Interim Results

888 Holdings plc 14 September 2006 888 Holdings Public Limited Company ('888' or the 'Company') Interim Results for the six months ended 30 June 2006 888, one of the world's most popular online gaming entertainment companies, announces its interim results for the six months ended 30 June 2006. Financial Highlights • Profit before tax* up 88% to $48.0m (H1 2005: $25.6m) • Net Gaming Revenues ('NGR') up 32% to $163.5m (H1 2005: $123.7m) • Profit before tax* margin up to 29% (H1 2005: 21%) • Operating expenses % of NGR down to 25.6% (H1 2005: 28.0%) • Cost per acquisition** of US$165 (H1 2005: US$200) • Net cash generated from operating activities up 109% to $56.1m (H1 2005: $26.8m) • Basic EPS* up 89% to 13.8c (H1 2005: 7.3c) • Interim dividend of 4.5c per share • Special dividend of 4.0c per share * 2006 - excluding share benefit charges ** Excluding customers recruited on a revenue share basis. Operational Highlights • Geographical expansion outside US - 48% of NGR from non-US territories and 67% of new real money sign ups from non-US territories • Rapid growth in NGR in the UK up 61% and Continental Europe up 16% • Increased yields per member from Casino and Poker divisions • Continued technological innovation • Continued investment in the 888 brand through sports sponsorships including two new football sponsorships with Sevilla FC and Toulouse FC in addition to the World Snooker Championship and a third year with Middlesbrough FC Commenting, John Anderson, CEO of 888 said: 'These are excellent results and represent a record performance of profitable growth. We have delivered on all our flotation goals. Trading during the first 10 weeks of Q3 is in line with management expectations and we are on track to achieve a satisfactory outcome for the full year. As of 31 December 2006, I shall step down as CEO and take the role of non-executive Director. The current COO, Gigi Levy will succeed me as CEO. Gigi is an excellent, experienced individual who is more than capable of taking on this challenge. I am proud to have led 888, since 2000, through its formative years into the success it is today. Over the past six years, 888 has been a pioneer in the online gaming industry.' An audio replay of the presentation to analysts will be available from the investor relations section of 888's website (http://www.888holdingsplc.com) from late afternoon today. Contacts and enquiries 888 John Anderson Chief Executive Officer +350 49800 Gigi Levy Chief Operating Officer +350 49800 Aviad Kobrine Chief Financial Officer +350 49800 Bell Pottinger Corporate & Financial Nick Lambert +44 (0)20 7861 3232 Chief Executive's Review Overview I am pleased to report that 888's interim results represent another record performance of profitable growth. Profit before tax* was $48.0m, an increase over half year 2005 of 88%. NGR was also up substantially at $163.5m, an increase of 32%. Importantly our margins are increasing as well as our scale. Pre-tax margins* were 29% (H1 2005: 21%). This is due to increased marketing efficiency and focus on high-value customers. Basic earnings per share* were 13.8 cents. Net cash generated from operating activities was $56.1m, an increase of 109% on 2005. These are excellent results and in accordance with the policy set out at the time of flotation we will be paying an interim dividend of 4.5 cents per share. In addition, given our excellent results and our record cash generation during 2006, we have decided to pay a special dividend of 4.0 cents per share without compromising our strategic goals. Since flotation last September 2005 our growth has been spread even more widely across geographic regions. This geographic spread is in line with our strategy of reducing our dependence on income from any one large market, without sacrificing volumes. NGR from non-US territories in H1 2006 was 48% compared to 45% in H1 2005. We will continue to increase our business in non-US territories as we did successfully in the UK, where our revenues increased by 61%. * 2006 - excluding share benefit charges Product Casino Our major casino brand, Casino on Net, founded in 1997, has consistently been ranked as the leading online casino brand in the world. We continually innovate our casino offering and earlier in the year we launched an updated version. This included many new video slot machines which give a unique playing experience and have proved hugely popular. We are now adding one new slot machine a month to our offering. NGR for the half year was up 12% at $89.6m. 888 focuses on high value customers, gives them the 'perfect user experience' and this creates loyalty. As a result we continue to see not only an increase in customers, but also an increase in the NGR per active player. Poker Poker volumes have also grown impressively with NGR up 68% to $73.9m. In the first half our poker offering was released in six new languages and a new Jackpot feature has been introduced. Multi hand was also introduced and today a rising number of our poker customers use this feature. Continued innovation is key to our customers' experience, and this is what underpins sustainable growth. Marketing Much of our success has been due to our marketing skills and our brand power. 