues to closely monitor
enforcement action so as to ensure that its interpretation of the
regulatory requirements is consistent with the approach of the
regulatory authorities.
In Spain, a regulatory change recently adopted precludes
operators from offering bets on under 18 sporting events, and
reports indicate that the regulator is considering the possibility
of restricting (or prohibiting) the advertising of gambling.
Similarly, in Italy, a sweeping advertising ban adopted through
legislation in 2018, entered into force in early Q3 2019.
In June 2019 a federal court ruled against the US Department of
Justice's 2018 interpretation of the Wire Act, setting aside a
memorandum finding that the Act applies to all forms of gambling
(not only sports betting, as was concluded in the previous
opinion). The Group has received advice to the effect that the
ruling, if adhered to by the federal authorities, would preclude
enforcement action against operators of remote casino and poker on
Wire Act grounds, however their remains some interpretive ambiguity
regarding the formal application of the ruling to non-parties (such
as the Group.) On 16 August 2019, the Department of Justice filed a
notice of appeal with the federal court against the June ruling.
The Group continues to monitor these developments closely and in
conjunction with 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.
Brexit-related risks
The risk: The status of Gibraltar as a result of "Brexit"
remains unclear. If 888 were to remain registered, licenced 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.
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, redomiciled certain of its licensed entities to 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 H1 19: During H1 2019, the EU agreed to extend
the negotiation period from March 2019 to 31 October 2019, with the
United Kingdom ceasing to be a member of the EU no later than that
date. Presently, the manner of Britain's exit from the EU remains
unclear.
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. 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. 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 H1 2019: 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 compliance. Infrastructure - A new main data centre was
launched in Dublin using advanced IT architecture and technologies.
The new data centre introduces a very high standard of redundancy
and performance. Operations - 888 focused on operations analytics
as the next evolution of monitoring, implementing an "elastic"
framework for near real-time log and KPI analysis.
Also in 2019, Apple introduced a change to its App Store Terms
and Conditions (applicable to new and existing apps). Pursuant to
this change, real money gambling apps built in HTML5, may not be
distributed via the App Store.
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. The OECD is continuing its work on
taxation of the digital economy, issuing a Programme of Work Paper
on 31 May 2019 considering revised profit allocation rules,
non-physical nexus rules and global anti-base erosion rules. The UK
Finance Bill 2019-2020 announced a 2% digital services tax which
will enter into force in April 2020, which solely and specifically
targets providers of internet search engines, social media
platforms and online marketplaces which derive value from UK users,
and which have UK revenues exceeding GBP 25 million and worldwide
revenues exceeding GBP 500 million, in addition to new rules
implemented from 1 April 2019 imposing UK tax on the receipt of
royalties by offshore companies deriving from business activity in
the UK; other EU jurisdictions such as France have introduced
similar digital services tax measures, and the EU continues to work
on a harmonized proposal which may include "virtual permanent
establishment" criteria as well as an interim targeted
turnover-based equalisation tax and/or advertising tax. . 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. 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.
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 H1 2019: 888 continues to engage with tax
authorities and obtain legal advice in order to regularise its tax
position and mitigate exposures. In Israel, the local subsidiary is
undergoing a tax audit with respect to years 2014-2017, which
primarily focuses on transfer pricing matters. No assessment has
yet been issued, and the Company has included a provision in its
accounts in accordance with its assessment of the likely outcome.
The Company also agreed to assessments issued in a routine periodic
withholding tax audit of its Israeli subsidiary.
Data Protection risk
The risk: 888 processes a large quantity of personal customer
data, including sensitive data such as name, contact information,
age, copies of governmental issued IDs, payment information, bank
details and gaming / betting history, and certain information
regarding responsible gaming matters. Furthermore, the Company
engages in a variety of activities that involve the processing of
said data for a variety of purposes, including account management,
risk analysis and fraud prevention, responsible gaming, identity
and age verification, direct marketing and advertising activities,
etc. Such data could be illegally or 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 EUR20
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. Furthermore, the Company's compliance with
its licensing conditions may also be jeopardized to the extent the
Company does not meet is data protection responsibilities.
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.
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. 888 conducts ongoing
discussions and reviews regarding the implementation of its data
protection procedures as well as data protection challenges and
risks.
What happened in H1 2019: 888 has further implemented and
enhanced its 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.
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.
What happened in H1 2019: During H1 2019, the UKGC continued its
regulatory enforcement processes and actions which resulted in
several public regulatory actions against 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. Furthermore, there appears to be a growing
sentiment, particularly in the UK, about failings by the gaming
industry to protect vulnerable players (specifically underage
players and problem gamblers), which could result in the imposition
of stricter regulatory requirements or other restrictions on the
industry. Policy makers in other jurisdictions have called for
stricter limitations on marketing and advertising of gambling
(possibly even the imposition of advertising bans) aimed at
preventing gambling addiction. 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.
Partnership risk
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.
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 H1 2019: In early 2019, 888 acquired Costa
Bingo and other formerly B2B bingo brands from its former B2B
partner Jet Management. In June 2019, 888's US B2B partner Caesars
announced that it will be wholly acquired by Eldorado Resorts; the
impact on the relationship with 888 (if any) is presently
unknown.
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 H1 2019: In early 2019, 888 acquired Costa
Bingo and other formerly B2B Bingo brands from its former partner
Jet Management. In addition 888 acquired the BetBright Sport
platform in a strategic step to strengthens 888's product and
technology capabilities and support the long-term development
strategy for 888sport. Both transactions were structured as asset
acquisitions, and 888 is dedicating the necessary resources to
effectively integrate these businesses into the group.
