Half Yearly Report

RNS Number : 8284R

888 Holdings plc

31 August 2010

 



31 August 2010                                                                                                        

888 Holdings Public Limited Company

("888" or the "Company")

Half Yearly Report for the six months ended 30 June 2010

888, one of the world's most popular online gaming entertainment and solutions provider, announces its half yearly report for the six months ended 30 June 2010.

Financial Summary^†

US$ million	H1 2010		H1 2009
Revenue
B2C
Casino	59.3		55.9
Poker	19.6		26.2
Bingo	23.5		5.1
Emerging Offering	8.0		6.4
	110.4		93.6
B2B	19.8		24.3
Total Operating Income	130.2		117.9
Operating expenses1,2	45.8		41.6
Research and development expenses2	13.2		11.9
Selling and marketing expenses	47.5		35.3
Administrative expenses2,3,4	11.2		8.6
EBITDA 1,2,3,4	12.6		20.6
Finance Income and exchange gain/(loss)	1.5		(1.7)
Depreciation and amortisation	(5.6)		(3.9)
Profit Before Tax2,4	8.4		14.9
Basic EPS2,4 (cents)	2.0		3.8

^† Totals may not sum due to rounding

¹ Excluding depreciation of US$4.1 million (H1 2009: US$ 3.3 million) and Amortisation of US$1.4 million (H1 2009: US$ 0.6 million)

² Excluding restructuring costs totalling US$2.2 million (H1 2009: nil): US$1.2 from Operating expenses, US$0.6 million from Research and development and US$0.4 million from Administrative expenses

³ Excluding exchange gain of US$1.4 million (H1 2009: loss of US$1.9 million)

⁴ Excluding share benefit charges of US$1.9 million (H1 2009: US$5.1 million)

Financial Highlights

·      Total Operating Income up 10.5% to US$130m (H1 2009: US$118m)

·      Total Operating Income B2C  up 18% to US$110m (H1 2009: US$94m)

·      Total Operating Income B2B down 18% to US$20m (H1 2009: US$24m)

·      Total Operating Income B2B on a pro-forma basis¹ up 9% to US$27 million (H1 2009: US$24m)

·      Total Operating Income B2C Bingo up 363% to US$24m (H1 2009: US$5m)

·      EBITDA² down 39% to US$13m (H1 2009: US$21m), impacted by marketing and R&D spend

·      Real money registered customer accounts³ up 22% to 7.9m (H1 2009: 6.4m)

·      Cost reduction programme implemented, expected to reduce overheads in H2 2010 by approximately US$5-6 million

¹ On the basis that Wink had remained in B2B revenue and certain licensees remained recognised on a gross basis.

² Excluding depreciation of US$4.1 million (H1 2009: US$ 3.3 million) and Amortisation of US$1.4 million (H1 2009: US$ 0.6 million), Excluding restructuring costs of US$2.2 million (H1 2009: nil), exchange gain of US$1.4 million (H1 2009: loss of US$1.9 million) and share benefit charges of US$1.9 million (H1 2009: US$5.1 million)

³ Casino, Poker and Sport

Operational Highlights

·     Acquisition of Mytopia social games development studio from Real Dice Inc. completed, extending 888's reach and market share in the fast growing social networks and smart mobile devices space

B2C

·     Roll-out of new branding across all segments

·     Poker version 6 released following a complete re-coding of the software client with fresh new look and feel, enhanced features, game play and user experience, and an online loyalty store, resulting in a significant increase in poker activity and revenue      

·      Innovative first web based (no download required) immersive 3D 888 casino launched, enabling players to play casino games in a virtual world with lobby, roulette, blackjack and high rollers rooms, with customised avatars

·      Strategic agreement with Microgaming to launch a joint poker network for the French market

·      After period end, award of licence by Autorité de Régulation des Jeux En Ligne (ARJEL), the French Gaming regulator, to operate poker betting websites

Dragonfish

·     Agreements signed with bwin Italia, Gioco Digitale and, after period end, Microgame S.p.A. for the provision of casino products to the Italian gaming market

·      Agreements with ad Astra and Full Fun to join the French joint liquidity poker network

