Half Yearly Report

RNS Number : 2814N

888 Holdings plc

31 August 2011

 



31 August 2011                                                                                                                                                               

888 Holdings Public Limited Company

("888" or the "Company")

Half Yearly Report for the six months ended 30 June 2011

888, one of the world's most popular online gaming entertainment and solutions providers, announces its half yearly report for the six months ended 30 June 2011.

Financial Summary¹

US$ million	H1 2011	H1 2010	% change
Revenue
B2C
Casino	69.0	59.3	16%
Poker	24.0	19.6	22%
Bingo	27.6	23.5	17%
Emerging Offering	10.2	8.0	28%
	130.8	110.4	18%
B2B	23.1	19.8	16%
Revenue	153.8	130.2	18%
Operating expenses2,3	56.0	45.8
Research and development expenses3	12.9	13.2
Selling and marketing expenses	49.9	47.5
Administrative expenses3,4,5,6	15.1	11.2
EBITDA3,4,5,6	20.0	12.6	59%
Goodwill impairment	(20.2)	-
Interest, F/X and other	(8.2)	1.5
Depreciation and amortisation	(7.1)	(5.6)
Adjusted (Loss)/Profit Before Tax3,5,	(15.5)	8.4

Highlights

·      Revenue up 18% to US$154m (H1 2010: US$130m)

·      Revenue B2C up 18% to US$131m (H1 2010: US$110m)

·      Revenue B2B up 16% to US$23m (H1 2010: US$20m)

·      EBITDA^3,4,5,6  up 59% to US$20m (H1 2010: US$13m)

·      Real money registered customer accounts for casino, poker and sport up 21% to 9.6m (H1 2010: 7.9m)

·      Strategic review resulted in refocused strategy, designed to maximise revenues and expand profit margins

·      Successful launch in Italy of 888.it and a B2B partner following certification of 888 products with the Amministrazione Autonoma dei Monopoli di Stato (AAMS), the Italian regulatory authority

·      Further improvements to award-winning Poker platform, including the introduction of Pokercam and Teamplay

¹ Totals may not sum due to rounding. ² Excluding depreciation of US$4.8 million (H1 2010: 4.1 million) and amortisation of US$2.3 million (H1 2010 US$1.4 million)³ Excluding restructuring costs totalling US$4.9 million (H1 2010: US$2.2 million): US$1.0 from Operating expenses and US$3.9 million from Administrative expenses (H1 2010: US$1.2 from Operating expenses, US$0.6 million from Research and development and US$0.4 million from Administrative expenses)^{. 4}Excluding exchange loss of US$3.1 million (H1 2010: gain US$1.4 million). ⁵ Excluding share benefit charges US$1.6 million (H1 2010: US$1.9 million) ⁶ Excluding goodwill impairment US$20.2 million (H1 2010: nil)

Brian Mattingley, Deputy Chairman of 888, commented:

"This is a very strong set of results driven by good operating performances across our business lines. We have improved our offer, experienced good levels of new customer sign ups and activity has been at record levels. We are in good shape and, bolstered by our renewed strategic focus, are well positioned to take advantage of opportunities as they arise in newly regulated markets.

The third quarter, which includes the traditionally quiet summer period, has to date seen strong trading across all our business lines. Average daily revenue during the first 26 days of August was approximately 8 per cent higher than Q2 2011 and 40 per cent above August 2010. Inthe second half we will need to invest in regulating markets as these open up for us. However, given the strength of current trading, the Board is confident that the Company will report a financial performance for the full year to 31 December 2011 in line with current market expectations."

Analyst Presentation

A presentation for analysts will be held at 11:00 BST at M:Communications, 11th Floor, 1 Ropemaker Street, London, EC2Y 9AW.

Contacts and enquiries

888
Brian Mattingley, Deputy Chairman	[phone]
Aviad Kobrine, Chief Financial Officer	[phone]
M:Communications
Ann-marie Wilkinson/Andrew Benbow	[phone]

This announcement includes statements that are, or may be deemed to be, "forward-looking statements". These statements contain the words "anticipate", "believe", "intend", "estimate", "expect" and words of similar meaning. 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. All statements, other than statements of historical facts included in this announcement, including, without limitation, those regarding 888's financial position, business strategy, plans and objectives of management for future operations (including development plans and objectives relating to 888's products and services) are forward-looking statements that are based on current expectations. Such forward-looking statements are based on numerous assumptions regarding 888's operating performance, present and future business strategies, and the environment in which 888 will operate in the future. 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 of the UK Listing Authority 888 expressly disclaims any obligation or undertaking, to disseminate any updates or revisions to any forward-looking statements, contained herein to reflect any change in its expectations, with regard thereto or any change in events, conditions or circumstances on which any such statement is based. Past performance cannot be relied upon as a guide to future performance. 