Credit risk
The risk: 888 has taken a revolving credit facility 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 H1 2019: In early 2019, 888 executed the
revolving credit facility with Barclays.
Condensed Consolidated Income Statement
For the six months ended 30 June 2019
Six months Six months
ended ended
30 June 30 June
2019 2018
US$ million US$ million
Note (unaudited)
----------------------------------------------- ---- ------------------------
Revenue before VAT accrual release 2 277.3 273.2
VAT accrual release - 10.7
Revenue 277.3 283.9
Operating expenses (85.1) (80.5)
Gaming duties 3 (44.9) (37.8)
Research and development expenses (17.3) (16.6)
Selling and marketing expenses 3 (84.3) (82.7)
Administrative expenses (19.4) (18.3)
Exceptional items 4 (1.6) 12.0
Operating profit before exceptional
items, VAT accrual release and share
benefit charge 29.6 42.3
Exceptional items (1.6) 12.0
VAT accrual release - 10.7
Share benefit charges (3.3) (5.0)
----------------------------------------------- ---- ----------- -----------
Operating profit 3 24.7 60.0
Finance income 0.4 0.3
Finance expenses (2.9) (0.1)
Share of post-tax loss of equity accounted
associates - (0.1)
Profit before tax 22.2 60.1
Taxation (2.5) (4.7)
----------------------------------------------- ---- ----------- -----------
Profit after tax for the period attributable
to equity holders of the parent 19.7 55.4
----------------------------------------------- ---- ----------- -----------
Earnings per share 5
Basic 5.4c 15.4c
Diluted 5.3c 15.0c
----------------------------------------------- ---- ----------- -----------
Condensed Consolidated Statement of Comprehensive Income
For the six months ended 30 June 2019
Six months Six months
ended ended
30 June 30 June
2019 2018
US$ million US$ million
(unaudited)
Profit for the period 19.7 55.4
Items that may be reclassified subsequently
to profit or loss
------------------------------------------------- ----------- -----------
Exchange differences on translation of foreign
operations - (0.2)
Items that will not be reclassified to profit
or loss
------------------------------------------------- ----------- -----------
Remeasurement of severance pay liability (1.5) 0.5
------------------------------------------------- ----------- -----------
Total other comprehensive income for the
period (1.5) 0.3
------------------------------------------------- ----------- -----------
Total comprehensive income for the period
attributable to equity holders of the parent 18.2 55.7
------------------------------------------------- ----------- -----------
The notes below form part of these condensed consolidated
financial statements.
Condensed Consolidated Balance Sheet
At 30 June 2019
30 June 31 December
2019 2018
US$ million US$ million
Note (unaudited) (audited)
Assets
Non-current assets
Goodwill and other intangible assets 12 242.0 200.3
Right-of-use assets 1.2 26.1 -
Property, plant and equipment 13.4 11.0
Investments 1.1 1.1
Non-current receivables 0.8 0.8
Deferred tax assets 1.8 1.4
---------------------------------------- ------ ----------- -----------
285.2 214.6
Current assets
Cash and cash equivalents 111.0 133.0
Trade and other receivables 43.8 33.0
154.8 166.0
Total assets 440.0 380.6
---------------------------------------- ------ ----------- -----------
Equity and liabilities
Equity attributable to equity holders
of the parent
Share capital 3.3 3.3
Share premium 3.6 3.6
Foreign currency translation reserve (2.0) (2.0)
Treasury shares (1.2) (1.2)
Retained earnings 148.8 156.6
---------------------------------------- ------ ----------- -----------
Total equity attributable to equity
holders of the parent 152.5 160.3
Liabilities
Non-Current liabilities
Interest-bearing loans and borrowings 11 21.6 -
---------------------------------------- ------ ----------- -----------
21.6 -
Current liabilities
Trade and other payables 10 140.5 136.0
Provisions 4,6,10 10.9 11.3
Income tax payable 11.4 11.4
Deferred tax liability 4.1 2.3
Severance pay liability 4.0 2.2
Interest-bearing loans and borrowings 11 37.6 -
Customer deposits 57.4 57.1
265.9 220.3
Total equity and liabilities 440.0 380.6
---------------------------------------- ------ ----------- -----------
These condensed financial statements were approved and
authorised for issue by the Board of Directors on 10 September 2019
and were signed on its behalf by:
Itai Pazner Aviad Kobrine
Chief Executive
Officer Chief Financial Officer
The notes below form part of these condensed consolidated
financial statements.
