Final Results - Part 2
888 Holdings plc
08 April 2008
Part 2
Notes to the Consolidated Financial Statements
1 General information
Company description and activities
888 Holdings Public Limited Company (the 'Company') and its subsidiaries
(together the 'Group') was founded in 1997 and originally operated as a holding
company domiciled in the British Virgin Islands. On 12 January 2000, the
Company was continued in Antigua and Barbuda as a corporation under the
International Business Corporation Act 1982 with registered number 12512. On 17
December 2003, the Company redomiciled in Gibraltar with the Company number
90099. On 4 October 2005, the Company listed on the London Stock Exchange.
The Group has developed and is the owner of innovative proprietary software
applications solutions for virtual Casinos, for Poker rooms, e-commerce,
credit-card clearing services and online advertising methodologies. The Group
also offers Sports betting, Bingo games and Backgammon to end users as well as
business partners.
Cassava Enterprises (Gibraltar) Limited and Brigend Limited (both subsidiaries)
carried out the operations of the Group during the year, principally under the
name www.888.com under the terms of a gaming license issued in Gibraltar.
Definitions
In these financial statements:
The Company 888 Holdings Public Limited Company.
The Group 888 Holdings Public Limited Company and its subsidiaries.
Subsidiaries Companies over which the Company has control (as defined in International Accounting Standard
27 'Consolidated and Separate Financial Statements' and whose accounts are consolidated with
those of the Company.)
Related parties As defined in International Accounting Standard 24 - 'Related Party Disclosures'.
Emerging Comprises of the group's offering of Bingo games to end users and business partners,
Offerings Backgammon and betting exchange.
2 Significant accounting policies
The significant accounting policies applied in the preparation of the financial
statements are as follows:
Basis of preparation
The consolidated financial statements of the Group have been prepared in
accordance with International Financial Reporting Standards, including
International Accounting Standards ('IAS') and Interpretations, adopted by the
International Accounting Standards Board ('IASB') and endorsed for use by
companies listed on an EU regulated market.
The significant accounting policies applied in the financial statements of the
Group in the prior years are applied consistently in these financial statements.
The financial statements are presented in thousands of US dollars (US$'000)
because that is the currency the Group primarily operates in.
The consolidated financial statements comply with the Gibraltar Companies
(Accounts) Act 1999, the Gibraltar Companies (Consolidated Accounts) Act 1999
and the Gibraltar Companies Act 1930.
Statutory accounts for the year ended 31 December 2007 will be made available
following the Company's Annual General Meeting. The auditors have reported on
those accounts and their report was unqualified and did not contain statements
under section 10(2) of the Gibraltar Companies (Accounts) Act 1999 or section
182(1) (a) of the Gibraltar Companies Act. Statutory accounts for the year
ended 31 December 2006 have been delivered to the Registrar of Companies in
Gibraltar together with a report under section 10 of the Gibraltar Companies
(Accounts) Act 1999. The audit report for both 2006 and 2007, without
qualifying the opinion therein, draws attention to the issue set out in note 24
on Contingent Liabilities in the financial information.
The following standards and interpretations, issued by the IASB or the
International Financial Reporting Interpretations Committee (IFRIC), are
effective for the first time in the current financial year and have been adopted
by the Group with no significant impact on its consolidated results or financial
position:
IFRS 7 - Financial instruments disclosure (effective for accounting periods
beginning on or after 1 January 2007). Additional disclosure has been included
in the Financial statements to comply with this standard.
IFRIC 7 - Applying the restatement approach under IAS 29 - Financial reporting
in hyperinflationary economies (effective for annual periods beginning on or
after 1 March 2006).
IFRIC 8 - Scope of IFRS 2 - Accounting for share-based payments (effective for
annual periods beginning on or after 1 May 2006).
IFRIC 9 - Reassessment of embedded derivatives (effective for annual periods
beginning on or after 1 June 2006).
IFRIC 10 - Interim financial reporting and impairment (effective for annual
periods beginning on or after 1 November 2006).
Notes to the Consolidated Financial Statements
2 Significant accounting policies continued
The following standards and interpretations, issued by the IASB or IFRIC, have
not been adopted by the Group as these were not effective for the year 2007. The
Group is currently assessing the impact these standards and interpretations will
have on the presentation of its consolidated results in future periods:
IAS 1 (Amendment) - Presentation of Financial Statements (effective for annual
periods beginning on or after 1 January 2009) - IAS 1 has not been endorsed for
use in the EU.
IFRIC 11 IFRS 2- Group and treasury share transactions (effective for annual
periods beginning on or after 1 March 2007). IFRIC 11 has been endorsed for use
in the EU.
IFRIC 12 - Service concession arrangements (effective for annual periods
beginning on or after 1 January 2008). IFRIC 12 has not been endorsed for use in
the EU.
IFRIC 13 - Customer Loyalty Programmes (effective for annual periods beginning
on or after 1 July 2008). IFRIC 13 has not been endorsed for use in the EU.
IFRIC 14- The Limit on a Defined Benefit Asset Minimum Funding Requirements and
their Interaction (effective for annual periods beginning on or after 1 January
2008). IFRIC 19 has not been endorsed for use in the EU.
IAS 23 (Amendment) - Borrowing costs (effective for annual periods beginning on
or after 1 January 2009). IAS 23 has not been endorsed for use in the EU.
IAS 27 - Consolidated and separate financial statements (effective for periods
beginning on or after 1 July 2009). IAS 27 has not been endorsed for use in the
EU.
IFRS 2 (Amendment) - Vesting conditions and cancellations (effective for
accounting periods beginning on or after 1 January 2009). IFRS2 (Amendment) has
not yet been endorsed for use in the EU.
IFRS 3 (Revised) - Business combinations (effective for accounting periods
beginning on or after 1 January 2009). IFRS 3 (Revised) has not yet been
endorsed for use in the EU.
IFRS 8 - Operating segments (effective for annual periods beginning on or after
1 January 2009) contains requirements for the disclosure of information about an
entity's operating segments and also about the entity's products and services,
the geographical areas in which it operates, and its major customers. The
standard is concerned only with disclosure and replaces IAS 14 - Segment
reporting. IFRS 8 has been endorsed for use in the EU.
Amendments to IAS 32 Financial Instruments: Presentation and IAS 1 Presentation
of Financial Statements - Puttable Financial Instruments and Obligations arising
on Liquidation (effective for accounting periods beginning on or after 1 January
2009).These amendments have not been endorsed for use in the EU.
Critical accounting policies, estimates and judgments
The preparation of consolidated financial statements under IFRS requires the
Group to make estimates and judgments that affect the application of policies
and reported amounts. Estimates and judgments are continually evaluated and are
based on historical experience and other factors including expectations of
future events that are believed to be reasonable under the circumstances. Actual
results may differ from these estimates.
