TIDM888
RNS Number : 6331S
888 Holdings plc
18 March 2021
18 March 2021
888 Holdings Plc
("888" or "the Group")
Audited annual financial results for the year ended 31 December
2020
Record revenue and profits driven by product-leadership strategy
and expansion in regulated markets
888 (LSE: 888), one of the world's leading online betting and
gaming companies, announces its audited financial results for the
year ended 31 December 2020 ("the period").
Financial Highlights
- Group revenue increased 52% to $849.7 million (2019: $560.3 million)
- Revenue from regulated and taxed markets represented 73% of
Group revenue (2019: 74%), with revenue from regulated markets
increasing 58%
- B2C revenue increased 53% to $814.3 million (2019: $530.5
million), with strong growth in casino (63%), sport (36%), poker
(48%) and bingo (10%)
- Adjusted EBITDA of $155.6 million (2019: $92.1 million), with
the Adjusted EBITDA margin at 18.3% (2019: 16.4%)
- Adjusted profit before tax of $116.0 million (2019: $53.2
million); Profit before tax of $26.7 million (2019: $45.3
million)
- Adjusted basic earnings per share of 27.3c (2019: 13.5c),
Basic earnings per share of 3.1c (2019: 11.3c)
- Final dividend of 12c per share (2019: 3.0c) bringing the
total for the year to 18c (2019: 6.0c)
- The Group continues to have a strong balance sheet, with cash
and cash equivalents of $190 million (2019: $96.9 million)
Operational Highlights
- Continued focus on developing and improving safer gambling
processes, with the launch of 888's Safer. Better. Together
strategy:
o Launch of Control Centre giving customers a one-stop-shop for
safer gambling tools. The centre gives customers ground-breaking
levels of transparency in real-time about their gambling activity,
as well as quick and simple tools to control spend.
o Ongoing development of 888's Observer technology, using
sophisticated algorithms to flag or monitor potentially concerning
customer activity
o Launch of "too much is too much" safer gambling advertising
campaign across TV, social and print channels
- 58% growth in regulated markets revenue, with strong market share trends in key markets:
o 63% growth in UK revenues, reflecting strong acquisition
trends across all product verticals
o 69% growth in Italy, with new customer growth of 43%,
reflecting the strength of the 888 brand, and the success of its
differentiated products
- Product-leadership strategy delivering strong results:
o Transformational year for 888sport, with the first-ever
in-house sportsbook platform launched across multiple markets, and
now delivering the majority of sports volumes. This cutting-edge
sportsbook platform enables the Group to control all aspects of the
sports betting proposition for the first time, enabling the Group
to innovate and deploy product-centric features supporting future
growth plans
o Launch of Poker8, an innovative portrait mobile-first poker
platform, delivering a quicker and more intuitive experience to
poker fans globally. This leading recreational poker product
received a strong reaction from players, supporting 48% revenue
growth during the year, and was recognised across the industry with
independent awards
o Ongoing evolution of 888casino product, with the launch of
over 700 new games in the year, including more than 30 exclusive
games from Section8, an in-house games studio producing some of the
most popular games with 888 customers.
- Data-driven investments driving strong returns:
o B2C new customer acquisition increased 42%, with a record of
nearly one and a half million new members joining 888's brands
- Platform to scale up in the US:
o Continued investment in New Jersey, with 71% revenue
growth
o Three strategic market access deals, increasing the number of
states where 888 has a presence to seven
o Post the period end, a multi-year extension to its exclusive
B2B poker partnership with Caesars Interactive Entertainment,
powering the U.S. market's only interstate shared player liquidity
poker network
Current trading & outlook
- The annualised impact of regulatory and compliance changes is
currently expected to be a headwind to revenues of $70-100 million
in the full year
- Strong momentum in 2021 so far, with continued positive trends in FTDs and revenue
- The Board remains confident that 888 will deliver full year revenue growth in 2021
Itai Pazner, CEO of 888, commented:
"2020 was a landmark year for 888, with our team navigating the
many challenges presented by a global pandemic to deliver record
financial results, and significant progress against our strategic
priorities.
Our product-leadership strategy delivered outstanding results in
2020, with the launch of our ground-breaking Control Centre, our
first ever in-house sportsbook, and a totally new poker platform.
Our focus on delivering safe, intuitive, content-rich and
entertaining products is helping us to deliver a differentiated
customer experience and supporting our market share gains in key
regulated markets.
We welcomed a record number of new members to our brands, nearly
one and a half million, with our differentiated products and our
big data supporting highly effective marketing.
We are pleased with our continued progress in the U.S., and with
three new states set to launch in 2021, we are poised to see the
scale benefits of our investments here. We enter 2021 with strong
momentum, with a record level of customers, and with a positive
reaction to our suite of new products and innovations. As a result,
as well as the Group's strengths as a product-centric, responsible,
and diversified operator, the Board believes that 888 has an
outstanding platform to deliver continued strategic progress during
2021 and beyond."
THIS ANNOUNCEMENT CONTAINS INSIDE INFORMATION FOR THE PURPOSES
OF ARTICLE 7 OF REGULATION (EU) NO 596 /2014.
The person responsible for making this announcement is Itai
Pazner, Chief Executive Officer of the Group.
Financial Summary
2020 2019(1)
US$ million US$ million Change
------------------------------- ------------- ------------- --------
Revenue - B2C
Casino 586.8 359.3 63.3%
Sport 122.1 90.0 35.7%
Poker 63.1 42.7 47.8%
Bingo 42.3 38.5 9.9%
Total B2C 814.3 530.5 53.5%
B2B 35.4 29.8 18.9%
------------------------------- ------------- --------
Revenue 849.7 560.3 51.6%
------------------------------- ------------- --------
Gaming taxes and duties (151.8) (95.5)
Other cost of sales (135.1) (88.1)
Gross profit 562.8 376.7 49.4%
Marketing expenses (237.1) (152.9)
Operating expenses (2) (170.1) (131.7)
------------------------------- ------------- --------
Adjusted EBITDA(3) 155.6 92.1 69.0%
Share based benefit charges (11.0) (5.4)
Exceptional items(4) (78.2) (2.3)
Depreciation and amortisation (33.6) (32.2)
------------------------------- ------------- --------
Operating profit 32.8 52.2 (37.1%)
Finance income and expenses (6.0) (6.7)
Share of equity accounted
associates loss (0.1) (0.2)
Profit before tax 26.7 45.3 (41.1%)
------------------------------- ------------- --------
Adjusted profit before
tax 116.0 53.2 118.2%
------------------------------- --------
Adjusted basic earnings
per share 27.3 c 13.5 c 102.6%
------------------------------- --------
Basic earnings per share 3.1 c 11.3 c (73.0%)
------------------------------- ------------- --------
Alternative Performance Measures ("APMs") used in this Business
& Financial Review do not have standardised meanings and
therefore may not be comparable to similar measures presented by
other companies.
Reconciliation of operating profit to Adjusted EBIT, Adjusted
profit before tax and Adjusted net profit
2020 2019 Change
US$ million US$ million
Operating profit 32.8 52.2 (37.1%)
---------------------- --------------------- --------
Exceptional items (4) 78.2 2.3
Share benefit charges 11.0 5.4
Adjusted EBIT (3) 122.0 59.9 103.8%
Finance income and expenses (6.0) (6.7)
Adjusted profit before
tax 116.0 53.2 118.2%
income tax (15.4) (3.7)
---------------------- --------------------- --------
Adjusted net profit 100.6 49.5 103.3%
---------------------- --------------------- --------
(1) The presentation of the Consolidated Income Statement for
the years 2020 and 2019 was changed in a manner that allows for
further understanding of the underlying financial performance of
the Group and in order to be consistent with how Group management
and peers analyse the results of online gambling. Further
information is provided in note 2 to the 2020 financial
statements.
(2) Excluding depreciation of US$14.8 million (2019: US$12.6
million), amortisation of US$18.8 million (2019: US$19.6 million)
and share benefit charges of US$11.0 million (2019: US$5.4
million).
(3) Adjusted EBITDA and Adjusted EBIT are the main measures the
analyst community uses to evaluate the Company and compare it to
its peers. The Group presents adjusted measures (including Adjusted
profit before tax) which differ from statutory measures due to the
exclusion of exceptional items and the application of adjustments.
It does so because the Group considers that it allows for further
understanding of the underlying financial performance of the
Group.
(4) Exceptional charges of US$78.2 million related to US$79.9
million Bingo goodwill impairment charge offset by US$0.1 million
change in provision in respect of regulatory matters related to
legacy customers' activity in previous years and US$1.6 million
gain from the sale of equity accounted associate (2019: US$2.3
million exceptional charges of US$2.3 million in respect of
organizational restructuring and legal and professional costs
associated with M&A activity).
Sell side analyst presentation
Itai Pazner, Chief Executive Officer, and Yariv Dafna, Chief
Financial Officer, will host a presentation for sell-side analysts
today at 9:00AM (GMT). Please contact 888@hudsonsandler.com or call
+44 (0)207 796 4133 for further details.
A replay will be available from the investor relations section
of 888's website ( http://corporate.888.com/investor-relations )
later today.
Investor Meets Company presentation
888 will provide a live presentation relating to the Full Year
Results for the 12 months ended 31 December 2020 via the Investor
Meet Company platform on 22 March 2021 at 5:30pm GMT.
The presentation is open to all existing and potential
shareholders. Questions can be submitted via the Investor Meet
Company platform up until 9:00am GMT the day before the meeting or
at any time during the live presentation.
Investors can sign up to Investor Meet Company for free and add
to meet 888 HOLDINGS PLC via the following link:
https://www.investormeetcompany.com/888-holdings-plc/register-investor
Investors who already follow 888 Holdings plc on the Investor
Meet Company platform will automatically be invited to the
event.
Enquiries and further information:
888 Holdings Plc +350 200 49 800
Itai Pazner, Chief Executive Officer
Yariv Dafna, Chief Financial Officer
Hudson Sandler - 888@hudsonsandler.com
Alex Brennan
Bertie Berger
Andy Richards +44(0) 207 796 4133
About 888 Holdings Plc:
888 Holdings plc (and together with its subsidiaries, "888" or
the "Group") is one of the world's leading online betting and
gaming companies. 888's mission is to develop state-of-the-art
technology and products that provide fun, fair and safe digital
gambling products to players globally. Safer gambling is a core
focus for the Group and, a t the beginning of 2020, 888 launched
its 'Safer. Better. Together' safer gambling strategy and
commitments.
888 has been at the forefront of the online gaming industry
since foundation in 1997, leveraging its proprietary technology to
provide to players and B2B partners an innovative and world-class
online gaming experience.
In 2020, the company was proud to be recognised at the 2020
Gaming Intelligence awards as winner in the Casino Operator of the
Year category. In 2020, 888 also won two prestigious awards for its
poker platform at the 2020 Poker Listings Operator Awards in the
Most Improved Software and Best Beginner Software categories.
The Group is structured into two lines of business: B2C, under
the 888 brands, and B2B, conducted through Dragonfish, which
provides partners a leading platform through which to establish an
online gaming presence and monetise their own brands in a safe and
responsible manner.
888's consumer facing websites offer more than just online
betting and gaming. They are entertainment destinations: places
where people can enjoy a truly interactive experience and be part
of an online community that shares common interests. 888's strong
and trusted brands are all accessible through www.888.com .
Find out more about 888 at http://corporate.888.com/ .
This announcement includes statements that are, or may be deemed
to be, "forward-looking statements". By their nature,
forward-looking statements involve risk and uncertainty since they
relate to future events and circumstances. Forward-looking
statements may and often do differ materially from actual results.
Any forward-looking statements in this announcement reflect 888's
view with respect to future events as at the date of this
announcement. Save as required by law or by the Listing Rules or
the Disclosure Guidance and Transparency Rules of the UK Listing
Authority, 888 undertakes no obligation publicly to release the
results of any revisions to any forward-looking statements in this
announcement that may occur due to any change in its expectations
or to reflect events or circumstances after the date of this
announcement.
CREATING VALUE BY PUTTING OUR CUSTOMERS FIRST
CHAIRMAN'S STATEMENT
INTRODUCTION
Whilst 2020 was a year of significant strategic progress and
record-breaking growth for 888, there is no doubt the year will
long be remembered for the human and economic cost wreaked by
COVID-19. On behalf of the Board, I would like to pass on our
deepest sympathies to those in 888's global community and beyond
who have been impacted by the pandemic.
During 2020, the Group achieved revenue growth of 51.6% and an
increase in Adjusted EBITDA of 69.0% to $155.6 million, which all
represent record levels, and are significantly ahead of the Board's
initial expectations for the year. The Group's strong operational
and financial performance during the year reflects several factors
including increasing consumer demand for online services that
accelerated as a result of COVID-19-related restrictions on
people's movements and leisure activities; 888's diversification
across product verticals and geographic markets; and the Group's
increased vigilance on safe gambling and customer protection. The
Board remains confident that, with 888's outstanding product
proposition, advanced technology and diversification across global
regulated markets, the Group remains well positioned to deliver
further progress in the years ahead.
PROTECTING OUR PEOPLE AND CUSTOMERS
During 2020, the pandemic created an unprecedented environment
for communities across the world. Against this backdrop, 888's
unwavering priority throughout the year remained to ensure the
well-being of the Group's employees and customers.
I am incredibly proud of how the Group responded to the impact
of COVID-19 on the lives of our valued employees. As countries
across the world went into lockdown, the Board and 888's management
teams were quick to recognise the potential pressures that the new
ways of working and living could place on members of the 888 team,
as 888 adapted seamlessly to remote working. We prioritised regular
communication with employees, ran daily virtual wellbeing sessions
for colleagues, and our qualified HR professionals offered
one-to-one support to members of the team who were feeling
heightened levels of pressure or anxiety. I am delighted to report
that despite the significant levels of disruption experienced
during the year, our colleagues not only adapted to this unique set
of challenges but also delivered further exceptional strategic
progress including the launches of several major new product
developments, on time and to budget. On behalf of the Board, I
would like to thank 888 team members around the world for their
flexibility, skill and immense dedication throughout this very
challenging period.
The Group's safer gambling strategy, entitled ' Safer. Better.
Together.', underpins our commitment to a process of continuous
improvement, and we acknowledge the risks that can result from our
products. We continue to proactively identify new ways to deploy
our technology and analytical expertise to provide a safer gambling
environment for customers and we continue to develop new ways to
help customers make informed, safe decisions about their gambling
activity. Further details on the Group's safe gambling strategy and
activity during 2021 can be found in the 2020 Annual Report.
STRATEGIC PROGRESS
888's overarching strategic goal remains to develop as one of
the world's leading global online betting and gaming businesses. In
order to achieve this, the Group continues to invest in product
leadership and technology, expand into new regulated markets,
prioritise safe gambling, and appraise attractive acquisition and
strategic partnership opportunities. The progress made during 2020
against each of the Group's strategic pillars is described in more
detail in the Strategic Review section of this Annual Report.
DIVID
The Board of Directors is recommending a final dividend of 10.4c
per share in accordance with 888's dividend policy, plus an
additional one-off 1.6c per share to acknowledge the
record-breaking performance of the Group in 2020, bringing the
total for the year to 18.0c per share (2019: 6.0c per share).
BOARD & TEAM
The 888 Board has undergone significant changes in membership
during 2020, and it is a testament to our succession planning that
the transitions have been implemented smoothly despite the
challenging restrictions imposed by COVID-19.
In January 2020, the Group announced that after more than 15
years with 888, Aviad Kobrine would be stepping down from his role
as Chief Financial Officer ('CFO'). Aviad made a truly outstanding
contribution during his time with 888 and supported the Group's
growth into the global online gaming business it is today. In
September, the Board announced the appointment of Yariv Dafna as
the Group's new CFO. Yariv previously held several positions at
Telit Communications plc including the roles of Group CFO, Chief
Corporate Development Officer with responsibility for all M&A
activity, and Chief Operating Officer. The Board is very pleased
with the positive contributions Yariv has already made since
joining the Group.
In July, the Board announced the appointment of Limor Ganot as
an Independent Non-Executive Director. The Board is delighted to
have Limor as part of the team and I have every confidence that her
involvement as a leader in a diverse range of businesses, together
with her deep understanding of disruptive technologies, will be of
significant benefit to 888 going forward.
In September, the Board announced the appointment of Lord
Jonathan (Jon) Mendelsohn as a Non-Executive Director and Chair
Designate following a thorough search process. Jon, who will assume
the role of Non-Executive Chairman when I step down from the role
on 31 March 2021, is a highly experienced gambling sector
professional with extensive deal-making experience and fantastic
leadership qualities. The 888 Board is already benefitting from
Jon's vast understanding of the sector and I am very confident that
he will be an excellent Chair to help guide the business through
its next phases of long-term development.
I am also delighted that Anne de Kerckhove has been appointed
Senior Independent Director from 17 March 2021. Anne has a wealth
of experience as an entrepreneur and investor, which together with
her strong track record on the Board and its Committees makes her a
real asset for the Company as it continues to grow and pursue its
strategic objectives.
On a personal note, I would like to take this opportunity in my
final Annual Report statement put on record what an immense
privilege it has been to be Chairman of 888 and serve its
stakeholders during more than 15 years with the Group. I would also
like to thank all my fellow Board members at 888, both past and
present, for their help and support over my years with the Group.
Whilst 888 has exceptional products and world-class technology,
what really makes it stand out are its people who are bound by a
unique culture of continuous improvement, passion and, above all, a
genuine drive to do what is right for our customers and colleagues.
Never has this been more evident than during 2020 when we
collectively overcome and successfully navigated an unprecedented
set of challenges caused by the COVID-19 pandemic. I am incredibly
proud to have been a part of the 888 team in both an executive and
non-executive capacity and wish all the Group's stakeholders the
very best for the future.
Brian Mattingley
Non-Executive Chairman
CEO'S STRATEGIC REPORT
INTRODUCTION
During 2020, the outbreak of COVID-19 resulted in unprecedented
challenges for communities and businesses across the world. I am
very proud of how 888 responded to the impact of the pandemic on
the lives of our customers and our employees and prioritised their
health, well-being and safety above all else. For our people, we
successfully implemented a smooth transition to working from home
across the Group and provided additional support for those members
of our team who experienced challenges throughout this period. For
our customers, we recognised early on that the COVID-19 pandemic
would have a material impact on the lives of consumers across the
world and knew that this required an appropriate and timely
response from 888. We were therefore quick to further increase our
vigilance on safer gambling and preventing gambling-related
harm.
Against this challenging macro-economic backdrop, 888 performed
very well during 2020. We achieved growth in revenue and Adjusted
EBITDA of 51.6% and 6 9 .0% respectively with each reaching record
highs for 888. This outcome reflects the Group's strong levels of
customer acquisition during 2019 and into 2020, 888's relentless
focus on developing cutting-edge new products, and an acceleration
in the channel shift from retail to online services witnessed
across multiple consumer-facing industries over the last 12
months.
A YEAR OF SIGNIFICANT STRATEGIC PROGRESS
888's growth strategy is aimed at achieving the Group's
potential across a diverse range of geographic markets by
delivering organic growth in a responsible manner as well as
evaluating attractive M&A opportunities. Critical to 888's
ongoing strategic progress is the Group's advanced online gaming
technology and associated platforms. Owning and developing our own
technology, products and content, enables 888 to create
differentiated gaming products, adapt effectively to regulatory
changes, enhance customer safety, and respond to new market
opportunities. In addition, multiple areas of 888's operations are
directed by highly sophisticated business analytics that are
critical to the Group's approach to safer gambling, product
development, marketing, and customer relationship management
("CRM"), harnessing big data to ensure our investments deliver
strong returns.
During 2020, 888 continued to make progress against each of the
following key pillars of its growth strategy:
Putting safer gambling at the heart of the business
At 888, we continue to increase our investment, focus and
attention on making our products safer. We acknowledge the
potential risks that online gambling can present and are committed
to ongoing improvements to make gambling safer, and to continue to
work with regulators around the world to demonstrate our policies
and our approach. We use technology as a force for good, giving
customers transparency about their activity, and using
sophisticated AI to detect and block harmful play.
At the beginning of 2020, 888 launched a new safer gambling
strategy called Safer. Better. Together. To achieve our safer
gambling goals, we launched 888's 8 safer gambling commitments:
1. We are committed to change within our business, creating a
culture of responsibility that ensures safer gambling and
transparency is a priority for everyone in our business.