Deputy Chairman's Review

Introduction

We have enjoyed a successful six months of trading.  Further improvement in our offer, and renewed focus on our core strengths, has led to two very impressive quarters of growth and this strong set of trading results that I am pleased to present.   

The first half of the year has also had some challenges, but we have endeavoured to meet these head on. There has been a significant change to your Board and I want to acknowledge the contribution that Gigi Levy made to the business.  Gigi stood down as Chief Executive Officer, by mutual agreement, in April this year. He remains on the Board as a non-executive director and we continue to use his experience as we move forward.  At the time I was asked by the Board to take a more hands on role for which I feel very privileged.

Your Board has undertaken a review of the business requirements in terms of personnel and taken steps to restructure the senior management team. I am delighted that, as part of that restructuring, we have appointed Itai Frieberger as Chief Operating Officer. Itai has a wealth of experience in the online world and has spent the last six years with 888 in various senior management roles covering the full spectrum of disciplines within our company.

We have been focused as ever on our goals - further bolstering our B2C performance and leveraging our industry-leading offerings, while maintaining our Dragonfish brand presence and B2B deal pipeline.  Our company is in a fit and healthy state and, with underlying deposit levels, new customer sign ups and activity all at record levels, we are therefore confident for the future.

Revenue was up 18% to US$154 million (H1 2010: US$130 million), demonstrating strong growth across our business lines and adjusted EBITDA* increased by 59% to US$20 million (H1 2010 US$13 million). As at 30 June 2011 our cash position was US$20 million, net of customers' liabilities. As announced on 18 March, we have successfully obtained agreement with the vendors to restructure the Wink earn out payments.

As stated at the year end, we temporarily suspended our dividends due to the higher than expected earn out payment related to the Wink acquisition.  We will continue to review the dividend policy with a view to reinstating payment of dividends as appropriate.

* Before share benefit charges of US$1.6 million (H1 2010: US$1.9 million), restructuring costs of US$4.9 million (H1 2010: US$2.2 million), exchange loss of US$3.1 million (H1 2010: income of US$1.4 million) and goodwill impairment of US$20.2 million (H1 2010: nil).

Strategy

During the period a bottom-up review of the business was completed in order to affirm where our core competencies lie and where we see the potential for optimum returns in the future.  As a result of this review we have refocused our strategy, which is designed to maximise revenues, expand profit margins, and take the company forward in an ever changing regulatory landscape. The strategy is made up of a number of key strands.

Firstly we will concentrate on our core product groups which are Casino, Poker, Bingo, and to a lesser extent Sport, where we depend upon partners to operate a sportsbook in a highly competitive market.  These will be delivered via our B2C offering and through our Dragonfish B2B clients.  

Secondly, we will continue to focus our attention on our B2C customers, ensuring we deliver a 'best in class' product, excellence in customer service, and a true value for money proposition. Our back office is a key asset of the company and truly world class, ensuring maximum returns on investment from our marketing and recruitment campaigns, monitoring and improving lifetime value of our customers, and fulfilling high standards of social and corporate responsibility through fraud detection, player monitoring and excellent CRM practices. We will continue to develop this key asset as it is a true competitive advantage that benefits both customers and clients alike.

Thirdly, we will appraise our Dragonfish B2B contracts, and where they are sub optimal, will seek to renegotiate or terminate. Furthermore we will continue to develop a pipeline of new opportunities. It is likely that these will be fewer but have greater impact on our revenues and profit.

Fourthly, we will focus our attention on improving margins, not just through the cutting of costs, but through maximising operational efficiencies and driving volume. In the first half there had already been some impact of this focus, although we have yet to feel the full benefit of savings made to head count and other operational efficiencies. It is our short term goal to return to levels of margin achieved in 2009, and then to further improve on these as we achieve critical mass.

Finally, as an umbrella to these core strands, it is a clear strategic imperative that we focus on regulated territories and markets. We break these markets into three specific categories which have individual characteristics:

·      Implementational - For example, in Italy and France, where regulation has been introduced and we have already commenced trading.

·      Formational - Where governments have announced regulation and are working towards a framework. Here we will decide on a trading strategy, start dialogue with local partners either for B2C or B2B tie- ups, and lobby governments in an attempt to assist in shaping the framework, for example, in Spain.