Included in this note are accounting policies which cover areas that the
Directors consider require estimates and assumptions which have a significant
risk of causing a material adjustment to the carrying amount of assets and
liabilities within the next financial year. These policies together with
references to the related notes to the financial statements can be found below:
Taxation Note 6
Intangible assets acquired Note 9
Impairment of Goodwill Note 10
Consolidation on the basis of control Note 18
Share-based payments Note 19
Regulatory compliance and contingent liabilities Note 24
Notes to the Consolidated Financial Statements
2 Significant accounting policies continued
Presentation of continuing and discontinued operations
As a result of enactment of the Unlawful Internet Gambling Enforcement Act ('
UIGEA') in October 2006, the Group withdrew from offering real-money activity to
the US facing market.
Although the Group did not operate the US facing business as a separate
business, it was a separate geographical segment of the Group's business and in
accordance with IFRS 5 - 'Non-Current Assets Held for Sale and Discontinued
Operations' the income statement and related notes are required to show
continued and discontinued operations separately.
Net Gaming Revenue and certain direct costs associated with the discontinued
operations, which are of distinct nature, were allocated accordingly. Other
costs (such as R&D expenses, IT expenses, Share benefit charges, office rent and
associated cost, depreciation of fixed assets, gaming duty, Directors and
Officers insurance, Directors' fees and tax), which are not distinguishable,
were all allocated to the continuing operations and not to the discontinued
business. In allocating the rest of the costs of the Group between the two
operations, management has applied reasonable estimates in accordance with
applicable accounting standards. However, as estimates have necessarily been
used in disclosing a geographical segment as discontinued operations, the
results do not necessarily reflect the financial performance which would have
been achieved had the discontinued operations been managed as a stand-alone
business.
The matters described above mainly refer to the year ended 31 December 2006, as
during 2007 any cost associated with the discontinued operations was clearly
distinguishable.
Basis of consolidation
The consolidated financial statements include the accounts of the Company and
its subsidiaries. The subsidiaries are companies controlled by 888 Holdings
Public Limited Company. Control exists where the Company has the power to
govern the financial and operating policies of an entity so as to obtain
benefits from its activities. Subsidiaries are consolidated from the date the
parent gained control until such time as control ceases.
The financial statements of the subsidiaries are included in the consolidated
financial statements using the purchase method of accounting. On the date of
the acquisition, the assets and liabilities of a subsidiary are measured at
their fair values and any excess of the fair value of the consideration over the
fair values of the identifiable net assets acquired is recognised as goodwill.
Inter-company transactions and balances are eliminated on consolidation.
The financial statements of subsidiaries are prepared for the same reporting
period as the parent company and using consistent accounting policies.
Net Gaming Revenue
Revenue is recognised to the extent that it is probable that economic benefits
will flow to the Group and the revenue can be reliably measured. Revenue is
recognised in the accounting periods in which the gaming transactions occurred.
Net Gaming Revenue is defined as follows:
Casino
Casino winnings that are the differences between the amounts of bets placed by
members less amounts won by members.
Poker
Ring games: Rake, which is the commission charged from each winning hand
played.
Tournaments: Entry fees charged for participation in Poker tournaments are
recognized when the tournament has concluded.
Emerging Offerings
Net Gaming Revenue from Emerging Offerings is defined as the commission charged
from winnings or entry fees charged for participation in a tournament. In the
case of white label activity, Revenue is the net commission charged.
Casino winnings, revenues from the Poker business and Emerging Offerings are
stated after deduction of certain bonuses granted to members.
Other operating income
Other operating income consists mainly of revenue generated from processing
customers' cross currency deposits and withdrawals, effectively reducing costs
associated with payment service providers.
Notes to the Consolidated Financial Statements
2 Significant accounting policies continued
Foreign currency
Monetary assets and liabilities denominated in non-US dollar currencies are
translated into US dollar equivalents using year-end spot foreign exchange
rates. Non-monetary assets and liabilities are translated using exchange rates
prevailing at the dates of the transactions. Exchange rate differences on
foreign currency transactions are included in administrative expenses.
The results and financial position of all Group entities that have a functional
currency different from US dollars are translated into the presentation currency
as follows:
(i) monetary assets and liabilities for each balance sheet presented are
translated at the closing rate at the date of that balance sheet;
(ii) income and expenses for each income statement are translated at an
average exchange rate (unless this average is not a reasonable approximation of
the cumulative effect of the rates prevailing on the transaction dates, in which
case income and expenses are translated at the dates of the transactions); and
(iii) exchange rate differences on translation of Group entities that have
functional currencies different from US dollars are included in administrative
expenses.
Taxation
The tax expense represents tax payable for the year based on currently
applicable tax rates.
Deferred tax assets and liabilities are recognised where the carrying amount of
an asset or liability in the balance sheet differs from its tax base.
Recognition of deferred tax assets is restricted to those instances where it is
probable that taxable profit will be available against which the difference can
be utilised. The amount of the asset or liability is determined using tax rates
that have been enacted or substantively enacted by the balance sheet date and
are expected to apply when the deferred tax liabilities/assets are settled/
recovered.
Research and development costs
Research and development expenditure is charged to the statement of income as
incurred. IAS 38 'Intangible Assets' requires capitalisation of certain
software development costs, subsequent to technological and commercial
feasibility being established and the Group having sufficient resources to
complete development. Based on the Group's product-development process,
technological feasibility and therefore the creation of substantially improved
product, is only established upon the completion of a working model. The Group
generally does not incur any significant costs between the completion of the
working model and the point at which the product is ready for general release.
Intangible assets
Identifiable assets, liabilities and contingent liabilities that meet the
conditions for recognition under IFRS 3 are recognised at their fair value at
the acquisition date. The identified intangibles are amortised over the useful
economic life of the assets. For acquisitions during the year 2007, the useful
economic life of the intangible assets acquired is estimated to be between three
months and four years. Intangible assets are reviewed annually for evidence of
impairment.
Goodwill
Goodwill represents the excess of the cost of a business combination over the
interest in the fair value of the identifiable assets, liabilities and
contingent liabilities acquired. Cost comprises the fair value of any assets
given, liabilities assumed and equity instruments issued, plus any direct costs
of acquisition.
Goodwill is capitalised as an intangible asset with any impairment in carrying
value being charged to the consolidated income statement. Where the fair value
of identifiable assets, liabilities and contingent liabilities exceed the fair
value of consideration paid, the excess is credited in full to the consolidated
income statement on the acquisition.
Property, plant and equipment
Property, plant and equipment is stated at historic cost less accumulated
depreciation. Carrying amounts are reviewed
at each balance sheet date for impairment.