Condensed Consolidated Statement of Changes in Equity
For the six months ended 30 June 2019
Foreign
currency
Share Treasury Retained translation
Share capital premium shares earnings reserve Total
US$ million US$ million US$ million US$ million US$ million US$ million
-------------------------------------- ------------- ----------- ----------- ----------- ----------- -----------
Balance at 1 January 2018
(audited) 3.3 3.5 (0.7) 108.7 (1.6) 113.2
-------------------------------------- ------------- ----------- ----------- ----------- ----------- -----------
Profit after tax for the period
attributable to equity holders
of the parent - - - 55.4 - 55.4
Other comprehensive income/(loss)
for the period - - - 0.5 (0.2) 0.3
-------------------------------------- ------------- ----------- ----------- ----------- ----------- -----------
Total comprehensive income/(loss) - - - 55.9 (0.2) 55.7
Dividend paid - - - (41.4) - (41.4)
Equity settled share benefit
charges - - - 5.0 - 5.0
Acquisition of treasury shares - - (0.8) - - (0.8)
Exercise of deferred share
bonus plan - - 0.3 (0.3) - -
Issue of shares to cover employee
share schemes - 0.1 - - - 0.1
-------------------------------------- ------------- ----------- ----------- ----------- ----------- -----------
Balance at 30 June 2018 (unaudited) 3.3 3.6 (1.2) 127.9 (1.8) 131.8
Balance at 1 January 2019
(audited) 3.3 3.6 (1.2) 156.6 (2.0) 160.3
-------------------------------------- ------------- ----------- ----------- ----------- ----------- -----------
Profit after tax for the period
attributable to equity holders
of the parent - - - 19.7 - 19.7
Other comprehensive income/(loss)
for the period - - - (1.4) - (1.4)
-------------------------------------- ------------- ----------- ----------- ----------- ----------- -----------
Total comprehensive income/(loss) - - - 18.3 - 18.3
Dividend paid - - - (29.4) - (29.4)
Equity settled share benefit
charges - - - 3.3 - 3.3
Balance at 30 June 2019 (unaudited) 3.3 3.6 (1.2) 148.8 (2.0) 152.5
-------------------------------------- ------------- ----------- ----------- ----------- ----------- -----------
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.
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$.
The notes below form part of these condensed consolidated
financial statements.
Condensed Consolidated Statement of Cash Flows
For the six months ended 30 June 2019
Six months Six months
ended ended
30 June 30 June
2019 2018
US$ million US$ million
Note (unaudited)
Cash flows from operating activities
Profit (loss) before tax 22.2 60.1
Adjustments for:
Depreciation 6.0 2.5
Amortisation 9.3 7.6
Interest income (0.4) (0.3)
Interest expenses 1.4 -
Share of post- tax loss of equity accounted
associates - 0.1
Exceptional items 1.6 (12.0)
VAT accrual release - (10.7)
Share benefit charges 3.3 5.0
-------------------------------------------------- ---- ----------- -----------
43.4 52.3
Decrease (increase) in trade receivables (8.2) 1.3
Increase in other receivables (3.2) (4.2)
Increase (decrease) in customer deposits 1.0 (4.5)
Increase (decrease) in trade and other payables 16.0 (20.1)
Decrease in provisions (0.4) (6.7)
-------------------------------------------------- ---- ----------- -----------
Cash generated from operations 48.6 18.1
Income tax paid (4.9) (2.0)
-------------------------------------------------- ---- ----------- -----------
Net cash generated from operating activities 43.7 16.1
Cash flows from investing activities
Acquisition of property, plant and equipment (5.3) (1.9)
Investment in BetBright (19.3) -
Investment in Costa Bingo (15.7) -
Investment in AAPN Holdings LLC (18.4) -
Interest received 0.4 0.3
Acquisition of intangible assets (1.8) (1.5)
Internally generated intangible assets (4.5) (6.5)
-------------------------------------------------- ---- ----------- -----------
Net cash used in investing activities (64.6) (9.6)
Cash flows from financing activities
Issue of shares to cover employee share schemes - 0.1
Payment of lease liabilities (4.0) -
Interest paid (0.5) -
Proceeds from loans 33.0 -
Acquisition of treasury shares - (0.8)
Dividends paid 9 (29.4) (41.4)
-------------------------------------------------- ---- ----------- -----------
Net cash used in financing activities (0.9) (42.1)
Net decrease in cash and cash equivalents (21.8) (35.6)
Net foreign exchange difference (0.2) (0.4)
Cash and cash equivalents at the beginning of
the period 133.0 179.6
-------------------------------------------------- ---- ----------- -----------
Cash and cash equivalents at the end of the
period(1) 111.0 143.6
-------------------------------------------------- ---- ----------- -----------
(1) Cash and cash equivalents includes restricted short-term
deposits of US$2.6 million (H1 2018: US$1.2 million).
Included in net cash generated from operating activities are
amounts paid during the period in respect of exceptional items of
US$1.6 million (H1 2018: US$5.7 million).
The notes below form part of these condensed consolidated
financial statements.
Notes to the Condensed Consolidated Financial Statements
1 Basis of preparation and accounting policies
1.1 Basis of preparation
The condensed consolidated half-yearly financial information of
the Group has been prepared in accordance with International
Accounting Standard 34 'Interim Financial Reporting' as adopted by
the EU ('IAS 34') and with the Disclosure and Transparency Rules of
the Financial Conduct Authority. The interim condensed consolidated
financial statements do not include all the information and
disclosures required in the Group's annual audited consolidated
financial statements and should be read in conjunction with the
Group's annual audited consolidated financial statements for the
year ended 31 December 2018.
The financial information is presented in US Dollars (US$
million) because that is the currency the Group primarily operates
in.
The comparatives for the year ended 31 December 2018 are not the
Group's full statutory accounts for that year. A copy of the
statutory accounts for that year has been delivered to the
Registrar of Companies in Gibraltar and is also available from the
Company's website. The auditor's report on those accounts was
unqualified and did not contain statements under Section 257(1) (a)
and Section 258(2) of the Gibraltar Companies Act.
The condensed consolidated set of financial statements included
in this half-yearly financial report is unaudited and does not
constitute statutory accounts.
1.2 New standards, interpretations and amendments adopted by the
Group
The accounting policies and methods of computation adopted in
the condensed consolidated half-yearly financial information are
consistent with those followed in Group's full financial statements
for the year ended 31 December 2018, except for the adoption of new
standards effective as of 1 January 2019.