888 has become, in a relatively short period of time, a recognized brand in the global gaming market and among the leaders in the online gaming industry itself. In our brand recognition study in the UK, 888 was the third most recognized gaming brand after Ladbrokes and William Hill, making 888 the number one online gaming brand. Earlier this year we stated that we would use the skills and techniques that proved so successful in the UK to expand in Continental Europe. In pursuit of this we have signed two football shirt sponsorship deals. In France we are sponsoring Toulouse and in Spain with Sevilla, the current UEFA Cup holders and winners of the 2006 Supercup. These two deals are in addition to our main current sport sponsorships of Middlesborough FC and the World Snooker Championship. They represent further evidence of 888 delivering on its stated strategy of diversified, multi-channel marketing. This brand leverage will continue and is key to our growth strategy. Regulation The Company monitors developments in the legal and regulatory environment for on-line gaming, and their potential impact on its business and continue to take appropriate advice. In July this year, the House of Representatives in the United States passed the Internet Gambling Prohibition and Enforcement Bill. This Bill is now with the Senate for consideration. We await developments as to the final form, if any, of the Act. An Act, if passed, may have a material adverse impact on 888's business. In the six months to 30 June 2006 52% of the Group's NGR was derived from customers based in the US. We are closely monitoring the progress of the recent enforcement actions in the US against two directors of UK companies involved in Sportsbetting. 888 has no involvement in Sportsbetting. Board As of 31 December 2006, I shall step down as Chief Executive and take the role of non-executive Director. I am proud to have led 888, since 2000, through its formative years into the success it is today. Over the past six years, 888 has been a pioneer in the online gaming industry. I led the Company through its successful flotation on the London Stock Exchange and since then have delivered two sets of record results in our first year as a listed company. I am particularly proud of positioning 888 at the forefront of self-regulation. Our industry's rapid growth has often left it ahead of the regulatory framework and during my tenure I have always considered the trust in, and transparency of, 888, to be inextricably linked to the successful growth of the Company. Given the strong position that the company is now in, I have given much thought to its future direction. Over recent months, I have searched for somebody who I believe can take the company forward to its next level. Gigi Levy is an excellent, experienced individual who is more than capable of taking on this challenge. I have no doubt that 888 will continue to thrive under his leadership. Gigi will formally take over at the end of the year and we will continue to work closely together on the operational, day-to-day running of the business until such time. On a personal level I am delighted to remain involved with this exciting business as a non-executive director. Outlook Our results will continue to be driven by our strategy including: investment in Brand; geographic expansion; development of the range and quality of our product offering; varied and efficient payment processes, and focus on high value customers. Trading during the first 10 weeks of Q3 is in line with management's expectations and overall, whilst regulatory uncertainties continue, we remain confident that we are on track to achieve a satisfactory outcome for the full year. We continue to assess carefully potential acquisition targets which will enhance our existing offering and help drive our geographic and product spread. John Anderson Chief Executive Officer Forward-looking statements This announcement includes 'forward-looking statements'. These statements contain the words 'anticipate', 'believe', 'intend', 'estimate', 'expect' and words of similar meaning. All statements other than statements of historical fact included in this announcement, including, without limitation, those regarding the Company's financial position, business strategy, plans and objectives of management for future operations (including development plans and objectives relating to the Company's products and services) are forward-looking statements that are based on current expectations. Such forward-looking statements involve known and unknown risks, uncertainties and other important factors that could cause the actual results, performance, achievements or