Depreciation is calculated using the straight-line method, at annual rates
estimated to write off the cost of the assets less their estimated residual
values over their expected useful lives. The annual depreciation rates are as
follows:
IT equipment 33%
Office furniture and equipment 7-15%
Motor vehicles 15%
Leasehold improvements Over the shorter of the term of the lease or useful lives
Notes to the Consolidated Financial Statements
2 Significant accounting policies continued
Impairment of non-financial assets
Impairment tests on goodwill and other intangible assets with indefinite useful
economic lives are undertaken annually on
31 December. Other non-financial assets are subject to impairment tests
whenever events or changes in circumstances indicate that their carrying amount
may not be recoverable. Where the carrying value of an asset exceeds its
recoverable amount (i.e. the higher of value in use and fair value less costs to
sell), the asset is written down accordingly.
Where it is not possible to estimate the recoverable amount of an individual
asset, the impairment test is carried out on
the asset's cash generating unit (i.e. the lowest group of assets in which the
asset belongs for which there are separately identifiable cash flows).
Financial instruments
The Group does not hold or issue derivative financial instruments for trading
purposes
Trade receivables
Trade receivables are recognised at fair value and carried at amortised cost and
principally comprise amounts due from the credit-card companies and from
e-payment companies. An estimate for doubtful debts is made when collection of
the full amount is no longer probable. Bad debts are written off when
identified.
Cash and cash equivalents
Cash comprises cash in hand and balances with banks. Cash equivalents are short
term, highly liquid investments that are readily convertible to known amounts of
cash. They include short-term bank deposits originally purchased with
maturities
of three months or less.
Equity
Equity issued by the Company is recorded as the proceeds received, net of direct
issue costs.
Trade and other payables
Trade and other payables are recognised at fair value and carried at amortised
cost.
Member deposits
Member deposits are the amounts that clients place in the Group's electronic '
wallet' or bankroll, including provision for bonuses granted by the Group, less
management fees and charges applied to member accounts, along with full
provision for Casino jackpots. These amounts are repayable on demand in
accordance with the applicable terms and conditions.
Available for sale financial assets
Available for sale financial assets comprise non-derivative financial assets not
included in any of the above financial categories, are classified as available
for sale and comprise principally the Group's investments in entities not
qualifying as subsidiaries. They are carried at fair value with changes in fair
value recognised directly in a separate component of equity. Where there is a
significant decline in the fair value of an available for sale financial asset
the full amount of the impairment, including any amount previously charged to
equity, is recognised in the income statement
Chargebacks and returned e-cheques
The cost of chargebacks and returned e-cheques is included in operating
expenses.
Leases
Leases are classified as finance leases wherever the terms of the lease transfer
substantially all the risks and rewards of ownership to the Group. All other
leases are classified as operating leases and rentals payable are charged to
income on a straight-line basis over the term of the lease.
Provisions
Provisions are recognised when the Group has a present or constructive
obligation as a result of a past event from which
it is probable that it will result in an outflow of economic benefits that can
be reasonably estimated.
Segment information
A business segment is a distinguishable component of the Group that is engaged
in providing an individual product or service or a Group of related products or
services and that is subject to risks and returns that are different from those
of other business segments. A geographical segment is a distinguishable
component of the Group that is engaged in providing products or services within
a particular environment and that is subject to risks and returns that are
different from those of components operating in other economic environments.
The Group operates in the following online gaming segments:
• Casino
• Poker
• Emerging Offering is a new segment added during the year which
comprises mainly of the newly acquired Bingo business and 888's Backgammon
offering.
Notes to the Consolidated Financial Statements
2 Significant accounting policies continued
Dividends
Dividends are recognised when they become legally payable. In the case of
interim dividends this is when paid. In the case of final dividends, this is
when approved by the shareholders at the Annual General Meeting.
Share based payments
Where the Company grant its employees or contractors shares or market value
options, the fair value at the date of grant is charged to the income statement
over the vesting period. Non-market performance conditions are taken into
account by adjusting the number of instruments expected to vest at each balance
sheet date so that, ultimately, the cumulative amount recognized over the
vesting period is based on the number of instruments that eventually vest.
3 Segment information
Business segments
Year ended
31 December
2007
Casino Poker Emerging Consolidated
offerings
US$'000 US$'000 US$'000 US$'000
Net Gaming Revenue 118,120 80,817 14,446 213,383
Other operating income 2,111 1,452 3,563
Total operating income 120,231 82,269 14,446 216,946
Result 74,061 41,814 5,547 121,422
Segment result
Unallocated corporate expenses1 88,393
Operating Profit 33,029
Finance income 4,957
Tax expense (3,199)
Profit for the year - continuing operations 34,787
Profit for the year - discontinued operations (Note (552)
23a)
Profit for the year 34,235
Assets
Unallocated corporate assets 182,181
Total assets 182,181
Liabilities
Segment liabilities - Poker2 20,013
Segment liabilities - Casino2 5,533
Segment liabilities - Emerging Offerings 868
Deferred acquisition liability - Emerging Offerings 25,145
Unallocated corporate liabilities 37,895
Total liabilities 89,454
1 Including share benefit charges of US$7,800,000.
2 Included in segment liabilities are amounts owed in respect of discontinued
operations. Poker US$82,000 and Casino US$13,000.
Notes to the Consolidated Financial Statements
3 Segment information continued
Year ended
31 December
2006
Casino Poker Consolidated
US$'000 US$'000 US$'000
Net Gaming Revenue 88,760 68,240 157,000
Other operating income - - -
Total operating income 88,760 68,240 157,000
Result 52,101 41,374 93,475
Segment result
Unallocated corporate expenses1 84,994
Operating profit 8,481
Finance income 4,883
Tax expense (3,117)
Loss for the year - continuing operations 10,247
Profit for the year - discontinued operations (Note 23a) 64,254
Profit for the year 74,501
Assets
Unallocated corporate assets 137,604
Total assets 137,604
Liabilities
Segment liabilities - Poker2 15,445
Segment liabilities - Casino2 7,226
Unallocated corporate liabilities 27,931
Total liabilities 50,602
1 Including share benefit charges of US$8,829,000.
2 Included in segment liabilities are amounts owed in respect of discontinued
operations. Poker US$1,627,000 and Casino US$573,000.
Other than where amounts are allocated specifically to the Casino, Poker and
Emerging Offerings segments above, the expenses, assets and liabilities relate
jointly to all segments. Any allocation of these items would be arbitrary.