2. We are committed to identifying those potentially at risk of
harm and restricting and supporting them at the earliest point.
3. We are committed to collaborating with relevant stakeholders
to develop a shared knowledge base and stronger overall standards
for safer gambling.
4. We are committed to continuous investment in programmes of
Research, Education and Treatment (RET) to address gambling harm,
and ways to help prevent it
5. We are committed to ensuring customers have transparency
about their gambling activity, with quick, simple and intuitive
ways to monitor their activity in real time.
6. We are committed to providing the most advanced safer gambling tools.
7. We are committed to promoting responsible attitudes,
providing information, education and encouragement to our players
to gamble safely.
8. We are committed to continuous improvement, building a deeper
understanding about the causes and markers of harm, and using this
to drive continued positive change.
With the rapid evolution of technology and consumer habits, we
know that continuous progress to make gambling safer is essential,
and 888 leverages the same unique technology, analytical
capabilities and product development expertise that underpin the
success of 888's gaming brands. One example of this is 888's
in-house developed player behaviour monitoring technology, called
the Observer. The Observer system uses sophisticated algorithms to
flag unusual or potentially concerning customer activity. We
continue to get better at using the data to look for potential
harm, and we continue to invest in our highly trained safer
gambling team to make the most appropriate interaction with the
customer. During 2020, we made further progress developing
Observer, and looking forward we are committed to using our
internal data, and collaborating externally, to continue developing
the Observer to better identify and predict problematic and
potentially problematic gambling before any harm is caused.
One of 888's most significant technology investments during 2020
was the launch of the Group's latest safer gambling innovation
called the Control Centre in November. The Control Centre reflects
our commitments to provide players transparency, and to provide the
most advanced tools to our customers. The Control Centre is a new
customer-focused interface that we are introducing across 888's
global websites to provide a "one stop shop" for safer gambling
support. It is designed to enable customers to monitor their
gambling activity through intuitively presented data, providing
ground-breaking levels of transparency in real-time. In addition to
easy to access information, the Control Centre provides a suite of
simple and intuitive tools to control their activity. The Control
Centre was developed over several months and reflects 888's
ambition to go beyond what is merely required by regulation when it
comes to safer gambling and to invest in user-friendly and safer
gambling tools.
Further details on the Group's Safer. Better. Together safer
gambling strategy as well as the progress made by the Group during
2020, and its commitment to ongoing improvement in this area, can
be found in the 2020 Annual Report.
Product-leadership
Alongside efficient marketing investment, new product
development remains key to the ongoing progress of the Group's B2C
business. Creating the best possible online gaming products
benefits the Group in many ways: firstly, it differentiates 888
from competitors in the eyes of consumers; secondly, it enables the
Group to improve its cost per new customer acquisition by allowing
888 to position its marketing investment around products and
content rather than competing on bonuses and customer offers; and
thirdly it improves player retention by offering customers the best
possible entertainment and content, above all in a safe and secure
environment.
During 2020, we increased the pace of our new product
development, enabling 888 to react quicker to changing customer
needs, and invested heavily in R&D to expand products and
technology. We continue to apply several important guiding
principles to each of our new product investments:
1. Safety - All of 888's products must, above all else, keep
gambling safe and fun. Meeting regulatory requirements is a bare
minimum for 888 and we continually strive to put the same levels of
focus on our safer gambling tools, processes and controls as we do
on our gaming content.
2. Usability - One of the most important principles we apply to
all product development is that the products must be quick, simple
and intuitive to use. We measure ourselves against the
best-of-breed consumer technology products across entertainment,
banking, and all other digital services, not just gaming
operators.
3. Content-rich - Our products must also be content rich,
thereby enabling customers to access the different types of games
and entertainment they want . Today 888 offers its customers more
than 1,000 different casino games, over 100 different poker formats
and tables, multiple bingo rooms, and a huge variety of sports
events to bet on.
4. Entertainment - The range of content and events we offer our
customers is just half of the story. We must utilise our analytics
capabilities and AI to ensure that we serve and make accessible the
most relevant gaming content to each customer.
5. Scalability - We have customers in dozens of countries,
across multiple different brands and languages. We develop new
products and deploy these across our brands and multiple
territories, all in line with local regulations. This provides 888
with economies of scale and thereby drives superior return on
investment.
During 2020, we were proud to launch three new flagship
products.
1. Our new Control Centre provides customers with a
one-stop-shop for safer gambling, providing real time information
about activity, and quick and simple tools to limit spend.
2. Our new 888sport was launched, migrating to the first ever
in-house Sport product, providing a cutting-edge experience, a
quicker and simpler user experience, and offering higher levels of
personalisation.
3. Our new Poker8 product provides a mobile-first, portrait
poker experience, with a focus on sociable features at the poker
table, and quick and simple access to games.
Expansion in regulated markets
888's strategic focus remains on growing in sustainable,
regulated markets where the Group can leverage its full marketing
expertise to capture new opportunities. Revenue from regulated and
taxed markets continued to represent the majority of Group revenue
at 73% (2019: 74%), with market share gains in most regulated
markets where the group operates.
In the U.S. market, which remains a critical strategic focus,
the Group continued to invest in building the foundations to
support its long-term ambitions. In December, the Group was pleased
to announce the signing of three strategic market access agreements
to launch in the U.S. states of Colorado, Indiana and Iowa with the
888sport brand during 2021, which will increase the number of
states where 888 has a presence to seven.
In addition to these market access agreements, 888 is also
pleased to have extended two of its established and successful U.S.
B2B partnerships. In June, 888 announced a two-year extension to
its exclusive B2B contract with the Delaware Lottery and in January
2021, post the year end, the Group was pleased to announce a
multi-year extension to its exclusive B2B poker partnership with
Caesars Interactive Entertainment ("CIE"). The new agreement with
CIE will see 888 continue powering the prestigious World Series of
Poker ("WSOP") brand's online poker rooms until 2026, enabling 888
to continue to power the U.S. market's only interstate shared
player liquidity poker network across New Jersey, Delaware and
Nevada.
Data-driven investments
One of 888's core strengths is its unique, proprietary
technology platform, used by millions of customers and providing
big data that is used to support efficient product development,
marketing and CRM.
The Group's unique marketing expertise remains critical to
growing and expanding 888's brands in a responsible, cost-efficient
and profitable manner. The efficiency of 888's marketing was again
demonstrated in 2020 with a record number of new customers - more
than 1.4 million globally - joining 888's brands during the year.
Despite this an increase of 42% in new customers, the Group's ratio
of marketing investment to revenue remained broadly stable at 27.9%
(2019: 27.3%), reflecting the Group's diversified marketing
channels and efficient marketing investment processes.
These data-driven investments supported strong growth in all of
the major product verticals:
Casino
Casino continued to deliver strong growth with a 63.3% increase
in revenue to US$586.8 million (2019: US$359.3 million). 888casino
continues to differentiate itself in the market by offering a
unique range of content that combines a curated selection of
popular games from top-quality third-party developers alongside
unique games developed by 888's Section8 games studio. Section8
released more than 44 new casino games during 2020, taking the
total number of in-house developed games offered exclusively on
888casino to more than 150. We are delighted that our continued
product innovation was again recognised during the year with
888casino named winner at the 2020 Gaming Intelligence Awards in
the prestigious Casino Operator of the Year category.
Sport
Sport enjoyed another successful year, with year on year growth
of 35.7% to US$122.1 million (2019: US$90.0 million). The standout
strategic highlight for 888sport during 2020 was undoubtedly the
launch of the Group's first ever proprietary sports betting
platform in 2020, which the Board believes is a transformational
development for 888sport as it now enables the Group to control all
aspects of our sports betting proposition for the first time,
giving us the ability to innovate more quickly and with the same
levels of flexibility and agility that we enjoy in 888's other
product verticals. As of the date of the publication of this Annual
Report, the majority of 888's sports customers have been
transferred to the Group's new platform, enabling customers to
enjoy several exciting new product-centric features including the
BetFeed, a real-time insight into which events or bets are popular
with other 888sport customers, similar to "trending now" features
across social media platforms; BetFinder, a bet-building tool that
helps customers to identify betting opportunities based on their
preferred performance criteria; and personalised recommendations to
customers based on their past betting selections.
Poker
Poker revenue increased significantly by 47.8% in 2020 to
US$63.1 million (2019: US$ 42.7 million), with the strong
performance underpinned by 888's new poker product, as well as the
social entertainment value offered by poker during lockdown
periods, 888's efficient marketing, and in the latter part of the
year, a strong reaction to 888's new poker product. The roll-out of
the Group's Poker8 platform during the second half of the year was
a major milestone for the Group, delivering faster loading times,
more engaging gameplay, and a mobile portrait interface to provide
a customer-friendly experience. Customer reaction to the new
platform has been very positive so far and we were delighted to
have had our innovation recognised twice at the 2020 Poker Listings
Operator Awards in the 'Most Improved Software' and 'Best Beginner
Software' categories.
Bingo
B2C Bingo recorded revenue growth of 9.9% to US$42.3 million in
2020 (2019: US$38.5 million), which benefited from the contribution
of the enlarged portfolio of acquired brands in mid-March 2019.
During the year, 888 launched a new customer interface inspired by
888's successful Orbit Casino platform. The new interface has
enhanced the customer experience with simpler navigation,
integrated additional marketing functionality, and improved
monitoring of safer gambling across the network. However, as
detailed in the Chief Financial Officer's Report, in light of the
Group's shift of focus in this area, an impairment has been
recorded in the value of the Bingo goodwill and other intangible
assets.
Focus on Talent Development, creating a working environment that
promotes growth for our people and business
888 has an outstanding team and culture across the business,
which is led by a talented and experienced operational management
team. During 2020, I was delighted with how the team responded to
the challenges of the global pandemic, with a seamless transition
to a full work-from-home operational model, while maintaining a
high level of employee engagement, safety and wellness. Our
workforce planning was dynamic and adaptive to the evolution in the
industry, and we continued to invest in expanding our team, and
developing our talent.
In addition to our focus on the recruitment, engagement and
training of top talent, we pride ourselves in our 'giving back to
the community' programs, which are an important part of our culture
and our values. These helped us to maintain high levels of employee
satisfaction, and to retain more of our top talent, and I would
like to personally thank all of our people for delivering a record
year, and making 888 a great place to work.
Itai Pazner
Chief Executive Officer
Chief Financial Officer's Report
2020 Business & Financial Review
Financial Summary
2020 2019(1)
US$ million US$ million Change
------------------------------- ------------- ------------- --------
Revenue - B2C
Casino 586.8 359.3 63.3%
Sport 122.1 90.0 35.7%
Poker 63.1 42.7 47.8%
Bingo 42.3 38.5 9.9%
Total B2C 814.3 530.5 53.5%
B2B 35.4 29.8 18.9%
------------------------------- ------------- --------
Revenue 849.7 560.3 51.6%
------------------------------- ------------- --------
Gaming taxes and duties (151.8) (95.5)
Other cost of sales (135.1) (88.1)
Gross profit 562.8 376.7 49.4%
Marketing expenses (237.1) (152.9)
Operating expenses (2) (170.1) (131.7)
------------------------------- ------------- --------
Adjusted EBITDA(3) 155.6 92.1 69.0%
Share based benefit charges (11.0) (5.4)
Exceptional items(4) (78.2) (2.3)
Depreciation and amortisation (33.6) (32.2)
------------------------------- ------------- --------
Operating profit 32.8 52.2 (37.1%)
Finance income and expenses (6.0) (6.7)
Share of equity accounted
associates loss (0.1) (0.2)
Profit before tax 26.7 45.3 (41.1%)
------------------------------- ------------- --------
Adjusted profit before
tax 116.0 53.2 118.2%
------------------------------- --------
Adjusted basic earnings
per share 27.3 c 13.5 c 102.6%
------------------------------- --------
Basic earnings per share 3.1 c 11.3 c (73.0%)
------------------------------- ------------- --------
Alternative Performance Measures ("APMs") used in this Business
& Financial Review do not have standardised meanings and
therefore may not be comparable to similar measures presented by
other companies.
Reconciliation of operating profit to Adjusted EBIT, Adjusted
profit before tax and Adjusted net profit
2020 2019 Change
US$ million US$ million
Operating profit 32.8 52.2 (37.1%)
---------------------- --------------------- --------
Exceptional items (4) 78.2 2.3
Share benefit charges 11.0 5.4
Adjusted EBIT (3) 122.0 59.9 103.8%
Finance income and expenses (6.0) (6.7)
Adjusted profit before
tax 116.0 53.2 118.2%
income tax (15.4) (3.7)
---------------------- --------------------- --------
Adjusted net profit 100.6 49.5 103.3%
---------------------- --------------------- --------
(1) The presentation of the Consolidated Income Statement for
the years 2020 and 2019 was changed in a manner that allows for
further understanding of the underlying financial performance of
the Group and in order to be consistent with how Group management
and peers analyse the results of online gambling. Further
information is provided in note 2 to the 2020 financial
statements.
(2) Excluding depreciation of US$14.8 million (2019: US$12.6
million), amortisation of US$18.8 million (2019: US$19.6 million)
and share benefit charges of US$11.0 million (2019: US$5.4
million).
(3) Adjusted EBITDA and Adjusted EBIT are the main measures the
analyst community uses to evaluate the Company and compare it to
its peers. The Group presents adjusted measures (including Adjusted
profit before tax) which differ from statutory measures due to the
exclusion of exceptional items and the application of adjustments.
It does so because the Group considers that it allows for further
understanding of the underlying financial performance of the
Group.
(4) Exceptional charges of US$78.2 million related to US$79.9
million Bingo goodwill impairment charge offset by US$0.1 million
change in provision in respect of regulatory matters related to
legacy customers' activity in previous years and US$1.6 million
gain from the sale of equity accounted associate (2019: US$2.3
million exceptional charges of US$2.3 million in respect of
organizational restructuring and legal and professional costs
associated with M&A activity).
The B2C business represented 96% of total Group revenue in 2020
(2019: 95%). B2C revenue increased by 53% to US$814.3 million
(2019: US$530.5 million). This revenue growth, in part, reflects an
increase in new customer acquisition that started at the end of
2019 and continued throughout 2020. The COVID-19 pandemic led to an
acceleration in the migration of consumer behaviour toward online
services, and our product leadership strategy, together with
marketing and organisational flexibility, saw 888 significantly
increase its customer base.
B2C - Product segmentation
888 continues to focus on developing its B2C business across
four key product verticals: Casino, Sport, Poker and Bingo and
expanding its brands across those global markets that have
regulated frameworks for online gambling. 888 aims to achieve this
by investing in developing safe, enjoyable product experiences,
leveraging its analytics-driven marketing expertise to attract
customers, and applying data-driven customer relationship
management ("CRM") to support player retention.
During 2020, 888 acquired approximately 1.5 million first-time
depositors ("FTDs") across its B2C brands globally, representing a
42% increase over 2019 and a new record for the Group. The positive
trend also included an increase of 32% in funded active players(5)
and a 66% increase year-on-year in deposits.
(5) Funded active players is defined as B2C players that wagered
a positive amount during the period and have placed at least one
deposit during their lifetime.
Casino
Casino continued to deliver strong growth across KPIs with a 63%
increase in revenue to US$586.8 million (2019: US$359.3 million).
Casino FTDs increased by 60%, Casino funded active players
increased by 42% and Casino deposits increased by 93%.
888's Casino product was well positioned to achieve strong
momentum in the first quarter of the year and capture the increase
in demand for digital entertainment following the outbreak of
COVID-19. This was as a result of the Group's investment in its
Casino product over recent years which resulted in an enhanced
suite of content, artificial intelligence ("AI") driven
personalised features, improved customer experience and enhanced
modelling to supervise players at risk of harm and interact with
them.
Sport
Sport revenue increased by 36% to US$122.1 million (2019:
US$90.0 million). This encouraging growth was achieved despite the
widespread cancellation of sporting events due to the COVID-19
pandemic in the first half of the year, during which Sport revenue
was flat compared with 2019. However, with the return of sporting
events in the second half of 2020, revenue increased by 72%
year-on-year. Sport revenue benefitted from a combination of
improved margins and a different mix of customer bets, as well as
refinement and optimisation to customer promotions and product
improvements.
During the year, 888's Sport business was gradually migrated to
our proprietary platform, known internally as Spectate, with the
majority of bet volumes worldwide being placed on this platform at
the time of the publication of this Annual Report. Sport FTDs
increased by 14% year-on-year and deposits increased by 40%.
In-play betting remained key drivers for 888sport with more than
half of bet volumes placed during events in 2020.
Poker
Poker experienced strong revenue growth of 48% to US$63.1
million (2019: $42.7 million). This reflects the success of the
Group's new poker product (Poker8), which was launched during the
year as well as online poker's increased appeal as an enjoyable and
sociable entertainment option during periods of restrictions on
social activities due to COVID-19.
Poker remained an important customer acquisition channel, with a
significant number of the Group's B2C FTDs acquired through the
Poker vertical also playing Casino and Sport.
Bingo
B2C Bingo revenue increased 10% to US$42.3 million (2019:
US$38.5 million). This performance benefited from the contribution
of the enlarged portfolio of B2C brands integrated in March 2019.
Deposits, funded active players, and acquisition of new customers
increased during the year, building a solid base for 2021.
While the Bingo business continues to deliver growth, the
increasingly strict regulatory atmosphere combined with limited
growth opportunity in its main market, the UK, led the Group to
increased its focus on other product and geographic opportunities.
This change in focus led the Group to reassess the carrying value
of the goodwill related to this business. This revaluation of the
business resulted in an impairment of US$79.9 million in the value
of the related goodwill and other intangible assets. The impairment
was recorded as an exceptional item in the income statement.
B2B REVIEW
Revenue from 888's B2B division increased by 19% to US$35.4
million (2019: US$29.8 million), with both Bingo and US operational
segments delivering growth.
The Group's predominantly UK-focused bingo network continued its
progress, in part due to the success of its new customer interface
inspired by 888's successful Orbit Casino platform. The new
interface has enhanced the customer experience, integrated
additional marketing functionality, and improved monitoring of
safer gambling across the network.
Revenue from 888's B2B business in the US performed well, driven
by increases across all states in which the Group's business
partners operate.
Revenue by geographic market
Regulated markets
Revenue from regulated markets continued to represent the
majority of Group revenue in 2020, with revenue from regulated and
taxed markets(6) increasing by 50% and accounting for 73% of
revenue (2019: 74%). 888's strategic focus remains on achieving
growth in sustainable regulated markets where the Group can
leverage its marketing expertise to achieve long-term, profitable
growth.
(6) Regulated and taxed markets refer to jurisdictions where the
Group operates under a local licence or where the Group is liable
for gaming duties or VAT, GST or similar taxes.
The below table shows the Group's revenue by geographical
market:
Change from % of reported
2020 2019 previous Revenue
US$ million US$ million year (2020)
------------------------- ------------- ------------- ------------ --------------
EMEA (excluding the UK,
Italy, and Spain) 253.4 180.1 41% 30%
UK 333.5 204.1 63% 39%
Italy 86.5 51.1 69% 10%
Spain 67.5 60.9 11% 8%
US and Americas 93.7 51.7 81% 11%
Rest of the World 15.1 12.4 22% 2%
Total revenue 849.7 560.3 52% 100%
------------------------- ------------- ------------- ------------ --------------
EMEA (excluding the UK, Italy, and Spain)
Revenue from EMEA excluding the UK, Italy and Spain increased by
41% to US$253.4 million (2019: US$180.1 million). Revenue increases
were seen in most markets, with regulated markets such as Romania,
Sweden, Ireland and Portugal seeing particularly strong growth
trends. Outside these markets, revenue increased by 29%
year-on-year primarily reflecting the Group's strong Casino
activity during the period.
Germany increased 2% year-on-year for the full year, but
following regulatory changes implemented in October 2020, revenues
were significantly lower year-on-year. The Group is convinced that
while it will face a short-term decline in revenue and profits, the
new situation in Germany poses an opportunity for 888 to benefit
from long-term growth in this newly regulated market. In the last
few years, the Group has decreased its exposure to the German
market, which amounts to under 4% of 2020 Group revenue. The impact
of the new regulation and associated tax regime is expected to be
approximately a US$15 million reduction to 2021 EBITDA.