·      Developmental - Where there is a strong indication that at some time in the near future, the market will open. Here we will talk to local enterprise with a view to forming partnerships with whom we can jointly explore opportunities and attempt to influence the regulatory framework; currently we are focusing primarily on the USA.

B2C Review

We enjoyed a strong half in our B2C offer with Revenue up 18% to US$131 million (H1 2010: US$110 million).  Poker has been the strongest performing product and since the launch of our Poker 6 platform last year, we have significantly outperformed the industry. Whilst there has been some benefit from the recent action against certain US-facing poker sites, poker was performing very well prior to these developments. Revenue from Poker was up 22% to US$24 million (H1 2010: US$20 million).   We have witnessed a very significant upsurge in new poker player recruitment, with a remarkable increase of 90% in active customers, compared to this time last year.  888 now enjoys fifth position in the global liquidity rankings.  This surge in activity has been the result of constant investment in our poker strategy to build a platform that appeals to players of all abilities. We have developed a very technically sophisticated product that can manage a host of activities: matching marketing campaigns; monitoring product performance and delivering bespoke customer interfaces. We are continuing to improve the offer yet further and during the period we introduced some additional features to our award-winning Poker platform including a webcam - Pokercam - and more social elements such as Teamplay.

Our casino performance was also strong with core parameters improving across the board. Total Revenue was up 16% to US$69 million (H1 2010: US$59 million) and there was a 134% increase in the number of active customers to 159,000.  We have made a significant investment in our back office systems - eCRM - which has improved conversion ratios and marketing campaigns such as Free Spin and Millionaire have been highly successful.

We launched into the key Italian market with our online casino in July, and early performance has been encouraging.  Powered by our own Dragonfish B2B software and services we are also working with a variety of other online casino industry players to launch sites into this newly regulated European marketplace.  We are well positioned in this market, especially in respect of targeting the high value casino players.  Our original joint venture deal with Endemol Italy has evolved into a brand licensing deal, as Endemol's brands are ideally suited for an online gaming platform.

We have recently signed a licensing deal with Warner Bros Digital Distribution to develop slots games based on two of Warner Bros' most popular brands, related to the box office hits Nightmare on Elm Street and Clash of the Titans. The games will be added to our ever-growing portfolio of top notch games that feature across multiple casino, sports betting, poker and bingo sites. We plan to continue to invest in further games in the coming months, and we are building dedicated teams to make integration more streamlined as we start to release more games into the market.

Whilst Bingo continues to be an important product area for us and has performed in line with expectations, Q2 saw weakness across the sector.  We are now trading in a maturing and more competitive market than we once enjoyed, none the less we will continue to focus on our strengths and invest to provide our customers with a first class offer including regular promotions, attractive prizes and a host of interactive features.

Sport is still a small percentage of our total business but nevertheless important for our customers, particularly at the time of significant sport events and we will continue to invest in this offer to drive more revenue and improve margins.

Dragonfish Review

Revenue was up 16% to US$23 million (H1 2010: US$20 million) as we refocused on our core competences and more profitable deals. 

Following certification of 888 products with the Amministrazione Autonoma dei Monopoli di Stato (AAMS), the Italian regulatory authority, we launched our world-leading casino offering into the Italian market. This included the Dragonfish-powered casinos of bwin.it and MicroGame. Dragonfish is set to continue the roll out of casino offerings for additional partners in the coming months, leveraging on its CasinoFlex platform. Such partners will include Gioco Digitale and King.com, with other deals in the pipeline. CasinoFlex is also powering the 888.it B2C site.

The Dragonfish offering will include both Download and No-Download (Instant Play) clients and the Live Casino premium product to offer one complete gaming package. We have customized and enhanced our proposition so we can present the Italian player with the most compelling and engaging gaming experience out there. We have already completed the deployment of all MicroGame skins and licenses.

As noted above, in the second half of the year we will continue to appraise our Dragonfish contracts, and where they are sub optimal will seek to renegotiate or terminate. Furthermore we will continue to develop a pipeline of new opportunities, but it is likely that these will be fewer but more enhancing to our revenue and profit.

Social gaming

The performance of Mytopia, the social games development business acquired last year, has not yet met our expectations. Whilst we acknowledge that the social network platform is one which is gaining popularity for gaming and could be a profitable avenue in the future, as a result of reduced expected future income growth, we took a prudent accounting decision and fully impaired the Mytopia goodwill*.

* See note 4 to the condensed financial statements.

Outlook

Trading in the second half has continued to be strong in spite of it being the traditionally quieter summer period.