Geographical segments
The Group's performance can also be reviewed by considering the geographical
markets and geographical locations within which the Group operates. This
information is outlined below:
Total operating income by geographical market
Other Total Total
operating operating
Net Gaming income income operating
Revenue income
Year ended Year ended Year ended Year ended
31 December 31 December 31 December 31 December
2007 2007 2007 2006
US$'000 US$'000 US$'000 US$'000
UK 91,404 1,597 93,001 70,562
Europe 88,445 1,622 90,067 57,056
Americas (excluding USA) 17,684 344 18,028 17,601
Rest of World 15,850 - 15,850 11,781
Total operating income - Continuing operations 213,383 3,563 216,946 157,000
Total operating income - Discontinued operations ( Note - - - 132,907
23a )
Total operating income 213,383 3,563 216,946 289,907
Notes to the Consolidated Financial Statements
3. Segment information continued
Assets by geographical location
Carrying amount Additions to
of segment assets property, plant
by location and equipment
Year ended Year ended Year ended Year ended
31 December 31 December 31 December 31 December
2007 2006 2007 2006
US$'000 US$'000 US$'000 US$'000
Caribbean 454 357 51 281
Europe 161,168 121,008 2,546 1,832
Rest of World 20,559 16,239 5,058 6,508
182,181 137,604 7,655 8,621
4 Administrative expenses
Year ended Year ended
31 December 31 December
2007 2006
US$'000 US$'000
Share benefit charges - all equity settled 7,800 8,829
Other administrative expenses 16,860 19,824
Administrative expenses - Continuing operations 24,660 28,653
Administrative expenses - Discontinued operations 552 7,284
Administrative expenses 25,212 35,937
5 Operating profit
Year ended Year ended
31 December 31 December
2007 2006
US$'000 US$'000
Operating profit is stated after charging:
Staff costs 61,301 52,131
Audit fees 349 434
Other fees paid to auditors in respect of taxation services 26 179
Depreciation 4,192 3,801
Amortisation 1,550 -
Chargebacks and returned e-cheques 2,846 2,507
Exchange gains (1,117) (4,742)
Payment service providers' commissions 13,359 9,140
Share benefit charges - all equity settled 7,800 8,829
In the income statement total staff costs, excluding share benefit charge of
US$7,800,000 (2006: US$8,829,000), are included within the following expenditure
categories.
2007 2006
US$'000 US$'000
Operating expenses 30,967 23,810
Research and development expenses 18,672 14,467
Administrative expenses 11,662 13,854
61,301 52,131
At 31 December 2007 the Company employed 805 (2006: 736) staff.
Notes to the Consolidated Financial Statements
6 Taxation
Corporate taxes
Year ended Year ended
31 December 31 December
2007 2006
US$'000 US$'000
Current tax 3,190 3,302
Deferred tax 9 (185)
Taxation expense 3,199 3,117
Analysis of current tax for the year
Year ended Year ended
31 December 31 December
2007 2006
US$'000 US$'000
Profit before taxation 37,434 77,618
Current tax at the effective tax rate for the year 3,190 3,302
Deferred tax 9 (185)
Taxation expense 3,199 3,117
Current tax is calculated with reference to the profit of the Company and its
subsidiaries in their respective countries of operation:
Gibraltar -The Company and its Gibraltar registered subsidiaries are subject to
the provisions of the Gibraltar Companies (Taxation and Concessions) Act (the '
CTCA') as a tax-exempt company. Subject to a change of ownership or activity of
a tax-exempt company, the grandfathering of tax-exempt benefits in respect of
existing tax-exempt companies will extend up to 31 December 2010. Domestic
corporate tax in Gibraltar is 33% (2006: 35%). Gibraltar's Chief Minister has
announced further reductions in anticipation of the introduction of a flat low
tax rate of between 10% and 12% in 2010. A consultation is in place with respect
to the new tax regime in Gibraltar.
Israel - 888's operations in Israel have entered into separate transfer pricing
agreements on an arm's-length basis with the Israeli Income Tax Commissioner.
The agreement in respect of Random Logic Limited is effective until the end of
2010. The agreement in respect of the Israeli branch of Intersafe Global Limited
was effective until the end of 2007. The Group is in the process of
discontinuing the use of this branch and so does not intend to enter into a new
agreement. Domestic corporate tax in Israel is 29% (2006: 31%).
UK - 888's subsidiary in the UK pays corporate tax in the UK at the applicable
rate of 30% (2006: 30%).
7 Earnings per share
Basic earnings per share from continuing operations
Basic earnings per share have been calculated by dividing the profit
attributable to ordinary shareholders by the weighted average number of shares
in issue during the year.
Diluted earnings per share
In accordance with IAS 33, 'Earnings per share', the weighted average number of
shares for diluted earnings per share takes into account all potentially
dilutive shares and share options granted, which are not included in the number
of shares for basic earnings per share. In addition, certain employee options
have also been excluded from the calculation of diluted EPS as their exercise
price is greater than the weighted averaged share price during the year and it
would not be advantageous for the holders to exercise the option. The number of
options excluded from the diluted EPS calculation is 4,765,036 (2006:
3,230,182).
Notes to the Consolidated Financial Statements
7. Earnings per share continued
Year ended Year ended
31 December 31 December
2007 2006
US$'000 US$'000
Profit from continuing operations attributable to ordinary shareholders 34,787 10,247
Weighted average number of Ordinary Shares in issue 338,837,328 337,223,724
Weighted average number of dilutive Ordinary Shares 346,069,425 341,834,214
Continuing operations
Basic 10.3c 3.0c
Diluted 10.1c 3.0c
Discontinued operations (Note 23e)
Basic (0.2)c 19.1c
Diluted (0.2)c 18.8c
Total
Basic 10.1c 22.1c
Diluted 9.9c 21.8c
Earnings per share excluding share benefit charges
Reconciliation of profit to profit excluding share benefit charges:
Year ended Year ended
31 December 31 December
2007 2006
US$'000 US$'000
Profit from continuing operations attributable to ordinary shareholders 34,787 10,247
Share benefit charges 7,800 8,829
Profit excluding share benefit charges 42,587 19,076
Weighted average number of Ordinary Shares in issue 338,837,328 337,223,724
Weighted average number of dilutive Ordinary Shares 346,069,425 341,834,214
Continuing operations
Basic earnings per share excluding share benefit charges 12.6c 5.7c
Diluted earnings per share excluding share benefit charges 12.3c 5.6c
Discontinued operations (Note 23e)
Basic earnings per share excluding share benefit charges (0.2)c 19.1c
Diluted earnings per share excluding share benefit charges (0.2)c 18.8c
Total
Basic earnings per share excluding share benefit charges 12.4c 24.8c
Diluted earnings per share excluding share benefit charges 12.1c 24.4c
8 Dividends
Year ended Year ended
31 December 31 December
2007 2006
US$'000 US$'000
Dividends paid 36,205 28,658
The Board of Directors will recommend to the Shareholders a final divided in
respect of the year ended 31 December 2007, of 5c.