UK
The Group delivered revenue growth in the UK of 63% to US$333.5
million (2019: US$204.1 million) reflecting 888's clear and
unwavering focus on entertaining recreational customers and
providing them value in a safe and secure environment. Increases
were driven by strong growth in FTDs of 60%, a doubling of deposit
levels and a 48% increase in funded active players.
During the year, the Group continued to implement enhancements
to its operating processes in the UK, including increasing customer
due diligence, tighter anti-money laundering processes, and
developing customer protection tools and protocols. These changes
are aimed at providing a safer gambling environment for players and
to ensure the Group is aligned with the market's regulatory
environment. 888 is committed to continue investing in and
enhancing its safer gambling processes and tools across all markets
and has enhanced its detection protocols and alerts since the
outbreak of COVID-19 to make sure players engage with its products
in a responsible manner, as well as developing the Control Centre,
giving players increased transparency about their activity as well
as quick and simple tools to limit their gameplay.
As part of the Group's commitment to ongoing progress in its
safer gambling policy, the thresholds for intervening with players
have been further tightened, which is expected to restrict 888's
ability to grow its revenues in this market during 2021. Further
details on the Group's safer gambling strategy and initiatives can
be found in the 2020 Annual Report.
Italy
Italy delivered continued strong revenue growth of 69% to
US$86.5 million (2019: US$51.1 million), for the first time
comprising more than 10% of the Group's total revenue. This strong
performance, including increases in FTDs of 43% and in deposits of
44%, reflects the strength of 888's established brands in the
Italian market. Casino revenue in Italy increased by 71%, Poker
revenue increased by 114% and Sport revenues increased by 38%
despite the impact of COVID-19 in the first half of the year.
Spain
In Spain, revenue increased by 11% to US$67.5 million (2019:
US$60.9 million), with FTDs increasing by 7%. This performance was
delivered against the backdrop of cancelled sporting events during
the first half of the year as well as new restrictions on marketing
and retention activities, all of which created a more challenging
operating environment. Casino revenue increased by 18% and Casino
FTDs increased by 28%. Poker revenues increased by 92%, with a
strong customer reaction to the launch of Poker8 during the second
half of the year.
US and Americas
Revenue from US and Americas increased by 81% to US$93.7 million
(2019: US$51.7 million). US revenue increased by 65% to US$20.8
million (2019: US$12.6 million). This was primarily due to New
Jersey B2C revenue which increased by 71%, with a 61% increase in
FTDs in the state, driven by the enhancements made to 888's product
in the US market over recent periods. Non-US revenue increased by
86% year-on-year primarily reflecting the Group's strong B2C Casino
activity during the period.
888 remains focused on investing further in the US market in
order to deliver significant medium-to-long-term growth
opportunities. In December, the Group announced three multi-year
market access agreements to launch in the US states of Colorado,
Indiana and Iowa, and it is currently assessing additional market
access deals and opportunities in the US, with the aim to be active
in additional states during 2021.
In January 2021, the Group announced a multi-year extension of
its exclusive B2B poker partnership with Caesars Interactive
Entertainment. The new agreement will see 888 continue to power the
World Series of Poker ("WSOP") brand's online poker rooms as the
Company plans its entry into new regulated markets including
Michigan and Pennsylvania.
In 2020, the Group signed a multi-year extension of the contract
with the Delaware Lottery, and during January 2021, the Group
introduced its Orbit platform for the three Delaware online Casino
brands.
Results overview
Gaming taxes and duties
Gaming duties levied in regulated and taxed markets
substantially increased by 59.0% to US$151.8 million (2019: US$95.5
million). This is a result of the Group's strong revenue growth in
regulated and taxed markets including the UK. The proportion of
Gaming taxes and duties to revenue increased to 17.9% (2019: 17.0%)
affected by the UK's Remote Gaming Duty rate increase from 15% to
21% in April 2019, the Portugal gaming tax rate increase from 15%
to 25% in April 2020, and a different mix of revenue across
regulated markets.
Other cost of sales
Cost of sales, which mainly comprise commissions and royalties
payable to third parties, chargebacks, payment service provider
("PSP") commissions and costs related to operational risk
management and customer due diligence services, increased by 53.4%
to US$135.1 million (2019: US$88.1 million). The proportion of cost
of sales to revenue increased to 15.9% (2019: 15.7%).
The strong growth in the Group's Casino and Sport offerings
resulted in higher commissions and royalty charges payable to third
party providers of games and data feeds, mainly in respect of the
Live Casino activity and the Sport third-party platform. It also
meant higher commissions payable to PSPs and costs related to
stricter regulatory requirements to enhance the scope of
customer-related screening.
Gross profit
Gross profit increased by 49.4% to US$562.8 million (2019:
US$376.7 million). Gross profit was mainly impacted by the strong
increase in activity. Gross margin decreased from 67.2% to 66.2%,
mostly as a result of the increased gaming taxes and costs related
to operational risk management.
Marketing expenses
One of the key drivers of 888's business is effective and
innovative marketing spend. Overall marketing expenses increased by
55.1% to US$237.1 million (2019: US$152.9 million). The marketing
ratio increased to 27.9% (2019: 27.3%) and this increase in
investment was a major driver behind the strong 42% increase in
FTDs in the Group's B2C business.
During the year, the Group also tripled its marketing investment
in the US, which resulted in both an increased number of FTDs and
increased awareness of the 888 brands in this critical market.
Increased marketing investment is in line with the Group's
strategy to build momentum in the business, albeit under restrained
marketing messaging, regulatory limitations in certain markets and
tighter responsible gaming measures.
Contribution
Contribution, which represents Gross profit less Marketing
expenses, increased by 45.5% to US$325.7 million (2019: US$223.9
million), while Contribution margin decreased to 38.3% (2019: 40%),
mainly due to the slightly lower gross margin and increased
marketing investment during the year to support future growth
plans.
O perating expenses
Operating expenses(1) (which mainly comprise employment costs,
legal costs, regulatory and tax advice, development costs, IT
services and infrastructure maintenance) amounted to US$170.1
million (2019: US$131.7 million). The increase during the year is
explained by the following factors: (i) the uplift in trading which
resulted in the need to adjust and retain personnel to handle and
support this business growth; (ii) increased cost of legal,
regulatory and tax advice are directly linked to the growing
complexity of the Group's regulatory footprint; (iii) more R&D
investment in the new proprietary Sport platform, as well as
investment across our regulated markets and the development of new
products, games and features that further enhance customer
experience. This year also saw a specific emphasis on increased
investment in safer gambling and customer protection.
(1) Excluding depreciation of US$14.8 million (2019: US$12.6
million), amortisation of US$18.8 million (2019: US$19.6 million)
and share benefit charges of US$11.0 million (2019: US$5.4
million).
Adjusted EBITDA
Adjusted EBITDA increased 69.0% to US$155.6 million (2019:
US$92.1 million), representing an Adjusted EBITDA margin of 18.3%
(2019: 16.4%). Adjusted EBITDA was primarily impacted by the strong
increase in Contribution, and partly offset by the increased level
of Operating expenses, as explained above.
Exceptional items
2020 2019
US $ million US $ million
Impairment charges (1) 79.9 -
Regulatory matters provision (2) (0.1) -
Gain from the sale of equity accounted
associate (3) (1.6) -
Exceptional legal and professional
costs (4) - 1.0
Restructuring costs (5) - 1.3
Exceptional items 78.2 2.3
---------------------------------------- ------------ ------------
(1) The Group carried out an impairment test for the Goodwill
and intangible assets of the Bingo business which resulted in
impairment charges of US$79.9 million. The projected cash flows
used to evaluate the recoverable amount of Bingo Goodwill have been
updated to reflect enhanced regulation in the UK market coupled
with Group's strategic decision to reduce focus on Bingo business
and increase focus on other product and geographic
opportunities.
(2) During 2020, while assessing the provision in respect of
past and current regulatory matters, management concluded that it
could be reduced. The net decrease in this provision was accounted
for as exceptional income, in line with the treatment when the
provision was created.
(3) Capital gain related to the sale of investment in Come2Play
Limited.
(4) Legal and professional costs associated with the
acquisitions of the Costa Bingo brands and the BetBright sport
platform in 2019.
(5) Restructuring costs related to employee redundancies as part
of the Group's headcount cost optimisation project during 2019.
Finance income and expenses
Finance income of US$0.1 million (2019: US$0.5 million) less
finance expenses of US$6.1 million (2019: US$7.2 million) resulted
in a net expense of US$6.0 million (2019: US$6.7 million). Finance
expense mainly comprised US$1.3 million non-cash interest expenses
resulting from the implementation of IFRS 16, US$3.3 million
non-cash charge relating to currency exchange differences and
US$1.4 million interest charge in respect of the revolving credit
facility ("RCF") which was fully repaid during 2020.
888 continually monitors foreign currency risk and takes steps,
where practical, to ensure that net exposure is kept to an
acceptable level.
Profit before tax
Profit before tax was US$26.7 million (2019: US$45.3 million),
reflecting the significant overall improvement in 888's financial
performance offset by the impact of one-off goodwill Impairment
charges.
Adjusted profit before tax was US$116.0 million (2019: US$53.2
million), mainly as a result of higher EBITDA as described
above.
Taxation
Taxation for the period increased to US$15.4 million (2019:
US$3.7 million), mainly as a result of the higher adjusted profit
generated in 2020.
In prior years, the Group took steps to mitigate Brexit-related
risks, including the redomiciliation of certain of its licensed
entities to Malta and establishment of a data centre in Ireland. As
a result, we have not seen any disruption to our ability to
continue to serve European markets.
Net Profit and adjusted net profit
Net profit was US$11.3 million (2019: US$41.6 million). Adjusted
net profit(1) increased by 103% to US$100.6 million (2019: US$49.5
million).
(1) As defined in Earnings per share note of the financial
statements.
Earnings per share
Basic earnings per share was 3.1c (2019: 11.3c). Adjusted basic
earnings per share increased to 27.3c (2019: 13.5c). The increase
is a result of higher Adjusted net profit in 2020 compared to the
previous year, as outlined above.
Further information on the reconciliation of Adjusted basic
earnings per share is given in Earnings per share note to 2020
financial statements.
Dividend
The Board of Directors is recommending a final dividend of 10.4c
per share in accordance with 888's dividend policy, plus an
additional one-off 1.6c per share to acknowledge the
record-breaking performance of the Group in 2020, bringing the
total for the year to 18.0c per share (2019: 6.0c per share).
Cash flow
Net cash generated from operating activities increased to
US$179.2 million (2019: US$80.5 million), primarily related to
US$66.0 million higher Adjusted Profit before tax. Changes in
working capital contributed US$33.5 million (2019: US$1.7 million)
mainly comprising an US$18.0 million increase in customer deposits
and a US$44.1 million increase in trade and other payables, offset
by a US$34.5 million increase in trade receivables.
Net cash used in investing activities was US$30.9 million,
mainly comprising acquisition of property, plant and equipment of
US$10.6 million and internally generated intangible assets of
US$17.9 million (2019: US$82.9 million, including the acquisition
of the BetBright sport platform, Costa Bingo brands and 53% of AAPN
Holdings LLC, or US$22.3 million excluding acquisitions).
Net cash used in financing activities was US$58.9 million (2019:
US$31.7 million), comprising US$18.0 million repayment of the RCF
(2019: proceeds from RCF of US$17.5 million) and dividend payments
of US$33.2 million (2019: US$40.4 million). As at 31 December 2020,
the RCF remained entirely undrawn.
Balance sheet
Total assets as at 31 December 2020 amounted to US$486.7 million
(2019: US$433.1 million).
Current assets as at 31 December 2020 amounted to US$274.6
million (2019: US$142.1 million) and current liabilities were
US$298.9 million (2019: US$229.6 million).
888's net cash position as at 31 December 2020 was US$190.0
million (2019: US$96.9 million). Cash and cash equivalents
increased by US$93.1 million, primarily a result of the strong cash
flow generated from operating activities.
The balance of cash owed to customers as at 31 December 2020 was
US$74.0 million (2019: US$54.7 million).
Going concern
Following consideration of the updated base case forecasts and
the updated downside scenarios, the Directors have a reasonable
expectation that the Company has adequate resources to continue in
operational existence for the foreseeable future. Therefore, the
Directors continue to adopt the going concern basis of accounting
in preparing the consolidated financial statements. Further details
are provided on note 2 to this financial statement.
Yariv Dafna
Chief Financial Officer
Risk management strategy
The Board acknowledges that there is no return without risk.
However, key risks must be identified, evaluated and where possible
quantified in order for the Board to rationally determine how to
manage risk to generate optimal return.
The Board acts in accordance with a Risk Management Policy,
which aims to explicitly identify and evaluate key risks underlying
the Group's core business strategy and standardise the approach to
risk prioritisation and management across 888's operations. This in
turn means that effective controls can be put in place to ensure
888 is able to manage its operations effectively now and into the
future. 888's risk register is updated periodically and regular
discussions are held at Board and management level of the role of
risk in 888's business.
888's culture emphasises the need for employees to take
responsibility for managing the risks in their own areas and to
transparently and timely report "bad news" and "near miss"
incidents, with a willingness to constantly learn and improve.
Where failures are identified, 888's management is committed to
appropriately investigating what happened and why, in order to
learn from mistakes. The Board has also adopted a Reporting and
Escalation Procedure to ensure timely reporting of internal
reportable events including bugs, technical failures, information
security malfunctions and marketing and other operational incidents
which may affect customers.
The Board considers that 888 complies with the requirements of
the Financial Reporting Council's Guidance on Risk Management,
Internal Control and Related Financial and Business Reporting dated
September 2014, and specifically confirms that:
- it is responsible for 888's risk management systems and for reviewing their effectiveness;
- there is an on-going process for identifying, evaluating and
managing the principal risks faced by 888;
- the systems have been in place during 2020 and up to the date
of approval of the annual report and accounts; and
- they are regularly reviewed by the Board (please see the 2020
Annual Report for further details of the review conducted in
2020).
As part of its regular risk assessment procedures, the Board
takes account of the significance of environmental, social and
governance matters to the business of the Company, and has
identified and assessed the significant risks of that nature to the
Company's short and long-term value, as well as the opportunities
to enhance value that may arise from an appropriate response. The
Board confirms it has received adequate information to make this
assessment and that these matters are considered in the training of
directors. The Board has specifically verified environmental,
social and governance disclosures - part of which, where mentioned
herein, are verified by external advisory firms and internal audits
- with Group senior management in order to ensure their
accuracy.
Risk appetite
Addressing risk is a high priority for the Board and effective
risk management is an integral part of the way we conduct our
business on a daily basis. The Board factors into the risk
assessment impact, likelihood and appetite considerations. Risk is
managed across the Group in the context of overall risk appetite
and during 2020 the Board considered risk appetite to ensure
adequate resources are allocated to identified risks. The Board
reviewed and approved the following risk appetite statement:
Category Tolerance Risk Parameters
of Risk
Strategic Medium During development and implementation
of new propositions and assessing
new opportunities including potential
transactions, we are prepared to
accept medium risks that support
our pursuit of growth.
-------------- ---------------------------------------
Operational Low to medium We will take a cautious approach
to risk within our operations,
but consider that certain risks
will be taken in order to achieve
our strategic objectives and maintain
our competitive position.
-------------- ---------------------------------------
Financial Low We consider that robust financial
controls are necessary to manage
our business effectively. All of
our operating processes are based
around policies and procedures
that minimise the risk of a loss
of financial control.
-------------- ---------------------------------------
Compliance Extremely low We have an extremely low to zero
to zero tolerance when complying with laws
and regulations that relate to
bribery, corruption and anti-money
laundering. We have controls in
place that are designed to mitigate
these risks, and detailed and tested
procedures in place for dealing
with these types of scenarios when
they arise. We are particularly
sensitive to compliance risks in
our key regulated markets including
the UK.
-------------- ---------------------------------------
888 faces the following significant risks:
Regulatory risk è increased during 2020
The risk: The regulatory framework of online gaming is dynamic
and complex. Change in the regulatory regime in a specific
jurisdiction can, depending on the nature of the change and its
impact on the group's offering and modalities, have a material
adverse effect on business volume and financial performance in that
jurisdiction. In addition, a number of jurisdictions have regulated
online gaming, and in several of those jurisdictions 888 either
holds a licence or applied to obtain one. However, in some cases,
lack of clarity in the regulations, or conflicting legislative and
regulatory developments, mean that 888 may risk failing to obtain
an appropriate licence, having existing licences adversely
affected, or being subject to other regulatory sanctions, including
internet service provider blocking, payments blocking,
black-listing and fines. Furthermore, legal and other action may be
taken by incumbent gaming providers in jurisdictions which are
seeking to regulate online gaming, in an attempt to frustrate the
grant of online gaming licences to 888. Newly enacted or modified
licensing regimes may impose operational conditions on the group
that are onerous or commercially unviable. Finally, changes to
either the regulatory framework or enforcement policy relating to
online gaming in certain markets may effectively force the Group
out of certain markets where it currently operates or compel it to
change its business practices or technology in a way that would
materially impact results.
Relevance to strategy: Compliance with regulatory requirements
and the maintenance of regulatory relationships in multiple
jurisdictions is key to maintaining 888's online gaming licences
which are critical to the operation and growth of its online gaming
business. With the majority of revenue generated from jurisdictions
where the group is locally licensed, the importance of such
licenses and their centrality to the business constantly increase.
A growing number of jurisdictions worldwide now either locally
license or otherwise regulate online gambling, and therefore 888
may be exposed to an increasing number of licensing requirements or
conversely to attempts to block access to 888's offering to players
in certain jurisdictions or to penalize 888 for its offering. A
robust understanding of the legal and regulatory position in key
locations worldwide is crucial to mitigating this risk.
How the risk is managed: 888 manages its regulatory risk by
routinely consulting with legal advisers in various jurisdictions
where its services are marketed or which generate significant
revenue for the Group. Furthermore, 888 obtains frequent and
routine updates regarding changes in the law in jurisdictions of
interest that may be applicable to its operations, working with
local counsel to assess the impact of any changes on its
operations. 888 constantly adapts and moderates its services to
comply with legal and regulatory requirements. 888 has continued to
review possible organizational changes in order to strengthen
regulatory compliance oversight, as well as to improve co-operation
between the different departments and streamline processes of
settling any conflicts between them, ensuring that 888's regulatory
requirements and duty to uphold the licensing objectives always
take priority over commercial interests. Finally, 888 blocks
players from certain "blocked jurisdictions" using multiple
technological methods as appropriate, and in addition is able to
moderate budgeted spend and focus in markets where uncertainty is
high, along with adjusting its marketing strategy to online
channels thus allowing faster cost adjustment when needed. 888 also
believes its investment in product developments, such as better
communication tools, improved player experience and games
adjustments, serves to mitigate this risk.
What happened in 2020: In part as a response to the COVID-19
pandemic, various jurisdictions adopted a more stringent approach
to player protection, primarily to avoid emergence of problem
gambling patterns amongst those sheltering at home, and to curtail
excessive spending on gambling during a period of economic
downturn. In various jurisdictions, this took the form of
advertising restrictions, or the imposition of stricter player
protection and responsible gambling measures, either temporarily or
on a permanent basis.
The UK Gambling Commission ("UKGC") continued to take a strict
approach towards compliance, tightening requirements, adopting more
stringent policies and regulations, increasing the level of
oversight over licensees and penalizing operators for failing to
meet regulatory requirements and standards. The primary areas of
focus for the UKGC were responsible gambling and prevention of
underage gambling, consumer protection, and anti-money laundering.
The UKGC adopted additional restrictions, e.g. a ban commencing in
April 2020 on credit card transactions for gambling and stricter
age verification obligations. In November 2020, the UKGC opened a
consultation on remote customer interaction, which covered the
issues of potential customer affordability checks, vulnerable
person identification mechanisms and increased time management
control for customers. In December 2020, the UK Government launched
a review of the Gambling Act 2005, with the aim to ensure it is
"fit for the digital age". The review is to cover the regulator's
powers as well as regulation of marketing and restrictions to
online offerings. The Group continued to work closely with the UKGC
on compliance matters, and also to update its policies and
procedures and to strengthen internal reporting lines to ensure
compliance within the business, investing significant resources in
regulatory compliance measures. In 2020, the UKGC commenced a
compliance assessment of the Group, which looked in detail at a
number of specific cases. The Group is engaged in dialogue and is
working cooperatively with the UKGC to address all concerns raised
with regard to the Group's operations under its UK license.