financial position of the Company to be materially different from future results, performance, achievements or financial position expressed or implied by such forward-looking statements. Such forward-looking statements are based on numerous assumptions regarding the Company's operating performance, present and future business strategies and the environment in which the Company will operate in the future. These forward-looking statements speak only as at the date of this announcement. Subject to the Listing Rules of the UK Listing Authority, the Company expressly disclaims any obligation or undertaking to disseminate any updates or revisions to any forward-looking statements contained herein to reflect any change in the Company's 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. Consolidated Income Statement for the period ended 30 June 2006 Six months Six months Year ended ended ended 31 December 30 June 30 June 2006 2005 2005 Note US$'000 US$'000 US$'000 (unaudited) (audited) (audited) ------------------------------------------------------------------------------------ Net Gaming Revenue 163,511 123,744 271,031 Operating expenses 41,817 34,615 72,960 Research and development expenses 9,165 4,642 11,318 Selling and marketing expenses 49,008 51,808 100,009 Administrative expenses 2 21,010 7,265 37,328 ------------------------------------------------------------------------------------ Operating Profit before share benefit charges 46,392 25,414 66,650 ---------------------------------------------------------------------------------- Charges in respect of shares granted to employees on IPO -- -- 15,087 Charges in respect of share and option awards 3,881 -- 2,147 ---------------------------------------------------------------------------------- Total share benefit charges 3,881 -- 17,234 ---------------------------------------------------------------------------------- Operating Profit 3 42,511 25,414 49,416 Finance income 1,622 192 735 ------------------------------------------------------------------------------------ Profit before tax 44,133 25,606 50,151 Taxation 1,431 1,119 2,136 ------------------------------------------------------------------------------------ Profit after tax for the period attributable to equity holders of parent 42,702 24,487 48,015 ==================================================================================== Earnings per share Basic 4 12.7c 7.3c 14.2c Diluted 12.5c 7.3c 14.2c ==================================================================================== All amounts relate to continuing activities. Consolidated Balance Sheet at 30 June 2006 30 June 30 June 31 December 2006 2005 2005 US$'000 US$'000 US$'000 (unaudited) (audited) (audited) ---------------------------------------------------------------------------------------- Assets Non-current assets Intangible assets -- 400 - Property, plant and equipment 9,449 7,755 8,341 Deferred taxes 461 -- 361 ---------------------------------------------------------------------------------------- 9,910 8,155 8,702 Current assets Cash and cash equivalents 116,874 42,137 62,202 Trade and other receivables 11,746 15,556 15,013 Amounts due from related parties -- 8,204 1,649 ---------------------------------------------------------------------------------------- 128,620 65,897 78,864 ---------------------------------------------------------------------------------------- Total assets 138,530 74,052 87,566 ======================================================================================== Equity and liabilities Equity attributable to equity holders of the parent Share capital 3,068 3,065 3,068 Share benefit reserve 6,028 -- 2,147 Retained earnings 69,817 28,500 27,115 ---------------------------------------------------------------------------------------- Total equity attributable to equity holders of the parent 78,913 31,565 32,330 ---------------------------------------------------------------------------------------- Liabilities Current liabilities Trade and other payables 29,589 17,346 25,593 Member deposits 30,028 25,141 29,325 Amounts due to related parties -- -- 318 ---------------------------------------------------------------------------------------- Total liabilities 59,617 42,487 55,236 ---------------------------------------------------------------------------------------- Total equity and liabilities 138,530 74,052 87,566 ======================================================================================== Approved by the Board and authorised for issue on 14 September 2006. John Anderson Aviad Kobrine Chief Executive Officer Chief Financial Officer Consolidated Statement of Changes in Equity for the period ended 30 June 2006 Share Share benefit Retained capital reserve earnings Total US$'000 US$'000 US$'000 US$'000 ------------------------------------------------------------ Balance at 1 January 2005 3,066 - 27,113 30,179 Net Profit for the period - - 24,487 24,487 Dividend paid - - (23,100) (23,100) Redemption of preference share capital (1) - - (1) ------------------------------------------------------------ Balance at 30 June 2005 3,065 - 28,500 31,565 ------------------------------------------------------------ Net Profit for the period - - 23,528 23,528 Dividend paid - - (40,000) (40,000) Share benefit charge - 17,234 - 17,234 Transfer of shares granted on IPO - (15,087) 15,087 - Redenomination translation effect 3 - - 3 ------------------------------------------------------------ Balance at 31 December 2005 3,068 2,147 27,115 32,330 ------------------------------------------------------------ Net Profit for the period - - 42,702 42,702 Share benefit charge - 3,881 3,881 ------------------------------------------------------------ Balance at 30 June 2006 3,068 6,028 69,817 78,913 ============================================================ Consolidated Statement of Cash Flows for the period ended 30 June 2006 Six months Six months ended ended Year ended 30 June 30 June 31 December 2006 2005 2005 US$'000 US$'000 US$'000 (unaudited) (audited) (audited) --------------------------------------------------------------------------------------- Cash flows from operating activities Profit before income tax 44,133 25,606 50,151 Adjustments for Depreciation 1,883 1,165 2,700 Loss on sale of property, plant and equipment -- -- 32 Amortisation -- -- 20 Impairment -- -- 832 Translation effect of redenomination of share capital -- -- 3 Interest received (1,551) (192) (683) Share benefit charges 3,881 -- 17,234 --------------------------------------------------------------------------------------- 48,346 26,579 70,289 Decrease in trade receivables 5,144 589 579 Decrease/(Increase) in related party balances 1,331 (6,340) (638) (Increase)/Decrease in other accounts receivable (1,877) (915) 142 Increase in trade payables 7,172 4,676 1,177 Increase in customer deposits 703 6,000 10,184 (Decrease)/Increase in other accounts payable (2,903) (1,247) 9,680 --------------------------------------------------------------------------------------- Cash generated from operations 57,916 29,342 91,413 Income tax paid (1,804) (2,553) (3,160) --------------------------------------------------------------------------------------- Net cash generated from operating activities 56,112 26,789 88,253 Cash flows from investing activities Purchase of intangibles -- (400) (400) Cash acquired on combination with ACTeCASH -- -- 263 Purchase of property, plant and equipment (2,991) (1,678) (3,831) Interest received 1,551 192 683 --------------------------------------------------------------------------------------- Net cash used in investing activities (1,440) (1,886) (3,285) Cash flows from financing activities Reduction in share capital -- (1) (1) Dividends paid -- (23,100) (63,100) --------------------------------------------------------------------------------------- Net cash used in financing activities -- (23,101) (63,101) --------------------------------------------------------------------------------------- Net increase in cash and cash equivalents 54,672 1,802 21,867 Cash and cash equivalents at the beginning of the period 62,202 40,335 40,335 --------------------------------------------------------------------------------------- Cash and cash equivalents at the end of the period 116,874 42,137 62,202 ======================================================================================= Notes to the Consolidated Financial Information 1 Basis of preparation The consolidated interim 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. 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 ended 31 December 2006 which are not expected to be significantly different to those set out in note 2 to the groups audited financial statements for the year ended 31 December 2005. The financial information is presented in thousands of US dollars (US$'000) because that is the currency the Group primarily operates in. The financial information for the period ended 30 June 2005 has been audited. The financial statements for the year ended 31 December 2005, which were prepared under IFRS, have been filed with the Registrar of Companies in Gibraltar and received an unqualified audit report. These financial statements are also available from the Company's website. The financial information contained in this interim announcement is unaudited and does not constitute statutory accounts. 