Notes to the Consolidated Financial Statements
9. Acquisitions made during the year
Online Bingo business
On 16 May 2007 the Group acquired the assets comprising the online Bingo
business of Globalcom Limited ('Bingo Business') for an all cash consideration.
In calculating the goodwill arising on acquisition, the fair value of the net
assets of the Bingo business has been valued by a professional valuation firm
and recognised in accordance with IFRS 3 and adjustments from book value have
been made where necessary. These adjustments are summarized as follows:
Book Value on Fair value Fair Value
acquisition adjustments
US$'000 US$'000 US$'000
Property, plant and equipment 1 81 - 81
Intangible assets2 200 4,114 4,314
Net assets 281 4,114 4,395
1 See note 11
2 See note 10
The fair value relates to the recognition of customer lists (US$888,000),
royalty agreements (US$1,113,000), licensing agreements (US$2,113,000) and other
intangible assets (US$200,000) acquired as part of the acquisition. These
intangibles are being amortised over their estimated useful economic lives of
between three months and four years. All intangible assets on acquisition have
been identified and fair valued. The remaining goodwill represents the access to
future trade with the Bingo customers.
US$'000
Fair value of net assets acquired 4,395
Goodwill 37,892
Fair value of consideration including expenses 42,287
Which is represented by:
Cash consideration to Globalcom Limited 10,723
Deferred cash consideration to Globalcom Limited (paid during the year) 5,398
Deferred cash consideration to Globalcom Limited (included with other payables) 16,095
Earn-out payment (included with other payables) 1 9,050
Expenses & other costs 1,021
Total cash consideration 42,287
1 A further earn-out payment of US$9.05 million is payable in cash 12 months
from completion on the basis of actual performance during financial year 2007,
which was accomplished.
The revenue and operating profit generated from this acquisition in the
post-acquisition period to 31 December 2007 were $14.4 million and $5.2 million,
respectively. Had the business been owned for the entire year, the revenue and
operating profit would have been $20.2 million and $8.3 million respectively.
10 Intangible assets
Other
intangibles Goodwill Total
US$'000 US$'000 US$'000
Cost or valuation
At 1 January 2007 - - -
Acquisitions 4,314 37,892 42,206
At 31 December 2007 4,314 37,892 42,206
Amortisation and impairment losses
At 1 January 2007 - - -
Charge for the year 1,550 - 1,550
Impairments - - -
At 31 December 2007 1,550 - 1,550
Carrying amounts
At 31 December 2007 2,764 37,892 40,656
At 31 December 2006 - - -
Notes to the Consolidated Financial Statements
10. Intangible assets continued
The other intangible assets relate to the recognition of customer lists, royalty
agreements, licensing agreements and certain software developed and acquired as
part of the acquisition of the assets comprising the online Bingo business of
Globalcom Limited. These intangibles are being amortised over their estimated
useful economic lives of between three months and four years. The intangible
assets have been identified and valued using third part professional valuers,
and are based on their value in use to the business.Goodwill is associated with
the cash generating online Bingo business acquired during the year.
In accordance with IAS 36 and IFRS 3, the Group regularly monitors the carrying
value of its goodwill. A review was undertaken at 31 December 2007 to assess
whether the carrying value of goodwill is supported by the net present value of
future cash flows generated by these assets using cash flow estimates for 4
years.
The discount rate used for purposes of the review is the company specific
weighted average cost of capital percentage of 19%. In estimating the future
cash flows the Group has used very prudent estimates in respect of revenues
generated and costs incurred.
The result of the review undertaken at 31 December 2007 was that no impairment
is required and the carrying value of the intangible assets is appropriate.
11 Property, plant and equipment
Office
furniture and Motor Leasehold
equipment improvements
IT equipment vehicles Total
US$'000 US$'000 US$'000 US$'000 US$'000
Cost
At 1 January 2006 10,614 2,077 459 5,202 18,352
Additions 3,163 254 - 5,204 8,621
Disposals - - (163) - (163)
At 31 December 2006 13,777 2,331 296 10,406 26,810
Additions 4,156 105 110 3,203 7,574
Acquisitions 81 - - - 81
Disposals (1) - - - (1)
At 31 December 2007 18,013 2,436 406 13,609 34,464
Accumulated depreciation
At 1 January 2006 7,576 618 61 1,756 10,011
Charge for the year 2,085 208 128 1,380 3,801
Disposals - - (35) - (35)
At 31 December 2006 9,661 826 154 3,136 13,777
Charge for the year 2,845 230 49 1,068 4,192
Disposals (1) - - - (1)
At 31 December 2007 12,505 1,056 203 4,204 17,968
Depreciated cost
At 31 December 2007 5,508 1,380 203 9,405 16,496
At 31 December 2006 4,116 1,505 142 7,270 13,033
12 Financial Assets
31 December 31 December
2007 2006
US$'000 US$'000
Opening balance at the beginning of the year - -
Acquisition of available for sale assets during the year 759 -
Adjustment to market price at year end (105) -
654 -
There were no disposals or impairment provisions on available for sale financial
assets.
Available for sale assets are quoted equity securities, the fair value of which
is based on their published market price.
Notes to the Consolidated Financial Statements
13 Deferred taxes
Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amounts of assets and liabilities for financial reporting
purposes and the amounts used for income tax purposes. The Group's deferred tax
assets resulting from temporary differences are as follows:
31 December 31 December
2007 2006
US$'000 US$'000
Accrued severance pay 38 141
Provision for share option charge 181 176
Provision for vacation 300 213
Provision for convalescence 18 16
537 546
14 Cash and cash equivalents
31 December 31 December
2007 2006
US$'000 US$'000
Cash and cash equivalents 103,505 106,811
Restricted cash 803 7,545
104,308 114,356
Restricted cash primarily relates to deposits held by banks for guarantees.
15 Trade and other receivables
31 December 31 December
2007 2006
US$'000 US$'000
Trade receivables 13,430 6,189
Other receivables and prepayments 6,100 3,480
19,530 9,669
The carrying value of trade and other receivables approximates to their fair
value.
Notes to the Consolidated Financial Statements
16 Share capital
Share capital comprises the following:
Authorised
31 December 31 December 31 December 31 December
2007 2006 2007 2006
Number Number US$'000 US$'000
Ordinary Shares of £0.005 each 426,387,500 426,387,500 3,880 3,880
426,387,500 426,387,500 3,880 3,880
Allotted, called up and fully paid
31 December 31 December 31 December 31 December
2007 2006 2007 2006
Number Number US$'000 US$'000
Ordinary Shares of £0.005 each 337,618,820 337,096,320 3,073 3,068
Issue of ordinary shares of £0.005 each 2,489,215 522,500 24 5
340,108,035 337,618,820 3,097 3,073
On 16 April 2007, the company issued 138,403 ordinary shares of £0.005
each in respect of shares exercised and nil cost options exercised as part of
the company's employee share option plan (see note 19).
