Final Results

8th Apr 2008 07:01

888 Holdings plc08 April 2008 Part 1 888 Holdings Public Limited Company ("888" or the "Company") Preliminary Results for the year ended 31 December 2007 888, one of the world's most popular online gaming entertainment companies,announces its preliminary results for the year ended 31 December 2007. Financial Summary US$ million 2007 2006 % changeNet Gaming Revenue Casino 118.1 88.8 33 Poker 80.8 68.2 18 Emerging Offerings 14.4 - -Total Net Gaming Revenue 213.41 157.0 36Other Operating Income 3.6 - -Total Operating Income 216.91 157.0 38 Operating Expenses2 59.1 45.6Research and Development Expenses 23.5 19.4Selling and Marketing Expenses 70.9 51.0Administrative Expenses 3,4 17.9 24.6 EBITDA 3,4 45.5 16.4 177 Finance Income and Exchange Gains 6.1 9.6Depreciation and Amortisation (5.8) (3.8) Profit Before Tax from Continuing Operations 4 45.8 22.2 106Basic EPS4 (cents) 12.6 5.7 121 Financial Highlights • Profit before tax4 from continuing operations up 106% to $46m (2006: $22m) • EBITDA3,4 up 177% to $46m (2006: $16m) • Net Gaming Revenue ("NGR") up 36% to US$213m (2006:US$157m), Total Operating Income up 38% to US$217m (2006: US$157m) • Casino NGR up 33% to $118m (2006: $89m) • Poker NGR up 18% to $81m (2006: $68m) • EBITDA3,4 margin up to 21% (2006: 10%) • Basic EPS4 up 121% to 12.6 cents (2006: 5.7 cents) • Liquid resources US$104m (2006: US$114m) • Final dividend 5.0 cents, above stated dividend policy • Following a very strong Quarter 4 last year, 2008 started well with further growth and the group is confident about our prospects for 2008 1 Rounded 2 Excluding depreciation of US$4.2 million (2006: US$3.8 million) and amortisation of US$1.6 million (2006: US$ nil) 3 Excluding exchange gain of US$1.1 million (2006: US$4.7 million) 4 Excluding share benefit charges of US$7.8 million (2006: US$8.8 million) Operational Highlights • Sports betting platform, 888sport, launched in March 2008 • New Bingo brand, 888Ladies, launched in February 2008 • First strategic partnerships signed and launched - Rileys Snooker Halls - UK - Tower Torneos - Latin America - LuckyAce - Europe • First ever acquisition completed - the Bingo business of Globalcom Limited - successfully completed and integrated into 888's umbrella offering • Introduction of Backgammon • Quarterly Casino and Poker active customers increased by 11% to 209k (Q4 2006: 189k) Commenting, Gigi Levy, CEO of 888 said: "2007 was a year of transformation for 888, in which we had to restructure ourbusiness following the enactment in the United States of the Unlawful InternetGaming Enforcement Act in October 2006. I am very pleased to report that we havenow successfully completed the restructuring and repositioning of the businessand have delivered record results for the year, both in terms of revenue andprofit. This demonstrates the resilience of our business, the strength of ourteam and the continued attractiveness of our business model. With many strategicinitiatives now underway, we see a bright future for the business." - ends - An audio replay of the presentation to analysts will be available from theinvestor relations section of 888's website (http://www.888holdingsplc.com) fromlate afternoon today. Contacts and enquiries 888 Gigi Levy Chief Executive Officer +350 49800Aviad Kobrine Chief Financial Officer +350 49800 Bell Pottinger Corporate & FinancialAnn-Marie Wilkinson/Nick Lambert/Andrew Benbow +44 (0) 20 7861 3232 Chairman's Statement On behalf of the Board of 888 Holdings plc, I am pleased to present thefinancial results for the year ended 31 December 2007. This was our first fullyear of operating without our former largest market, the US. We havesuccessfully re-focused our operations into other markets with fantasticresults. Our success is manifested by our recent return to the FTSE250 and byindustry accolades such as "Best Betting and Gaming Company" at the LeisureReport Awards 2007, "Casino of the Year" and "Best Land - Links Partnership" atthe eGaming Awards 2007 as well as "Casino of the Year" at the Gambling OnlineAwards 2007. Our first ever acquisition was completed in May with the purchase of the onlineBingo business of Globalcom Ltd., and has proven to be a great success withexcellent financial results following its integration into 888's offeringumbrella. The year was marked as a year of innovation and initiatives - we have expandedour business model by offering our full service on a 'white label' basis toselected business partners as demonstrated by our strategic alliances withRileys Poker in the UK and Tower Torneos in Latin America, obtained an onlinesportsbetting licence in Italy, introduced a targeted local offering in Asiathrough Live Dealer and released our first ever branded Video Slot Machines toname a few. I would like to thank all 888 employees, our management and our customers formaking 2007 an outstanding year. Financial Results 2007 was a phenomenal year for us. NGR increased 36% to $213 million (2006: $157million) with Total Operating Income increase of 38% to $217 million (2006: $157million) driven by turnover growth from both our core Casino and Poker productsand from the introduction of new products, particularly Bingo. Profit Before Tax* showed remarkable growth and increased 106% to $46 million (2006: $22million). Dividend Given our strong financial results, in addition to our interim dividend of 1.8cents per share paid in October 2007, the Board has recommended a final dividendof 5.0 cents per share. Our Values During 2007 we outlined and implemented our core values that represent thephilosophy by which we operate. We take pride in our ability to consistentlymaintain them. Our values were implemented across all parts of the organization,and comprise excellence, innovation, caring, customer centricity, leading andcollaboration. Responsible gaming Responsible gaming is a fundamental pillar of our business. Our aim is to ensureour services are used responsibly, and are fair and transparent. We work hard toraise awareness through education and to provide our staff with first rate toolsfor ensuring a responsible gaming environment. In 2007, we were awarded for thefirst time "Gamcare" certification, recognizing 888's dedication to customerprotection. We also launched our responsible gaming website (www.888responsible.com) wherewe offer comprehensive and easily accessible information about responsiblegaming practices, dealing with problem gambling, preventing underage gamblingand more. Outlook Building on a great 2007, we have introduced our new Bingo brand, 888ladies, andlaunched 888sport, our Sportsbook offering. Quarter 1 of 2008 started wellacross our business, particularly in our new Bingo and Sportsbook offering.Your Board believes we are well positioned to develop and grow our business inthis exciting and expanding space for the foreseeable future. Richard Kilsby Chairman * Excluding share benefit charges of US$7.8 million (2006: US$8.8 million).Continuing operations. Chief Executive's Review 2007 was a year of transformation for 888, in which we had to restructure thebusiness following the enactment in the United States of the Unlawful InternetGaming Enforcement Act ("UIGEA") in October 2006, which resulted in us losing55% of our revenues almost overnight. I am very pleased to report that we have now successfully completed therestructuring and repositioning of the business and have delivered very strongresults for the year, both in terms of revenue and profit. We have emerged abetter company, clearer in our strategy, more diverse and complete in ouroffering, with a stronger presence in more markets and much greater local, "in-country" focus. We have also restructured our senior operational managementteam, with a mix of experienced managers from within the Group and seasonedexecutives recruited from other industries, enabling us to innovate where theindustry has been slow to change in recent years. The financial results speak for themselves: the 106% Profit Before Tax* growthto $46 million and 38%. Total Operating Income growth to $217 milliondemonstrate the resilience of our business, the strength of our team and thecontinued attractiveness of our business model. With basic earnings per share*of 12.6 cents and strong 2007 we have fully recovered from the effects of UIGEA.With various strategic initiatives now underway, we see a bright future for thebusiness. These are excellent results and given our strong financial performance, we willbe paying a final dividend of 5.0 cents per share, in addition to the interimdividend of 1.8 cents per share paid in October 2007. Delivering on our strategy Our success in 2007 was based on a clear strategy and business focus coupledwith great execution. Our strategy was founded on the same principles that hadmade us successful in previous years but building on these core principles inorder to incorporate several new directions allowing us to accelerate growth. Wecontinued focusing on acquiring and retaining valuable customers by delivering acompelling, localised, innovative, unique and entertaining customer experiencewhile embarking on new initiatives. These initiatives included strategicpartnerships, the use of new and innovative marketing channels, the integrationof third party games, the introduction of enhanced communication andentertainment features and a revolutionary gaming environment in which customerscan access all games from a single location. 2007 was a phenomenal year in terms of the development of our offering. Weintroduced an "industry-first" with our first fully-integrated gamingenvironment, which allows access to all of our games from one location. Thisapproach clearly enhanced revenues from customers who were able, for the firsttime, to play any game they wanted without limitation and enabled us to bettercross-sell and up-sell to our customers. The success of this approach is nowproven and we will continue to provide an integrated environment to morecustomers and add more games into this environment. Another significant development effort centred on opening our platform to easyintegration with games from other providers. Whilst we will continue developingour own core games and technological infrastructure, we will carefully select"best-of-breed" partners to provide us with additional games, particularly thosewith a local flavour, which will assist us in penetrating local markets. Thefirst of these games is being introduced and we plan to leverage thisinfrastructure investment and integrate various additional games in the comingyears, with a number already in the pipeline for 2008. This capability willenable us to leverage the Internet's 'long tail' phenomena as we have no 'realestate' costs in putting more games into our software client. The introductionof additional games, even if they will only be played by a small percentage ofour customers will have a positive return on investment. One of the key focuses of our development effort was the integration of a Sportbetting platform into our offering. This process was successfully completedtowards the end of the year and the service was recently launched. We have alsointroduced a live-dealer solution with our Asian partner, Entertasia, which willincrease our presence in the Asian market. Early 2008 saw the introduction of888ladies which is positioned to appeal to a whole new market for the Group.With these new products we now have a strong and complete portfolio, with ourbusiness based on the four core pillars of Casino, Poker, Sports betting andBingo together with supplementary Backgammon and Live-Dealer products. * Excluding share benefit charges of $7.8 million (2006: $8.8 million).Continuing operations. During the year we managed to upgrade and improve all of our existing platforms,introducing new Casino and Poker versions with additional games, innovativefeatures and a better overall interactive customer experience. One suchenhancement was the introduction of our first-ever branded game - the 'BlondLegend' video Slot which was an immediate success, and another was ourinnovative Poker client allowing users to choose a 3D or 2D view with a rotatingtable and various additional features. Finally, given the focus on geographic expansion, we succeeded in completing thetranslation and localisation of all our Casino games into the 14 languages wecurrently support on top of expanding our language proposition with two brandnew languages. This major effort resulted in an immediate increase in revenuesin markets which previously were not supported by a fully localised product. As in previous years, we were proud to see our innovative, market-leadingoffering being selected for various awards, including the prestigious 'Casino ofthe Year' award both in the eGaming and the Online Gambling Awards. From a marketing perspective, 2007 was focused on additional brand building,innovative marketing tools, loyalty increasing programmes and a significantdrive on local and integrated marketing efforts. Overall we had a very good yearin which we managed to grow our business whilst keeping marketing spend at 33%of NGR. In terms of brand building, we have invested in re-launching the 888 brand inconjunction with our 'Enjoy the Game' tagline across all media channels andmarkets. This new campaign delivered our best ever brand awareness as reflectedin surveys conducted in the UK and Spain. This campaign was a milestone in ourbrand building efforts. For the first time ever, in 2007 we invested in web 2.0 marketing channels,including viral campaigns based on a combination of professionally crafted anduser generated content. We have also integrated various additional innovativeonline marketing tools in various areas, especially in the search engine domain,which allowed us to keep our marketing costs within the challenging budget thathad been set. Customer Relationship Management ('CRM') has always been one of our corecompetencies with our industry leading service levels and the personal servicewe are known to provide to our customers. 