In Germany, the regulatory landscape is undergoing the most
drastic change in a decade with the introduction of federal sports
betting licenses (for which 888 has applied) and the adoption of a
temporary toleration regime for online casino gambling (with which
888 is compliant). Compliance with the conditions of the new
licensing and toleration regimes required various modifications and
alignments of the group's German offering, which will impact the
profitability of its operations in that jurisdiction. 888 has been
successful in having certain prohibition orders previously issued
against it withdrawn, and having certain others suspended, as it
continues to litigate against outstanding prohibition orders in
various German states. The emergence of a licensing regime for
sports betting and online casino may, in the foreseeable future,
render these prohibition orders obsolete. In early 2020, it was
announced that the German states had reached a consensus that would
result in regulatory reform in mid-2021, under which operators
would be able to apply for a license to offer online slots and
poker, subject to certain restrictions (e.g. deposit limits,
maximum wagers, advertising restrictions, etc.). Some details of
this regime have not yet been developed, but this development could
significantly impact the Group's casino offering in the German
market.
In the Netherlands, where a law was approved in February 2019 to
liberalize the market, the local regulator continues to take a
proactive and strict approach towards enforcement of existing laws
against operators whose operations are conducted in violation of
the "prioritization criteria" for enforcement issued by the
authorities, and which were updated with additional criteria during
2019. Several operators received significant fines due to the
conduct of operations in a manner violating these criteria.
Operators fined or overtly targeting the market may also be barred
from participating in the liberalized market or have their
eligibility for licensing delayed. The Group has been studying
these developments closely to ensure its offering is in line with
the criteria as updated.
In Sweden, the Group has been operating under a local license
since 2019. The Swedish regulator initially showed itself to be
strict and proactive in enforcing regulatory standards, and on
occasion informed the industry of its position on compliance by
penalizing operators it perceived as non-compliant. 888 continues
to take measures to ensure that its operations are in line with
local requirements.
2020 also saw a rising trend of civil litigation claims in
Austria against foreign-licensed operators, claiming refunds due to
lack of local licensing. This trend is backed by case law amongst
the higher Austrian courts. In addition, claim-financing bodies
started gathering claims against operators. The Group is dealing
with these civil claims with help from its local advisors. A
similar uptick in civil claims also recently started in Germany,
but to a lesser extent.
In January 2021, the federal Court of Appeals for the First
Circuit denied an appeal by the US Department of Justice seeking to
uphold a 2019 memo on the scope of the federal Wire Act. By denying
the appeal, the Court confirmed the previous opinion from 2011,
which concluded that the Act applies only to sports betting. The
case may eventually reach the US Supreme Court, however this may
depend on the position of the new Biden administration on the
issue. If left unchallenged, this development would help serve 888
and the online industry in providing a more legally sound basis for
internet gaming activity in the US. More generally, the US
continued to move towards increased regulation of various forms of
online gambling. The group was licensed in the Pennsylvania in
September 2020, and continues to seek licensure in other US
jurisdictions.
Information Technology and Cyber risks è increased during
2020
The risk: IT systems may be impacted by unauthorised access,
cyber-attacks, DDoS (Distributed Denial of Service) attacks, theft
or misuse of data by internal or external parties, or disrupted by
increases in usage, human error, natural hazards or disasters or
other events. Cyber-attack and data theft incidents may expose 888
to "ransom" demands and costs of repairing physical and
reputational damage. Failure of IT systems, infrastructure or
telecommunications / third party infrastructure may cause
significant cost and disruption to the business and harm revenues.
Lengthy down-time of the site (including in transitioning to
activated disaster recovery servers) could also cause 888 to breach
regulatory obligations.
Relevance to strategy: As an online B2C and B2B business, the
integrity of 888's IT infrastructure is crucial to the supply of
its offerings and compliance with its regulatory obligations and to
the maintenance of customer loyalty.
How the risk is managed: Cutting-edge technologies and
procedures are implemented throughout 888's technology operations
and designed to protect its networks from malicious attacks and
other such risks. These measures include traffic filtering,
anti-DDoS devices and obtaining anti-virus protection from leading
vendors. Physical and logical network segmentation is also used to
isolate and protect 888's networks and restrict malicious
activities. The IT environment is audited by independent auditors,
such as PCI DSS security audit and eCOGRA audit. These audits form
part of 888's approach to ensuring proper IT procedures and a high
level of security. In order to ensure systems are protected
properly and effectively, external security scans and assessments
are carried out on a regular basis. 888 has a disaster recovery
site to ensure full recovery in the event of disaster. All critical
data is replicated to the disaster recovery site and stored on a
Glacier AWS service. In the event of loss of functionality of 888's
critical services, the business can be fully recovered through the
resources available at the disaster recovery site. In order to
minimise dependence on telecommunication service providers, 888
invests in network infrastructure redundancies whilst regularly
reviewing its service providers. As a part of its monitoring
system, 888 deploys set user experience tests which measure
performance from different locations around the world.
Network-related performance issues are addressed by rerouting
traffic using different routes or providers. 888 operates a 24/7
Network Operations Centre ("NOC"). The NOC's role is to conduct
real time monitoring of production activities using
state-of-the-art systems. These systems are designed to identify
and provide alerts regarding problems related to systems, key
business indicators and issues surrounding customer usability
experience. The IT environment tracks changes, incidents and
service level agreement key performance indicators in order to
ensure that client experience is consistent and well managed. As
part of these procedures, capacity planning takes place and
infrastructure is built accordingly. System-wide availability and
business-level availability is measured and logged in the IT
information systems.
What happened in 2020: COVID-19 was a catalyst for upgrading the
Group's work from home capabilities across all sites, with security
and audit measures adjusted accordingly. The Group also started the
process of migrating its front tier websites to a cloud based
solution, together with implementation of leading cloud protection
and audit tools; this process will be completed in 2021. The Group
further improved its DDoS architecture, including mitigation of
device upgrades and moving to an always-on architecture. Automation
of security processes has also been further progressed, together
with implementation of Advanced Persistent Threat (APT)
protections, and additional "write once read many" (WORM) backup of
the Group's data centre to mitigate ransomware risk.
Data Protection risk è remained stable during 2020
The risk: 888 processes a large quantity of personal customer
data, including sensitive data such as name, address, age, bank
details and gaming / betting history. Such data could be wrongfully
accessed or used by employees, customers, suppliers or third
parties, or lost, disclosed or improperly processed in breach of
data protection regulations. In particular, the European General
Data Protection Regulation ("GDPR") entered into force in May 2018,
having a significant effect on the Company's privacy and data
protection practices, as it introduced various changes to how
personal information should be collected, maintained, processed and
secured. Non-compliance with the GDPR may result in fines of the
higher of EUR20 million or 4% of the Company's annual global
turnover, and the Company will be particularly exposed to
enforcement action in light of the amount of customer data it holds
and processes. In addition, various countries in the EU have
introduced domestic data protection laws incorporating the GDPR
requirements. Moreover, 888 makes use of various tracking
technologies (such as cookies, SDKs, JavaScript and other forms of
local storage), which are subject to stricter standards of consent
and transparency, both under the GDPR and the e-Privacy Directive.
The Company could also be subject to private litigation and loss of
customer goodwill and confidence.
Relevance to strategy: The holding and processing of personal
and sensitive data in a lawful and robust manner is central to
888's analytics-based business strategy. As an online B2C and B2B
business, the integrity of 888's data protection framework is
crucial to the supply of its offerings, compliance with its
regulatory obligations and maintenance of the impressive customer
loyalty with which 888 is entrusted.
How the risk is managed: 888 has undergone a robust and
risk-oriented GDPR-preparation project, pursuant to a designated
GDPR Gap Analysis that was prepared for that purpose in
coordination with its legal advisers. 888 has further mapped the
personal data life-cycle within the organization, including how
personal data of its customers and EU employees is collected,
stored, secured and shared with third parties. 888 has further
appointed a designated internal Data Protection Officer ("DPO") and
put in place policies and procedures on relevant matters including
exercising user rights and data retention, data sharing with third
parties, security policies, as well as reviewing necessary product
and IT implementation. Such policies and procedures are reviewed
and updated on an ongoing basis to align with the most up to date
regulatory guidelines. 888 has further put in place adequate
contractual measures with respect to sharing data with third
parties, reviewing its privacy notices and other customer
notifications and reviewing the current data security framework on
an ongoing basis.
What happened in 2020: 888 reviewed and updated its internal
data protection policies and procedures, as well as notices
provided to the users (such as privacy notices, cookie notices and
consent forms), so as to ensure alignment with regulatory
developments and guidelines; reviewed a dedicated notice and choice
mechanism (to be implemented on 888's online properties) so as to
meet the regulatory requirements relating to the use of tracking
technologies; ensured that data subjects requests to exercise
rights are handled in an appropriate manner, in accordance with the
internal procedures and within the regulatory timeframe; the DPO of
888 acted to ensure a privacy-aware culture within 888 by way of
conducting training and privacy awareness exercises to relevant
employees and departments (e.g. customer support and marketing
teams); the DPO of 888 produced an annual report with the
objectives of providing an overview of the key events, regulatory
investigations and inquiries, and data subjects' complaints since
the GDPR entered into force, enabling 888's senior management to
ascertain the data protection risks and challenges in the
environment in which the Company operates and the regulatory
exposure, support 888's senior management with the effort to take
appropriate risk mitigation steps and allocate appropriate
resources for handling data protection issues, and increase the
awareness to data protection obligations and the 888's
responsibilities; reviewed and responded to data subjects'
complaints and regulatory inquiries relating to compliance with
applicable data protection requirements; and monitored for and
investigated data breach attempts/incidents and took the
appropriate steps to enhance its cybersecurity posture and mitigate
the residual risks.
Taxation risk è increased during 20 20
The risk: Heightened attention continues to be given to matters
of cross-border taxation in line with the G20/OECD Base Erosion and
Profit Shifting recommendations. During 2020, the OECD/G20
Inclusive Framework on BEPS carried out public consultations
regarding Reports on the Pillar One and Pillar Two Blueprints in
response to the Tax Challenges arising from Digitalisation. Pillar
One addresses the allocation of taxing rights between jurisdictions
and considers various proposals for new profit allocation and nexus
rules, in particular to market jurisdictions; and Pillar Two (also
referred to as the "GloBE" proposal) focuses on the remaining BEPS
issues and aspires to a minimum effective rate of taxation for
multinational enterprises, by way of a set of rules that provide
jurisdictions with a right to "tax back" where other jurisdictions
have not exercised their primary taxing rights or the payment is
otherwise subject to low levels of effective taxation. The Pillar
One and Pillar Two rules, once implemented, are expected to apply
to 888, along with detailed transfer pricing reporting and exchange
of tax information rules known as "Country by Country Reporting",
insofar as 888's annual revenues exceed EUR 750 million. Some
countries, such as the UK, Italy and Spain, have implemented
unilateral digital service taxes. The UK also implemented the
Offshore Receipts in respect of Intangible Property rules imposing
UK tax on the receipt of royalties by offshore companies deriving
from business activity in the UK. Gibraltar and Malta transposed
the EU Anti Tax Avoidance Directive into domestic law, including
changes with respect to exit tax, General Anti-Abuse Rules and
Controlled Foreign Corporation rules. Due to pressure from the
European Union, many offshore jurisdictions have introduced
"substance" requirements including with regard to IP companies. The
likelihood of scrutiny of tax practices by tax authorities in
relevant jurisdictions and the aggressiveness of tax authorities
remains high. A finding of taxable presence of the Group in one or
more jurisdictions (including pursuant to revised interpretations
of the permanent establishment concept as mentioned above), a
transfer pricing adjustment with respect to attribution of profit
to such jurisdiction(s), or imposition of another form of tax as
mentioned above, may have a substantial impact on the amount of tax
and VAT paid by 888 or require significant payments by 888 in
respect of historical tax liabilities. 888's effective tax burden
also increases due to the imposition or increase of gaming duty in
markets in which the Group has customers. The Company believes,
based amongst other matters on its Assessment Agreement with the
Israeli Tax Authority for years 2013-2015, that the remuneration
attributed for tax purposes to its Israeli subsidiary complies with
the arm's length standard, and therefore continues to rely on the
transfer pricing agreement with regard to tax years following 2015,
however, in light of the developments in taxation rules
internationally, including in the field of transfer pricing
pursuant to which new methodologies are gaining prominence, in the
context of the tax audit detailed below, the Israeli Tax Authority
may seek to increase the level of remuneration attributed to the
Israeli subsidiary for tax purposes commencing from the 2016 tax
year, which could have material financial consequences to the
Company.
Relevance to strategy: In addition to the financial consequences
of a challenge to 888's tax structure, tax compliance - and being
seen to be paying the "right amount" of tax - has become a serious
reputational issue as well as being a regulatory compliance issue.
As such, it is crucial that 888 has a solid basis for its tax
positions taken in relevant jurisdictions.
How the risk is managed: 888 aims to ensure that each legal
entity within its Group is a tax resident of the jurisdiction in
which it is incorporated and has no taxable presence in any other
jurisdiction. In addition, 888 consults with tax advisers not only
in jurisdictions in which its Group companies are incorporated and
in which it has personnel, but also in major markets in which it
has customers, in order to comply with its legal obligations whilst
taking such action as is necessary to prevent the improper
imposition of unlawful or double taxation.
What happened in 2020: 888 continues to engage with tax
authorities and obtain legal advice in order to regularise its tax
position and mitigate exposures. In Israel, the local subsidiary is
undergoing a tax audit with respect to years 2016-2018, which
primarily focuses on transfer pricing matters. No assessment has
yet been issued, and the Company expects these tax assessments to
be concluded during 2021.
Retention of Key Personnel and Succession risk à decreased
during 2020
The risk: The success of the Company is in part dependent on its
ability to retain its key personnel, including at Board and senior
management level and throughout the business, and to successfully
manage succession planning in the case of key personnel leaving the
Company.
Relevance to strategy: Human capital is important to online
gaming businesses, and online businesses generally, and competition
for highly-qualified personnel is intense in locations in which the
Group is based. Ensuring orderly succession planning is important
to delivering on the Company's strategy and avoiding undue
disruption to the business.
How the risk is managed: Executive directors and senior
management are compensated competitively, including an equity
component and bonus partially deferred into shares. The Board has
an active Nominations Committee, which is responsible for
succession planning at the Board and senior management levels, and
is supported as necessary by external executive recruitment
agencies.
What happened in 2020: During 2020, Yariv Dafna successfully
transitioned into his new role as CFO, replacing Aviad Kobrine, who
stepped down on 1 November 2020 after a seamless transition of
responsibilities. Lord Jon Mendelsohn joined the Board as a
Non-executive Director, designated chairman and member of the Audit
and Remuneration Committees, and will replace Brian Mattingley as
Chairman of the Board on 31 March 2021.
Business Disruption due to Pandemics such as COVID-19 è remained
stable during 2020
The risk: As a multinational company based in a number of
locations worldwide, the Company is dependent on the ability of its
personnel to maintain their physical health and wellbeing,
successfully carry out their roles from the Group's offices or
remote locations, and at times to travel between sites. Business
disruptions may occur when personnel are unable to work or
communicate with one another, including due to pandemics such as
COVID-19. Such outbreaks and the response thereto also affect the
global economy, which can impact consumer confidence and spending
more generally. In particular, cancellation of sporting events
adversely affected our Sport business in the first half of 2020.
There is currently evidence of an increase in customer activity in
the Group's products, reflecting a general move in the broader
economy from retail to online services. However, in the event of a
prolonged global macro-economic downturn, consumer spending across
the Group's online gaming product verticals may also become
impacted.
Relevance to strategy: Online gaming businesses are dependent on
their highly qualified personnel in order to operate effectively.
Ensuring that personnel can work and communicate is key to
delivering on the Company's strategy and avoiding undue disruption
to the business. Our Sport business is also dependent on sporting
events continuing to be held on which customers are interested in
betting.
How the risk is managed: The Company monitors developments which
may affect its sites and customers, and where necessary and
practicable takes steps to mitigate disruption to the business.
What happened in 2020: In light of the COVID-19 outbreak and
limitations imposed in various Group locations, including with
respect to self-isolation as well as restrictions on travel and
conferences, the Company has taken a number of mitigation steps
including enabling remote working and rebalancing of
responsibilities between sites. These actions enabled the Group to
deliver its product development plan and to launch new products
despite the restrictions.
Reputational risk è remained stable during 2020
The risk: The reputation of 888 is affected by the profile of
both other online gaming and betting operators, as well as the
gaming and betting industry as a whole. Various regulators, most
notably the UKGC and the Swedish regulator, have adopted stricter
compliance and enforcement policies, conducting more in-depth
reviews of operational practices and sanctioning operators found to
be non-compliant. There appears to be growing sentiment in various
jurisdictions that existing regulations do not sufficiently protect
minors and vulnerable players or do enough to prevent the use of
illicitly obtained funds for gambling purposes. More specifically -
due to the COVID-19 pandemic, which resulted in a growth in
gambling spending and a potential increase in problem gambling
prevalence, the industry as a whole has been the subject of
increased criticism and the calls for stricter regulation,
specifically around responsible gambling and advertising, have
intensified. This could result in reputational damage to the Group,
as well as in the adoption of stricter regulations and enhanced
enforcement measures.
Relevance to strategy: Underage and gambling-related harm, as
well as the use of illicit funds for gambling, are risks associated
with any gaming business, and ensuring compliance with regulatory
requirements for the protection of vulnerable people and the
prevention of money laundering is critical to maintaining 888's
online gaming licences. 888 also recognises that, in light of the
COVID-19 outbreak, people are spending more time at home with
potentially increased stress from economic uncertainty, meaning
that 888's vigilance on safe gambling and preventing
gambling-related harm is even more important than ever.
How the risk is managed: Staff are trained to provide a safer
gaming experience to customers and to recognise and take
appropriate actions if they identify compulsive or underage
activity. 888 also complies with eCOGRA guidelines to protect
customers. Web links to professional help agencies are provided on
888's real money gaming sites, and 888 has a dedicated website
which provides information regarding responsible gaming. Players
can also limit their play pattern or request to be self-excluded.
888 furthermore - directly or via industry bodies - seeks to ensure
that legislators and regulators are provided with accurate and
useful information regarding protections against problem and
underage gaming. Special customer protections were added during the
COVID-19 pandemic, in order to mitigate the increased risks arising
from customers remaining at home for long periods under conditions
of stress. These included compliance with regulations and guidance
issued by various regulators, including the UKGC as well as the
Spanish and Swedish regulators, as well as adopting social
responsibility guidelines and increasing proactive responsible
gaming communications and measures for our customers.
What happened in 2020: There have been growing calls for the
adoption of stricter responsible gambling and player protection
measures, as well as stricter advertising restrictions, in response
to the COVID-19 pandemic. There has also been some public and press
criticism against the industry due to some operators perceived to
be taking advantage of the pandemic to drive business. 888
continued to devote significant resources to putting in place
prevention measures coupled with strict internal procedures to
protect customers, and monitor and update procedures to ensure that
minors are unable to access their gaming sites. 888 continues to
improve on efforts to detect and prevent instances of problem
gambling, and continues to review and update its anti-money
laundering and safer gambling policies to better detect players
suspected of using illicit funds for gambling, and to better
identify players showing indicators of harm or patterns of problem
gambling. 888 has continued its review of all its websites and
those of its B2B partners with a view to ensuring that content is
responsible and compliant with the applicable advertising
standards. 888 has also continued enhancing its integration with
the National Online Self-Exclusion Scheme (also known as "GAMSTOP")
to enable its customers to self-exclude on national level from all
UK online gambling operators. The launch of our Control Centre, a
single safer gaming dashboard allowing customers to monitor their
gaming activity, was also a major achievement during 2020.
Partnership risk è remained stable during 2020
The risk: B2B partnerships expose 888 to business risks as well
as compliance and reputational risks, with increased pressure on
888 as the licence holder, particularly from the UKGC, to monitor
activities of its B2B partners. 888 furthermore uses services
provided by third parties, including in its Sport vertical during
the transition to 888's new proprietary platform, game providers
including live casino, payment service providers, KYC and age
verification providers, which if disrupted due to general economic
conditions or otherwise, may impact 888's operations.