·      An agreement with MTV Networks UK & Ireland to provide a bingo product, marking their first step into online gaming

·      Extension of existing agreements with Cashcade, Costa Bingo and Moon Bingo

·      Launch of two new standalone bingo networks, with Bingo Hollywood, Cashcade (Rollover Bingo) and Costa (Sing Bingo). Dragonfish now powers over twenty standalone bingo networks  

·      Awarded two of the most prestigious awards at the inaugural eGaming Review B2B Awards - White Label Partner of the Year and Bingo Network of the Year

·      After period end, launch of a free play World Series of Poker (WSOP) offering for the United States as part of Dragonfish's agreement with Harrah's Interactive Entertainment

Gigi Levy, Chief Executive Officer of 888, commented:

"Our business experienced a difficult first half against the backdrop of a challenging economic environment, with trading impacted by a number of factors including general online poker weakness, adverse F/X movements and, in relation to Poker and Casino in Q2, the FIFA World Cup. A cost reduction programme has been implemented to help mitigate against this impact, the benefit of which will be seen in H2. A reorganisation of the technology and product divisions and a re-focusing of certain aspects of the business is also underway to better position the business for the future.

Despite the economic environment, we committed additional research and development spend to innovative new products and increased marketing spend, which has generated some increase in revenues and a rise in real money registered accounts. However, this important investment for future growth has impacted H1 EBITDA.

Trading in August has been significantly stronger than in July, with a double digit daily revenue increase especially in casino and poker. Boosted by the release of the new platform, Poker has seen an increase of more than 15% in revenue in August.

We will continue to innovate our B2C offering and attract and retain players to 888's brands. Dragonfish also continues to win new contracts and industry accolades underlining the strength of its Total Gaming Services offer. Particular progress has been made in regulated markets, and notable deals have been signed in Italy and France.

With full service operator capabilities, strong brand, technology and unique B2B platform, we remain confident in the underlying fundamentals of the business and believe that the move of 888, and the industry, to become a locally-regulated gaming entertainment operator presents significant opportunities for growth and M&A activity.

In order to continue investing for future growth, and to support potential acquisitions, the board has decided not to declare an interim dividend at this time and finalise the full year dividend when the full year results are available."

-ends-

Analyst and Investor Conference Call

Gigi Levy, Chief Executive Officer and Aviad Kobrine, Chief Financial Officer, will be hosting an analyst and investor conference call at 10.00 am (BST) today.

Dial-in number:	[phone]
Passcode:	4693144
Replay number:	[phone]
Replay passcode:	4693144

Contacts and enquiries

888
Gigi Levy, Chief Executive Officer	[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. 

Chief Executive Officer's Review

Introduction

Our business experienced a difficult first half against the backdrop of a challenging economic environment, with trading impacted by a number of factors including general online poker weakness, adverse F/X movements and, in relation to Poker and Casino in Q2, the FIFA World Cup.

Following a record January and the first quarter seeing some improvement on a year-on-year basis, trading in the second quarter was weak across Casino and Poker in particular. Dragonfish continues to win new contracts but revenue from these deals has yet to gain significant volume, as is always the case with revenue share based deals.

In order to operate more effectively in this environment a number of steps have been implemented, including a reorganisation of the technology and product divisions, re-focusing certain aspects of the business and a cost reduction programme, which is expected to reduce overheads in H2 2010 by approximately US$5-6 million.

Revenue was impacted by the weakness of the Euro and Sterling against the US Dollar (our reporting currency) and Total Operating Income, while higher by 10 per cent. compared to H1 2009, was lower than expected at US$130 million (H1 2009: US$118 million). Nevertheless in order to generate future growth we have increased our marketing spend in H1 2010 to US$48 million (H1 2009: US$35 million; the majority of the increase being in the area of Bingo, and expanded our investment in technology by increasing research and development costs to US$14 million (H1 2009: US$12 million). As a result EBITDA* was impacted and was 39% lower at US$13 million (H1 2009: US$21 million).

At 30 June 2010 our cash position was US$66 million.  With our full service operator capabilities, strong brand, technology and unique B2B platform, we remain confident in the underlying fundamentals of the business and believe that the move of 888, and the industry, to become a locally-regulated gaming entertainment operator presents significant opportunities for growth and M&A activity.