2 Administrative expense Administrative expense includes a provision in the sum of $2,750,000 (2005 - Nil) associated with Mr. John Anderson stepping down as CEO of the group on 31 December 2006. In accordance with the terms of employment of Mr. John Anderson the provision consists of full year remuneration, a 15% contribution towards pension and 200% bonus. Notes to the Consolidated Financial Information 3 Segment information Business segments Six months ended 30 June 2006 Casino Poker Consolidated US$'000 US$'000 US$'000 (unaudited) (unaudited) (unaudited) ----------------------------------------------------------- Net Gaming Revenue 89,619 73,892 163,511 =========================================================== Result Segment result 49,237 45,486 94,723 =========================================================== Unallocated corporate expenses(1) (52,212) ----------------------------------------------------------- Operating Profit 42,511 Finance income 1,622 Income tax expense (1,431) ----------------------------------------------------------- Net Profit for the period 42,702 =========================================================== Assets Unallocated corporate assets 138,530 ----------------------------------------------------------- Total assets 138,530 =========================================================== Liabilities Segment liabilities - Poker 20,432 Segment liabilities - Casino 9,596 Unallocated corporate liabilities 29,589 ----------------------------------------------------------- Total liabilities 59,617 =========================================================== (1) Including share benefit charges of US$3,881,000. Six months ended 30 June 2005 Casino Poker Consolidated US$'000 US$'000 US$'000 (audited) (audited) (audited) ---------------------------------------------------------- Net Gaming Revenue 79,874 43,870 123,744 ========================================================== Result Segment result 38,891 15,914 54,805 ============================================= Unallocated corporate expenses (29,391) ---------------------------------------------------------- Operating Profit 25,414 Finance income 192 Income tax expense (1,119) ---------------------------------------------------------- Net Profit for the period 24,487 ========================================================== Assets Unallocated corporate assets 74,052 ---------------------------------------------------------- Total assets 74,052 ========================================================== Liabilities Segment liabilities - Poker 16,387 Segment liabilities - Casino 8,754 Unallocated corporate liabilities 17,346 ---------------------------------------------------------- Total liabilities 42,487 ========================================================== 3 Segment information continued Year ended 31 December 2005 Casino Poker Consolidated US$'000 US$'000 US$'000 (audited) (audited) (audited) ----------------------------------------------------------- Net Gaming Revenue 161,214 109,817 271,031 =========================================================== Result Segment result 79,555 55,169 134,724 ----------------------------------------------------------- Unallocated corporate expenses(1) (85,308) ----------------------------------------------------------- Operating Profit 49,416 Finance income 735 Income tax expense (2,136) ----------------------------------------------------------- Net Profit for the year 48,015 =========================================================== Assets Unallocated corporate assets 87,566 ----------------------------------------------------------- Total assets 87,566 =========================================================== Liabilities Segment liabilities - Poker 20,099 Segment liabilities - Casino 9,226 Unallocated corporate liabilities 25,911 ----------------------------------------------------------- Total liabilities 55,236 =========================================================== (1) Including share benefit charges of US$17,234,000. Other than where amounts are allocated specifically to the Casino and Poker segments above, the expenses, assets and liabilities relate jointly to both segments. Any allocation of these items would be arbitrary. Geographical segments The Group's performance can also be reviewed by considering the geographical markets and geographical locations within which the Group operates. This information is outlined below: Net Gaming Revenue by geographical market Six months Six months ended ended Year ended 30 June 30 June 31 December 2006 2005 2005 US$'000 US$'000 US$'000 (unaudited) (audited) (audited) ------------------------------------------------------------------------------------- USA 85,305 68,599 148,049 UK 36,593 22,794 53,871 Europe 27,093 23,325 47,289 Americas 9,328 5,328 12,007 Rest of World 5,192 3,698 9,815 ------------------------------------------------------------------------------------- 163,511 123,744 271,031 ===================================================================================== 4 Earnings per share Basic earnings per share Basic earnings per share has been calculated by dividing the Net Profit attributable to ordinary shareholders (profit for the period) 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. Six months Six months ended ended Year ended 30 June 30 June 31 December 2006 2005 2005 US$'000 US$'000 US$'000 (unaudited) (audited) (audited) ------------------------------------------------------------------------------------- Net Profit