Relevance to strategy: B2B remains a material part of 888's
business, particularly for Bingo in the UK; in addition, its US B2B
contracts have strategic importance for the longer term. Third
party providers are an important part of maintaining 888's
attractive product offering.
How the risk is managed: 888 has reduced its dependency on B2B
relationships, following the acquisition of Costa Bingo and other
formerly B2B bingo brands. Remaining B2B contracts are maintained
commercially in terms of the functionality and technology of the
B2B platform offered, competitive pricing, maintaining an ongoing
relationship with B2B partners, and ensuring that 888 has a good
understanding of the needs of its B2B partners and their
owners.
What happened in 2020: In 2019, 888 acquired Costa Bingo and
other formerly B2B bingo brands from its former B2B partner Jet
Management. In 2020, 888's US B2B partner Caesars announced that it
will acquire William Hill plc, a move that could impact on the
relationship with 888. As recently announced, the agreement with
Caesars was extended until 2026, removing the risk for the short
and mid-term. Certain of 888's service providers have been impacted
by the COVID-19 outbreak and its economic consequences, and 888 is
in the process of identifying these risks and mitigating where
possible.
Acquisition risks è decreased during 2020
The risk: 888 has made a number of acquisitions in the online
gaming and betting space. Acquisitions of gaming companies carry
business risks, such as overpaying for what are mainly intangible
assets, as well as legal and regulatory risks, including the
receipt of necessary regulatory approvals to the transaction and
exposure to legacy non-compliance of the seller. Furthermore,
integration of acquired entities gives rise to a financial burden
and the requirement of management attention and operational
resources.
Relevance to strategy: Ongoing consolidation of the online
gaming market has increased the importance of 888 being ready to
acquire smaller operators.
How the risk is managed: 888's legal, financial and tax advisers
ensure that a comprehensive due diligence is carried out on
potential acquisition targets. Generally, 888 prefers to acquire
assets rather than shares of companies, in order to mitigate
exposure to any past non-compliance issues on the part of the
seller. 888 seeks to take into account the resources required to
integrate acquired entities in its annual budgeting and
planning.
What happened in 2020: In 2019, 888 acquired Costa Bingo and
other formerly B2B Bingo brands from its former partner Jet
Management, as well as acquiring the BetBright Sports betting
technology. Both transactions were structured as asset
acquisitions, and during 2020 888 completed integration of these
businesses into the Group.
Liquidity risk è decreased during 2020
The RCF taken by 888 from Barclays Bank plc was repaid in full
during 2020, and 888 has no third party debt. In addition, the
Company's net cash position improved and business liquidity
increased during 2020.
Regulation and general regulatory developments
The most dominant factor influencing the regulation of online
gambling in 2020 was, unsurprisingly, the COVID-19 pandemic. With
billions of people worldwide sheltering at home for prolonged
periods of time, and with the widespread eradication of in-person
gambling and other forms of entertainment, the appeal and
popularity of online gambling increased significantly. This
development presented commercial opportunities for operators but
also posed an increased risk to those potentially prone to problem
gambling resulting in a call for enhanced restrictions designed to
protect those more vulnerable. With many jurisdictions suffering
from economic downturn, attempts intensified to prevent excess
spending on gambling. These developments dovetailed into already
growing concerns related to responsible gambling and an increased
focus on marketing and advertising practices.
During 2020, various jurisdictions adopted a more stringent
approach to player protection, primarily to avoid emergence of
problem gambling patterns amongst those sheltering at home, and to
curtail excessive spending on gambling during a period of economic
downturn. In various jurisdictions, this took the form of
advertising restrictions, or the imposition of stricter player
protection and responsible gambling measures, either temporarily or
on a permanent basis. The UKGC imposed various temporary
responsible gambling measures in response to the COVID-19 pandemic,
to curb the potential for increased spending and gambling addiction
during lockdowns or by those sheltering at home. The Spanish
Government imposed a prohibition on the offering of incentives or
email and social media advertising during the COVID-19 lockdown. In
Sweden, operators were subject to temporary deposit limits for
betting and online casino gambling, as well as an additional
restriction on the maximum amount of bonuses.
The UKGC continued to take a strict approach towards compliance,
pursuing intensive oversight over licensees and penalizing
operators for failing to meet regulatory requirements and
standards. The primary areas of focus for the UKGC continue to be
responsible gambling and prevention of underage gambling, consumer
protection, anti-money laundering, the use of proceeds of crime for
gambling and the provision of full disclosure to the UKGC regarding
ownership interests and holding structures. The UKGC adopted
additional restrictions, e.g. a ban commencing in April 2020 on
credit card transactions for gambling, stricter age verification
obligations, restrictions related to the treatment of VIP players
and the offering of inducements to high-rollers. The Commission
also proposed additional restrictions on online slots, as well as
standards applicable to player withdrawal requests. The Group
continued to work closely with the UKGC on compliance matters, to
update its policies and procedures and to strengthen internal
reporting lines to ensure compliance within the business, investing
significant resources in regulatory compliance measures. There
continued to be calls, particularly within Parliament, for the
imposition of stricter limitations on the advertising of gambling
services, as well as ongoing criticism of the Gambling Commission's
treatment of the industry. The Gambling Related Harm All Party
Parliamentary Group continued to call for imposition of a GBP 2
staking limit for online gambling games (in line with the limit
imposed on FOBTs) and advocated a ban on credit card gambling, a
measure adopted by the UKGC in early 2020. In July 2020, the House
of Lords Select Committee on the Social and Economic Impact of the
Gambling Industry published a report containing various
recommendations to reduce potential harm from gambling. These
included testing of new games for the potential of addiction,
imposition of restrictions on the speed of online games, imposition
of affordability testing for players and the restriction of sports
sponsorships. The House of Commons Public Accounts Committee also
published a report criticizing the Gambling Commission and DCMS for
its oversight of the gambling industry and measures adopt for
protection of players and prevention of problem gambling. In
November 2020, the UKGC opened a consultation on remote customer
interaction, which covered the issues of potential customer
affordability checks, vulnerable person identification mechanisms
and increased time management control for customers. In December
2020, the UK Government has launched a review of the Gambling Act
2005, with the aim to ensure it is "fit for the digital age". The
review is to cover the regulator's powers as well as regulation of
marketing and restrictions to online offerings.
Germany experienced the most dramatic changes in its regulatory
landscape in a decade. In early 2020, the country adopted a federal
licensing regime for online sports betting. Though the rollout of
the licensing process was delayed due to court order, licenses were
eventually issued and the group has been awarded a license and is
operating under this regime. Furthermore, the German states reached
a consensus that would result in regulatory reform in mid-2021,
under which operators would be able to apply for a license to offer
online slots and poker, subject to certain restrictions (e.g.
deposit limits, maximum wagers, advertising restrictions, etc.).
This reform is conditional on its ratification by 13 of the 16
German states, and would represent a departure from the historical
ban on online casino. As presently worded, the amended Treaty would
allow operators to offer "arcade-style" online slot machines, which
would be subject to 1 euro stake limits and restricted play
options. Other types of casino games (e.g. table games) would be
regulated on a state by state basis and remain within the state
lottery's monopoly or subject to a restrictive concession model.
The new Treaty would also impose a EUR 1,000 monthly deposit limit
that would apply across all operators, though it is not clear yet
how this would be implemented in practice. Some details of this
regime have not yet been developed, but this development will
significantly impact the Group's casino offering in the German
market. As an interim measure, the German states adopted a
temporary toleration regime for online casino gambling (with which
888 is compliant). Compliance with the conditions of the new
licensing and toleration regimes required various modifications and
alignments of the group's German offering, which will impact the
profitability of its operations in that jurisdiction.
Notwithstanding, these developments constitute a significant
departure from many years of prohibition orders and enforcement
attempts. As a result of these developments, 888 has been
successful in having certain prohibition orders previously issued
against it withdrawn, and in having the effect of others suspended,
as it continues to litigate against outstanding prohibition orders
in various German states. The emergence of a licensing regime for
sports betting and online casino may, in the foreseeable future,
render these prohibition orders obsolete. More pressingly, the
group hopes that the introduction of the new and more accommodating
regimes will encourage payment processors to renew processing of
payments in this market.
In the Netherlands, where a law was approved in February 2019 to
liberalize the market, the local regulator continues to take a
proactive and strict approach towards enforcement of existing laws
against operators whose operations are conducted in violation of
the "prioritization criteria" for enforcement issued by the
authorities, and which were updated with additional criteria during
2019. Several operators received significant fines due to the
conduct of operations in a manner violating these criteria.
Ambiguity lingers regarding the application of "bad actor" language
in the new law, both in terms of timeline and in terms of scope.
Operators who offered their services in the market prior to the
licensing regime may be barred from participating in the
liberalized market or have their eligibility for licensing delayed
under a so-called "cool off" regime. Due to various delays in the
legislative process, the actual launch of the licensing regime
continues to be postponed. 888 continues to adhere to the
regulator's criteria, as updated from time to time, and to follow
developments on the
regulatory front.
In Sweden, the Group began operating under a local license in
2019. The Swedish regulator has shown itself to be strict and
proactive in enforcing regulatory standards and has on occasion
informed the industry of its position on compliance by penalizing
operators it perceived as non-compliant. 888 has studied the
regulator's position and enforcement action closely to ensure that
its operations are in-line with local requirements.
In January 2021, the federal Court of Appeals for the First
Circuit denied an appeal by the US Department of Justice seeking to
uphold a 2019 memo on the scope of the federal Wire Act. By denying
the appeal, the Court confirmed the previous opinion from 2011,
which concluded that the Act applies only to sports betting. The
case may eventually reach the US Supreme Court, however this may
depend on the position of the new Biden administration on the
issue. More generally, the US continued to move towards increased
regulation of various forms of online gambling. The group was
licensed in the Pennsylvania in September 2020, and continues to
seek licences and market access agreements in other US
jurisdictions. Reports in early 2021 suggest that the state of New
York may be on the verge of adopting a sports betting regime, and
the group is following these reports closely. Other large states
(California, Florida and Illinois) made no substantive progress on
online gambling regulation, as attention was focussed on combating
the pandemic and on the 2020 election cycle. It is unclear what
position the new Biden administration will take towards gambling
and whether the newly appointed Attorney General will reverse his
predecessors' positions on this matter. However, with the new
administration focussed on issues such as the pandemic, the
economy, etc. it would appear unlikely that gambling will be a
central focus in the coming year. We believe that the US is
developing into a significant regulated online gambling market, and
we continue to follow these developments with a view to
capitalising on our capabilities in this market.
In contrast, in November 2020, Spain implemented sweeping
restrictions on advertising and promotion of gambling, which are
now the subject of a challenge by various media groups who have
attacked the measures before the Spanish Supreme Court.
In Greece, progress appeared to be made with respect to adoption
of the necessary regulations for implementation of the regulatory
regime adopted in 2019. However, an actual licensing process has
not yet commenced.
Brazil adopted framework legislation late in 2018 which would
bring commercial online gambling to this significant jurisdiction.
However, by the beginning of 2021, it had not yet adopted the
necessary regulatory instruments to implement the regime. With the
country ravaged by COVID-19, it is unclear when this matter will
progress.
From time to time, the Group is the target of claims or
litigation from customers in various jurisdictions where it
operators under its Gibraltar or Malta licenses, seeking to recover
losses based on arguments pertaining to the legality of the Group's
offering in their jurisdiction. The Group is currently seeing a
growing trend of such claims, particularly in Austria.
888 continues to follow these and other developments to assess
their impact on our business and to identify potential
opportunities for growth. We are conscious that as local regulation
of our business is becoming increasingly more common, and as the
regimes governing our business continue to undergo rapid change, we
must continue to adapt to shifting regulatory environments, while
striving constantly to maintain the highest compliance standards
and to support the move towards clearer regulation in the online
gaming industry. We also look to build 888 on agile and adaptive
foundations, capable of accommodating rapid and regular changes to
the landscape within which we operate. We see the increasing
regulation of our industry as a welcome trend, as evidenced by the
constantly growing proportion of our revenue derived from locally
regulated markets.
Directors' statement of responsibilities
We confirm, to the best of our knowledge:
-- that the consolidated financial statements, prepared in
accordance with international accounting standards in conformity
with the requirements of the Gibraltar Companies Act 2014 and IFRSs
adopted pursuant to Regulation (EC) No 1606/2002 as it applies in
the European Union), give a true and fair view of the assets,
liabilities, financial position and profit of the parent company
and undertakings included in the consolidation taken as a
whole;
-- the strategic report, includes a fair review of the
development and performance of the business and the position of the
company and undertakings included in the consolidation taken as a
whole, together with a description of the principal risks and
uncertainties that they face; and
-- that they consider the annual report, taken as a whole, is
fair, balanced and understandable and provides the information
necessary for shareholders to assess the company's position,
performance, business model and strategy.
We have taken all the steps that we ought to have taken as
Directors to make ourselves aware of any information needed by the
Company's auditors for the purposes of their audit, and to
establish that the auditors are aware of that information. We are
not aware of any relevant audit information of which the auditors
are unaware.
On behalf of the Board:
Itai Pazner
Chief Executive Officer
17 March 2021
Consolidated Income Statement
For the year ended 31 December 2020
2020 2019(1)
Note US $ million US $ million
------------------------------------------------- ---- ------------ ------------
Revenue 3 849.7 560.3
Gaming duties (151.8) (95.5)
Other cost of sales (135.1) (88.1)
Cost of sales (286.9) (183.6)
Gross profit 562.8 376.7
Marketing expenses (237.1) (152.9)
Operating expenses (214.7) (169.3)
Exceptional items 4 (78.2) (2.3)
------------------------------------------------- ---- ------------ ------------
Operating profit 32.8 52.2
Adjusted EBITDA(2) 155.6 92.1
Exceptional items 4 (78.2) (2.3)
Share benefit charge (11.0) (5.4)
Depreciation and amortisation 8,9 (33.6) (32.2)
------------------------------------------------- ---- ------------ ------------
Operating profit 32.8 52.2
------------------------------------------------- ---- ------------ ------------
Finance income 0.1 0.5
Finance expenses (6.1) (7.2)
Share of post-tax loss of equity accounted
associate (0.1) (0.2)
Profit before tax 26.7 45.3
Taxation 5 (15.4) (3.7)
------------ ------------
Net profit for the year attributable to equity
holders of the parent 11.3 41.6
------------------------------------------------- ---- ------------ ------------
Earnings per share 6
Basic 3.1 c 11.3 c
Diluted 3.0 c 11.3 c
--------------------- ----- ------
(1) The presentation of the consolidated income statements was
changed, as described in further detail in note 2.
(2) Adjusted EBITDA is an Alternative Performance Measures
("APMs") which does not have an IFRS standardised meaning. The
Group present Adjusted EBITDA since it is the main measure the
analyst community uses to evaluate the Company and compare it to
its peers. The Group presents adjusted measures because it allows
for a further understanding of the underlying financial performance
of the Group.
Consolidated Statement of Comprehensive Income
For the year ended 31 December 2020
2020 2019
Note US $ million US $ million
-------------- --------------
Profit for the year 11.3 41.6
Items that may be reclassified subsequently
to profit or loss
------------------------------------------------------- ----- -------------- --------------
Exchange differences on translation of foreign
operations 0.8 (0.1)
-------------------------------------------------------------- -------------- --------------
Items that will not be reclassified to profit
or loss
Remeasurement of severance pay liability,
net of tax (0.3) (2.2)
Revaluation of equity investment designated
at fair value through OCI (0.2) -
-------------------------------------------------------------- -------------- --------------
Total other comprehensive income (expense)
for the year 0.3 (2.3)
-------------------------------------------------------------- -------------- --------------
Total comprehensive income for the year attributable
to equity holders of the parent 11.7 39.3
-------------------------------------------------------------- -------------- --------------
The notes below form part of these consolidated financial
statements.
Consolidated Balance Sheet
At 31 December 2020
2020 2019
Note US $ million US $ million
----------------------------------------------- ---- ------------
Assets
Non-current assets
Goodwill and other intangible assets 8 164.3 240.4
Right-of-use assets 28.5 33.3
Property, plant and equipment 9 15.1 13.0
Investments - 0.9
Non-current receivables 0.6 0.6
Deferred tax assets 3.6 2.8
----------------------------------------------- ---- ------------ ------------
212.1 291.0
Current assets
Cash and cash equivalents(1) 190.0 96.9
Trade and other receivables 84.6 45.2
274.6 142.1
Total assets 486.7 433.1
----------------------------------------------- ---- ------------ ------------
Equity and liabilities
Equity attributable to equity holders of the
parent
Share capital 10 3.3 3.3
Share premium 10 3.7 3.7
Foreign currency translation reserve (1.3) (2.1)
Treasury shares (0.5) (0.7)
Retained earnings 145.2 160.5
----------------------------------------------- ---- ------------ ------------
Total equity attributable to equity holders
of the parent 150.4 164.7
Liabilities
Non-Current liabilities
Severance pay liability (2) 7.4 6.0
Deferred tax liability 3.3 4.0
Lease liabilities 26.7 28.8
----------------------------------------------- ---- ------------ ------------
37.4 38.8
Current liabilities
Trade and other payables 1 1 177.9 130.9
Provisions 11 19.3 10.2
Income tax payable 20.7 10.1
Lease liabilities and interest-bearing loans 7.0 23.7
Customer deposits 74.0 54.7
298.9 229.6
Total equity and liabilities 486.7 433.1
-------------------------------- ----- -----
(1) Cash and cash equivalents excludes restricted short--term
deposits of US$3.2 million (31 December 2019: US$2.6 million). The
nature of the restrictions on these deposits resulted in this
balance being reclassified in 2020 to other receivables and the
comparative restated.
(2) The severance pay liability of US$7.6 million (31 December
2019: US$6.0 million) has been reclassified to non-current in 2020
and the comparative restated as the net accounting deficit will be
settled over the long term and is measured on a discounted
basis.
The notes below form part of these consolidated financial
statements.
Consolidated Statement of Changes in Equity
For the year ended 31 December 2020
Foreign currency
Treasury Retained translation
Share capital Share premium shares earnings reserve Total
US $ million US $ million US $ million US $ million US $ million US $ million
---------------------------- ------------- ------------- ------------ ------------ ---------------- ------------
Balance at 1 January 2019 3.3 3.6 (1.2) 156.6 (2.0) 160.3
---------------------------- ------------- ------------- ------------ ------------ ---------------- ------------
Profit after tax for the
year
attributable to equity
holders
of the parent - - - 41.6 - 41.6
Other comprehensive
expense for
the year - - - (2.2) (0.1) (2.3)
---------------------------- ------------- ------------- ------------ ------------ ---------------- ------------
Total comprehensive income - - - 39.4 (0.1) 39.3
Dividend paid (note 7) - - - (40.4) - (40.4)
Equity settled share
benefit
charges - - - 5.4 - 5.4
Exercise of deferred share
bonus
plan - - 0.5 (0.5) - -
Issue of shares to cover
employee
share schemes (note 10) - 0.1 - - - 0.1
Balance at 31 December
2019 3.3 3.7 (0.7) 160.5 (2.1) 164.7
---------------------------- ------------- ------------- ------------ ------------ ---------------- ------------
Profit after tax for the
year
attributable to equity
holders
of the parent - - - 11.3 - 11.3
Other comprehensive
(expense)
income for the year - - - (0.5) 0.8 0.3
---------------------------- ------------- ------------- ------------ ------------ ---------------- ------------
Total comprehensive income - - - 10.8 0.8 11.6
Dividend paid (note 7) - - - (33.2) - (33.2)
Equity settled share
benefit
charges - - - 7.6 - 7.6
Acquisition of treasury
shares - - (0.3) - - (0.3)
Exercise of deferred share
bonus
plan - - 0.5 (0.5) - -
Balance at 31 December
2020 3.3 3.7 (0.5) 145.2 (1.3) 150.4
---------------------------- ------------- ------------- ------------ ------------ ---------------- ------------
The following describes the nature and purpose of each reserve
within equity.
Share capital - represents the nominal value of shares allotted,
called-up and fully paid.