The Group applies, for the first time, IFRS 16 - Leases.
Several other new and amendments to existing International
Financial Reporting Standards and interpretations, issued by the
IASB and adopted by the EU, were effective from 1 January 2019 and
have been adopted by the Group during the period with no
significant impact on the consolidated results or financial
position of the Group.
IFRS 16 - Leases
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 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. Right-of-use assets are also subject
for impairment losses and adjusted for any remeasurement of lease
liabilities. 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. At date of
initial application, lease liabilities for leases previously
classified as an operating lease applying IAS 17 were recognised
and measured at the present value of the remaining lease payments,
discounted using the incremental borrowing rate at the date of
initial application.
Right-of-use asset at the date of initial application for leases
previously classified as an operating lease applying IAS 17 was
measured at an amount equal to the lease liability, adjusted by the
amount of any prepaid or accrued lease payments relating to that
lease recognised in the statement of financial position immediately
before the date of initial application. Leases are mainly comprise
of offices in the period between one to ten years.
The effect of adoption of IFRS 16 is as follows:
Impact on the statement of financial position as at 1 January
2019:
US $ million
------------------------------------- -------------------
Assets
Right-of-use assets 26.8
Liabilities
Current Lease liabilities (5.6)
Non-current lease liabilities (21.2)
Net impact on equity -
---------------------------------------- -------------------
Movement in the right of use assets during the period:
right-of-use
assets
US $ million
----------------------------------- ------------
At 1 January 2019 26.8
Arising during the period 2.2
Disposals during the period -
Depreciation (2.9)
At 30 June 2019 26.1
-------------------------------------- ------------
Impact on the statement of profit or loss for the six months
ended 30 June 2019:
US $ million
------------------------------- -------------------
Depreciation expense (2.9)
Operating lease expense 3.1
Operating profit 0.2
Finance costs (0.5)
Profit for the period (0.3)
---------------------------------- -------------------
Impact on the statement of cash flows for the six months ended
30 June 2019:
US $ million
------------------------------------------------ -------------------
Net cash flows from operating activities 4.0
Net cash flows from financing activities (4.0)
Net impact on cash flows -
--------------------------------------------------- -------------------
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.
1.3 New standards that have not been adopted by the Group as
they were not effective for the year:
Several new standards and amendments to existing International
Financial Reporting Standards and interpretations, issued by the
IASB and adopted, or subject to endorsement, by the EU, will be
effective from 1 January 2020 and 2021 and have not been adopted by
the EU by the Group during the period. At this stage management are
still assessing the full impact on the consolidated results or
financial position of the Group.
2 Segment information
The management team continues to assess the performance of
operating segments based on revenue and segment result.
B2C B2B(1) Consolidated
------ ------------
Casino Poker Sport Bingo Total B2C
------ ----- ----- ----- --------- ------ ------------
US$ million
------------------------------------------------------------
Six months ended 30 June
2019 (unaudited)
----------------------------------- ------------------------------------------------------------
Segment revenue 175.4 23.1 44.5 19.5 262.5 14.8 277.3
----------------------------------- ------ ----- ----- ----- --------- ------ ------------
Segment result(2) 103.2 6.3 109.5
Unallocated corporate expenses(3) (83.2)
Exceptional items (1.6)
Operating profit 24.7
Finance income 0.4
Finance expenses (2.9)
Share of post-tax loss of
equity accounted associates -
Taxation (2.5)
----------------------------------- ------ ----- ----- ----- --------- ------ ------------
Profit after tax for the
period 19.7
----------------------------------- ------ ----- ----- ----- --------- ------ ------------
Adjusted profit after tax
for the period(4) 24.6
----------------------------------- ------ ----- ----- ----- --------- ------ ------------
Assets
Unallocated corporate assets 440.0
----------------------------------- ------ ----- ----- ----- --------- ------ ------------
Total assets 440.0
----------------------------------- ------ ----- ----- ----- --------- ------ ------------
Liabilities
Segment liabilities 56.4 1.0 57.4
Unallocated corporate liabilities 230.1
----------------------------------- ------ ----- ----- ----- --------- ------ ------------
Total liabilities 287.5
----------------------------------- ------ ----- ----- ----- --------- ------ ------------
(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 5.
Notes to the Condensed Consolidated Financial Statements
2 Segment information (continued)
B2C B2B(1) Consolidated
------ ------------
Casino Poker Sport Bingo Total B2C
------ ----- ----- ----- --------- ------ ------------
US$ million
------------------------------------------------------------
Six months ended 30 June
2018 (unaudited)
----------------------------------- ------------------------------------------------------------
Segment revenue before VAT
accrual release 161.0 30.6 37.5 17.6 246.7 26.5 273.2
VAT accrual release 10.7 - 10.7
----------------------------------- ------ ----- ----- ----- --------- ------ ------------
Segment revenue 257.4 26.5 283.9
Segment result(2) 115.1 12.3 127.4
Unallocated corporate expenses(3) (79.4)
Exceptional items 12.0
Operating profit 60.0
Finance income 0.3
Finance expenses (0.1)
Share of post-tax loss of
equity accounted associates (0.1)
Taxation (4.7)
----------------------------------- ------ ----- ----- ----- --------- ------ ------------
Profit after tax for the
period 55.4
----------------------------------- ------ ----- ----- ----- --------- ------ ------------
Adjusted profit after tax
for the period(4) 37.8
----------------------------------- ------ ----- ----- ----- --------- ------ ------------
Assets
Unallocated corporate assets 360.2
----------------------------------- ------ ----- ----- ----- --------- ------ ------------
Total assets 360.2
----------------------------------- ------ ----- ----- ----- --------- ------ ------------
Liabilities
Segment liabilities 62.9 2.7 65.6
Unallocated corporate liabilities 162.8
----------------------------------- ------ ----- ----- ----- --------- ------ ------------
Total liabilities 228.4
----------------------------------- ------ ----- ----- ----- --------- ------ ------------
(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 5.