2007 saw further enhancements with thepublication of the first two issues of our premium customer magazine 'Eight',our improved loyalty programme and implementation of improved communication andpromotional tools. Coupled with our world-famous VIP programme, our CRM approachhas ensured a very successful 2007 in terms of customers' life time value andloyalty. Our marketing success in 2007 relied fully on a localised and integratedapproach. We implemented better co-ordination across the Group and comprehensivemonitoring of our activities in every market. We signed more local TV dealsacross Europe, and benefited from extensive international coverage of oursuccessful sponsorships of the World Snooker Championship and Sevilla FootballClub. The outcome of these localisation efforts is apparent in our numbers,which show far better geographical diversification, with our European marketincreasing to 42% of our business in 2007 compared to 36% in 2006. We are mostsatisfied with our growth across various markets and will continue investing inlocalised integrated marketing efforts in 2008 as we continue to penetrate yetmore new markets. The most significant strategic move in the year was our decision to expand ourpure business-to-consumer business model with a combined approach which includesworking with carefully selected strategic business-to-business partners. Underthe "Powered by 888" endorsement, we have launched a new line of business as aservice provider to virtual operators. We launched three new partnerships in2007 with Riley's in the UK, Tower Torneos in Latin America and LuckyAce inEurope. More such partnerships will follow with several already in the pipeline. This new area of our business received a significant boost with our acquisitionof the Bingo assets of Globalcom in May 2007. This transaction positioned 888at the forefront of online Bingo service providers, serving leading businesspartners such as Cashcade, operating Foxy Bingo, Bingo Scotland and a number ofother well-known brands. We have already secured additional Bingo deals,including with WinkBingo, a newly launched Bingo network. While the core of our business remains in the business-to-consumer area, thisnew approach enables us to better leverage our investments and generateadditional revenues and profit streams from market segments where penetrationwould require significant additional effort and marketing spend. This activityhas already contributed to our bottom line in 2007 and is expected to grow inimportance in the coming years as we announce new deals. Our success resulted inthe 'Best Land-Links Partnership' award in the eGaming awards is a clearindication of the innovative nature of our approach in this area. During 2007 we successfully integrated our acquired Bingo assets which now workas a seamless part of our business. On top of this successful integration, wehave managed to accelerate the growth of the Bingo business which grewphenomenally throughout the year. This now proven ability to acquirevalue-enhancing assets and integrate them into our business underlines thevalidity of our M&A approach and therefore we will continue to look for theright opportunities to supplement our strong organic growth. In addition to our strong financial results, our overall performance wasacknowledged in our securing, for the first time, the 'Best Betting and GamblingCompany' award in the 2007 Leisure Report awards. Finally, we continue to be indebted to our fantastic team of employees who havesucceeded in delivering the outstanding 2007 results. We have a phenomenal teamat all levels, with extremely talented individuals who are led by a world-classmanagement team. To maintain this team and ensure their ongoing motivation wecontinue to strive to be the employer of choice. These efforts have resulted insuccessful new recruits into the Group. Our employees will remain a key part ofour focus in the years to come. Regulation While the regulatory landscape remains unstable in some regions, 2007 saw somepositive developments. In Europe, the European Court of Justice's ruling in thePlacanica case restated the importance of EU regulations to our industry. Thisdecision, together with the recent infringement actions and position lettersfrom the European Commission, marks a very positive development enabling EUlicensed operators, such as 888, to provide their services throughout theEuropean Union. Moreover, we have seen a trend throughout the year of additionalEuropean jurisdictions embarking on a path to license and regulate onlinegaming, a route which we clearly welcome. Outside of Europe we have seen initial signs of positive regulation both in AsiaPacific and Latin America, where newly introduced regulations in somejurisdictions could allow us to benefit from working in a locally licensedenvironment. As previously stated, we see these to be very positive developmentsas we continue to pursue a clear regulatory framework for all jurisdictions inwhich we operate. We will continue to monitor the regulatory landscape and tolook for opportunities to operate in regulated markets. As stated in our announcement dated 5th June 2007, we have initiated preliminarydiscussions with the United States Attorney's Office for the Southern Districtof New York relating to our activity in the US prior to the signing of theUIGEA. It is too early to assess any particular outcome of these discussions. Responsible gaming 2007 was also a turning point in our approach to responsible gaming. Whilst 888has always been a leader in supporting the prevention of problem and underagegambling we recruited a dedicated executive to handle these important issues.We have, as a result, introduced both enhanced tools and policies giving us aneven tighter control on problem and underage gamblers. These efforts wereacknowledged by Gamcare who awarded us their responsible gambling certificate.Recently, our educational efforts developed even further with the introductionof www.888responsible.com, a website dedicated for providing access to toolswhich identify and deal with problem gambling. This industry-first educationaleffort and our additional activities in the area mark our continued commitmentto prevent problem and underage gambling. Our 2008 focus 2008 will see the continued execution of our strategy with acceleratedinnovation facilitated by the investment made in our infrastructure in 2007. Nowthat we have delivered all of the required products, developed integrationcapabilities and white labelling capability together with a far deeper localisedoffering, we can focus on the monetisation of these assets. In terms of our offering, our