attributable to ordinary shareholders 42,702 24,487 48,015 Weighted average number of Ordinary Shares in issue* 337,096,320 337,096,320 337,096,320 Basic earnings per share 12.7c 7.3c 14.2c ===================================================================================== Weighted average number of dilutive Ordinary Shares 342,886,703 337,096,320 338,419,476 ------------------------------------------------------------------------------------- Diluted earnings per share 12.5c 7.3c 14.2c ===================================================================================== Earnings per share excluding share benefit charges Reconciliation of Net Profit to Net Profit excluding share benefit charges: Six months Six months ended ended Year ended 30 June 30 June 31 December 2006 2005 2005 US$'000 US$'000 US$'000 (unaudited) (audited) (audited) ------------------------------------------------------------------------------------- Net Profit attributable to ordinary shareholders 42,702 24,487 48,015 Share benefit charges 3,881 -- 17,234 ------------------------------------------------------------------------------------ Net Profit excluding share benefit charges 46,583 24,487 65,249 Weighted average number of Ordinary Shares in issue* 337,096,320 337,096,320 337,096,320 Basic earnings per share excluding share benefit charges 13.8c 7.3c 19.3c ------------------------------------------------------------------------------------- Weighted average number of dilutive Ordinary Shares 342,886,703 337,096,320 338,419,476 Diluted earnings per share excluding share benefit charges 13.6c 7.3c 19.3c ===================================================================================== * Comparative weighted average number of Ordinary Shares in issue has been restated in order to reflect the share split that took place on 14 September 2005. 5 Interim Dividend The directors have declared an interim dividend of 4.5c per share payable on 31 October 2006 to shareholders on the register at 13 October 2006. In addition, the directors have declared a special dividend of 4.0c per share payable on 31 October 2006 to shareholders on the register at 13 October 2006. Independent Review Report To The Shareholders of 888 Holdings Public Limited Company Introduction We have been instructed by the company to review the financial information for the six months ended 30 June 2006 which comprises the Group Income Statement, the Group Balance Sheet, the Group Cash Flow Statement, the Group Statement of Changes in Equity and the related notes 1 to 5. We have read the other information contained within the financial information and considered whether it contains any apparent misstatements or material inconsistencies with the financial information. Our report has been prepared in accordance with the terms of our engagement to assist the Company in meeting the requirements of the Listing Rules of the 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. Directors' responsibilities The interim report, including the financial information contained therein, is the responsibility of, and has been approved by, the directors. The directors are responsible for preparing the interim report in a format equivalent to the Listing Rules of the Financial Services Authority which require that the accounting policies and presentation applied to the financial information should be consistent with those applied in preparing the annual accounts except where any changes, and the reasons for them, are disclosed. Review work performed We conducted our review in accordance with guidance contained in Bulletin 1999/4 issued by the Auditing Practices Board for use in the United Kingdom. A review consists principally of making enquiries of management and applying analytical procedures to the financial information and underlying financial data and based thereon, assessing whether the accounting policies and presentation have been consistently applied unless otherwise disclosed. A review excludes audit procedures such as tests of controls and verification of assets, liabilities and transactions. It is substantially less in scope than an audit performed in accordance with International Standards on Auditing (UK and Ireland) and therefore provides a lower level of assurance than an audit. Accordingly, we do not express an audit opinion on the financial information. Review conclusion On the basis of our review we are not aware of any material modifications that should be made to the financial information as presented for the six months ended 30 June 2006. BDO Stoy Hayward LLP Chartered Accountants 8 Baker Street London WIU 3LL United Kingdom Date: 14 September 2006 888 Holdings Public Limited Company Suite 601/701 Europort Europort Road Gibraltar T: +350 49800 F: +350 48280 E: Info@888holdingsplc.com www.888holdingsplc.com This information is provided by RNS The company news service from the London Stock Exchange

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