The company is performing well. We have a clear strategy to follow, the tools and resources to grow the company, a wealth of opportunities and leads to take the business forward and the determination to deliver results befitting a company which is as operationally, and commercially, effective as ours. 

Whilst the excellent figures reported give the Board confidence of future growth, H2 will be impacted by our need to invest in regulated markets as these open up for us. We are confident, given the strength of current trading, that the Company will report a financial performance for the full year to 31 December 2011 in line with current market expectations.

Brian Mattingley

Deputy Chairman

31 August 2011

Condensed Consolidated Income Statement

For the period ended 30 June 2011

				Six months ended 30 June				Year ended  31 December
				2011		2010		2010
		Note		US$'000		US$'000		US$'000
				(unaudited)         (unaudited)				(audited)
Revenue		2		153,841		130,229		262,113
Operating expenses				64,154		52,601		112,145
Research and development expenses				12,869		13,777		22,356
Selling and marketing expenses				49,892		47,505		91,501
Administrative expenses (including goodwill impairment of $20,173,000, 2010: nil)		4		43,911		12,141		24,622
Operating profit before share benefit charges , restructuring costs and impairment charges				9,774		8,368		16,017
Impairment charges		4		(20,173)		-		-
Restructuring costs				(4,949)		(2,219)		(2,219)
Share benefit charges				(1,637)		(1,944)		(2,309)
Operating (loss) profit				(16,985)		4,205		11,489
Finance income				90		86		197
Finance expenses				(5,246)		(6)		(1,141)
Share of post-tax profit of equity accounted joint venture				41		-		19
Profit before tax before share benefit charges restructuring costs and impairment charges				4,659		8,448		15,092
Impairment charges		4		(20,173)		-		-
Restructuring costs				(4,949)		(2,219)		(2,219)
Share benefit charges				(1,637)		(1,944)		(2,309)
(Loss)/ Profit before tax				(22,100)		4,285		10,564
Taxation				1,156		1,602		2,701
(Loss)/ Profit after tax for the period attributable to equity holders of parent				(23,256)		2,683		7,863

(Loss)/Earnings per share
Basic				(6.7)¢		0.8¢		2.3¢
Diluted				(6.7)¢		0.8¢		2.3¢

Condensed Consolidated Statement of Comprehensive Income

For the period ended 30 June 2011

		Six months ended 30 June				Year ended 31 December
		2011		2010		2010
		US$'000		US$'000		US$'000
		(unaudited)         (unaudited)				(audited)
(Loss)/Profit for the period		(23,256)		2,683		7,863
Actuarial losses on defined benefit pension plan		(239)		(211)		(366)
Total comprehensive (loss)\income for the period		(23,495)		2,472		7,497

Condensed Consolidated Balance Sheet

At 30 June 2011

		Six months ended 30 June					Year ended 31 December
		2011		2010			2010
		US$'000		US$'000			US$'000
		(unaudited)     (unaudited)					(audited)
ASSETS
Non-current assets
Intangible assets		142,888			115,264		162,291
Property, plant and equipment		19,564			21,090		21,547
Investment in equity accounted joint venture		1,260			-		1,297
Available for sale investment		175			-		175
Deferred taxes		690			790		586
		164,577			137,144		185,896
Current assets
Cash and cash equivalents		60,867			65,682		61,520
Trade and other receivables		22,879			19,755		24,344
		83,746			85,437		85,864
Total assets		248,323			222,581		271,760
Equity and liabilities
Equity attributable to equity holders of the parent
Share capital		3,145			3,140		3,145
Share premium		65			65		65
Capital redemption reserve		24			24		24
Retained earnings		92,361			108,399		113,716
Total equity attributable to equity holders of the parent		95,595			111,628		116,950
Liabilities
Current liabilities
Trade and other payables		58,596			43,316		37,814
Customer deposits		40,984			33,103		34,725
Contingent  and deferred consideration		53,148			24,811		78,033
		152,728			101,230		150,572
Non-current liabilities
Contingent  and deferred consideration		-			9,723		4,238
Total liabilities		152,728			110,953		154,810
Total equity and liabilities		248,323			222,581		271,760