plans include the introduction of several newgames, with a strong focus on localised games which will continue to support ourpush into new markets. We will continue to develop our relationships with thirdparty games providers to ensure that we will not miss any exciting, potential "hit" games. We will also introduce various new innovative features such asincreased personalisation, tournaments around Casino games and more content andentertainment across our product portfolio. From a marketing perspective, 2008 will see further investment in our brand andthe use of additional innovative marketing channels. We will also introduce somemajor events such as the recently launched $3 million World Poker Crown Pokertournament and a major event planned for the 8 August 2008 - the "888" date! On the business-to-business front, we aim to sign and launch more strategicpartnership deals as a means to accelerate our growth. Outlook 2008 has started well, especially with our recently introduced female-orientedBingo proposition, 888ladies. This innovative website, which already boaststhousands of active customers daily, is performing above our expectations. The recent launch of our Sports betting proposition, 888sport, is alreadygenerating revenues and - coupled with several more planned product launches, weexpect our offering to continue being one of the main growth drivers of ourbusiness. With our current strategic partnerships performing well, we are progressing withadditional potential partners and we expect at least one new partnership to belaunched in 2008. Given the positive start to 2008, the successful launch of 888ladies and888sport, our strategic partnership deals, current trading and our clearbusiness strategy and focus, we are confident in delivering future growth during2008. Gigi LevyChief Executive Officer Enhanced Business Review Introduction 888 Holdings plc is one of the world's most popular online gaming entertainmentcompanies. 888 owns and operates various world renowned websites, includingwww.888.com, www.Casino-on-Net.com, www.pacificpoker.com, www.888ladies.com andwww.888sport.com. In 2007, 888 continued to follow its strategy of expanding and diversifying itsbusiness on the basis of this strong foundation. During the year, 888 acquiredthe business and assets of a market leading Bingo network operator, it added thein-house developed Backgammon to its offering and an online Sportsbook licensedin Italy. Recent additions include the global rollout of an internationalSportsbook offering in six European countries. In a key strategic move, 888 hasalso expanded its business model, leveraging its existing assets and brandreputation, by licensing its software and unique services to carefully selected"white label" partners who allow 888 to penetrate new markets. 888 is indeed thehome of online gaming entertainment. 2007 was 888's first full year without a contribution from the US market, afterthe cessation of its operations in that market in October 2006. It was a yearcharacterised by rapid growth, with a 38% increase in Total Operating Income anda 106% increase in Profit Before Tax*, as the Group refocused its activities onnon-US markets by localising its product offerings and releasing more games inmore languages than ever before. The addition of Casino games into the Poker client has dramatically increasedthe revenue stream from 888's traditional core product, and has signalledcontinued progress towards the ultimate goal of providing all of its offeringsthrough a single, unified client. In addition, 888's offering benefited from theaddition of Backgammon to its suite of games, and also enhanced the appeal ofexisting games by adding both contemporary and themed games such as the sportsthemed "rough rugby" and Marilyn Monroe inspired "Blond Legend" Video Slots. The immediate success of 888's new white label strategy was demonstrated by thepartnerships developed with Tower Torneos in Latin America, Rileys Poker in theUK, and Lucky Ace in Europe. 888's Italian customers have enjoyed the launch of a dedicated online Sportsbookproposition which has not only provided invaluable experience from 888's firstforay into this product type but also, through its licensing by the ItalianGovernment, further validated 888's regulatory and licensing credentials. * Excluding share benefit charges of US$7.8 million (2006: US$8.8 million).Continuing operations. In addition to its organic growth and in-house development, 888 completed itsfirst ever acquisition through the acquisition of the assets comprising theonline Bingo business of Globalcom Ltd. in May 2007. This business has now beensuccessfully integrated into 888's existing operations. At the end of 2007, 888 entered into a deal with Blue Square which allows theGroup to offer a sportsbetting product to all of its customers in early 2008.This deal completes the Group's aim to provide a "one stop" betting and gamingproposition to its customers. As an added benefit, 888 has moved closer towardsits goal of providing a full multi-currency offering. The Bingo acquisition and the partnership with Blue Square represent new,previously unexplored growth avenues. The addition of the Bingo business is thefirst time 888 has opted for growth by acquisition, and demonstrates its abilityto identify, execute and integrate profitable external opportunities. 2007 was 888's tenth anniversary and, as in previous years, 888's excellence andmarket leading position was acknowledged by third parties. 888 was recentlyawarded "Best Betting and Gaming Company" at the Leisure Report Awards 2007, "Casino of the Year" and "Best Land - Links Partnership" at the eGaming Awards2007 as well as "Casino of the Year" at the Gambling Online Awards 2007. Review of Financial Results Financial Summary Year ended Year ended 31 % change 31 December December 2007 2006 $ $ million % millionNet Gaming Revenue Casino 118.1 88.8 33 Poker 80.8 68.2 18 Emerging Offerings 14.4 - -Total Net Gaming Revenue 213.41 157.0 36Other Operating Income 3.6 - -Total Operating Income 216.91 157.0 38 Operating Expenses2 59.1 45.6Research and Development 23.5 19.4ExpensesSelling and Marketing 70.9 51.0ExpensesAdministrative Expenses 3 17.9 24.6 EBITDA 3,4 45.5 16.4 177 Finance Income and 6.1 9.6Exchange Gains Depreciation andAmortisation (5.8) (3.8) Profit Before Tax from 45.8 22.2 106Continuing Operations 4 1 Rounded 2 Excluding depreciation of US$4.2 million (2006: US$3.8 million) and amortisation of US$1.6 million (2006: US$ nil) 3 Excluding exchange gain of US$1.1 million (2006: US$4.7 million) 4 Excluding share benefit charges of US$7.8 million (2006: US$8.8 million). Financial Results Total Operating Income and NGR The Group achieved strong financial results in 2007 with NGR increasing by 36%to $213.4 million (2006: $157.0 million), Total Operating Income increasing by38% to $216.9 million (2006: $157.0 