On 4 May 2007, the company issued 1,002,169 ordinary shares of £0.005
each in respect of shares exercised and nil cost options exercised as part of
the company's employee share option plan (see note 19).
On 5 July 2007, the company issued 475,941 ordinary shares of £0.005
each in respect of shares exercised as part of the company's employee share
option plan (see note 19).
On 20 September 2007, the company issued 212,174 ordinary shares of £
0.005 each in respect of shares exercised and nil cost options exercised as part
of the company's employee share option plan (see note 19).
On 4 October 2007, the company issued 649,777 ordinary shares of £0.005
each in respect of shares exercised and nil cost options exercised as part of
the company's employee share option plan (see note 19).
On 10 October 2007, the company issued 10,751 ordinary shares of £0.005
each in respect of shares exercised as part of the company's employee share
option plan (see note 19).
Shares issued are converted into US$ at the exchange rate prevailing on the date
of issue. The issued and fully paid share capital of the Group amounts to
US$3,098,000 (2006: US$3,073,000) and is split into 340,108,035 (2006:
337,618,820) ordinary shares. The share capital in UK Sterling (GBP) is
£1,700,540 (2006: £1,688,094) and translates at an average exchange rate of
US$1.82 (2006: $1.82) to GBP.
17 Trade and other payables
31 December 31 December
2007 2006
US$'000 US$'000
Trade payables 5,297 3,111
Corporate taxes 1,131 1,016
Other payables and accrued expenses 31,467 23,804
Deferred acquisition liability 25,145 -
63,040 27,931
The carrying value of trade and other payables approximates to their fair value.
Notes to the Consolidated Financial Statements
18 Investments in subsidiaries
Percentage Percentage
of equity of equity
interest interest
Country of 2007 2006
Incorporation
Name % % Nature of business
Intersafe Global Limited Gibraltar 100 100 Payment processor
Cassava Enterprises Limited Antigua 100 100 Member call centre
operator
Virtual Services Limited BVI 100 100 Advertising
Virtual Holdings Management Services Gibraltar 100 100 Operates Group
(Gibraltar) Limited headquarters
Intersafe Global (Europe) Limited Gibraltar 100 100 Payment processor
Cassava Enterprises (Gibraltar) Limited Gibraltar 100 100 Gaming web site operator
Virtual Marketing Services (UK) Limited UK 100 100 Advertising
Cassava Sports Limited Gibraltar 100 100 Domain site owner through
which a third party
operates a betting
exchange
Active Media Limited BVI 100 100 Member call centre
employer
Virtual Marketing Services (Gibraltar) Gibraltar 100 100 Marketing acquisition
Limited
Dixie Operation Limited Antigua 100 100 Member call centre
operator
Random Logic Limited Israel 100 100 Research, development and
marketing
Brigend Limited Gibraltar 100 - Bingo business operator
ACTeCASH Limited 1 Gibraltar - - e-Wallet service
1 On 20 December 2005, the Group took responsibility for the management of
ACTeCASH Limited, a company with common shareholders. From this date ACTeCASH
was managed as a unit of the Group and utilised staff employed by the Group. In
accordance with IAS 27 'Consolidated and Separate Financial Statements', the
Group is deemed to have control of ACTeCASH by virtue of the fact it has the
power to govern the financial and operating policies of this company and derives
economic benefit from doing so. As such ACTeCASH has been consolidated as part
of the Group.
19 Share-based payment
Prior to flotation, the Company adopted two equity-settled employee share
incentive plans - the 888 All-Employee Share Plan and the Long Term Incentive
Plan. Awards have been granted under the 888 All-Employee Share Plan conditional
upon flotation. The 888 All-Employee Share Plan is open to all employees and
Executive Directors of the Group who are not within six months of their normal
retirement age at the discretion of the Remuneration Committee. Awards under
this scheme will vest in instalments over a fixed period of up to four years.
The Company grants awards to certain executive directors and members of its
senior management. These awards are subject to performance conditions imposed by
the Remuneration Committee at the dates of grant.
Details of Shares and Share Options granted as part of the 888 All-Employee
Share Plan and shares granted vesting immediately on IPO and thereafter:
Share options granted
31 December 31 December
2007 2006
Number Number
Outstanding at the beginning of the year 4,204,919 3,578,287
Market value options granted during the year 2,004,880 2,224,131
Market value options lapsed during the year (1,121,352) (1,597,499)
Outstanding at the end of the year1,2 5,088,447 4,204,919
Weighted average exercise price for options outstanding at the end £1.49 £1.67
of the year
Weighted average exercise price for options lapsed during the year £1.64 £1.72
1 Of the total number of options outstanding at the end of the year 1,321,145
had vested and were exercisable at the end of the year (2006: 784,491).
2 Range of exercise price for options outstanding at the end of the year is
£1.14 - £1.80 (2006: £1.44 - £1.80).
Notes to the Consolidated Financial Statements
19. Earnings per share continued
Shares granted
31 December 31 December
2007 2006
Number Number
Outstanding at the beginning of the year 8,316,639 5,247,214
Shares granted - future vesting 5,218,255 5,595,219
Lapsed future vesting shares (1,243,019) (2,003,294)
Shares issued during the year (2,489,215) (522,500)
Outstanding at the end of the year 9,802,660 8,316,639
The following information is relevant in the determination of the fair value of
options granted during the year under the equity-settled the 888 All-Employee
Share Plan:
Valuation information
2007 2006
Option pricing model used Monte Carlo Monte Carlo
Weighted average share price at grant date £1.18 £1.61
Weighted exercise price £1.19 £1.67
Risk free interest rate range 4.82-5.40% 4.30-4.70%
Expected volatility of the price of the underlying share 37-78% 53-67%
Exercise period of the market value options is from vesting until expiry of 10
years after grant date.
Monte Carlo model is taking into account all the minimum requirements set by
IFRS 2 such as: the exercise price of the option, the current price of the
underlying share, the expected volatility of the price of the underlying share,
the expected dividend on the underlying share, the expected term of the option
both contractual term and employees' expected behaviour and the risk-free
interest rate for the expected term of the option.
In accordance with International Financial Reporting Standards a charge to the
income statement in respect of any shares or options granted under the above
schemes will be recognised and spread over the vesting period of the shares or
options based on the fair value of the shares or options at the date at grant,
adjusted for changes in vesting conditions at each balance sheet date. This
charge has no cash impact.