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)
Six months Six months
ended ended
30 June 30 June
2019 2018
US$ million US$ million
(unaudited)
------------------------------------- ------------------------
EMEA (excluding the UK and Spain)(1) 115.4 119.1
UK 97.6 86.5
Spain 33.3 33.5
Americas 24.8 26.5
Rest of world 6.2 7.6
------------------------------------- ----------- -----------
Revenue before VAT accrual release 277.3 273.2
------------------------------------- ----------- -----------
VAT accrual release - 10.7
------------------------------------- ----------- -----------
Total Revenue 277.3 283.9
------------------------------------- ----------- -----------
(1) Non-European revenue included in the segment during H1 2019
amount to US$20.9 million (H1 2018: US$22.1 million).
3 Operating profit
Six months Six months
ended ended
30 June 30 June
2019 2018
US$ million US$ million
(unaudited)
Operating (loss) profit is stated after charging:
Staff costs (including executive Directors) 49.1 49.3
Gaming duties 44.9 37.8
Selling and marketing expenses 84.3 82.7
Exceptional items 1.6 (12.0)
Depreciation (within operating expenses) 6.0 2.5
Amortisation (within operating expenses) 9.3 7.6
Chargebacks 2.1 1.1
Payment service providers' commissions 11.3 12.2
-------------------------------------------------- ----------- -----------
Notes to the Condensed Consolidated Financial Statements
4 Exceptional items
The Group classifies certain items of income and expense as
exceptional, as the Group considers that it allows for a better
reflection of the underlying performance of the Group. The Group
considers any non-recurring items of income and expense for
classification as exceptional by virtue of their nature and
size.
Six months Six months
ended ended
30 June 30 June
2019 2018
US$ million US$ million
(unaudited)
Exceptional legal and professional costs 0.8 -
Restructuring costs 0.8
Provision - legacy regulatory matters - 10.4
Potential historical VAT charge - (22.4)
------------------------------------------ ----------- -----------
Total exceptional items(1) 1.6 (12.0)
------------------------------------------ ----------- -----------
(1) Tax effect of the exceptional items is US$0.2 million (H1
2018: US$0.4 million)
Exceptional legal and professional costs
During the period, the Group incurred legal and professional
costs of US$0.8 million (H1 2018: nil) associated with the
acquisitions of Costa Bingo brands and BetBright's sports betting
platform.
Restructuring costs
Restructuring costs during the period comprises with employees
redundancy costs mainly in Israel, part of the Group cost
optimisation project, shifting workforce from high cost locations
to low cost locations.
Provision - legacy regulatory matters
During the six months ended 30 June 2018, 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.
See also note 6.
Potential historical VAT charge
During 2017, the Group recorded a provision for exceptional
items of US$45.3 million in respect of potential 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$22.4 million of the
provision.
5 Earnings per share
Basic earnings per share
Basic earnings per share ('EPS') has been calculated by dividing
the profit attributable to ordinary shareholders by the weighted
average number of shares in issue and outstanding during the
period.
Diluted earnings per share
The weighted average number of shares for diluted earnings per
share takes into account all potentially dilutive equity
instruments granted, which are not included in the number of shares
for basic earnings per share. Certain equity instruments have been
excluded from the calculation of diluted EPS as their conditions of
being issued were not deemed to satisfy the performance conditions
at the end of the period or it will not be advantageous for holders
to exercise them into shares, in the case of options. The number of
equity instruments included in the diluted EPS calculation consist
of 4,178,957 ordinary shares (H1 2018: 9,888,265) and 7,062
market-value options (H1 2018: 28,146).
Six months Six months
ended ended
30 June 30 June
2019 2018
(unaudited)
Profit for the period attributable to equity holders
of the parent (US$ million) 19.7 55.4
Weighted average number of Ordinary Shares in
issue 366,565,858 359,594,601
Effect of dilutive Ordinary Shares and share options 4,186,019 9,916,411
Weighted average number of dilutive Ordinary Shares 370,751,877 369,511,012
----------------------------------------------------- ----------- -----------
Basic 5.4c 15.4c
Diluted 5.3c 15.0c
----------------------------------------------------- ----------- -----------
Adjusted earnings per share
The Directors believe that EPS excluding VAT accrual release,
exceptional items, share benefit charges and share of post-tax loss
of equity accounted associates ("Adjusted EPS") allows for 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 VAT accrual
release, exceptional items, share benefit charges and share of
post-tax loss of equity accounted associates ("Adjusted
profit"):
Six months Six months
ended ended
30 June 30 June
2019 2018
US$ million US$ million
(unaudited)
Profit (loss) for the period attributable to equity
holders of the parent 19.7 55.4
VAT accrual release - (10.7)
Exceptional items (see note 4) 1.6 (12.0)
Share benefit charges 3.3 5.0
Share of post-tax loss of equity accounted associates - 0.1
Adjusted profit 24.6 37.8
Weighted average number of Ordinary Shares in
issue 366,565,858 359,594,601
Weighted average number of dilutive Ordinary Shares 370,751,877 369,511,012
-------------------------------------------------------- ----------- -----------
Adjusted basic earnings per share 6.7c 10.5c
Adjusted diluted earnings per share 6.7c 10.2c
-------------------------------------------------------- ----------- -----------
6 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$18.5 million, relating to issues on
which the Group considered that it has strong arguments but
regarding which it remained possible that there would be a cash
outflow. During 2018 following further discussions with tax
authorities in Germany culminating in the issuance of tax
assessments, the Board, supported by their updated legal advice,
considered that the risk of cash outflow in respect of these
services is remote, and therefore the contingent liability no
longer exists. The Board has reserved its position and all legal
rights, based on the legal advice received.