Condensed Consolidated Statement of Changes in Equity

For the period ended 30 June 2011

						Capital
		Share		Share		Redemption			Retained
		capital		premium		Reserve			earnings		Total
		US$'000		US$'000		US$'000			US$'000		US$'000
Balance at 1 January 2010		3,152		65		-			117,883		121,100
Dividend paid		-		-					(10,491)		(10,491)
Shares buy back		(24)		-		24			(3,397)		(3,397)
Share benefit charges		-		-		-			1,944		1,944
Issue of shares		12		-		-			(12)		-
Total comprehensive income for the period		-		-		-			2,472		2,472
Balance at 30 June 2010 (unaudited)		3,140		65		24			108,399		111,628
Shares buy back		-		-		-			(68)		(68)
Share benefit charges		-		-		-			365		365
Issue of shares		5		-		-			(5)		-
Total comprehensive income for the period		-		-		-			5,025		5,025
Balance at 1 January 2011 (audited)		3,145		65		24			113,716		116,950
Share benefit charges		-		-		-			1,637		1,637
Share benefit charges (included within restructuring cost)		-		-		-			503		503
Total comprehensive loss for the period		-		-		-			(23,495)		(23,495)
Balance at 30 June 2011 (unaudited)		3,145		65		24			92,361		95,595

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.

Capital redemption reserve - represents amounts transferred from the share capital reserve following the buyback and cancellation of equity shares.

Retained earnings - represents the cumulative net gains and losses recognised in the consolidated income statement.  

Condensed Consolidated Statement of Cash Flows

For the period ended 30 June 2011

		Six months ended 30 June				Year ended   31 December
		2011		2010		2010
		US$'000		US$'000		US$'000
		(unaudited)    (unaudited)				(audited)
Cash flows from operating activities
(Loss)/Profit before income tax		(22,100)		4,285		10,564
Adjustments for:
Impairment charges		20,173		-		-
Depreciation		4,796		4,139		8,480
Amortization		2,326		1,446		3,796
Interest received		(90)		(86)		(197)
Interest expense		4,097		-		1,141
Foreign exchange differences on deferred consideration		2,794		(250)		660
Share of post-tax profit of equity accounted joint venture		(41)		-		(19)
Share benefit charges		2,140		1,944		2,309
		14,095		11,478		26,734
(Increase) /Decrease in trade receivables		(485)		3,607		1,050
Decrease/(increase) in other accounts receivables		1,950		(2,027)		(3,393)
Increase /(Decrease) in trade payables		13,934		(807)		(1,060)
Increase /(Decrease) in member deposits		6,259		(4,467)		(2,845)
Increase in other accounts payables		7,463		5,522		(612)
Cash generated from operations		43,216		13,306		19,874
Income tax paid		(2,037)		(1,933)		(3,659)
Net cash generated from operating activities		41,179		11,373		16,215
Cash flows from investing activities
Acquisition of assets comprising the Mytopia social games development studio		(6,000)		(12,320)		(12,320)
Consideration paid for  the online Wink bingo business		(30,013)		-		-
Purchase of property, plant and equipment		(2,813)		(4,245)		(8,610)
Investment in equity accounted joint ventures		-		-		(1,131)
Available-for-sale investments		-		-		(175)
Interest received		90		86		197
Acquisition of intangible assets		(103)		-		(341)
Internally generated intangible assets		(2,993)		(2,835)		(5,870)
Net cash used in investing activities		(41,832)		(19,314)		(28,250)
Cash flows from financing activities
Share Buy-back		-		(3,397)		(3,465)
Dividends paid		-		(10,491)		(10,491)
Net cash used in financing activities		-		(13,888)		(13,956)
Net decrease in cash and cash equivalents		(653)		(21,829)		(25,991)
Cash and cash equivalents at the beginning of the period		61,520		87,511		87,511
Cash and cash equivalents at the end of the period		60,867		65,682		61,520

Notes to the Condensed Consolidated Financial Statements

1      Basis of preparation

The condensed consolidated half-yearly financial information of the Group has been prepared in accordance with International Financial Reporting Standards, including International Accounting Standards ('IAS') and Interpretations (collectively 'IFRS'), adopted by the International Accounting Standards Board ('IASB') and endorsed for use by companies listed on an EU regulated market. The half-yearly report has been prepared in accordance with the Disclosure and Transparency Rules of the Financial Services Authority.

These results have been prepared on the basis of accounting policies expected to be adopted in the Group's full financial statements for the year ending 31 December 2011 which are not expected to be significantly  different to those set out in note 2 to the Group's audited financial statements for the year ended 31 December 2010. The Group's forecasts and projections show that the Group should be able to continue its ordinary course of business within its available financial resources.        

The Group complies with IAS 34 in the presentation of the half-yearly financial statements.

The financial information is presented in thousands of US dollars (US$'000) because that is the currency the Group primarily operates in. The comparatives for the year ended 31 December 2010 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 auditors' report on those accounts was unqualified but it referred to a matter concerning the regulatory position of the Group to which the auditors drew attention by way of emphasis without qualifying their report. The details concerning this matter are given in note 8.