Share premium - represents the amount subscribed for share
capital in excess of nominal value.
Treasury shares - represent reacquired own equity instruments.
Treasury shares are recognised at cost and deducted from
equity.
Retained earnings - represents the cumulative net gains and
losses recognised in the consolidated statement of comprehensive
income and other transactions with equity holders.
Foreign currency translation reserve - represents exchange
differences arising from the translation of all Group entities that
have functional currency different from US$.
The notes below form part of these consolidated financial
statements.
Consolidated Statement of Cash Flows
For the year ended 31 December 2020
2020 2019
Note US $ million US $ million
Cash flows from operating activities
Profit before income tax 26.7 45.3
Adjustments for:
Depreciation of property plant and equipment
and right-of-use assets 9 14.8 12.6
Amortisation 8 18.8 19.6
Interest income (0.1) (0.5)
Interest expenses 2.7 2.9
Share of post- tax loss of equity accounted
associate 0.1 0.2
Exceptional items 78.2 -
Share benefit charges 11.0 5.4
-------------------------------------------------- ---- ------------ ------------
Profit before income tax after adjustments 152.2 85.5
Increase in trade receivables (34.5) (7.6)
Increase in other receivables (3.3) (3.8)
Increase (decrease) in customer deposits 18.0 (1.4)
Increase in trade and other payables 44.1 15.6
Increase (decrease) in provisions 9.2 (1.1)
-------------------------------------------------- ---- ------------ ------------
Cash generated from operating activities 185.7 87.2
Income tax paid (6.5) (6.7)
-------------------------------------------------- ---- ------------ ------------
Net cash generated from operating activities 179.2 80.5
Cash flows from investing activities
Acquisition of property, plant and equipment 9 (10.6) (8.4)
Investment in BetBright - (19.3)
Investment in Costa Bingo - (22.9)
Investment in AAPN Holdings LLC - (18.4)
Proceeds from sale of investment in equity
accounted associate 2.0 -
Interest received 0.1 0.5
Acquisition of intangible assets 8 (4.5) (2.6)
Internally generated intangible assets 8 (17.9) (11.8)
-------------------------------------------------- ---- ------------ ------------
Net cash used in investing activities (30.9) (82.9)
Cash flows from financing activities
Issue of shares to cover employee share schemes 10 - 0.1
Payment of lease liabilities (6.4) (7.5)
Interest paid (1.0) (1.4)
Proceeds from loans, net of transaction fee 32.0 32.5
Repayment of loans (50.0) (15.0)
Acquisition of treasury shares (0.3) -
Dividends paid 7 (33.2) (40.4)
-------------------------------------------------- ---- ------------ ------------
Net cash used in financing activities (58.9) (31.7)
Net Increase ( decrease) in cash and cash
equivalents 89.4 (34.1)
Net foreign exchange difference 3.7 (0.5)
Cash and cash equivalents at the beginning
of the year 96.9 131.5
-------------------------------------------------- ---- ------------ ------------
Cash and cash equivalents at the end of the
year 190.0 96.9
-------------------------------------------------- ---- ------------ ------------
Net cash generated from operating activities is presented after
deduction of US$0.1 million paid during 2020 in respect of
exceptional items (2019: US$1.1 million).
Trade and other payables include non-cash movement of US$2.9
million related to remeasurement of severance pay scheme liability
(2019: US$3.2 million).
The notes below form part of these consolidated financial
statements.
Notes to the Consolidated Financial Statements
1 General information
The financial information does not constitute the Group's
statutory accounts for the year ended 31 December 2020 or the year
ended 31 December 2019 but is derived from those accounts.
Statutory accounts for the year ended 31 December 2019 have been
delivered to the Registrar of Companies in Gibraltar together with
a report under section 10 of the Gibraltar Companies (Accounts) Act
1999. Statutory accounts for the year ended 31 December 2020 will
be filed with Companies House Gibraltar following the Company's
Annual General Meeting. The auditors have reported on both the 2020
and 2019 accounts and their reports were unqualified, did not draw
attention to any matters by way of emphasis and did not contain
statements under section 10(2) of the Gibraltar Companies
(Accounts) Act 1999 or section 182(1) (a) of the Gibraltar
Companies Act
Company description and activities
888 Holdings Public Limited Company (the "Company") and its
subsidiaries (together the "Group") was founded in 1997 in the
British Virgin Islands and since 17 December 2003 has been
domiciled in Gibraltar (Company number 90099). On 4 October 2005,
the Company listed on the London Stock Exchange.
The Group is the owner of innovative proprietary software
solutions providing a range of virtual online gaming services over
the internet, including Casino and games, Poker, Sport and Bingo.
These services are provided to end users ("B2C") and to business
partners through its business to business unit, Dragonfish ("B2B").
In addition, the Group provides payment services, customer support
and online advertising.
Definitions
In these financial statements:
The Company 888 Holdings Public Limited Company.
The Group 888 Holdings Public Limited Company and its subsidiaries.
Subsidiaries Companies over which the Company has control (as defined
in IFRS 10 - Consolidated Financial Statements) and
whose accounts are consolidated with those of the Company.
Related parties As defined in IAS 24 - Related Party Disclosures.
Associates As defined in IAS 28 - Investments in Associates and
Joint Ventures.
2 Significant accounting policies
The significant accounting policies applied in the preparation
of the consolidated financial statements are as follows:
2.1 Basis of preparation
The consolidated financial statements of the Group have been
prepared in accordance with international accounting standards in
conformity with the requirements of the Gibraltar Companies Act
2014 and prepared in accordance with international financial
reporting standards adopted pursuant to Regulation (EC) No
1606/2002 as it applies in the European Union ('IFRS'). The
consolidated financial statements have been prepared on a
historical cost basis, except for equity investments which have
been measured at fair value.
The consolidated financial statements are presented in US
Dollars because that is the currency in which the Group primarily
operates. All values are rounded to the closest million except when
otherwise indicated.
The consolidated financial statements comply with the Gibraltar
Companies Act 2014.
The significant accounting policies applied in the consolidated
financial statements in the prior year have been applied
consistently in these consolidated financial statements, with the
exception of the amendments to accounting standards effective for
the annual periods beginning on 1 January 2020 and representation
of expenses analysis in the income statement. These are described
in more detail bellow.
Changes to Consolidated Income Statement presentation
As of 31 December 2020, the Group management decided to change
the presentation of the Consolidated Income Statement, in a manner
that allows for a further understanding of the underlying financial
performance of the Group.
The Consolidated Income Statement were re-organized into four
main parts: Gaming duties, Other cost of sales, Marketing expenses
and Operating expenses.
-- Cost of sales include Gaming duties and Other cost of sales
which includes mainly commissions and royalties payable to third
parties, chargebacks, payment service providers ("PSPs")
commissions and costs related to operational risk management and
customer due diligence services which previously presented in
Operating expenses. Accordingly, US$79.2 million in prior year's
Operating expenses were reclassified to Other cost of sales.
-- Marketing expenses relating to B2B arrangements where 888 are
considered to be the principal, previously included in marketing
expenses, are now included in Other cost of Sales. Accordingly,
US$8.9 million of prior year's marketing expenses are now included
in other cost of sales.
-- Administrative expenses and Research and development
expenses, previously presented in separate lines, are now included
in Operating expenses.
2020 2020 2019 2019
as reported in in format of as reported in in format of
the consolidated 2019 ARA the consolidated 2019 ARA
income statement income statement
US $ million
--------------------------- --------------------------------------------------------------------------
Revenue 849.7 849.7 560.3 560.3
Operating expenses - (242.3) - (175.9)
Gaming duties (151.8) (151.8) (95.5) (95.5)
Other cost of sales (135.1) - (88.1) -
--------------------------- ------------------- --------------- ------------------- ---------------
Cost of sales (286.9) - (183.6) -
--------------------------- ------------------- --------------- ------------------- ---------------
Gross profit 562.8 - 376.7 -
Research and development
expenses - (40.0) - (33.6)
Marketing expenses (237.1) (248.5) (152.9) (161.8)
Administrative expenses - (56.1) - (39.0)
Operating expenses (214.7) - (169.3) -
Exceptional items (78.2) (78.2) (2.3) (2.3)
Operating profit 32.8 32.8 52.2 52.2
--------------------------- ------------------- --------------- ------------------- ---------------
Going concern
The Group closely monitors and carefully manages its liquidity
risk. Base case cashflow forecasts are regularly produced which
indicate that it will continue to have significant liquidity
throughout a going concern period until 30 June 2022. Group
management have run a downside scenario and sensitivities for
different scenarios including but not limited to global economic
slowdown , market closures, anticipated tax developments together
with the crystallisation of tax risks, a major cyber-attack,
tighter regulation and loss of key personnel. In the downside
scenario, Group management have assumed variable cost savings
proportional to the revenue reduction.
Trading during the financial year to date has been in line with
recent trends supporting online consumption with average daily
revenue significantly higher year on year and therefore the
Directors consider the downside scenario to be remote. Following
consideration of the base case forecast, the downside scenario and
the Groups cash position, the Directors have a reasonable
expectation that the Group has adequate resources to continue in
operational existence for the foreseeable future. Therefore, the
Directors continue to adopt the going concern basis of accounting
in preparing the consolidated financial statements.
Notes to the Consolidated financial statements (continued)
2 Significant accounting policies (continued)
2.2 New standards, interpretations and amendments adopted by the
Group
Several new and amendments to existing International Financial
Reporting Standards and interpretations, issued by the IASB and
adopted by the EU, were effective from 1 January 2020 and have been
adopted by the Group during the period with no significant impact
on the consolidated results or financial position of the Group.
2.3 New standards that have not been adopted by the Group as
they were not effective for the year:
Several new standards and amendments to existing International
Financial Reporting Standards and interpretations, issued by the
IASB and adopted, or subject to endorsement, by the EU, will be
effective from 1 January 2021, 2022 and 2023 and have not been
adopted by the Group during the period. At this stage management
are still assessing the full impact on the consolidated results or
financial position of the Group. None are expected to have a
material impact on the consolidated financial statements in the
period of initial application.
Critical accounting estimates and judgments
The preparation of consolidated financial statements under IFRS
as adopted by the EU requires the Group to make estimates and
judgements that affect the application of policies and reported
amounts. Estimates and judgements are continually evaluated and are
based on historical experience and other factors including
expectations of future events that are believed to be reasonable
under the circumstances. Actual results may differ from these
estimates.
Included in this note are accounting policies which cover areas
that the Directors consider require estimates and assumptions which
have a significant risk of causing a material adjustment to the
carrying amount of assets and liabilities in the future. These
policies together with references to the related notes to the
financial statements, which include further commentary on the
nature of the estimates and judgements made, can be found
below:
Critical judgements
Revenue
The Group applies judgement in determining whether it is acting
as a principal or an agent where it provides services to business
partners through its business to business unit. In making these
judgements the Group considers, by examining each contract with its
business partners, which party has the primary responsibility for
providing the services and is exposed to the majority of the risks
and rewards associated with providing the services, as well as if
it has latitude in establishing prices, either directly or
indirectly. This is described in further detail in the revenue
accounting policy set out below.
Internally generated intangible assets
Costs relating to internally generated intangible assets, are
capitalised if the criteria for recognition as assets are met. The
initial capitalisation of costs is based on management's judgment
that technological and economic feasibility criteria are met. In
making this judgement, management considers the progress made in
each development project and its latest forecasts for each project.
Other expenditure is charged to the consolidated income statement
in the year in which the expenditure is incurred. Following initial
recognition, intangible assets are carried at cost less any
accumulated amortisation and any accumulated impairment losses. For
further information see note 8.
Exceptional items and adjusted performance measures
The Group classifies and presents certain items of income and
expense as exceptional items. The Group presents adjusted
performance measures which differ from statutory measures due to
exclusion of exceptional items and certain non-cash items as the
Group considers that it allows a further understanding of the
underlying financial performance of the Group. These measures are
described as "adjusted" and are used by management to measure and
monitor the Group's underlying financial performance. Non-cash
items that are excluded from adjusted performance measures of
underlying financial performance include share benefit charge and
share of post-tax loss of equity associates.
Notes to Consolidated financial statements (continued)
2 Significant accounting policies (continued)
The Group also seeks to present a measure of underlying
performance which is not impacted by exceptional items. The Group
considers any items of income and expense for classification as
exceptional by virtue of their nature and size. The items
classified as exceptional (and are excluded from the adjusted
measures) are described in further detail in note 4.
Key accounting estimates
Taxation
Due to the international nature of the Group and the complexity
of tax legislation in the jurisdictions in which it operates, the
Group applies judgements in estimating the likely outcome of tax
matters and the resultant provision for income taxes. These
judgements are reassessed in each period until the outcome is
finally determined through resolution with a tax authority or
through a legal process. Differences arising from changes in
judgement or from final resolution may be material and will be
charged or credited to the Income statement in the relevant
period.
The Group evaluates uncertain items, where the tax judgement is
subject to interpretation and remains to be agreed with the
relevant tax authority. Provisions for uncertain items are made
using judgement of the most likely tax expected to be paid, based
on a qualitative assessment of all relevant information. In
assessing the appropriate provision for uncertain items, the Group
considers progress made in discussions with tax authorities and
expert advice on the likely outcome and recent developments in case
law, legislation and guidance.
The Group believes that its accruals or, where applicable,
provisions for tax liabilities are appropriate. For further
information see note 5.
Impairment of goodwill and other intangible assets
Determining whether goodwill is impaired requires an estimation
of the value in use of the cash-generating units to which the
goodwill has been allocated. The value in use calculation requires
the entity to estimate the future cash flows expected to arise from
the cash-generating unit and a suitable discount rate in order to
calculate present value. Cash flows are typically forecast for
periods up to five years. For some cash-generating units it is
appropriate to use forecasts extending beyond five years where
future investment in the business is expected to result in a
long-term growth being achieved outside of five years. For further
information see note 8.
Provisions, contingent liabilities and regulatory matters
The Group makes a number of estimates in respect of the
accounting for and disclosure of expenses and contingent
liabilities for regulatory matters, including gaming duties. These
are described in further detail in note 13.
Basis of consolidation
The consolidated financial statements include the accounts of
the Company and its subsidiaries. The subsidiaries are companies
controlled by 888 Holdings Public Limited Company. Control exists
where the Company has power over an entity; exposure, or rights, to
variable returns from its involvement with an entity; and the
ability to use its power over an entity to affect the amount of its
returns. Subsidiaries are consolidated from the date the Parent
gained control until such time as control ceases.
The financial statements of subsidiaries are included in the
consolidated financial statements using the purchase method of
accounting. On the date of the acquisition, the assets and
liabilities of a subsidiary are measured at their fair values and
any excess of the fair value of the consideration over the fair
values of the identifiable net assets acquired is recognised as
goodwill.
Intercompany transactions and balances are eliminated on
consolidation.
The financial statements of subsidiaries are prepared for the
same reporting period as the Parent Company and using consistent
accounting policies.
2 Significant accounting policies (continued)
Revenue
Revenue consists of income from online activities and income
generated from foreign exchange commissions on customer deposit and
withdrawals and account fees, which is allocated to each reporting
segment. Revenue is recognised in the accounting periods in which
the performance obligations associated with the transactions are
satisfied after the deduction of certain promotional bonuses
granted to customers and VAT, and after adding the fees and charges
applied to customer accounts, and is measured at the fair value of
the consideration received or receivable.
The Group's income earned from Casino, Bingo and Sports does not
fall within the scope of IFRS 15. Income from these online
activities is disclosed as revenue although these are accounted for
and meet the definition of a gain under IFRS 9.
Poker and B2B revenue are within the scope of IFRS 15 and
recognised at an amount that reflects the consideration to which an
entity expects to be entitled in exchange for transferring goods or
services to a customer.
Revenue from online activities comprises:
Casino and Bingo (IFRS 9)
Casino and Bingo online gaming revenue is represented by the
difference between the amounts of bets placed by customers less
amounts won, adjusted for the fair value of certain promotional
bonuses granted to customers and the value of loyalty points
accrued.
Sport (IFRS 9)
Sport online gaming revenue comprises bets placed less pay-outs
to customers, adjusted for the fair value of open betting positions
and the fair value of bonuses and promotions.
Poker (IFRS 15)
Poker online gaming revenue represents the commission (rake)
charged from each poker hand in ring games and entry fees for
participation in Poker tournaments less the fair value of certain
promotional bonuses and the value of loyalty points accrued. In
Poker tournaments certain promotional costs are accounted for, and
entry fee revenue is recognised when the tournament has
concluded.
B2B (IFRS 15)
Revenue from B2B is mainly comprised of services provided to
business partners.
-- For services provided to business partners through its B2B
unit, the Group considers whether for each customer it is acting as
a principal or as an agent by considering which party has the
primary responsibility for providing the services and is exposed to
the majority of the risks and rewards associated with providing the
services, as well as if it has latitude in establishing prices,
either directly or indirectly:
-- Where the Group is considered to be the principal, income is
recognised as the gross revenue generated from use of the Group's
platform in online gaming activities with the partners' share of
the revenue charged to marketing expenses.
-- In other cases, income is recognised as the Group share of
the net revenue generated from use of the Group's platform.
-- B2B also includes fees from the provision of certain gaming related services to partners.
-- Customer advances received are treated as deferred income
within current liabilities and released as they are earned.
Notes to Consolidated financial statements (continued)
2 Significant accounting policies (continued)
Cost of Sales
Cost of sales consists primarily of gaming duties, payment
service providers' commissions, chargebacks, commission and
royalties payable to third parties, all of which are recognised on
an accruals basis.
Operating expenses
Operating expenses consist primarily of staff costs and
corporate professional expenses, both of which are recognised on an
accruals basis.
Foreign currency
Monetary assets and liabilities denominated in currencies other
than the functional currency of the relevant company are translated
into that functional currency using year-end spot foreign exchange
rates. Non-monetary assets and liabilities are translated using
exchange rates prevailing at the dates of the transactions.
Exchange rate differences on foreign currency transactions are
included in financial income or financial expenses in the
consolidated income statement, as appropriate.
The results and financial position of all Group entities that
have a functional currency different from US$ are translated into
the presentation currency at foreign exchange rates as set out
below. Exchange differences arising, if any, are recorded in the
consolidated statement of comprehensive income as a component of
other comprehensive income.
(i) assets and liabilities for each balance sheet presented are
translated at the closing rate at the date of that balance sheet;
and
(ii) income and expenses for each income statement are
translated at an average exchange rate (unless this average is not
a reasonable approximation of the cumulative effect of the rates
prevailing on the transaction dates, in which case income and
expenses are translated at the dates of the transactions).
Taxation
The tax expense represents tax payable for the year based on
currently applicable tax rates.
Deferred tax assets and liabilities are recognised where the
carrying amount of an asset or liability in the balance sheet
differs from its tax base. They are accounted for using the balance
sheet liability method. Recognition of deferred tax assets is
restricted to those instances where it is probable that taxable
profits will be available against which the difference can be
utilised. Such assets and liabilities are not recognised if the
temporary differences arise from goodwill or from the initial
recognition (other than in a business combination) of other assets
and liabilities in a transaction that affects neither the taxable
profit nor the accounting profit. The amount of the asset or
liability is determined using tax rates that have been enacted or
substantively enacted by the balance sheet date and are expected to
apply when the deferred tax liabilities/assets are
settled/recovered.
Notes to Consolidated financial statements (continued)
2 Significant accounting policies (continued)
Goodwill
Goodwill represents the excess of the fair value of the
consideration in a business combination over the Group's interest
in the fair value of the identifiable assets, liabilities and
contingent liabilities acquired. Consideration comprises the fair
value of any assets transferred, liabilities assumed and equity
instruments issued.
Goodwill is capitalised as an intangible asset with any
impairment in carrying value being charged to the consolidated
income statement and not subsequently reversed. Where the fair
values of identifiable assets, liabilities and contingent
liabilities exceed the fair value of consideration paid, the excess
is credited in full to the consolidated income statement on the
acquisition. Changes in the fair value of the contingent
consideration are charged or credited to the consolidated income
statement. In addition, the direct costs of acquisition are charged
immediately to the consolidated income statement.