*  Before share benefit charges and restructuring costs of US$1.9 million and US$2.2 million, respectively  (H1 2009: share benefit charges of US$5.1 million and US$nil restructuring costs).

B2C

The market has been challenging on a number of fronts, from the weak economic environment and overall Poker weakness to the impact of the World Cup on Poker and Casino activity. Trading was impacted by the ongoing deterioration of online poker as, industry sources reported that the number of daily average ring game players fell by approximately 25% during the period January to July. This was further exacerbated by the World Cup in June.

Our decline was roughly in line with general online poker trends but we have taken steps to address it. We released our Poker version 6, following a complete re-coding of the software client, with a fresh new look and feel with enhanced features, game play and user experience. A brand new online store was also launched for Poker players where they can convert loyalty points into a wide range of gadgets and products.

We constantly look to innovate with our B2C offering, and in the first half of the year we completed the roll-out of our new branding for our four core offerings. The new sites all share a reinvigorated look and feel and unified logos, meaning all of the sub-brands now speak with one language and link in to one offering.

In Casino we launched a groundbreaking 3D offering, www.888casino.com/3dcasino, the first major operator to do so. This exciting new development brings players even closer to the action on a social, stylish and interactive gaming platform. The 3D casino, which can be played without downloading any software, allows players to customise their gaming experience in a virtual-world environment. Players logging on for the first time are able to create their very own avatars based on their mood, preferences or personal tastes. The ability to see and interact with other players' avatars also gives the site a strong social gaming aspect, and makes the 3D casino the most realistic online gaming experience yet. 888 Staff avatars, distinguished by their uniforms and 888 badges, are on hand to assist. We also launched a new casino brand called Euro City targeted at certain European markets.

We applied for, and were awarded in July, a Poker licence in France and signed a strategic agreement to launch a joint Poker network with Microgaming. As we make the transition onto this locally regulated market it will require significant marketing investment with profitability to come longer term.

In Italy, the new licensing regime to permit cash gaming Poker and Casino has been delayed and is now not expected to occur until the fourth quarter of 2010 or early 2011. However, we are well placed to capitalise on our position when the market opens, both directly and through Dragonfish. We signed a joint venture with Endemol Italy, the prominent independent TV production company in Italy, to co-invest in the Italian market. The agreement will see the launch of a comprehensive gaming offering, operating on 888.it, which will benefit from the exclusive utilisation of Endemol's brands in Italy, including the Italian versions of Big Brother and Deal Or No Deal. This modus operandi is becoming a cornerstone of our strategy in the new locally-regulated markets, where we will be seeking strong partners who will assist us by providing access to significant local assets and by investing additional funds into our activity.

Our Bingo and Emerging Offering has continued to perform well, boosted by the inclusion of Wink Bingo, with continued good performance from our 888 branded Bingo offering and an increased contribution from 888sport, especially during the World Cup. Overall in June our Sport offering outperformed our expectations and managed to offset the decline in Poker and Casino.

Dragonfish

The strength of Dragonfish's Total Gaming Services offering has led to a number of deals being signed during H1 2010. These included material casino deals in Italy with Bwin Italia/ Gioco Digitale and Microgame S.p.A, providing a significant platform for growth in the potentially huge Italian market.

Contract extensions were signed with Moon Bingo and Costa Bingo, and we were pleased to sign an extension to Dragonfish's existing agreement with Cashcade (now owned by Party Gaming). The Cashcade offering includes some of the biggest brands in the UK bingo market, such as Foxy Bingo, Cheeky Bingo and Think Bingo, all of which are standalone networks powered by Dragonfish bingo software.

The launch of two new standalone bingo networks, with Cashcade (Rollover Bingo) and Costa (Sing Bingo), emphasised Dragonfish's position as the market leader in online bingo in the UK. MTV Networks UK & Ireland also marked their entry into online gaming by selecting Dragonfish to provide a bingo product. There are now over 20 standalone bingo networks powered by Dragonfish, and the Dragonfish network supports over 70 skins offering instant liquidity, industry leading software and top tier brands. We were proud to see this leading position in bingo recognised at the inaugural eGaming Review B2B Awards, as Dragonfish was named Bingo Network of the Year.