(c) As part of the Board's ongoing regulatory compliance and
operational risk assessment process, it continues to monitor legal
and regulatory developments, and their potential impact on the
business, and continues to take appropriate advice in respect of
these developments.
Given the nature of the legal and regulatory landscape of the
industry, from time to time the Group has received notices,
communications and legal actions from a small number of regulatory
authorities and other parties in respect of its activities. The
Group has taken legal advice as to the manner in which it should
respond and the likelihood of success of such actions. Based on
this advice and the nature of the actions, for the majority of
these matters the Board is unable to quantify reliably the outflow
of funds that may result, if any. For matters where an outflow of
funds is probable and can be measured reliably, amounts have been
recognised in the financial statements within Provisions. Except
for the regulatory matters described in note 4, these amounts are
not material at 30 June 2019.
Notes to the Condensed Consolidated Financial Statements
7 Related party transactions
The aggregate amounts payable to key management personnel,
considered to be the directors of the Company, as well as their
share benefit charges, are set out below:
Six months Six months
ended ended
30 June 30 June
2019 2018
US$ million US$ million
(unaudited)
Short term benefits 1.7 1.2
Post-employment benefits 0.2 0.1
Share benefit charges - equity settled 1.2 2.6
3.1 3.9
---------------------------------------- ----------- -----------
8 Acquisitions
Acquisition of Costa Bingo brands
On 19 February 2019, the Group announced the signing of an
agreement for the acquisition of a portfolio of Bingo brands,
including Costa Bingo and certain other Bingo brands of Jet
Management Group Limited and Jet Media Limited (together, "Jet")
for consideration of GBP18.0 million. Jet is part of the group of
companies headed by JPJ Group plc, which owns the Jackpotjoy
brands. The consideration is satisfied all in cash, with GBP12.0
million (US$15.7 million) paid during H1 2019 and the remainder of
GBP6.0 million (US$7.6 million) to be paid in August 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.
The provisional fair values of the identifiable assets and
liabilities acquired were:
Fair Value recognised
on acquisition
US $ million
------------------------------------- ---------------------
Assets
Other intangible assets(1) 21.5
Total assets 21.5
----------------------------------------- ---------------------
Liabilities
Deferred tax liability 2.2
Total Liabilities 2.2
----------------------------------------- ---------------------
Total identifiable net assets
at fair value 19.3
----------------------------------------- ---------------------
Goodwill arising on acquisition 4.0
----------------------------------------- ---------------------
Purchase consideration transferred 15.7
----------------------------------------- ---------------------
Liability in respect of Costa
acquisition 7.6
----------------------------------------- ---------------------
Fair value of purchase consideration 23.3
----------------------------------------- ---------------------
(1) Other intangible assets consist of Customer list of US$19.2
million and Brand name of US$2.3 million.
Acquisition BetBright's sports betting platform
On 4 March 2019, the Group announced the acquisition of
BetBright's sports betting platform for GBP15.0 million. The
consideration was satisfied all in cash, with GBP15.0 million
(US$19.3 million) paid during H1 2019. The acquisition strengthens
888's product and technology capabilities and will support the
long-term development strategy for 888sport.
The fair values of the identifiable assets and liabilities
acquired were:
Fair Value recognised
on acquisition
US $ million
------------------------------------- ---------------------
Assets
Property, plant and equipment 0.2
Other intangible assets(1) 19.1
Total identifiable net assets
at fair value 19.3
----------------------------------------- ---------------------
Purchase consideration transferred 19.3
Fair value of purchase consideration 19.3
----------------------------------------- ---------------------
(1) Other intangible assets consist of Sport platform technology
of US$18.3 million and the right to access third party customer
list of US$0.8 million.
9 Dividends
Six months Six months
ended ended
30 June 30 June
2019 2018
US $ million US $ million
(unaudited)
---------------- --------------------------
Dividends paid 29.4 41.4
---------------- ------------ ------------
2018 final dividend of 6.0c per share and an additional one-off
2.0c was paid on 23 May 2019 (US$29.4 million).
During 2018, the 2017 final dividend of 5.9c per share and an
additional one-off 5.6c per share were paid on 11 May 2018 (US$41.4
million) and the 2018 interim dividend of 4.2c per share was paid
on 31 October 2018 (US$15.2 million).
The Board of Directors has declared an interim dividend of 3.0c
per share, payable on 18 October 2019.
10 Trade, other payables and provisions
30 June 31 December
2019 2018
US $ million US $ million
------------------------------------------- ------------ ------------
Trade payables 38.4 30.8
Accrued expenses 75.0 63.6
Liability in respect of AAPN buyout(1) - 18.5
Liability in respect of Costa Bingo brands
acquisition(2) 7.6 -
Other payables 19.5 23.1
-------------------------------------------- ------------ ------------
Total trade and other payables 140.5 136.0
Provisions(3) 10.9 11.3
151.4 147.3
------------------------------------------- ------------ ------------
(1) In 2018, 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$18.4 million was paid during H1 2019.