Intangible assets
Acquired intangible assets
Intangible assets acquired separately consist mainly of software
licences and domain names and are capitalised at cost. Those
acquired as part of a business combination are recognised
separately from goodwill if the fair value can be measured
reliably. These intangible assets are amortised over the useful
life of the assets, which for software licences is between one and
five years and for domain names is five years.
Internally generated intangible assets
Expenditure incurred on development activities of gaming
platform is capitalised only when the expenditure will lead to new
or substantially improved products or processes, the products or
processes are technically and commercially feasible and the Group
has sufficient resources to complete development. All other
development expenditure is expensed. Subsequent expenditure on
intangible assets is capitalised only where it clearly increases
the economic benefits to be derived from the asset to which it
relates. The Group estimates the useful life of these assets as
between three and five years, except for certain licence costs
which are amortised over either the life of the licence, or up to
20 years, whichever is the shorter period.
Right-of-use assets
The Group has adopted IFRS 16 Leases from 1 January 2019. IFRS
16 requires lessees to recognise right-of-use assets and lease
liabilities for most leases. A contract is (or contains) a lease if
it conveys the right to control the use of an identified asset for
a period of time in exchange for consideration.
Right-of-use assets are initially measured at cost and
depreciated by the earlier of the end of the useful life of the
right-of-use asset or the end of the lease term. The cost of
right-of-use assets comprises of initial measurement of the lease
liabilities, any lease payments made before or at the commencement
date and initial direct costs. Right-of-use assets are also subject
for impairment losses and adjusted for any remeasurement of lease
liabilities.
Right-of-use assets are depreciated on a straight-line basis
over the shorter of the lease term and the estimated useful lives
of the assets, as follows:
Office lease 1-10 years
Motor vehicles 3 years
2 Significant accounting policies (continued)
Property, plant and equipment
Property, plant and equipment is stated at historical cost less
accumulated depreciation. Assets are assessed at each balance sheet
date for indicators of impairment.
Depreciation is calculated using the straight-line method, at
annual rates estimated to write off the cost of the assets less
their estimated residual values over their expected useful lives.
The annual depreciation rates are as follows:
IT equipment 33%
Office furniture and equipment 7-15%
Over the shorter of the term of the
Leasehold improvements lease or useful lives
Impairment of non-financial assets
Impairment tests on goodwill are undertaken annually and where
applicable an impairment loss is recognised immediately in the
consolidated income statement. Other non-financial assets are
subject to impairment tests whenever events or changes in
circumstances indicate that their carrying amount may not be
recoverable. Where the carrying value of an asset exceeds its
recoverable amount (being the higher of value in use and fair value
less costs to sell), the asset is written down accordingly through
the consolidated income statement.
Where it is not possible to estimate the recoverable amount of
an individual asset, the impairment test is carried out on the
asset's cash generating unit (i.e. the smallest group of assets to
which the asset belongs for which there are separately identifiable
and largely independent cash inflows).
Business combination
Business combinations are accounted for using the acquisition
method. The cost of an acquisition is measured as the aggregate of
the consideration transferred, which is measured at acquisition
date fair value, and the amount of any non-controlling interests in
the acquiree. Acquisition-related costs are expensed as incurred
and included in administrative expenses.
Business combination achieved in stages refers to transactions
which the Group obtains control in entities which it held an equity
interest immediately before the acquisition date. The Group
remeasure its previously held equity interest in the acquiree at
its acquisition-date fair value and recognise the resulting gain or
loss, if any, in the income statement.
Investment in equity accounted associates
Associates are those businesses in which the Group has a
long-term interest and is able to exercise significant influence
over the financial and operational policies but does not have
control or joint control over those policies.
Associates are accounted for using the equity method and are
recognised initially at cost. The Group's share of post-acquisition
profits and losses is recognised in the consolidated income
statement, except that losses in excess of the Group's investment
in the associates are not recognised unless there is an obligation
to make good those losses.
Profits and losses arising on transactions between the Group and
its associates are recognised only to the extent of unrelated
investors' interests in the associates. The investor's share in the
profits and losses of the investment resulting from these
transactions is eliminated against the carrying value of the
investment.
Any premium paid above the fair value of the Group's share of
the identifiable assets, liabilities and contingent liabilities
acquired is capitalised and included in the carrying amount of the
investment. Where there is objective evidence that the investment
has been impaired the carrying amount of the investment is tested
for impairment in the same way as other non-financial assets, and
any charge or reversal of previous impairments is taken to the
consolidated income statement.
Where amounts paid for an investment in associates are in excess
of the Group's share of the fair value of net assets acquired, the
excess is recognised as negative goodwill and released to the
consolidated income statement immediately.
Notes to Consolidated financial statements (continued)
2 Significant accounting policies (continued)
Fair value measurement
The Group measures certain financial instruments, including
derivatives and equity investments, at fair value at each balance
sheet date. Fair value is the price that would be received or paid
in an orderly transaction between market participants at a
particular date, either in the principal market for the asset or
liability or, in the absence of a principal market, in the most
advantageous market for that asset or liability accessible to the
Group.
The Group uses valuation techniques that are appropriate in the
circumstances and for which sufficient data are available to
measure fair value, maximising the use of relevant observable
inputs and minimising the use of unobservable inputs.
The fair value measurement hierarchy is based on the inputs to
valuation techniques used to measure fair value. The inputs are
categorised into three levels, with the highest level (level 1)
given to inputs for which there are unadjusted quoted prices in
active markets for identical assets or liabilities and the lowest
level (level 3) given to unobservable inputs. Level 2 inputs are
directly or indirectly observable inputs other than quoted
prices.
Cash and cash equivalents
Cash comprises cash in hand and balances with banks. Cash
equivalents are short-term, highly liquid investments that are
readily convertible to known amounts of cash. They include
short-term deposits originally purchased with maturities of three
months or less.
Trade receivables
Trade receivables are initially recognised at fair value and
subsequently measured at amortised cost and principally comprise
amounts due from credit card companies and from e-payment
companies. The Group has applied IFRS 9's simplified approach and
has calculated the ECLs based on lifetime of expected credit
losses. Bad debts are written off when there is objective evidence
that the full amount may not be collected.
Equity
Equity issued by the Company is recorded as the proceeds
received from the issue of shares, net of direct issue costs.
Treasury shares
Own equity instruments that are reacquired (treasury shares) are
recognised at cost and deducted from equity.
No gain or loss is recognised in profit or loss on the purchase,
sale, issue or cancellation of the Group's own
equity instruments. Any difference between the carrying amount
and the consideration, if reissued, is
recognised in the share premium account.
Dividends
Dividends are recognised when they become legally payable. In
the case of interim dividends to equity shareholders, this is when
declared by the Board of Directors and paid. In the case of final
dividends, this is when approved by the shareholders at the Annual
General Meeting.
Equity-settled Share benefit charges
Where the Company grants its employees or contractors shares or
options, the cost of those awards, recognised in the consolidated
income statement over the vesting period with a corresponding
increase in equity, is measured with reference to the fair value at
the date of grant. Market performance conditions are taken into
account in determining the fair value at the date of grant.
Non-market performance conditions, including service conditions,
are taken into account by adjusting the number of instruments
expected to vest at each balance sheet date so that, ultimately,
the cumulative amount recognised over the vesting period is based
on the number of instruments that eventually vest.
2 Significant accounting policies (continued)
Severance pay schemes
The Group operates two severance pay schemes:
Defined benefit severance pay scheme
The Group operates a defined benefit severance pay scheme
pursuant to the Severance Pay Law in Israel. Under this scheme
group employees are entitled to severance pay upon redundancy or
retirement. The liability for termination of employment is measured
using the projected unit credit method.
S everance pay scheme surpluses and deficits are measured
as:
-- the fair value of plan assets at the reporting date; less
-- plan liabilities calculated using the projected unit credit
method, discounted to its present value using yields available for
the appropriate government bonds that have maturity dates
appropriate to the terms of the liabilities.
Remeasurements of the net severance pay scheme assets and
liabilities, including actuarial gains and losses on the scheme
liabilities due to changes in assumptions or experience within the
scheme and any differences between the interest income and the
actual return on assets, are recognised in the consolidated
statement of comprehensive income in the period in which they
arise.
Defined contribution severance pay scheme
In 2017 the Group introduced defined contribution plan pursuant
to section 14 to the Severance Pay Law. Under this scheme the Group
pays fixed monthly contributions. Payments to defined contribution
plans are charged as an expense as they fall due.
Leases
The Group assesses at contract inception whether a contract is,
or contains, a lease. That is, if the contract conveys the right to
control the use of an identified asset for a period of time in
exchange for consideration.
Lease liabilities
Lease liabilities are recognised at the commencement date of the
lease and measured at the present value of lease payments to be
made over the lease term.
In calculating the present value of lease payments, the Group
uses its incremental borrowing rate at the lease commencement date
if the interest rate implicit in the lease is not readily
determinable. After the commencement date, the amount of lease
liabilities is increased to reflect the accretion of interest and
reduced for the lease payments made. In addition, the carrying
amount of lease liabilities is remeasured if there is a
modification, a change in the lease term or a change in the lease
payments (e.g., changes to future payments resulting from a change
in an index or rate used to determine such lease payments)
2 Significant accounting policies (continued)
Trade and other payables
Trade and other payables are initially recognised at fair value
and subsequently measured at amortised cost.
Provisions
Provisions are recognised when the Group has a present or
constructive obligation as a result of a past event from which it
is probable that it will result in an outflow of economic benefits
that can be reasonably estimated.
Liabilities to customers
Liabilities to customers comprise the amounts that are credited
to customers' bankroll (the Group's electronic "wallet"), including
provision for bonuses granted by the Group, less fees and charges
applied to customer accounts, along with full progressive provision
for jackpots. These amounts are repayable in accordance with the
applicable terms and conditions.
Loans and borrowings
Interest-bearing loans and borrowings are recognised initially
at fair value net of directly attributable transaction costs and
are subsequently measured at amortised cost using the effective
interest rate (EIR) method. Gains and losses are recognised in
profit or loss when the liabilities are derecognised as well as
through the EIR amortisation process.
Amortised cost is calculated by taking into account any discount
or premium on acquisition and fees or costs that are an integral
part of the EIR. The EIR amortisation is included as finance costs
in the income statement.
3 Segment information
Segmental results are reported in a manner consistent with the
internal reporting provided to the chief operating decision maker.
The chief operating decision maker has been identified as the
management team comprising mainly the Chief Executive Officer and
the Chief Financial Officer. The operating segments identified
are:
* B2C (Business to Customer): including Casino and games, Poker, Sport, Bingo; and
* B2B (Business to Business): offering Total Gaming Services
under the Dragonfish trading brand. Dragonfish offers to its
business partners use of technology, software, operations,
E-payments and advanced marketing services, through the provision
of offline/online marketing, management of affiliates, search
engine optimisation (SEO), customer relationship management (CRM)
and business analytics.
There has been no aggregation of these two operating segments
for reporting purposes. The management team continues to assess the
performance of operating segments based on revenue and segment
profit, being revenue net of chargebacks, payment service
providers' commissions, gaming duties, royalties payable to third
parties and marketing expenses.
B2C B2B(1) Consolidated
---------- ------------------
Casino Poker(1) Sport Bingo Total
B2C
------------ ---------------- ---------- -------- ---------- ---------- ------------------
2020 US $ million
Segment revenue 586.8 63.1 122.1 42.3 814.3 35.4 849.7
----------------- ------------ ---------------- ---------- -------- ---------- ---------- ------------------
Segment result
(2) 310.0 17.5 327.5
Unallocated
corporate
expenses(3) (216.5)
Exceptional items (53.3) (24.9) (78.2)
Operating profit 32.8
Finance income 0.1
Finance expenses (6.1)
Share of post-tax
loss
of equity
accounted
associate (0.1)
Taxation (15.4)
----------------- ------------ ---------------- ---------- -------- ---------- ---------- ------------------
Net profit for
the year 11.3
----------------- ------------ ---------------- ---------- -------- ---------- ---------- ------------------
Adjusted net
profit for
the year(4) 100.6
Assets
Corporate assets 486.7
----------------- ------------ ---------------- ---------- -------- ---------- ---------- ------------------
Total assets 486.7
----------------- ------------ ---------------- ---------- -------- ---------- ---------- ------------------
Liabilities
Segment
liabilities 72.4 1.6 74.0
Unallocated
corporate
liabilities 262.3
----------------- ------------ ---------------- ---------- -------- ---------- ---------- ------------------
Total liabilities 336.3
----------------- ------------ ---------------- ---------- -------- ---------- ---------- ------------------
(1) Revenue recognised in accordance with IFRS 15 - Revenue from
contracts with customers.
(2) Revenue net of chargebacks, payment service providers'
commissions, gaming duties, royalties payable to third parties and
Marketing expenses.
(3) Including staff costs, corporate professional expenses,
other administrative expenses, depreciation, amortisation and share
benefit charges.
(4) As defined in note 6.
3 Segment information (continued)
B2C B2B(1) Consolidated
------------ --------------------
Casino Poker (1) Sport Bingo Total
B2C
------------ --------------- --------- -------- -------- ------------ --------------------
2019 US $ million
Segment revenue 359.3 42.7 90.0 38.5 530.5 29.8(1) 560.3
--------------- ------------ --------------- --------- -------- -------- ------------ --------------------
Segment result
(2) 210.2 13.7 223.9
Unallocated
corporate
expenses(3) (169.4)
Exceptional
items (2.3)
Operating
profit 52.2
Finance income 0.5
Finance
expenses (7.2)
Share of
post-tax loss
of equity
accounted
associate (0.2)
Taxation (3.7)
--------------- ------------ --------------- --------- -------- -------- ------------ --------------------
Profit after
tax for
the year 41.6
--------------- ------------ --------------- --------- -------- -------- ------------ --------------------
Adjusted profit
after
tax for the
year(4) 49.5
Assets
Unallocated
corporate
assets 433.1
--------------- ------------ --------------- --------- -------- -------- ------------ --------------------
Total assets 433.1
--------------- ------------ --------------- --------- -------- -------- ------------ --------------------
Liabilities
Segment
liabilities 53.8 0.9 54.7
Unallocated
corporate
liabilities 213.7
--------------- ------------ --------------- --------- -------- -------- ------------ --------------------
Total
liabilities 268.4
--------------- ------------ --------------- --------- -------- -------- ------------ --------------------
(1) Revenue recognised in accordance with IFRS 15 - Revenue from
contracts with customers.
(2) Revenue net of chargebacks, payment service providers'
commissions, gaming duties, royalties payable to third parties and
Marketing expenses.
(3) Including staff costs, corporate professional expenses,
other administrative expenses, depreciation, amortisation and share
benefit charges.
(4) As defined in note 6.
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.
3 Segment information (continued)
Geographical information
The Group's performance can also be reviewed by considering the
geographical markets and geographical locations within which the
Group operates. This information is outlined below:
Revenue by geographical market (based on location of
customer)
2020 2019
US $ million US $ million
EMEA (excluding the UK, Italy and Spain) 253.4 180.1
UK 333.5 204.1
Italy 86.5 51.1
Spain 67.5 60.9
US and Americas 93.7 51.7
Rest of world 15.1 12.4
----------------------------------------- ------------ ------------
Revenue 849.7 560.3
----------------------------------------- ------------ ------------
Non-current assets by geographical location
Carrying amount of non-current
assets by location
2020 2019
US $ million US $ million
----------------------------------------------------- --------------- ---------------
Gibraltar 72.3 158.5
Rest of world 136.2 129.7
------------------------------------------------------ --------------- ---------------
Total non-current assets by geographical location(1) 208.5 288.2
------------------------------------------------------ --------------- ---------------
(1) Excludes deferred tax assets of US$3.6 million (2019: US$2.8
million)
(1)
4 Exceptional items
The Group classifies certain items of income and expense as
exceptional, as the Group considers that it allows for a further
understanding of the underlying financial performance of the Group.
The Group considers any items of income and expense for
classification as exceptional by virtue of their nature and
size.
2020 2019
US $ million US $ million
Impairment charges(1) 79.9 -
Provision - regulatory matters (0.1) -
Gain from the sale of equity accounted associate(2) (1.6)
Exceptional legal and professional costs(3) - 1.0
Restructuring costs(4) - 1.3
Total exceptional items(5) 78.2 2.3
----------------------------------------------------- ------------ ------------
(1) The Group recognised impairment of Bingo Goodwill assets
during the year as described in further detail in note 8.
(2) On 22 June 2020, the Company sold its investment in
Come2Play Limited, as a result the Company recorded a capital gain
of US$1.6 million.
(3) In 2019, the Group incurred legal and professional costs of
US$1.0 million associated with the acquisitions of Jet Bingo brands
and BetBright's sports betting platform.
(4) Restructuring costs in 2019, comprises of employees
redundancy costs mainly in Israel, part of the Group cost
optimisation project, shifting workforce from high cost locations
to low cost locations.
(5) Tax effect of the exceptional items is US$0.1 million credit
(2019: US$0.3 million tax charge)
5 Taxation
Corporate taxes
2020 2019
US $ million US $ million
-------------------------------------------------- ------------ ------------
Current taxation
Gibraltar taxation 2.1 0.4
Other jurisdictions taxation 12.9 2.3
Adjustments in respect of prior years 1.6 1.7
--------------------------------------------------- ------------ ------------
16.6 4.4
Deferred taxation
Origination and reversal of temporary differences (1.2) (0.7)
--------------------------------------------------- ------------ ------------
Taxation expense 15.4 3.7
--------------------------------------------------- ------------ ------------
Deferred taxation related to items recognised
in OCI
Remeasurement of severance pay liability (1.2) (1.1)
--------------------------------------------------- ------------ ------------
The taxation expense for the year differs from the standard
Gibraltar rate of tax. The differences are explained below:
2020 2019
US $ million US $ million
------------------------------------------------- ------------ ------------
Profit before taxation 26.7 45.3
Standard tax rate in Gibraltar (2020: 10%,
2019: 10%) 2.7 4.5
Higher effective tax rate on other jurisdictions 7.2 1.9
Expenses not allowed for taxation 8.3 0.2
Deferred tax (1.2) (0.7)
Capital allowances in excess of depreciation (1.1) (0.5)
Non-taxable income (2.1) (1.8)
Adjustments to prior years' tax charges 1.6 0.1
Total tax charge for the year 15.4 3.7
-------------------------------------------------- ------------ ------------
Current tax is calculated with reference to the profit of the
Company and its subsidiaries in their respective countries of
operation. Set out below are details in respect of the significant
jurisdictions where the Group operates and the factors that
influenced the current and deferred taxation in those
jurisdictions:
Gibraltar
Gibraltar companies are subject to a corporate tax rate of 10%.
Gibraltar corporate tax expenses for the year are higher compared
to 2019, as a result of higher profit before tax.
Malta
Maltese companies are subject to a corporate tax rate of 35%.
However, during 2020 the Maltese companies within the Group formed
a Fiscal Unit in Malta, and the consolidated taxable income of the
Fiscal Unit is subject to a corporate tax rate of 5%.
Israel
The domestic corporate tax rate in Israel in 2020 is 23% (2019:
23%). The Company's Israeli subsidiary incurred higher tax expense
compared to 2019, as a result of higher operational costs.
UK
The Group's subsidiary in the UK is subject to a corporate tax
rate of 19% (2019: 19%). During late 2019, the UK government
announced that the reduction in corporate tax rate to 17% (planned
to come into effect on April 2020) will not go ahead, and that the
tax rate will remain on 19%. Furthermore, in March 2021 the
government announced a further increase in the corporate tax rate
to 25%, starting 2023.
5 Taxation (continued)
Romania
The Group's subsidiary in Romania is subject to a corporate tax
rate of 16% (2019: 16%).
US
The Group's subsidiaries in US are subject to federal corporate
tax rate of 21% (2019: 21%), and state (New Jersey) tax rate of 9%
(2019: 9%).
Sensitivity analysis
The key operating companies in the Group are incorporated,
managed and controlled and tax resident mainly in Gibraltar, with
several operating companies tax residents in Malta. The Group's
subsidiaries are located in different jurisdictions and these
subsidiaries are taxed locally on their respective profits which
are determined based on transfer pricing studies. Effective tax
rate increased by 1% would result in an increase in the tax charge
(and associated provision) of US$1 million (2019: US$0.5
million).