The strength of the Total Gaming Services offering also resulted in Dragonfish winning a second award at the event, the award for White Label Partner of Year.

We recently appointed a new Managing Director to Dragonfish, David Zerah, who has significant B2B experience in the media industry, both broadcast and online. As the industry moves towards a greater emphasis on content and flexible solutions his experience and contacts will enable Dragonfish to capitalise on these opportunities.

Social and Mobile Gaming

The rise of social networks, now the most visited sites on the internet, and the emergence of the social gaming trend, alongside recent developments in the online gaming industry have indicated the growing importance of social networking to the future of the industry.

The acquisition of the assets comprising the Mytopia social games development studio from Real Dice Inc. in June 2010 gives us an immediate footprint in the social gaming arena, complementing our core offering and giving us access to millions of customers.  

The deal saw 888 acquire a games development studio, specialising in developing cross-platform social games for smartphones, mobile handsets and social networking platforms including Facebook, along with numerous games, including "Bingo Island 2" (one of the top Bingo applications on Facebook) and a social Poker application using the "Pacific Poker" brand. The deal also included the acquisition of a real-time multiplayer mobile Poker application available for iPhone, Android, BlackBerry, Windows Mobile and J2ME handsets which has been installed by more than a million users.

Access to this new gaming audience provides a number of cross-selling opportunities, and ensures that we are at the forefront of what is expected to be a key trend in the habits of consumers in the online gaming industry. The acquisition will form the cornerstone of our social gaming and mobile strategy, allowing us to offer a seamless experience across different platforms. Social network and smartphone gaming applications will also be offered to Dragonfish B2B partners, allowing them to take advantage of this fast-growing area.

Outlook

Early indications of trading in the second half have seen a return to historical seasonal patterns, with an expected daily revenue decrease due to seasonality. However, thanks in part to the innovation in our B2C offering, there has been an increase in first time depositors compared to the previous quarter and some reassuring Poker KPIs.

Dragonfish continues to be in advanced dialogue with a number of potential new partners, and we expect to announce new contracts in the second half, including a number in France

The development of new licensing regimes is underway. We were granted a Poker licence in France and have a number of strategic partnerships lined up for the Italian market when it further opens later in the year or in early 2011. We are also encouraged by the recent positive developments in the United States in connection with House Bill 2267 to regulate the offering of online gaming in the US, and we hope to be able to capitalise on our current and past assets through B2B and potentially B2C activities. Whilst these developments will create future opportunities they will take time and investment to come to fruition. This is a critical transformation of our industry, and one which we feel will be very beneficial for large operators like 888. Our strategy will enable us to make the most of these changes and hope to announce further deals in this regard in the near future.

Consolidation in our industry has begun, with the proposed merger of PartyGaming and Bwin. We look at consolidation as one of the possible routes to realising our full value and feel that longer term this is the direction the industry will take. We have always stated that we will look into all relevant deals and expect the recent merger news to accelerate such discussions in the industry.

The underlying fundamental strengths of a regulated, legitimate and safe online gaming entertainment environment remain, and with this comes a huge opportunity.  Our Board remains confident about future strategy and prospects for the Group.

Gigi Levy

Chief Executive Officer

31 August 2010

Condensed Consolidated Income Statement

For the period ended 30 June 2010

				Six months ended 30 June				Year ended  December 31
				2010		2009		2009
		Note		US$'000		US$'000		US$'000
				(unaudited)				(audited)
Total operating income		2		130,229		117,878		246,703
Operating expenses				52,601		45,531		98,360
Research and development expenses				13,777		11,856		24,164
Selling and marketing expenses				47,505		35,275		67,329
Administrative expenses				12,141		15,611		29,510
Operating profit before share benefit charges and restructuring costs				8,368		14,750		34,352
Restructuring costs				2,219		-		-
Share benefit charges				1,944		5,145		7,012
Operating profit				4,205		9,605		27,340
Finance income				80		153		226
Profit before tax before share benefit charges and restructuring costs				8,448		14,903		34,578
Restructuring costs				2,219		-		-
Share benefit charges				1,944		5,145		7,012
Profit before tax				4,285		9,758		27,566
Taxation				1,602		1,697		2,733
Profit after tax for the period attributable to equity holders of parent				2,683		8,061		24,833