(2) The Group acquired a portfolio of Bingo brands, including
Costa Bingo and certain assets of Jet for consideration of GBP18.0
million. GBP12.0 million (US$15.7 million) was on the day of
acquisition and the remainder of GBP6.0 million (US$7.6 million) to
be paid in September 2019.
(3) Includes mainly provisions in respect of regulatory matters
related to legacy customers' activity in prior periods (2018:
US$11.3 million).
The carrying value of trade and other payables approximates to
their fair value given the short maturity date of these
balances.
Movement in the provision during the period is as follows:
Total
US $ million
----------------------------------------------- ------------
At 1 January 2019 11.3
Arising during the period 0.3
Paid during the period (0.1)
Released to income statement during the period (0.3)
Exchange rate (0.3)
------------------------------------------------ ------------
At 30 June 2019 10.9
------------------------------------------------ ------------
Current 10.9
Non-current -
------------------------------------------------ ------------
11 Interest-bearing loans and borrowings
30 June 31 December
2019 2018
US $ million US $ million
-------------------------------------------- ------------ ------------
Lease liability(1) 26.4 -
Interest-bearing loan - RCF(2) 32.8 -
Total interest-bearing loans and borrowings 59.2 -
--------------------------------------------- ------------ ------------
(1) The Group applies, for the first time, IFRS 16 - Leases, see
note 1.2. The Group has recognised a lease liability of US$26.4
million which includes interest of US$0.5 million during the
period. At 1 January 2019, the present value of the remaining lease
payments is discounted using a weighted average borrowing rate of
3.9%.
(2) During the period, 888 has finalised a revolving credit
facility ("RCF") with Barclays Bank plc of up to US$50.0 million in
order to finance its M&A activities in the short term. At 30
June 2019 the Group has drawn US$33 million from the RCF.
Arrangement fee of US$0.5 million is deducted from the RCF balance
for 30 June 2019.
Lease liability RCF Total
US $ million US $ million US $ million
-------------------------- --------------- ------------ ------------
At 1 January 2019 26.8 - 26.8
Arising during the period 2.2 32.5 34.7
Paid during the period (4.0) - (4.0)
Interest 0.5 0.3 0.8
Exchange rate 0.9 - 0.9
At 30 June 2019 26.4 32.8 59.2
--------------------------- --------------- ------------ ------------
Current 4.8 32.8 37.6
Non-current 21.6 - 21.6
--------------------------- --------------- ------------ ------------
12 Goodwill and other intangible assets
Internally
Acquired generated
intangible intangible
Goodwill assets assets Total
US $ million US $ million US $ million US $ million
------------------------------- ------------ ------------ ------------ ------------
Cost or valuation
At 1 January 2018 146.1 21.6 80.6 248.3
Additions - 2.7 12.0 14.7
Acquisition of a subsidiary
(AAPN buyout) 30.9 9.9 - 40.8
At 31 December 2018 177.0 34.2 92.6 303.8
-------------------------------- ------------ ------------ ------------ ------------
Additions - 1.9 4.5 6.3
Acquisition of BetBright Sport
platform - 19.1 - 19.2
Acquisition of Costa Bingo
brands 4.0 21.5 - 25.5
At 30 June 2019 181.0 76.7 97.1 354.8
-------------------------------- ------------ ------------ ------------ ------------
Amortisation and impairments:
At 1 January 2018 20.7 16.2 51.6 88.5
Amortisation charge for the
year - 3.2 11.8 15.0
At 31 December 2018 20.7 19.4 63.4 103.5
-------------------------------- ------------ ------------ ------------ ------------
Amortisation charge for the
period - 4.8 4.5 9.3
At 30 June 2019 20.7 24.2 67.9 112.8
-------------------------------- ------------ ------------ ------------ ------------
Carrying amounts
At 30 June 2019 160.3 52.5 29.2 242.0
-------------------------------- ------------ ------------ ------------ ------------
At 31 December 2018 156.3 14.8 29.2 200.3
-------------------------------- ------------ ------------ ------------ ------------
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, the acquisition of the
Wink Bingo business in 2009 and the acquisition of the Costa bingo
brands in H1'19. The income streams generated from the Bingo online
business, comprise 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 were 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 migration of Cashcade which resulted in a
decreased available headroom. In addition, following the
acquisition of the Costa bingo brands, revenue associated with
these brands is now recognized as Bingo B2C instead of B2B.
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 for each of
B2B and B2C, have been applied to revenue and are based on past
experience, including the results in 2018 and H1'19 and projections
of future changes in the UK online bingo gaming market. Key
assumptions in preparing these cash flow projections include
moderate growth in revenue, continued optimisation 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.
GBP/US$
Underlying Long-term Operating exchange
Pre-tax Underlying short-term growth expenses Operating rate used
discount growth growth rate increase expenses in the model
rate rate year rate years year years increase for future
applied(1) 1 2-5 6+ 1-5 year 6+ periods
------------ ----------- ------------ ---------- ---------- ---------- --------------
At 30 June 2019 9% 2% 4-6% 2% 2% 2% 1.22
At 31 December
2018 9% 2% 3% 2% 2% 2% 1.30
(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.
The calculation of value in use for Bingo B2C and Bingo B2B
units is most sensitive to the Revenue growth rate assumptions.