The condensed consolidated set of financial statements included in this half-yearly financial report is unaudited and does not constitute statutory accounts.

The risks and uncertainties, and significant estimates and judgments faced by the Group have not changed significantly since the 2010 Annual Report was published and are not expected to change significantly during the remaining six months of the financial year.

2          Segment information

				Period ended 30 June 2011
				B2C											B2B		Consolidated
										Emerging
		Casino			Poker			Bingo		offerings			Total B2C
		US$'000			US$'000			US$'000		US$'000			US$'000		US$'000		US$'000
		(unaudited)			(unaudited)			(unaudited)		(unaudited)			(unaudited)		(unaudited)		(unaudited)
Revenue		68,980			23,989			27,562	10,230				130,761		23,080		153,841
Result
Segment result before impairments													70,289		12,943		83,232
Impairment of Mytopia													(20,173)		-		(20,173)
Segment result													50,116		12,943		63,059
Unallocated corporate expenses 1																	80,044
Operating loss																	(16,985)
Finance expenses, net																	(5,156)
Share of post-tax profit of equity accounted joint venture																	41
Tax expense																	1,156
Loss for the period																	(23,256)
Assets
Unallocated corporate assets																	248,323
Total assets																	248,323
Liabilities
Segment liabilities													34,493		6,496		40,989
Unallocated corporate liabilities																	111,739
Total liabilities																	152,728

¹ Including share benefit charges of US$1,637,000 and restructuring costs of US$4,949,000

2          Segment information (continued)

			Period ended 30 June 2010
			B2C									B2B		Consolidated
							Emerging
		Casino		Poker		Bingo	offerings		Total B2C
		US$'000		US$'000		US$'000	US$'000		US$'000			US$'000		US$'000
		(unaudited)		(unaudited)		(unaudited)	(unaudited)		(unaudited)			(unaudited)		(unaudited)
Revenue		59,328		19,620		23,460	7,970			110,378		19,851		130,229
Result
Segment  result before impairments										55,768		11,795		67,563
Impairments										-		-		-
Segment result										55,768		11,795		67,563
Unallocated corporate expenses1														63,320
Operating profit														4,205
Finance income, net														80
Tax expense														(1,602)
Profit for the period														2,683
Assets
Unallocated corporate assets														222,581
Total assets														222,581
Liabilities
Segment liabilities										26,736		6,367		33,103
Unallocated corporate liabilities														77,850
Total liabilities														110,953

¹  Including share benefit charges of US$1,944,000 and restructuring costs of US$2,219,000 

2          Segment information (continued)

			Year ended 31 December 2010
			B2C									B2B							Consolidated
							Emerging
		Casino		Poker		Bingo	offerings			Total B2C
		US$'000		US$'000		US$'000	US$'000			US$'000		US$'000								US$'000
		(audited)		(audited)		(audited)	(audited)			(audited)		(audited)								(audited)
Revenue		116,922		38,407		50,140	16,206			221,675			40,438		262,113
Result
Segment result before impairments										114,470			22,993				137,463
Impairments										-			-				-
Segment result										114,470			22,993				137,463
Unallocated corporate expenses1															125,974
Operating profit															11,489
Finance expenses, net															(944)
Share of post-tax profit of equity accounted joint ventures															19
Tax expense															(2,701)
Profit for the year															7,863
Assets
Unallocated corporate assets															271,760
Total assets															271,760
Liabilities
Segment liabilities										29,142			5,547		34,689
Unallocated corporate liabilities															120,121
Total liabilities															154,810

¹          Including share benefit charges of US$2,309,000 and restructuring costs of US$2,219,000

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. Analysis of revenue across the B2C segment has been presented purely as additional information and these revenue streams do not constitute separate operating segments for the purposes of IFRS8 "Operating Segments". 

.