Earnings per share
Basic				0.8¢		2.3¢		7.2¢
Diluted				0.8¢		2.3¢		7.1¢

Condensed Consolidated Balance Sheet

At 30 June 2010

		30 June					December 31
		2010		2009			2009
		US$'000		US$'000			US$'000
		(unaudited)					(audited)
ASSETS
Non-current assets
Intangible assets		115,264			46,529		70,832
Property, plant and equipment		21,090			19,407		20,984
Financial assets		-			490		-
Deferred taxes		790			729		797
		137,144			67,155		92,613
Current assets
Cash and cash equivalents		65,682			102,906		87,511
Trade and other receivables		19,755			18,337		21,208
		85,437			121,243		108,719
Total assets		222,581			188,398		201,332
Equity and liabilities
Equity attributable to equity holders of the parent
Share capital		3,140			3,143		3,152
Share premium		65			65		65
Capital Redemption Reserve		24			-		-
Available-for-sale reserve		-			(270)		-
Retained earnings		108,399			111,899		117,883
Total equity attributable to equity holders of the parent		111,628			114,837		121,100
Liabilities
Current liabilities
Trade and other payables		43,316			40,578		38,851
Customer deposits		33,103			32,983		37,570
Contingent consideration		24,811			-		-
		101,230			73,561		76,421
Non-current liabilities
Contingent consideration		9,723			-		3,811
Total liabilities		110,953			73,561		80,232
Total equity and liabilities		222,581			188,398		201,332

Condensed Consolidated Statement of Changes in Equity

For the period ended 30 June 2010

						Capital
		Share		Share		Redemption		Available-for-		Retained
		capital		premium		Reserve		sale reserve		earnings		Total
		US$'000		US$'000		US$'000		US$'000		US$'000		US$'000
Balance at 1 January 2009		3,115		65		-		(536)		108,716		111,360
Dividend paid		-		-		-		-		(9,995)		(9,995)
Issue of shares		28		-		-		-		(28)		-
Share benefit charges		-		-		-		-		5,145		5,145
Total comprehensive income for the period		-		-		-		266		8,061		8,327
Balance at 30 June 2009 (unaudited)		3,143		65				(270)		111,899		114,837
Dividend paid		-		-		-		-		(12,450)		(12,450)
Issue of shares		9		-		-		-		(9)		-
Share benefit charges		-		-		-		-		1,867		1,867
Total comprehensive income for the period		-		-		-		270		16,576		16,846
Balance at 1 January 2010 (audited)		3,152		65		-		-		117,883		121,100
Dividend paid		-		-		-		-		(10,491)		(10,491)
Share benefit charges		-		-		-		-		1,944		1,944
Issue of shares		12		-		-		-		(12)		-
Share buy back		(24)		-		24		-		(3,397)		(3,397)
Total comprehensive income for the period		-		-		-		-		2,472		2,472
Balance at 30 June 2010 (unaudited)		3,140		65		24		-		108,399		111,628

The following describes the nature and purpose of each reserve within equity.

Share capital - represents the nominal value of shares allotted, called-up and fully paid for.

Share premium - represents the amount subscribed for share capital in excess of nominal value.

Capital redemption reserve - includes amounts transferred from the share capital reserve following the buy back and cancellation of equity shares.

Available-for-sale reserve - represents the gain or loss arising from a change in the fair value of an available-for-sale financial assets.