Share benefit charges
Year ended Year ended
31 December 31 December
2007 2006
US$'000 US$'000
Charges in respect of share and option awards granted this year 1,756 2,527
Charges in respect of share and option awards granted in 6,044 6,302
previous years
Charge for the year 7,800 8,829
20 Related party transactions
During the year the Group paid US$290,401 (2006: US$212,464) in respect of rent
and office expenses to companies of which Mr John Anderson is a Director. At 31
December 2007 the amount owed to those companies was US$nil (2006: US$nil).
Remuneration paid to the Directors in the year totaled US$4,328,000 (2006:
US$9,258,000).
Share benefit charge in respect of awards granted to the Directors totaled
US$3,163,000 (2006: US$4,544,000).
21 Commitments
Lease commitments
Future minimum lease commitments under property operating leases for the year
ended 31 December 2007 are as follows:
31 December 31 December
2007 2006
Leases expiring within US$'000 US$'000
One year 2,278 3,060
Two to five years 7,533 8,204
9,811 11,264
The amount paid in the year was US$ 2,745,000 (2006: US$2,620,000).
Lease commitments on the Group's property are shown to the date of the first
break clause.
Notes to the Consolidated Financial Statements
22 Financial risk management
The Group is exposed through its operations to risks that arise from use of its
financial instruments.. Policies and procedures for managing these risks are
set by the Board following recommendations from the Chief Financial Officer. The
Board reviews the effectiveness of these procedures and, if required, approves
specific policies and procedures in order to mitigate these risks.
The main financial instruments used by the Group, on which financial risk
arises, are as follows:
• Cash and cash equivalents
• Restricted cash
• Trade and other receivables
• Available for sale financial assets
• Trade and other payables
• Member deposits
Detailed analysis of these financial instruments is as follows:
31 December 31 December
2007 2006
Financial assets US$'000 US$'000
Trade receivables 13,430 6,189
Other receivables 6,100 3,480
Cash and cash equivalents 103,505 106,811
Restricted cash 803 7,545
Available for sale financial asset 654 -
124,492 124,025
In accordance with IFRS 7 with the exception of available for sale assets, all
financial assets are classified as loans and receivables.
31 December 31 December
2007 2006
Financial liabilities US$'000 US$'000
Trade payables 5,297 3,111
Other payables and accrued expenses 31,467 23,804
Deferred acquisition liability 25,145 -
Member deposits 26,414 22,671
88,323 49,586
In accordance with IFRS 7 all financial liabilities are held at amortised cost.
At 31 December 2007 and 2006, the fair value and the book value of the Group's
financial assets and liabilities were materially the same.
Capital
The Capital employed by the Group is comprised of equity attributable to
shareholders. The primary objective of the Group is maximizing shareholders'
value, which, from the capital perspective, is achieved by maintaining the
capital structure most suited to the Group's size, strategy, and underlying
business risk. Other than disclosed elsewhere in note 22 there are no demands or
restrictions on the Group's capital.
The main financial risk areas are as follows:
Credit risk
Trade receivables
The Group's credit risk is primarily attributable to trade receivables who are
the Group's payment service providers ('PSP'). These are third party companies
that facilitate deposits and withdrawal of funds to and from the members'
virtual wallet with the Group. These are mainly intermediaries that transact on
behalf of the main credit card companies.
The risk is that a PSP would fail to discharge its obligation with regard to the
balance owed to the Group.
The Group reduces this credit risk by:
• Monitoring those balances on a regular basis
• Arranging for the shortest possible cash settlements intervals
• Replacing rolling reserve requirements, where they exist, with a Letter of
Credit by a reputable financial institution.
• Ensuring a new PSP is contracted following various due diligence and 'Know
Your Customer' procedures.
• Ensuring policies are in place to reduce dependency on specific PSP's.
The Group believes that based on the above and on extensive past experience, it
is not required to provide for any potential bad debts arising from a PSP
failing to discharge its obligation.
None of the balances owed by the various PSP are overdue or impaired.
Notes to the Consolidated Financial Statements
22. Financial risk management continued
An additional credit risk the Group faces relates to members disputing charges
made to their credit cards ('chargebacks') or any other funding method they have
used in respect of the services provided by the Group. Members may fail to
fulfil their obligation to pay which will result in funds not being collected.
These chargebacks and uncollected deposits (or returned e-cheques), when
occurring will be deducted at source by the PSP's from any amount due to the
Group. As such the Group provides for these eventualities by way of a provision
based on analysis of past transactions and estimated trends. This provision is
netted off from the trade receivables balance and at 31 December 2007 was
$845,000 (2006: $500,000).
The Group's in house Fraud and Risk Management department carefully monitors
deposits and withdrawals by following prevention and verification procedures
using internally developed bespoke systems integrated with commercially
available third party measures.
Cash and cash equivalents
The Group controls its cash position out of its Gibraltar headquarters.
Subsidiaries in its other locations (Israel, Antigua and London) maintain
minimum cash balances which are deemed required for their operations.
Cash settlement proceeds from PSP's as described above, are paid into bank
accounts controlled by the finance function in Gibraltar.
The Group segregates funds due to members and holds these funds in separate bank
accounts. These funds are not used to fund activity other than that directly
related to members.
The Group maintains its funds with highly reputable financial institutions and
will not hold funds with financial institutions with a credit rating lower than
A (based on Standard & Poor's rating).
The Group maintains its cash reserve in highly liquid deposits and regularly
monitors rates in order to maximize yield.
Restricted cash
The group may be required to deposit cash collateral to secure a letter of
credit that substitutes reserves required to be held by a PSP. Such deposit will
be with a reputable financial institution instead of with the individual PSP.
This decreases the cash balance with the PSP and therefore exposure. As at 31
December 2006, most of the restricted cash was of this nature. During the year
2007, the Group was able to substantially reduce those requirements and as at 31
December 2007, restricted cash is mainly attributed to a deposit in respect of
the Group's obligation with the developer of the offices of its subsidiary in
Israel.
The Group's maximum exposure to credit risk by type of financial instrument is
summarized below:
31 December 2007 31 December 2006
Carrying Maximum Carrying Maximum
exposure exposure
value value
US$'000 US$'000 US$'000 US$'000
Trade receivables 13,430 13,430 6,189 6,189
Other receivables 6,100 6,100 3,480 3,480
Cash and cash equivalents 103,505 103,505 106,811 106,811
Restricted cash 803 803 7,545 7,545
Available for sale financial asset 654 654 - -
124,492 124,492 124,025 124,025
Liquidity risk
Liquidity risk exists in the case where the Group will encounter difficulties in
meeting its financial obligations as they become due.
The Group monitors its liquidity in order to ensure that sufficient liquid
resources are available to allow it to meet its obligations.
In the case of the Group's liability to its members, the Group maintains these
deposits in separate bank accounts which are not used for its day to day
operations.