million), EBITDA* increasing by 177% to$45.5 million (2006: $16.4 million) and Profit Before Tax* from continuingoperations increasing 106% to $45.8 million (2006: $22.2 million). NGR increased strongly in both Casino and Poker, and also from the introductionof new products ("Emerging Offerings"). These products, particularly the newlyacquired Bingo business (since 17 May 2007), generated $14.4 million NGR in2007. In 2007, the Group introduced, for the first time, the option forcustomers to transact in their local currency, and as a result, other operatingincome has been generated representing fees from processing customers'cross-currency deposits and withdrawals effectively reducing costs associatedwith payment service providers. Geographical segmentation As the table below illustrates, in 2007, Europe (excluding the UK) showeddramatic growth of 58%, with strong growth from both Poker and Casino, followedby the UK, which grew by 32%. The Rest of the World, mostly attributable to theAsia Pacific region, also grew rapidly by 35% compared to 2006. Growth in theAmericas (excluding the USA) was modest. As a result of the strong revenue growth during the year in Europe (excludingthe UK), this region now represents 42% of 888's total operating income comparedto 36% in 2006. Total operating income by geographical market: Year ended Year ended 2007 Growth 31 December 31 December 2007 2006Total operating income $million % share $million % share %UK 93.0 43 70.6 45 32Europe (excl. UK) 90.1 42 57.1 36 58Americas (excluding USA) 18.0 8 17.6 11 2Rest of World 15.9 7 11.8 8 35Total 216.9* 100 157.0* 100 38 * Rounded Casino The Casino business was one of the main drivers for the Group's strong revenuegrowth in 2007, with a NGR increase of 33% to $118.1 million (2006: $88.8million). The continued localisation of the Casino software client by providingthe offering in additional languages and the introduction of the Casino gamesinto the Poker client was an instant success, and was the source of much of thisgrowth. This growth demonstrates the high potential for cross-selling servicesin a unified offering. * Excluding share benefit charges of US$7.8 million (2006: US$8.8 million). Casino growth was driven predominantly by the popularity of 888's ever expandingselection of Video slot machines. Video slot bet levels increased year on yearby a staggering 108%. It is expected that this trend will continue well into2008 and is anticipated to be boosted by the planned integration of a widevariety of new third party games. The continued popularity of Roulette andBlackjack supported continued growth that has resulted in an improvement tooverall house edge on Casino games; House edge increased from 2.9% in 2006 to3.1% in 2007. The Group will continue to encourage customers to migrate towardsits higher margin games. Poker The Poker business also delivered strong growth in 2007 with NGR increase of 18%to $80.8 million (2006: $68.2 million). This growth was driven mainly by thepopular Texas Hold'em and Omaha ring games which appeal to a broad spectrum ofcustomers. The attraction of ring games resulted in a 25% growth in bet levelscompared to 2006. The Group's tournaments benefited from the introduction inJune of "re-buy" and "add-on" functionality. Poker growth was also driven by theintroduction of the white label business model - the launch of Rileys Poker andthe Tower Torneos offering. For consistency, NGR from Poker excludes NGR generated by customers playingCasino games from the Poker platform, which increased overall revenue and helpedretain customers for longer. Emerging offerings Emerging Offerings contributed $14.4 million of NGR during the year,representing 6.8% of total NGR. This revenue is primarily generated by the Bingobusiness (acquired in May 2007), but also by the newly introduced Backgammonoffering (April 2007). It is expected that these new games will generate higherNGR in 2008. The Group's Bingo business generates royalty revenue both from its position as asoftware licensor and network provider to a number of popular household namebrands such as www.thinkbingo.com and www.foxybingo.com, and also NGR fromcustomers playing on the Group's own websites including www.888ladies.com andwww.bingoballroom.com. Over the short time that the Backgammon has been available, its main benefit hasbeen as a retention tool and an expansion to the range of entertainment productson offer, enabling the Group to service a dedicated market segment, allowingcasual customers the opportunity to test their skills. Expenses Effective cost control during the year has resulted in slower expense growththan revenue growth, with expenses* increasing by only 22% compared to 38% totaloperating income growth. Salaries and benefits, representing the largest component of operating expenses,increased by 30% to $31.0 million (2006: $23.8 million). The additionalheadcount related to the Bingo business and the expansion of the Group'sregional focus, were a major source of this increase. Modest salary increase andheadcount increases across the business contributed the remainder. The second largest cost item in operating expenses is commissions paid toPayment Service Providers, which totalled $13.4 million (2006: $9.1 million)representing 6.3% of NGR (2006: 5.8%). When stripping out Emerging Offerings,this ratio stands, in 2007, at a comparable 6.0%. The Group places strong emphasis on risk management procedures, which resultedin a decrease in its chargeback ratio to 1.3% of NGR in 2007 (2006: 1.6%). Intangible assets from the Bingo acquisition were amortised during the year,which contributed an additional non-cash expense of $1.6 million (2006: nil) tooperating expenses. The continued investment in the Group's products aimed at expanding the rangeand appeal of its offering has resulted in an increase in research anddevelopment expenses in 2007 by 21% to $23.5 million (2006: $19.4 million). Thisincrease directly relates to headcount expansion and salary increase in order toattract and retain a highly skilled work-force, as the Group develops most itsproprietary software internally. * Expenses include operating expenses (excluding share benefit charges),research and development, selling and marketing and administrative expenses Marketing expenses during the year reached $70.9 million (2006: $51.0 million),representing a stable rate of 33% of NGR, demonstrating sustained marketingefficiency. In 2007, the Group focused on a rapid expansion of its affiliatechannels. This expansion enabled cost control per new customer acquisition and ameans of quickly penetrating new markets. Attracting valuable new customers atthe right cost is a key driver of 888's business profitability. In 2007 theGroup continued to be focused on attracting, and retaining, customers fromselected segments which are most profitable and optimising the recruitmentchannel to cost. During the year 