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

Condensed Consolidated Statement of Comprehensive Income

For the period ended 30 June 2010

		Six months ended 30 June				Year ended December 31
		2010		2009		2009
		US$'000		US$'000		US$'000
		(unaudited)				(audited)
Profit for the period		2,683		8,061		24,833
Valuation gain of available-for-sale investments		-		266		513
Actuarial losses on defined benefit pension plan		(211)		-		(196)
Disposal of available for sale asset		-		-		23
Total comprehensive income for the period		2,472		8,327		25,173

Condensed Consolidated Statement of Cash Flows

For the period ended 30 June 2010

		Six months ended 30 June				Year ended  December 31
		2010		2009		2009
		US$'000		US$'000		US$'000
		(unaudited)				(audited)
Cash flows from operating activities
Profit before income tax		4,285		9,758		27,566
Adjustments for
Depreciation		4,139		3,344		7,044
Amortisation		1,446		600		1,458
Interest received		(86)		(352)		(633)
Share benefit charges		1,944		5,145		7,012
		11,728		18,495		42,447
Decrease/(increase) in trade receivables		3,607		(1,451)		(4,356)
Decrease/(increase) in other accounts receivables		(2,027)		1,681		1,715
(Decrease)/Increase in trade payables		(807)		471		(868)
(Decrease)/increase in member deposits		(4,467)		(301)		3,681
Increase in other accounts payables		5,272		1,949		2,964
Cash generated from operations		13,306		20,844		45,583
Income tax paid		(1,933)		(1,413)		(4,086)
Net cash generated from operating activities		11,373		19,431		41,497
Cash flows from investing activities
Acquisition of Mytopia (note 4)		(12,320)		-		-
Acquisition of assets comprising the online Wink bingo business		-		-		(18,052)
Purchase of property, plant and equipment		(4,245)		(3,010)		(8,288)
Interest received		86		352		633
Proceeds from disposal of available-for-sale assets		-		-		732
Acquisition of intangible assets		-		-		(100)
Internally generated intangible assets		(2,835)		(2,316)		(4,910)
Net cash used in investing activities		(19,314)		(4,974)		(29,958)
Cash flows from financing activities
Share buy back		(3,397)		-		-
Dividends paid		(10,491)		(9,995)		(22,445)
Net cash used in financing activities		(13,888)		(9,995)		(22,445)
Net increase/(decrease) in cash and cash equivalents		(21,829)		4,462		(10,933)
Cash and cash equivalents at the beginning of the period		87,511		98,444		98,444
Cash and cash equivalents at the end of the period		65,682		102,906		87,511

Notes to the Condensed Consolidated Financial Statements

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. A copy of this interim announcement will be posted on the Company's website on the date of this statement at www.888holdingsplc.com.

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 2010 which except as disclosed below,  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 2009.

During the period the Group has adopted IFRS 3 (revised) "Business Combinations". Under IFRS 3 (revised) goodwill is measured as the fair value of consideration transferred less fair value of the indentified assets and liabilities assumed, all measured at the acquisition date. Transaction costs incurred by the Group on a business combination, other than those associated with the issue of equity securities, are expensed as incurred. Contingent consideration is re-measured through the income statement.

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 2009 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 6.

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

Other than as described in note 4, the risks and uncertainties faced by the Group have not changed significantly since the 2009 Annual Report was published and still continue to represent risk during the remaining six months of the financial year. The estimates and assumptions which have a significant risk of causing a material adjustment to the carrying value of assets and liabilities are unchanged from the year end.

2          Segment information

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)

Total operating income

59,328

19,620

23,460

7,970

110,378

19,851

130,229

Result

Segment result

55,768

11,795

67,563

Unallocated corporate expenses1

63,320

Operating profit

4,205

Finance income

80

Tax expense

(1,602)

Profit for the period

2,683

Assets

Unallocated corporate assets

221,581

Total assets

221,581

Liabilities

Segment liabilities - B2B

6,367

Segment liabilities - B2C

26,736

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.

Period ended 30 June 2009

B2C

B2B

Consolidated

Emerging

Casino

Poker

Bingo

offerings

Total B2C

US$'000

US$'000

US$'000

US$'000

US$'000

US$'000

(unaudited)

Total operating income

55,880

26,246

5,063

6,369

93,558

24,320

117,878

Result

Segment result

55,432

14,406

69,838

Unallocated corporate expenses1

60,233

Operating profit

9,605

Finance income

153

Tax expense

(1,697)

Profit for the period

8,061

Assets

Unallocated corporate assets

188,398

Total assets

188,398

Liabilities

Segment liabilities - B2B

7,203

Segment liabilities - B2C

25,780

Unallocated corporate liabilities

40,578

Total liabilities

73,561

¹  Including share benefit charges of US$5,145,000. 