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. A
reduction of the short-term growth rates to 1% for each of B2B and
B2C would result in in zero headroom for Bingo B2B and Bingo B2C,
respectively.
Acquisition during the period
Fair Value of acquired intangible assets recognised on the
acquisition of Costa Bingo brands consist of Customer list of
US$19.2 million and Brand name of US$2.3 million. The estimated
remaining useful life of the acquired intangible assets is 12 years
(using the sliding scale method with 70% of the value to be
amortised over 5 years) and 10 years, respectively.
Fair Value of acquired intangible assets recognised on the
acquisition of BetBright Sport platform consist of Sport platform
of US$18.3 million and the right to access third party customer
list of US$0.8 million. The estimated remaining useful life of the
acquired intangible assets is 12 years and 8 years,
respectively.
Goodwill - Costa Bingo brands
The recognised goodwill reflects the potentially significant
opportunities in the Bingo business to create additional value for
the Group.
13 Fair value measurements
At 30 June 2019 and 31 December 2018, 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.
Statement of Directors' Responsibilities
The Directors confirm that to the best of their knowledge:
-- The condensed set of financial statements, which has been
prepared in accordance with IAS 34 "Interim Financial Reporting" as
issued by the IASB and adopted by the EU, gives a true and fair
view of the assets, liabilities, financial position and profit of
the company and the undertakings included in the consolidation as a
whole.
-- The interim management report includes a fair review of the information required by:
a) DTR 4.2.7R of the Disclosure and Transparency Rules, being an
indication of important events that have occurred during the first
six months of the financial year and their impact on the condensed
set of financial statements; and a description of the principal
risks and uncertainties for the remaining six months of the
financial year; and
b) DTR 4.2.8R of the Disclosure and Transparency Rules, being
related party transactions that have taken place in the first six
months of the current financial year and that have materially
affected the financial position or performance of the entity during
that period; and any changes in the related party transactions
described in the 2018 Annual Report and Accounts.
The Directors of 888 Holdings plc are as listed in the 888
Holdings plc Annual Report and Accounts for 31 December 2018,
however Ron McMillan resigned from the Board on 4 April 2019.
A list of the current Directors is maintained on the 888
Holdings plc website: corporate.888.com.
By order of the Board of 888 Holdings plc.
Itai Pazner Aviad Kobrine
Chief Executive Officer Chief Financial Officer
Independent Review Report to 888 Holdings plc
Introduction
We have been engaged by the Company to review the condensed set
of financial statements in the half-yearly financial report for the
six months ended 30 June 2019 which comprises the Condensed
Consolidated Income Statement, the Condensed Consolidated Statement
of Comprehensive Income, the Condensed Consolidated Balance Sheet,
the Condensed Consolidated Statement of Changes in Equity, the
Condensed Consolidated Statement Cash Flows, and the related notes
to the financial statements 1 to 13. We have read the other
information contained in the half yearly financial report and
considered whether it contains any apparent misstatements or
material inconsistencies with the information in the condensed set
of financial statements.
This report is made solely to the company in accordance with
guidance contained in International Standard on Review Engagements
2410 (UK and Ireland) "Review of Interim Financial Information
Performed by the Independent Auditor of the Entity" issued by the
Auditing Practices Board. To the fullest extent permitted by law,
we do not accept or assume responsibility to anyone other than the
company, for our work, for this report, or for the conclusions we
have formed.
Directors' Responsibilities
The half-yearly financial report is the responsibility of, and
has been approved by, the directors. The directors are responsible
for preparing the half-yearly financial report in accordance with
the Disclosure Guidance and Transparency Rules of the United
Kingdom's Financial Conduct Authority.
As disclosed in note 1, the annual financial statements of the
group are prepared in accordance with IFRSs as adopted by the
European Union. The condensed set of financial statements included
in this half-yearly financial report has been prepared in
accordance with International Accounting Standard 34, "Interim
Financial Reporting", as adopted by the European Union.
Our Responsibility
Our responsibility is to express to the Company a conclusion on
the condensed set of financial statements in the half-yearly
financial report based on our review.
Scope of Review
We conducted our review in accordance with International
Standard on Review Engagements (UK and Ireland) 2410, "Review of
Interim Financial Information Performed by the Independent Auditor
of the Entity" issued by the Auditing Practices Board for use in
the United Kingdom. A review of interim financial information
consists of making enquiries, primarily of persons responsible for
financial and accounting matters, and applying analytical and other
review procedures. A review is substantially less in scope than an
audit conducted in accordance with International Standards on
Auditing (UK) and consequently does not enable us to obtain
assurance that we would become aware of all significant matters
that might be identified in an audit. Accordingly, we do not
express an audit opinion.
Conclusion
Based on our review, nothing has come to our attention that
causes us to believe that the condensed set of financial statements
in the half-yearly financial report for the six months ended 30
June 2019 is not prepared, in all material respects, in accordance
with International Accounting Standard 34 as adopted by the
European Union and the Disclosure Guidance and Transparency Rules
of the United Kingdom's Financial Conduct Authority.
Ernst & Young LLP
London, United Kingdom
10 September 2019
This information is provided by RNS, the news service of the
London Stock Exchange. RNS is approved by the Financial Conduct
Authority to act as a Primary Information Provider in the United
Kingdom. Terms and conditions relating to the use and distribution
of this information may apply. For further information, please
contact rns@lseg.com or visit www.rns.com.
END
IR UKURRKVAKRUR
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