888's marketing operations recruited more than260,000 new Casino and Poker First Time Depositors ("FTD's") from more than amillion new real money registrations with an average Cost Per Acquisition ("CPA") in 2007 of $225 (2006: $183)*. Administrative expenses** decreased by 15% to $16.9 million (2006: $19.8million), mainly driven by the departure of the former Chief Executive Officerwhich triggered a non-recurring payment of $2.75 million. Professional fees alsodecreased as post-UIGEA the Group looked to balance the change in costs of thisnature. Share benefit charges As part of 888's commitment to invest in human capital, eligible management andemployees received in the past equity awards under the 888 All Employee SharePlan ("Share Plan"). In 2007, as in 2006, the Group continued to award sharesand options to employees under the terms of the Share Plan. The non-cash chargefor 2007 was $7.8 million (2006: $8.8 million), comprising a $1.8 millioncharge relating to grants in the current year (2006: $2.5 million) and $6.0million relating to grants made in the past. Finance Income With the Group continuing to generate and retain cash surpluses throughout theyear, net interest income remained stable at $5.0 million (2006: $4.9 million). Profit and Earnings per share As a result of strong revenue growth, stable marketing to turnover ratio,maintaining strong cost control and better management of resources, ProfitBefore Tax** increased dramatically by 106% to $45.8 million (2006: $22.2million). Profit Before Tax** from continuing operations delivered a margin of 21% (2006:14%), further testament to the Group's strong operational gearing throughout theyear, a remarkable achievement given the changes imposed by discontinuing itsoffering in the US. While the Group did not operate in the US in 2007, the small loss fromdiscontinued operations related to legal fees incurred in connection with itspast activities. Basic Earnings per share more than doubled at 12.6c in 2007 (2006: 5.6c). Dividend The Group's stated policy is that it anticipates adopting an annual dividendpayment ratio of approximately 50% of profit, but the policy would reflect longterm earnings and cash flow potential of the Group. On 31 October 2007, theCompany paid an interim dividend of 1.8 cents per share totalling $6.1 million(2006 interim dividend totalling $23.1 million) (in 2006, the dividend includedearnings from discontinued operations). Given the strong financial performancein 2007, the Board recommends a final dividend of 5.0 cents per share. Cash flow The Group's strong profitability during the year was matched by strong cashgeneration with cash generated from operating activities reaching $46.2 million. During 2007, the Group made cash payments of $20.0 million in respect ofinvesting activities (2006: $3.6 million), primarily relating to the Bingoacquisition. In addition, the Group returned $36.2 million (2006: $28.7 million) in dividendsto its shareholders consistent with its dividend policy. The Group's cash position as at 31 December 2007 remained strong at $104.3million (31 December 2006: $114.4 million). This is a positive position giventhat the Group has no debt. * Excluding customers recruited on a revenue share basis ** 2007 excluding Share benefit charges of $7.8 million (2006: $8.8 million) Balance Sheet The Group's balance sheet remains strong, as it has no debt, but retains ampleliquid resources, including the ability to repay all customers' balances ondemand at any time. As a result of the Bingo acquisition 888 recognised intangible assets andgoodwill totalling $40.7 million after the amortisation of intangibles of $1.5million in the year. Goodwill, valued at $37.9 million (2006: $nil million), wasnot impaired at 31 December 2007 as per a review performed by the Board. Cash and cash equivalents as at 31 December 2007 remained strong at $104.3million (31 December 2006: $114.4 million). The slight decrease in the cashposition during the year, despite strong cash inflows from operations of $49.3million, is a result of the consideration paid in respect of the Bingoacquisition of $17.1 million, and payment of dividends of $36.2 million (2006:$28.7 million) to shareholders. Trade receivables have increased to $13.4 million (2006: $6.2 million), theincrease resulting from higher payment processing activity during the year,which peaked towards the end of the year. Most balances were fully settledimmediately after the start of 2008. Deferred consideration of $25.1 million payable in respect of the Bingoacquisition is the main reason for the increase in trade and other payables by$35.1 million to $63.0 million (2006: $27.9 million). Balances owed to customers increased by 17% to $26.4 million (2006: $22.7million) representing growth in business volume, in part being due to the newBingo activity. 888's Strategy 888's goal is to create the largest community of people who play online formoney and grow its annual revenue and profit numbers to a level greater thanwhen its US business closed in October 2006. To achieve this goal, 888 must giveits customers the ultimate customer experience whilst maintaining focus onacquiring and retaining customers by delivering a compelling, localised,innovative and unique offering. Given its 2007 success, 888 remains committed toits strategy, the main cornerstones of which are: • Thinking Global while Acting Local • Enhanced and Innovative Offering • State of the Art Integrated Marketing • Customer Intimacy • Market Leading Customer Service • Focused, Efficient and Effective Organization • Employer of Choice Thinking Global while Acting Local: Providing the right customer experience musthave a local flavour. The withdrawal from the US market meant that 888's principle of "thinking globalwhile acting local" became more important than ever. Aiming to penetrate newmarkets simultaneously, 888 had to quickly enhance its local focus. In 2007, 888achieved a greater regional focus and localisation than ever before. All of888's Casino games were provided in 14 languages with full customer support. Thepayment system backbone was also upgraded to allow multi-currency deposits andwithdrawals. These features succeeded in generating additional revenuesimmediately. 888 will continue to be focused on improving localisation in 2008and beyond, by enhancing its offering with even more local games. Enhanced and Innovative Offering: Offering a full range of entertainment optionsto customers. In 2007, 888 launched its acquired Bingo and in-house proprietary Backgammonofferings, added additional video Slot machines and upgraded the Poker andCasino versions. The "one-stop shop" unified offering was introduced enablingcustomers to play any game they want with easy access from one platform. InQuarter 1 of 2008, the sports betting offering was introduced, which completesthe desired range of offerings. 