Period ended December 31, 2009

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)

Total operating income

118,693

51,592

10,659

14,457

195,401

51,302

246,703

Result

Segment result

117,815

31,089

148,904

Unallocated corporate expenses1

121,564

Operating profit

27,340

Finance income

226

Tax expense

(2,733)

Profit for the period

24,833

Assets

Unallocated corporate assets

201,332

Total assets

201,332

Liabilities

Segment liabilities - B2B

8,408

Segment liabilities - B2C

29,162

Unallocated corporate liabilities

42,662

Total liabilities

80,232

¹ Including share benefit charges of US$7,012,000.

Other than where amounts are allocated specifically to the Casino, Poker, Bingo and Emerging Offerings segments above, the expenses, assets and liabilities relate jointly to all segments. Any allocation of these items would be arbitrary.

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
		period ended 30 June				Year ended  December 31
		2010		2009		2009
		US$'000		US$'000		US$'000
		(unaudited)				(audited)
Total operating income by geographical market
UK		61,275		42,676		90,442
Europe		50,616		53,429		113,672
Americas (excluding USA)		7,745		10,652		19,145
Rest of World		10,593		11,121		23,444
Total operating income		130,229		117,878		246,703

3          Operating profit

		Period ended 30 June				Year ended  December 31
		2010		2009		2009
		US$'000		US$'000		US$'000
		(unaudited)				(audited)
Operating profit is stated after charging:
Staff costs		39,756		35,362		71,313
Directors remuneration		667		646		1,900
Audit fees		170		116		343
Other fees paid to auditors in respect of taxation services		-		4		11
Depreciation (within operating expenses)		4,138		3,344		7,044
Amortisation (within operating expenses)		1,446		600		1,458
Chargebacks		1,036		3,087		9,044
Exchange (gain)/loss		(1,402)		1,891		2,718
Payment service providers' commissions		6,633		6,942		13,750
Restructuring costs1		2,219		-		-
Share benefit charges - all equity-settled		1,944		5,145		7,012

¹          Restructuring costs - During the period 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 included as per above.

4        Acquisitions made during the period -

On 16 June 2010 the Group acquired the trade and assets comprising the Mytopia social games development studio ("Mytopia") from Real Dice Inc.for an all cash consideration.

In calculating the goodwill arising on acquisition, the fair value of the assets of Mytopia was valued by a professional valuation firm and recognised in accordance with IFRS 3 (revised) and adjustments from book value have been made where necessary. These adjustments are summarized as follows:

		Book value on		Fair value
		acquisition		adjustments		Fair value
		US$'000		US$'000		US$'000
Intangible assets		-		1,870		1,870
Assets		-		1,870		1,870

The fair value relates to the recognition of bingo online game application (US$830,000), software license agreement (US$410,000), non-compete agreement (US$540,000) and a service agreement (US$90,000) acquired as part of the acquisition. The bingo online game application intangible asset is being amortised over its estimated useful economic life of 3 years. The software license agreement intangible asset is being amortised over its estimated useful economic life of 9 months. Non-compete agreement intangible assets is being amortised over its estimated useful economic life of 4 years. The service agreement is being amortised over its estimated useful economic life of 1 year. All intangible assets on acquisition have been identified and fair valued. The remaining goodwill represents the access to future trade associated with the operation of Mytopia.

The board consider that the Mytopia business is performing in line with expectations and there is consequently no indication of impairment at this time therefore it did not perform a detailed impairment review as at 30 June 2010.

						US$'000
Fair value of intangible assets acquired						1,870
Goodwill						20,173
Fair value of consideration						22,043
Which is represented by:
Cash consideration to Real Dice Inc.						12,320
Contingent  consideration (included with non-current liabilities) 1						5,955
Contingent  consideration (included with non-current liabilities) 2						3,768
Total fair value of consideration						22,043

¹      Additional US$6.0 million is payable in cash upon meeting certain milestones connected to the mobile and social networking games prior to 31 December 2011.

²      The Directors estimate that an earn-out payment of US$3.8 million is likely to become payable in the future based on projected performance during the period from January 2011 to December 2011. The earn-out payment is payable in cash during the second quarter of 2012. The earn-out payment has been discounted.