6 Earnings per share
Basic earnings per share
Basic earnings per share (EPS) has been calculated by dividing
the profit attributable to ordinary shareholders by the weighted
average number of shares in issue and outstanding during the year
during the year.
Diluted earnings per share
The weighted average number of shares for diluted earnings per
share takes into account all potentially dilutive equity
instruments granted, which are not included in the number of shares
for basic earnings per share. Certain equity instruments have been
excluded from the calculation of diluted EPS as their conditions of
being issued were not deemed to satisfy the performance conditions
at the end of the period or it will not be advantageous for holders
to exercise them into shares, in the case of options. The number of
equity instruments included in the diluted EPS calculation consist
of 7,460,665 Ordinary Shares (2019: 2,128,947) and no market-value
options (2019: nil).
The number of equity instruments excluded from the diluted EPS
calculation is 964,207 (2019: 3,802,458).
2020 2019
--------------------------------------------- ----------- -----------
Profit for the period attributable to equity
holders of the parent (US$ million) 11.3 41.6
Weighted average number of Ordinary Shares
in issue and outstanding 368,587,941 367,173,313
Effect of dilutive Ordinary Shares and Share
options 7,460,665 2,128,947
Weighted average number of dilutive Ordinary
Shares 376,048,606 369,302,260
---------------------------------------------- ----------- -----------
Basic earnings per share 3.1c 11.3c
Diluted earnings per share 3.0c 11.3c
---------------------------------------------- ----------- -----------
Adjusted earnings per share
The Directors believe that EPS excluding exceptional items,
share benefit charges, net gain from sale of investment in equity
accounted associate and share of post- tax loss of equity accounted
associate ("Adjusted EPS") allows for a further understanding of
the underlying performance of the business and assists in providing
a clearer view of the performance of the Group.
Reconciliation of profit to profit excluding exceptional items,
share benefit charges, net gain from sale of investment in equity
accounted associate and share of post-tax loss of equity accounted
associate ("Adjusted profit"):
2020 2019
US $ million US $ million
--------------------------------------------- ------------ ------------
Profit for the period attributable to equity
holders of the parent 11.3 41.6
Exceptional items (see note 4) 78.2 2.3
Share benefit charges 11.0 5.4
Share of post-tax loss of equity accounted
associate 0.1 0.2
Adjusted profit 100.6 49.5
---------------------------------------------- ------------ ------------
Weighted average number of Ordinary Shares
in issue 368,587,941 367,173,313
Weighted average number of dilutive Ordinary
Shares 376,048,606 369,302,260
---------------------------------------------- ------------ ------------
Adjusted basic earnings per share 27.3c 13.5c
Adjusted diluted earnings per share 26.8c 13.4c
---------------------------------------------- ------------ ------------
7 Dividends
2020 2019
US $ million US $ million
--------------- ------------ ------------
Dividends paid 33.2 40.4
---------------- ------------ ------------
An interim regular dividend of 3.2c per share plus an additional
one-off 2.8c per share was paid on 4 November 2020 (US$22.1
million). The Board of Directors will recommend to the shareholders
a final dividend in respect of the year ended 31 December 2020 of
10.4c per share plus an additional one-off 1.6c per share, bringing
the total for the year to 18.0c per share, which will be recognised
in the 2021 financial statements once approved.
In 2019 an interim dividend of 3.0c per share was paid on 18
October 2019 (US$11.0 million) and a final dividend of 3.0c per
share was paid on 22 May 2020 (US$11.1 million).
8 Goodwill and other intangible assets
Internally
Acquired generated
intangible intangible
Goodwill assets assets Total
US $ million US $ million US $ million US $ million
-------------------------------- ------------ ------------ ------------ ------------
Cost or valuation
At 1 January 2019 177.0 34.2 92.6 303.8
Additions (1) - 3.1 11.8 14.9
Acquisition of BetBright Sport
platform - 19.1 - 19.1
Acquisition of Jet Bingo brands 4.2 21.5 - 25.7
Disposals - (0.5) - (0.5)
At 31 December 2019 181.2 77.4 104.4 363.0
--------------------------------- ------------ ------------ ------------ ------------
Additions (1) - 4.7 17.9 22.6
Disposals - (2.2) - (2.2)
At 31 December 2020 181.2 79.9 122.3 383.4
--------------------------------- ------------ ------------ ------------ ------------
Amortisation and impairments:
At 1 January 2019 20.7 19.4 63.4 103.5
Amortisation charge for the
year - 10.3 9.3 19.6
Disposals - (0.5) - (0.5)
At 31 December 2019 20.7 29.2 72.7 122.6
--------------------------------- ------------ ------------ ------------ ------------
Amortisation charge for the
year - 8.7 10.1 18.8
Impairment charge for the year 79.3 - 0.6 79.9
Disposals - (2.2) - (2.2)
At 31 December 2020 100.0 35.7 83.4 219.1
--------------------------------- ------------ ------------ ------------ ------------
Carrying amounts
At 31 December 2020 81.2 44.2 38.9 164.3
--------------------------------- ------------ ------------ ------------ ------------
At 31 December 2019 160.5 48.2 31.7 240.4
--------------------------------- ------------ ------------ ------------ ------------
At 1 January 2019 156.3 14.8 29.2 200.3
--------------------------------- ------------ ------------ ------------ ------------
(1) Acquired intangible assets includes US$0.2 million (2019:
US$0.5 million) capitalisation of finance costs relates to the
acquisition of BetBright's sports betting platform.
Following a review of fully written down assets, assets no
longer in use with a total cost and accumulated
amortisation of US$2.2 million were written off in 2020 (2019: US$0.5 million).
8 Goodwill and other intangible assets (continued)
Acquired intangible assets
Fair Value of acquired intangible assets recognised in 2019 on
the acquisition of Jet Bingo brands consisting of Customer list of
US$19.2 million and Brand name of US$2.3 million. The estimated
remaining useful life of the Customer list and
Brand name is 12 years (using the sliding scale method with 70%
of the value to be amortised over 5 years) and 10 years,
respectively.
Fair Value of acquired intangible assets recognised on the
acquisition of BetBright Sport platform consist of Sport platform
of US$18.3 million and the right to access third party customer
list of US$0.8 million. The estimated remaining useful life of the
Sport platform and right to access third party customer list is 12
years and 8 years, respectively.
Software licences
No impairment tests were considered to be required at 31
December 2020 and the carrying value of licences is considered to
be appropriate.
Other intangible assets
No impairment tests were considered to be required at 31
December 2020 and the carrying value of other intangible assets is
considered to be appropriate.
Internally generated intangible assets
This category of assets includes capitalised development costs
in accordance with IAS 38. The material projects as included within
the carrying amount above include compliance with local regulatory
requirements in certain jurisdictions US$5.5 million (2019: US$5.4
million) and a major upgrade to the gaming systems platform US$33.4
million (2019: $26.3 million). An impairment of certain assets
amounted to US$0.6 million was recognised during the year,
additional impairment charges were not considered to be required at
31 December 2020 and the carrying value of internally generated
intangible assets is considered to be appropriate. At 31 December
2020 there were projects with carrying value US$16.7 million (2019:
US$8.4 million), including US$14.4 million (2019: US$5.8 million)
related to the new Sports platform, which were not completed and
therefore not being amortised. All of these projects are expected
to complete and commence amortisation in 2021.
Goodwill
Analysis of goodwill by cash generating units:
B2C B2B Consolidated
------------------- ------ --------------
Bingo AAPN Other Bingo Total goodwill
------ ---- ----- ------ --------------
US $ million
------------------------------ -------------------------------------------
Carrying value at 31 December
2019 104.4 30.9 0.3 24.9 160.5
Impairment during the year (54.4) - - (24.9) (79.3)
Carrying value at 31 December
2020 50.0 30.9 0.3 - 81.2
------------------------------ ------ ---- ----- ------ --------------
Impairment
In accordance with IAS 36 and the Group's stated accounting
policy an impairment test is carried out annually on the carrying
amounts of goodwill and a review for indicators of impairment is
carried out for other non-current assets. Where an impairment test
was carried out, the carrying value is compared to the recoverable
amount of the asset or the cash generating unit. In each case, the
recoverable amount was the value in use of the assets, which was
determined by discounting the future cash flows of the relevant
asset or cash generating unit to their present value.
8 Goodwill and other intangible assets (continued)
The recoverable amount of the Bingo B2C and B2B CGUs as at 31
December 2020, of US$63.8 million and nil, respectively, has been
determined based on a value in use calculation using cash flow
projections from financial budgets approved by the Directors. The
projected cash flows have been updated to reflect the increasingly
strict regulatory atmosphere combined with limited growth
opportunity in the UK market coupled with Group's strategic
decision to reduce focus on Bingo business and increase focus on
other product and geographic opportunities. Key assumptions in
performing the value in use calculation are set out below. It was
concluded that the recoverable amount of the Bingo B2C and B2B CGUs
did not exceed the carrying value. As a result, the Group has
recognised an impairment charge of US$54.4 million and US$24.9
million in respect of Bingo B2C and B2B in the current year against
goodwill. The impairment charge is recorded within exceptional
items in the income statement (see note 4).
Goodwill - Bingo B2C and B2B business
Goodwill and intangible assets associated with the Bingo online
business unit arose following the acquisition of the Bingo online
business of Globalcom Limited during 2007, the acquisition of the
Wink Bingo business in 2009 and the acquisition of the Jet bingo
brands in 2019. The income streams generated from the Bingo online
business, comprise the B2C Bingo cash generating unit and the B2B
cash generating unit.
Key assumptions and inputs used
Cash flow projections have been prepared for a five year period,
following which a long- term growth rate has been assumed.
Underlying growth rates, as shown in the table below for each of
B2B and B2C, have been applied to revenue and are based on past
experience, including the results in 2019 and 2020, projections of
future changes in the UK online bingo gaming market and Group's
strategic decision to increase its focus on other product and
geographic opportunities. Key assumptions in preparing these cash
flow projections include zero short-term revenue growth rate,
continued optimisation of costs per customer acquisition and the
expectation that the Group will continue to operate and be subject
to gaming duties in its core jurisdictions.
The pre-tax discount rate that is considered by the Directors to
be appropriate is based on the Group's specific Weighted Average
Cost of Capital, adjusted for tax, which is considered to be
appropriate for the online Bingo cash generating units.
Underlying Long-term Operating
Pre-tax Underlying short-term growth expenses Operating
discount growth growth rate increase expenses
rate rate(1) rate years year years increase
applied year 1 2-5 6+ 1-5 year 6+
---------- ----------- ------------ ---------- ---------- ----------
At 31 December
2020 9% (8%) 0% 1.5% 0% 1.5%
At 31 December
2019 9% 2% 0% 2% 0% 2%
(1) The underlying growth rates of Bingo B2C and Bingo B2B units
are (10%) and (3%), respectively. This outcome is a direct result
of normalising growth considered attributable to one-off increases
in customer acquisition in 2020.
The calculation of value in use for Bingo B2C unit is most
sensitive to the following assumptions:
(i) Revenue growth rate assumptions - Growth rates are based on
past experience and projections of future changes in the online
gaming market, the continued highly competitive UK Bingo market as
well as the enhanced regulation in the UK market coupled with
Group's strategic decision to reduce focus on Bingo business and
increase focus on other product and geographic opportunities. A
reduction of the long-term growth rate by 1.5% for Bingo B2C would
result in an additional impairment of US$8.1 million.
(ii) Cash flow forecast - cash flow projections may be affected
by changes in the UK gaming market including the continued
macroeconomic influence of the COVID-19 pandemic. A reduction of
10% in the cash flow projections for B2C would result in an
additional impairment of US$6.3 million.
(iii) Discount rate - The pre-tax discount rate is recalculated
by taking into account prevailing risk free rates, equity risk
premium and company beta and having regard to external data
commenting upon the Weighted Average Cost of Capital applied to the
Group. An increase of 1% in discount rates applied for B2C would
result in an additional impairment of US$5.3 million.
8 Goodwill and other intangible assets (continued)
Goodwill - AAPN
The Group recognised goodwill of US$30.9 million following the
acquisition of the remaining 53% interest in the voting shares of
AAPN in December 2018. The recognised goodwill represents the
potential revenues from the US, which the Group considers as a
single CGU, as the states regulate online gambling and reflects
potentially significant opportunities in the US to create
additional value for the Group.
Key assumptions and inputs used
Given the early stage of market development, cash flow
projections have been prepared for a nine year period, following
which a long- term growth rate has been assumed based on the long
term GDP growth rate of the states. Underlying growth rates have
been applied to revenue and are based on past experience of the
Group, including market share forecast for each relevant state. Key
assumptions in preparing these cash flow projections include market
share assumptions based on current 888 market share in other
regulated online gaming jurisdictions, 15% pre-tax discount rate
and the expectation that the Group will continue to operate in the
US and launch in further states as regulation develops. The states
which the Group are forecasted to enter have either already
regulated or are in the process of regulating.
The pre-tax discount rate that is considered by the Directors to
be appropriate is the Group's specific Weighted Average Cost of
Capital, adjusted for tax, and including an addition risk premium
which is considered to be appropriate for the US B2C cash
generating unit.
The calculation of value in use for US B2C is most sensitive to
the following assumptions:
(i) Market share assumptions - A reduction of 12% in market
share assumptions for each state would result in zero headroom for
US B2C value in use.
(ii) Pre-tax discount rate - An increase of Pre-tax discount
rate from 15% to 17% would result in zero headroom for US B2C value
in use.
9 Property, plant and equipment
Office furniture Leasehold
IT equipment and equipment improvements Total
US $ million US $ million US $ million US $ million
------------------------- ------------ ---------------- ------------- ------------
Cost
At 1 January 2019 47.0 6.1 15.5 68.6
Additions 7.5 0.3 0.8 8.6
Disposals (0.1) (0.1) - (0.2)
-------------------------- ------------ ---------------- ------------- ------------
At 31 December 2019 54.4 6.3 16.3 77.0
Additions 8.2 0.7 1.7 10.6
Disposals (9.0) (0.3) - (9.3)
-------------------------- ------------ ---------------- ------------- ------------
At 31 December 2020 53.6 6.7 18.0 78.3
-------------------------- ------------ ---------------- ------------- ------------
Accumulated depreciation
At 1 January 2019 39.5 4.1 14.0 57.6
Charge for the year 5.7 0.5 0.3 6.5
Disposals (0.1) - - (0.1)
-------------------------- ------------ ---------------- ------------- ------------
At 31 December 2019 45.1 4.6 14.3 64.0
Charge for the year 7.6 0.5 0.4 8.5
Disposals (9.0) (0.3) - (9.3)
-------------------------- ------------ ---------------- ------------- ------------
At 31 December 2020 43.7 4.8 14.7 63.2
-------------------------- ------------ ---------------- ------------- ------------
Carrying amounts
At 31 December 2020 9.9 1.9 3.3 15.1
-------------------------- ------------ ---------------- ------------- ------------
At 31 December 2019 9.3 1.7 2.0 13.0
-------------------------- ------------ ---------------- ------------- ------------
At 1 January 2019 7.5 2.0 1.5 11.0
-------------------------- ------------ ---------------- ------------- ------------
Following a review of fully written down assets in 2020, assets
no longer in use with a total cost and accumulated depreciation of
US$9.3 million were written off.
10 Share capital
Share capital comprises the following:
Authorised
31 December 31 December 31 December 31 December
2020 2019 2020 2019
Number Number US $ million US $ million
---------------------------- ---------------- ------------- ------------ ------------
Ordinary Shares of GBP0.005
each 1,026,387,500(1) 1,026,387,500 8.1 8.1
----------------------------- ---------------- ------------- ------------ ------------
(1) including 196,488 treasury shares held by the Group as at 31 December 2020 .
Allotted, called up and fully paid
31 December 31 December 31 December 31 December
2020 2019 2020 2019
Number Number US $ million US $ million
---------------------------- ----------- ----------- ------------ ------------
Ordinary Shares of GBP0.005
each at beginning of year 368,347,794 364,284,539 3.3 3.3
Issue of Ordinary Shares of
GBP0.005 each 669,628 4,063,255 - -
----------------------------- ----------- ----------- ------------ ------------
Ordinary Shares of GBP0.005
each at end of year 369,017,422 368,347,794 3.3 3.3
----------------------------- ----------- ----------- ------------ ------------
The narrative below includes details on issue of Ordinary Shares
of GBP0.005 each as part of the Group's employee share option plan
during 2020 and 2019:
During 2020, the Company issued 669,628 shares (2019: 4,063,255)
out of which nil shares (2019: 32,440) were issued in respect of
employees' exercising market value options giving rise to an
increase in share premium of nil (2019: US$0.1 million).
Shares issued are converted into US$ at the exchange rate
prevailing on the date of issue. The issued and fully paid share
capital of the Group amounts to US$3.3 million (2019: US$3.3
million) and is split into 369,017,422 (2019: 368,347,794) Ordinary
Shares. The share capital in UK sterling (GBP) is GBP1.8 million
(2019: GBP1.8 million).
11 Trade, other payables and provisions
2020 2019
US $ million US $ million
------------------------------- ------------ ------------
Trade payables 26.3 28.4
Accrued expenses 108.4 79.9
Other payables 43.2 22.6
-------------------------------- ------------ ------------
Total trade and other payables 177.9 130.9
Provisions 19.3 10.2
197.2 141.1
------------------------------- ------------ ------------
The carrying value of trade and other payables approximates to
their fair value given the short maturity date of these
balances.
Provisions
The Group has recorded a provision in respect of legal and
regulatory matters and update it to reflect the Group's revised
assessment of these risks in light of developments arising during
2020 including with regard to customer claims and other legal and
regulatory risks. This amount represents management's best estimate
of probable cash outflows related to these matters, which are
closely monitored by the Group. The timing and amount of these
outflows is ultimately determined by the settlement reached with
the relevant authority but would generally be resolved within 24
months of the balance sheet date.
Movement in the provision during the year is as follows:
Total
US $ million
----------------------------------------------- ------------
At 1 January 2019 11.3
Paid during the year (1.1)
At 1 January 2020 10.2
Paid during the year (0.1)
Arising during the period 12.0
Released to income statement during the period (2.8)
At 31 December 2020 19.3
----------------------------------------------- ------------
Current 19.3
Non -current -
----------------------------------------------- ------------
12 Related party transactions
The aggregate amounts payable to key management personnel,
considered to be the Directors of the Company, as well as their
share benefit charges, are set out below:
2020 2019
US $ million US $ million
--------------------------------------- ------------ ------------
Short-term benefits 4.6 5.9
Post-employment benefits 0.2 0.3
Share benefit charges - equity-settled 2.1 1.9
6.9 8.1
--------------------------------------- ------------ ------------
Further details on Directors' remuneration are given in the
Directors' Remuneration Report.
13 Provisions, contingent liabilities and regulatory issues
(a) The Group operates in numerous jurisdictions. Accordingly,
the Group files tax returns, provides for and pays all taxes and
duties it believes are due based on local tax laws, transfer
pricing agreements and tax advice obtained. The Group is also
periodically subject to audits and assessments by local taxing
authorities. Provisions for uncertain items are made using
judgement of the most likely tax expected to be paid and the basis
thereon, based on a qualitative assessment of all relevant
information. The Board considers that any exposure for additional
taxes, if any, that may arise from the final settlement of such
assessments is unlikely to result in any further liability.
(b) As part of the Board's ongoing regulatory compliance and
operational risk assessment process, it continues to monitor legal
and regulatory developments, and their potential impact on the
business, and continues to take appropriate advice in respect of
these developments.
Given the nature of the legal and regulatory landscape of the
industry, from time to time the Group has received notices,
communications and legal actions from regulatory authorities and
other parties in respect of its activities. The Group is
furthermore subject to regular compliance assessments of its
licensed activities, from time to time. The Group's policy is to
engage in dialogue with regulators and address any concerns raised
in such assessments, to work cooperatively with the regulator and
to take action to address any concerns raised as part of the
assessment as soon as possible. The Group has taken legal advice as
to the manner in which it should respond and the likelihood of
success of such actions. Based on this advice and the nature of the
actions, for the majority of these matters the Board is unable to
quantify reliably the outflow of funds that may result, if any. For
matters where an outflow of funds is probable and can be measured
reliably, amounts have been recognised in the financial statements
within Provisions. Except for the regulatory matters described in
note 11, these amounts are not material at 31 December 2020.
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