888 aims to add more content, information andcommunity tools to its offering, and, through partnerships with alternativeplatform owners, to spread this offering beyond internet boundaries into hotels,airplanes and onto mobile telephones. State of the Art Integrated Marketing: Creating an integrated marketing approachbetween channels and across the company. 2007 saw 888 continue its extensive investment in its brand. The "enjoy the game" tagline was introduced to the 888 brand, and reached phenomenal levels ofbrand recognition in both the UK and Spain. Additional 888 brands were launchedsuch as "888ladies" and "888sport". As part of the drive towards both increasinglocalisation and a more fully integrated marketing approach, 888 has identifiedlocal consultants in selected key markets for better coordination and monitoringof its activities in these markets. 888 signed and launched initial strategicpartnerships with Rileys and Tower Torneos which allow it greater penetration todistinct local markets. 888 plans to sign further similar partnership deals in2008. Customer Intimacy: Using knowledge about Customers to optimise their customerexperience while prioritising resource allocation. 888 has continued its focus on studying its customers' online behaviour moreclosely, in order to improve its knowledge of their betting habits andpreferences. From direct contact with customers, by market research of theirbehaviour and through a detailed analysis of trends using its in-house datawarehouse, 888 has continued to refine how best to engage, thrill and retain itscustomers. Market Leading Customer Service: Providing the industry's best customer service. The drive towards increased penetration into new markets was coupled with theneed to expand customer support to non-English languages. As part of thesesignificant changes, 888 achieved its best ever results in its customersatisfaction surveys. Focused, Efficient and Effective Organization: Remaining competitive by havingan efficiently run operation maintaining its focus on 888's particular plans andgoals. 2007 saw 888 achieve a 38% increase in revenue with only a 9% increase inyear-end headcount. In 2008, 888 will continue with strong cost control toensure high profitability levels are maintained and further improved. Employer of Choice: Aiming to be the employer of choice. 888's most important asset is its human capital. 888 has a skilled, committedwork force who have remained with the Group since the early days and these havebeen joined by highly talented employees who have been recruited during the lastyear. It would not have been possible to achieve the phenomenal results in 2007without the enormous efforts of these employees. 888 aims to retain itsemployees, ensure their motivation and to attract further leading talent tosecure future success by continuing to be the employer of choice in the market. 2007 Business developments Marketing and CRM 2007 was a busy and highly successful year for 888's industry leading marketingactivities. The marketing function was restructured under four key work-streams:acquisition, retention, branding and white label partnerships. This has enabledsolid performance of the business in terms of acquisition and retention, inaddition to allowing significant focus on the three priority areas: • Branding and integrated marketing • Customer Relationship Management • Strategic partnerships / White labels Branding For a number of years, the Group has enjoyed the highest level of brandawareness in the sector in its key markets. "888" has always been associatedwith reliability, trust and leading customer service, all of which are importantattributes for the success of the business. In 2007, the Group started to buildon this awareness with a strong, differentiated and more emotionally persuasivebrand positioning: www.888.com "Enjoy the game". During 2007, the Group rolledout its first ever TV campaign supported by press and signage across the UK andin a number of other territories. By the end of 2007 the brand saw significantimprovement in key brand attributes. The clear, focused brand positioning also enabled more integrated marketing. In2007, there was considerable focus behind fully integrated marketing campaigns;leveraging consistent and complementary messages across all marketing channels.This resulted in communication with a real impact, which attracted more firsttime depositors and reinforced retention activities. Customer Relationship Management As the Group evolves, it continues to recognise the significance of a wellresourced Customer Relationship Management department. As such, 888 hascontinued to invest substantially in both financial and human resource terms inthe CRM department in 2007. The CRM team is tasked with both creating loyalty and augmenting expenditure byensuring that customers both play and stay with the Group for as long as theycontinue to enjoy the game: playing more games, more often, and for more time.This customer loyalty is generated via two departments, one focusing on theGroup's mass market customer base and the other concentrating on VIP customers. The CRM team continuously seeks to innovate the range of promotions, bonuses andcommunication channels, whilst segmentation methods ensure that the relevantmessage reaches the right customer at the most opportune time. An excellentexample of this approach is the 888 customer magazine "Eight" delivered tocustomers in the UK. This magazine is a tool seeking to, reinforce loyalty and,ultimately, spend ratios. The VIP department ensures that the Group builds a real one-on-one personalrelationship with VIPs so that 888 remains their online gaming provider ofchoice. This approach has ensured a very successful 2007 in terms of customerlifespan and their playing revenues with the Group. These customer relationships have been strengthened by the Group's commitment tolocalisation. In 2008, with the introduction of additional core products, together withsophisticated new communication and loyalty tools, the CRM team will be able toeven better segment and communicate with its customer base to ensure effectivecross-selling and up-selling of the Group's enhanced portfolio of products. Strategic Alliances 2007 was the year in which the Group became a 'white label' provider. Under the"Powered by 888" endorsement, the Group launched a new line of business as aservice provider to third parties with their particular skill sets and targetaudiences. 888 initially entered into three partnerships: Rileys Poker: Rileys, famous for their chain of snooker halls, sought torefocus their business behind in-hall Poker tournaments. 