The Group's performance can also be reviewed by considering the geographical markets and geographical locations within which the Group operates, as follows:

		Revenue
		Period ended 30 June				Year ended  31 December
		2011		2010		2010
		US$'000		US$'000		US$'000
		(unaudited)    (unaudited)				(audited)
Revenue by geographical market1
UK		74,783		61,275		128,216
Europe		55,358		50,616		96,814
Americas (excluding USA)		8,873		7,745		16,084
Rest of World		14,827		10,593		20,999
Revenue		153,841		130,229		262,113

1          Allocation of geographical segments is based on Net Revenue Commission received by the Group.

3          Operating profit

		Period ended 30 June				Year ended  31 December
		2011		2010		2010
		US$'000		US$'000		US$'000
		(unaudited)     (unaudited)				(audited)
Operating profit is stated after charging:
Staff costs		43,169		39,756		73,386
Directors remuneration		603		667		1,468
Audit fees		210		170		402
Other fees paid to auditors in respect of taxation services		-		-		11
Depreciation (within operating expenses)		4,796		4,138		8,480
Amortization (within operating expenses)		2,326		1,446		3,796
Chargebacks		1,891		1,036		2,987
Exchange loss/(gain)  1		3,054		(1,402)		321
Payment service providers' commissions		8,417		6,633		13,882
Restructuring costs 2		4,949		2,219		2,219
Share benefit charges - all equity-settled		1,637		1,944		2,309
Mytopia Goodwill impairment 3		20,173		-		-

1 Included in the exchange loss/(gain) is US$2,794,000 (2010: Half year - US$(250,000), Full year - US$660,000) arising on the Wink deferred and contingent consideration.

2 Following the departure of the former CEO in early April 2011, the group has restructured its management team resulting in aggregated terminated staff and related costs of US$4,949,000 for the period ended 30 June 2011 of which US$3,909,000 are in relation to the former CEO. Total costs include $503,000 in respect of accelerated share benefit charges arising on termination.

During the full year 2010 the group initiated measures designed to reduce its overheads and increase operational efficiency. These measures mainly affected employment costs and included redundancies across the Group's locations. Costs associated with these redundancies are reflected in the restructuring cost line for the period ended 30 June 2010 and year ended 31 December 2010.

3 Mytopia Goodwill impairment comprise a goodwill impairment charge of US$20,173,000. Further details are given in note 4.

4          Mytopia - Impairment

The group has performed an impairment review  at the period end, on the cash generating Mytopia social games unit which was acquired in June 2010, comparing carrying value to value in use and fair value less costs to sell, adjusting  the originally forecast revenue arising.   Due to the overall reduced expectation of income growth from the Mytopia business , it was determined that the recoverable amount of the Mytopia business was US$957,000 based on an estimate by management of fair value less costs to sell which has resulted in a full impairment charge of US$20,173,000 against goodwill.  

This review was affected, inter alia, by commercial disputes which have arisen during the period over the two new branded social games which Mytopia was developing (as noted in the financial statements for the year ended 31 December 2010) and as a result of which it is expected that one such game may no longer be available for development by Mytopia.  The disputes may also affect the final amount paid for the business.

The impairment charge has been taken to administrative expenses in the consolidated Income statement and is included within the B2C operating segment

5          Earnings per share

Basic earnings per share

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 period.

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 period and it would not be advantageous for the holders to exercise the option. The number of options excluded from the diluted EPS calculation is nil (2010: Half year - 5,063,067, Full year - 781,953).

		Six months ended 30 June					Year ended  31 December
		2011			2010		2010
		US$'000			US$'000		US$'000
		(unaudited)    (unaudited)					(audited)
Profit (loss) attributable to ordinary shareholders		(23,256)			2,683		7,863
Weighted average number of Ordinary Shares in issue		345,707,313			346,216,619		345,709,869
Effect of dilutive Ordinary Shares and Share options		-			3,344,284		2,620,010
Weighted average number of dilutive Ordinary Shares		345,707,313			349,560,903		348,329,879
Basic		(6.7)¢			0.8¢		2.3¢
Diluted		(6.7)¢			0.8¢		2.3¢

Adjusted Earnings per share

The Directors believe that EPS excluding share benefit charges, restructuring and impairment costs better reflects the underlying performance of the business and assists in providing a clearer view of the performance of the Group. It is also a performance measure used internally to manage the operations of the business.

Reconciliation of profit to profit excluding share benefit charges, restructuring and impairment costs:

			Six months ended 30 June						Year ended  December  31
					2011		2010				2010
					US$'000		US$'000				US$'000
					(unaudited)     (unaudited)						(audited)
	Profit (loss) attributable to ordinary shareholders				(23,256)		2,683				7,863
	Share benefit charges				1,637		1,944				2,309
	Restructuring costs				4,949		2,219				2,219
	Impairment charges				20,173		-				-
	Profit excluding share benefit charges , restructuring costs and impairment charges				3,503		6,846				12,391
	Weighted average number of Ordinary Shares in issue				345,707,313		346,216,619				345,709,869
	Effect of dilutive Ordinary Shares and Share options				3,430,792		3,344,284				2,620,010
	Weighted average number of dilutive Ordinary Shares				349,138,105		349,560,903				348,329,879
	Total
	Basic earnings per share excluding share benefit charges, restructuring costs and impairment charges				1.0¢		2.0¢				3.6¢
	Diluted earnings per share excluding share benefit charges, restructuring costs and impairment charges				1.0¢		2.0¢				3.6¢

6          Related party transactions

During the period the Group paid US$81,290 (2010: Half year - US$129,357, Full year - US$258,815) in respect of rent and office expenses to companies of which Mr John Anderson was a Director. At 30 June 2011 the amount owed to those companies was US$nil (2010: Half year - US$nil, Full year - US$nil).