Had the business been owned for the entire period, the revenue and operating loss for the period ended 30 June 2010 would have been approximately $0.8 million and $0.2 million respectively. Given that the business was acquired on 16 June 2010 there has been no significant contribution to the revenue or operating profit during the period.

Total goodwill included within intangible assets is as follows:

						Goodwill
						US$'000
At 1 January 2009						38,558
Acquisitions						-
At  30 June 2009						38,558
Acquisitions						20,053
At 1 January 2010						58,611
Acquisitions						20,173
Adjustment to the Wink bingo business contingent consideration1						21,000
At 30 June 2010						99,784

¹       Since the commencement of the earn-out period on 1 April 2010 the financial performance of the Wink bingo business has improved. As a result the board has revised its estimate in respect of the potential contingent consideration payable by $21Mn to give total potential contingent consideration payable of $24.8Mn. This earn-out payment has been discounted and has been recognised in current liabilities.

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 5,063,067 (2009: Half year - 4,270,906, Full year - 3,117,110).

		Six months ended 30 June					Year ended  December 31
		2010			2009		2009
		US$'000			US$'000		US$'000
		(unaudited)					(audited)
Profit from operations attributable to ordinary shareholders		2,683			8,061		24,833
Weighted average number of Ordinary Shares in issue		346,216,619			344,278,416		345,182,718
Effect of dilutive Ordinary Shares and Share options		3,344,284			5,067,772		3,960,938
Weighted average number of dilutive Ordinary Shares		349,560,903			349,346,188		349,143,656
Total
Basic		0.8¢			2.3¢		7.2¢
Diluted		0.8¢			2.3¢		7.1¢

Earnings per share excluding share benefit charges and restructuring costs

The Directors believe that EPS excluding share benefit charges and restructuring costs better reflect the underlying performance of the business and assists in providing a clearer view of the performance of the Group.

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

		Six months ended 30 June				Year ended  December 31
		2010		2009		2009
		US$'000		US$'000		US$'000
		(unaudited)				(audited)
Profit from operations attributable to ordinary shareholders		2,683		8,061		24,833
Share benefit charges and restructuring costs		4,163		5,145		7,012
Profit excluding share benefit charges		6,846		13,206		31,845
Weighted average number of Ordinary Shares in issue		346,216,619		344,278,416		345,182,718
Weighted average number of dilutive Ordinary Shares		349,560,903		349,346,188		349,143,656
Total
Basic earnings per share excluding share benefit charges and restructuring costs		2.0¢		3.8¢		9.2¢
Diluted earnings per share excluding share benefit charges and restructuring costs		2.0¢		3.8¢		9.1¢

6     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)       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.

7          Related party transactions

During the period the Group paid US$129,357 (2009: Half year - US$123,939, Full year - US$258,506) in respect of rent and office expenses to companies of which Mr John Anderson is a Director. At 30 June 2010 the amount owed to those companies was US$Nil (2009: Half year - US$Nil, Full year - US$Nil).

Remuneration paid to the Directors during the period totalled US$1,068,000 (2009: Half year - US$1,036,000, Full year - US$2,729,000). These figures exclude provision for performance based bonuses which depend on full year results.

Share benefit charge in respect of awards granted to the Directors totalled US$300,000  (2009: Half year - US$1,640,366, Full year - US$1,919,127).

8     Dividends

		Six months ended 30 June				Year ended  December 31
		2010		2009		2009
		US$'000		US$'000		US$'000
		(unaudited)				(audited)
Dividends paid		10,491		9,995		22,445

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 4.2.7 and DTR 4.2.8.

The Directors of 888 Holdings plc are listed in the Group's annual report and accounts for the year ended 31 December 2009 on page 27.

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 2010 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.

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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 Preformed 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 2010 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 6(c) 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 6(c) includes a statement that the Board has not been able to identify reliably at this stage what, if any, liability may arise and accordingly no provision has been made.

BDO LLP

Chartered Accountants and Registered Auditors

55 Baker Street

London W1U 7EU

United Kingdom

31 August 2010

 

END

 

 

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