As at 31 December 2007, the Group had a deferred acquisition liability of
US$25,145,000 in respect of the acquisition of the online Bingo business of
Globalcom Limited. The Group maintain sufficient funds to meet this liability
which is due between April and May 2008. In addition the Group has assured that
cash earmarked to fund its final dividend payment for 2007, is in place.
The Group expects to have sufficient liquidity to meet all of its financial
obligations under all reasonably expected circumstances and will not need to
resort to any debt borrowing.
Notes to the Consolidated Financial Statements
22. Financial risk management continued
The following table details the contractual maturity analysis of the Group's
financial liabilities:
31 December 2007
Deferred
acquisition
Trade Other liability Member
payables payables1 deposits Total
US$'000 US$'000 US$'000 US$'000 US$'000
On demand 1,047 5,612 - 26,414 33,073
In 3 months 3,669 23,562 - - 27,231
Between 3 months and 1 year 581 1,835 25,145 - 27,561
More than 1 year - 458 - - 458
5,297 31,467 25,145 26,414 88,323
1 Includes other payables, accrued expenses and provisions.
31 December 2006
Deferred
acquisition
Trade Other liability Member
payables payables1 deposits Total
US$'000 US$'000 US$'000 US$'000 US$'000
On demand 390 6,647 - 22,671 29,708
In 3 months 2,148 12,919 - - 15,067
Between 3 months and 1 year 573 3,174 - - 3,747
More than 1 year - 1,064 - - 1,064
3,111 23,804 - 22,671 49,586
1 Includes other payables, accrued expenses and provisions.
Market risk
Interest rate risk
The Group's exposure to interest rate risk is limited to the interest bearing
deposits in which the Group invests surplus funds.
The Group's policy is to invest surplus funds in low risk money market funds or
on call over night facilities. The Group also arranged with its principal
bankers that excess funds are swept automatically across its accounts, every
night, in order to maximize availability of funds for investments.
Downside interest rate risk is minimal as the Group has no borrowings. A 0.5%
movement in bank interest rates would not have a significant impact on finance
income for the year or the prior year.
Currency risk
The Group's overall financial risk arising from exchange rate fluctuations is a
result of a miss-match between receipts which are denominated is US$ and
expenses part of which are denominated in foreign currencies , of which to be
noted are the British Pound Sterling (GBP), the Euro (EUR) and the New Israeli
Shekel (ILS). The Group continually monitors the foreign currency risk and takes
steps to ensure that the net exposure is kept to an acceptable level, inter alia
by using foreign exchange forward contracts designed to fix the economic impact
of known liabilities. At 31 December 2007 and 31 December 2006, there were no
outstanding forward contracts. There were no significant fair value movements on
these contracts during the year.
The Group further mitigates that risk by way of natural hedging whereby a
certain portion of funds collected from the PSP are settled in either GBP or EUR
in order to fund its expenses denominated in these currencies.
Notes to the Consolidated Financial Statements
23 Discontinued Operations
As a result of the matters fully described in note 24, the Group incurred legal
expenses in assessing the extent of any contingent liability, if any.
(a) Consolidated Income Statement
Year ended Year ended
31 December 31 December
2006
2007
US$'000 US$'000
Net Gaming Revenue - 132,907
Operating expenses - 28,086
Research and development expenses - -
Selling and marketing expenses - 33,283
Administrative expenses 552 7,284
Operating (loss)/profit before reorganization costs (552) 68,287
Charges in respect of reorganization costs - 4,033
Operating (loss)/profit (552) 64,254
Finance income - -
(Loss)/profit from discontinued operations (552) 64,254
(b) Segment information
Business segments
Year ended
31 December
2007
Casino Poker Consolidated
US$'000 US$'000 US$'000
Net Gaming Revenue - - -
Result - - -
Segment result
Unallocated corporate expenses (552)
Operating loss (552)
Net loss for the year - - (552)
Year ended
31 December
2006
Casino Poker Consolidated
US$'000 US$'000 US$'000
Net Gaming Revenue 71,972 60,935 132,907
Result 40,186 37,678 77,864
Segment result
Unallocated corporate expenses 13,610
Operating Profit 64,254
Net Profit for the year 64,254
Other than where amounts are allocated specifically to the Casino and Poker
segments above, the expenses relate jointly to both segments. Any allocation of
these items would be arbitrary.
Notes to the Consolidated Financial Statements
23 Discontinued Operations continued
Geographical segments
Net Gaming Revenue by geographical market
Year ended Year ended
31 December 31 December
2007 2006
US$'000 US$'000
USA - 132,907
- 132,907
(c) Profit from discontinued operations
Year ended Year ended
31 December 31 December
2007 2006
US$'000 US$'000
Profit from discontinued operations is stated after charging: -
Staff costs - 6,638
Chargebacks and returned e-cheques - 15,465
Payment service providers' commissions - 5,821
In note 23(c) total staff costs, are included within the following expenditure
categories:
2007 2006
US$'000 US$'000
Operating expenses - 5,842
Administrative expenses - 796
- 6,638
(d) Cash flows from discontinued operations
Year ended Year ended
31 December 31 December
2007 2006
US$'000 US$''000
Net cash (used)/generated in operating activities (552) 53,506
Net cash generated from investing activities - 2,244
Net cash used in financing activities - (14,951)
Net increase in cash and cash equivalents (552) 40,799
(e) Earnings per share
Year ended Year ended
31 December 31 December
2007 2006
US$'000 US$'000
(Loss) Profit from discontinued operations attributable to ordinary (552) 64,254
shareholders
Weighted average number of Ordinary Shares in issue 338,873,328 337,223,724
Weighted average number of dilutive Ordinary Shares 346,069,425 341,834,214
Basic (Losses) earnings per share (0.2)c 19.1c
Diluted (Losses) earnings per share (0.2)c 18.8c
Notes to the Consolidated Financial Statements
24 Contingent liabilities
From time to time the Group is subject to legal claims and actions against it.
The Group takes legal advice as to the likelihood of success of such claims and
actions.
Regulatory issues
As part of the Board's ongoing regulatory compliance and operational risk
assessment process, the Board continues to monitor legal and regulatory
developments, and their potential impact on the business, and continues to take
appropriate advice in respect of these developments.
Following the enactment of the UIGEA on 13 October 2006, the Group stopped
taking any deposits from customers in the US and barred such customers from
wagering real-money on all of the Group's sites.
Notwithstanding this, there remains a residual risk of an adverse impact arising
from the Group having had customers in the US prior to the enactment of the
UIGEA. The Board is not able to identify reliably at this stage what if any
liability may arise and accordingly no provision has been made.
On 5 June 2007 the Group announced that it has initiated preliminary discussions
with the United States Attorney's Office for the Southern District of New York.
It is too early to assess any particular outcome of these discussions.
This information is provided by RNS
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