Share benefit charge in respect of awards granted to the Directors totalled US$1,039,000 (2010: Half year - US$300,000 Full year - US$348,380).

7          Dividends

		Six months ended 30 June				Year ended  31 December
		2011		2010		2010
		US$'000		US$'000		US$'000
		(unaudited)     (unaudited)				(audited)
Dividends paid		-		10,491		10,491

8     Contingent liabilities and regulatory issues

(a)       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.

(b)      Given the nature of the legal and regulatory landscape of the industry, from time to time the Group has received notices, communications and legal actions from a small number of regulatory authorities and other parties in respect of its activities. The Group has taken legal advice as to the manner in which it should respond and the likelihood of success of such actions. Based on this advice and the nature of the actions, the Board is unable to quantify reliably any material outflow of funds that may result, if any. Accordingly, no provisions have been made.

(c)       The Group operates in numerous jurisdictions. Accordingly, the Group is filing tax returns, providing for and paying all taxes it believes are due based on local tax laws, transfer pricing agreements and tax advice obtained. The Group is periodically subject to audits and assessments by local taxing authorities. The Board is unable to quantify reliably any exposure for additional taxes, if any, that may arise from the final settlement of such assessments. Accordingly no additional provisions have been made.

(d)            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.

Statement of Directors' Responsibilities

The Directors confirm, to the best of their knowledge, that this condensed set of unaudited financial statements has been prepared in accordance with IAS 34 as adopted by the European Union, and that the half-yearly management report includes a fair review of the information required by DTR 4.2.7R and DTR 4.2.8R of the Disclosure and Transparency Rules of the UK Financial Services Authority.

The Directors of 888 Holdings plc are listed in the Group's annual report and accounts for the year ended 31 December 2010 on page 38.

Independent Review Report to 888 Holdings Public Limited Company

Introduction

We have been instructed by the Company to review the condensed set of financial statements in the half-yearly financial report for the six months ended 30 June 2011 which comprises the Consolidated Income Statement, the Consolidated Statement of Comprehensive Income, the Consolidated Balance Sheet, the Consolidated Statement of Changes in Equity, the Consolidated Cash Flow Statement, and related explanatory notes 1 to 8.

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.

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 and Transparency Rules of the United Kingdom's Financial Services Authority.

As disclosed in note 1, the annual financial statements of the Group are prepared in accordance with International Financial Reporting Standards (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, 'Half-Yearly 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.

Our report has been prepared in accordance with the terms of our engagement to assist the Company in meeting the requirements in respect to half-yearly financial reporting in accordance with the Disclosure and Transparency Rules of the United Kingdom's Financial Services Authority and for no other purpose. No person is entitled to rely on this report unless such a person is a person entitled to rely upon this report by virtue of and for the purpose of our terms of engagement or has been expressly authorised to do so by our prior written consent. Save as above, we do not accept responsibility for this report to any other person or for any other purpose and we hereby expressly disclaim any and all such liability.

Scope of review

We conducted our review in accordance with International Standard on Review Engagements (UK and Ireland) 2410, 'Review of Half- Yearly 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 half-yearly 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 Ireland) 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 2011 is not prepared, in all material aspects, in accordance with International Accounting Standard 34, as adopted by the European Union, and the Disclosure and Transparency Rules of the United Kingdom's Financial Services Authority.

Emphasis of matter - Regulatory issues

In forming our review conclusion, which is not qualified, we have considered the adequacy of, and drawn attention to, the disclosures made in note 8 to the condensed set of financial statements concerning the residual risk of adverse action arising from the Group  having had customers in the US prior to the enactment of the Unlawful Internet Gambling Enforcement Act. Note 8 includes a statement that the Group has not been able to quantify any potential impact of the regulatory uncertainty on the financial information for the period ended 30 June 2011.

BDO LLP

Chartered Accountants and Registered Auditors

55 Baker Street

London W1U 7EU

United Kingdom

31 August 2011

 

END

 

 

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