888 created adistinctive proposition for the Poker community enjoying a unique environmentintegrating both the online and offline version of Rileys Poker. Thispartnership was acknowledged by the industry when 888 received the 2007 "Land-Links Partnership of the Year" Award at the eGaming Awards. Tower Torneos: Tower Torneos ("TT"), are already an established Casino operatorin Latin America with an online Poker room. 888 worked with TT to provide animproved online offering, and successfully transferred TT's existing customersto the new gaming client "Powered by 888". This created an immediate and strongfoothold in the Latin America region for the Group, generated significantliquidity for the Poker platform and opened new marketing channels in the regionpreviously unavailable to the Group. LuckyAce: LuckyAce is led by a team of gaming industry veterans with a trackrecord of customer recruitment and traffic generation. LuckyAcePoker andLuckyAceCasino brands are a powerful combination of 888's added value platformwith the LuckyAce online marketing expertise. LuckyAce is focusing on rapidlygrowing European markets, and will operate in parallel to 888's own brands,boosting market share in these high potential territories. The new strategic alliances part of 888's business received a significant boostwith the acquisition of the Bingo business, positioning the Group right at theforefront of Bingo service providers. While 2007 focused mainly on Poker partnerships; in 2008, 888 will focus onproviding an integrated product offering to business partners, encompassingPoker, Casino, Bingo and Sportsbetting. 888 intends to launch several newintegrated Poker and Casino partnerships throughout the year. In addition to these priority areas, other marketing channels have continued todrive acquisition and retention: Online The online marketing department has undergone significant developments in thepast year, recruiting a large portion of the company's new customers through itsmulti-department expertise. This department implemented an array of onlinebranding and direct-response advertising campaigns targeting a wide range ofcustomer segments. The department also experimented at the leading edge ofonline marketing, running campaigns using viral marketing, user-generated videocontent and several other web 2.0 trends. There was considerable growth inrelationships with technology providers, advertising networks and publishers,which contributed to increased performance in new and existing online campaigns. Sales The affiliates department achieved considerable growth in 2007, led by a driveto register new affiliates to the Group's programme. There was a focus oncustomised sponsorship promotions with new and existing affiliate partners andthis contributed significantly to increased commitment and investment from thesepartners. During Quarter 4, there was a drive to emphasise the role of offline activationactivities for Poker. These new offline marketing techniques and promotionsattracted many new customers, and the Group will continue to invest in amultitude of new marketing channels in 2008. Search and Web Optimization Technologies ("SWOT") SWOT is much more than traditional simple search engine optimisation ("SEO").2007 was a strong year for SWOT, where acquisition of new customers via searchengine traffic increased significantly across the whole business and especiallyin the UK. 2008 will bring new customer acquisition opportunities with the introduction ofthe "888sport" Sportsbook and the "888ladies" Bingo brands, and there are anumber of web 2.0 plans in various regions. Offline 2007 was another successful year for the Group's offline marketing around theworld: 888 launched a number of campaigns in Latin America, including shirt sponsorshipof Club Nationale in Uruguay, TV poker programming across the region behind the888 and Tower Torneos brands, as well as tournaments supported by a series ofmagazine and national press advertising. In Australia, 888 launched the 888Poker brand offline through a heavyweightoutdoor campaign, in Sydney, on the bus and train networks, supported withnational press and magazine activities. Across Europe, 888 had another year of major success with the shirt sponsorshipof Sevilla FC. Sevilla won the UEFA Cup for the second consecutive year, theSpanish Cup (Copa del Rey) and finished third in the Spanish premier league (LaLiga). In the UK, the coming into force of the Gambling Act 2005 opened the way for theGroup to launch television advertising. 888 retained London's leading creativeagency, CHI & Partners, to deliver a UK based branding campaign across allmarketing channels behind the new positioning "Enjoy the game". The Group's ongoing sponsorship of the World Snooker Championship in Sheffieldgenerated over 140 hours of television coverage on the BBC and Eurosport, andwas rebroadcast globally. 888 also generated over 80 hours of its own Poker content in 2007 which issyndicated globally. In addition to existing content of the UK Poker Open, thePoker Nations Cup and the Women's Poker Tour, 2007 saw the Group becoming thepresenting sponsor of the World Heads Up Championships held in Barcelona. 2008 will prove to be an even bigger year for the Group as 888 continues tobuild upon its brand having launched its Sportsbook, 888sport, and its new Bingooffering, 888ladies. In addition, 888 will run the biggest ever non-US facingonline Poker event of its kind, branded the World Poker Crown, with a $3 millionguaranteed prize pool. Offering and R&D Casino 888's major Casino brand, Casino on Net, has consistently been ranked as theleading online Casino brand in the world. It continues to generate substantialbusiness, and despite the recent introduction of 888's Emerging Offerings, stillrepresented more than 55% of the Group's NGR in 2007 (2006: 57%) with NGR growthof 33% over the year, and, significantly, with 60% growth between Quarter 4 2007(US$35.3 million) and Quarter 4 of 2006 (US$22.1 million). During 2007, 888's tenth anniversary year, the Group focused on retaining acontemporary feel to the Casino, adding more games, and increasing the level oflocalisation while maintaining its core propositions of trust and simplicitycombined with its first class customer service. Listening to its customers, 888has enhanced the customer experience by providing faster game play, and bygiving the customer greater choice over bet size. 888 also continued to expandits Casino offering: it introduced a new gaming "ecosystem" which enables thirdparty game developers to integrate their products seamlessly into 888's gamingenvironment, provided Casino software to white labels and introduced a livedealer Casino tailored for certain Asian markets. The combination of trendy entertainment content consumed by customers worldwidetogether with a unique gaming experience is a key factor to 888's success, as ithas increasingly become the entertainment destination of choice for morecustomers. To this end, 888 added four new and unique Video Slots to increasegame variety, with the majority available in each of the 14 languages (includingvoice localisation) which 888 supports. 888 released its "Rough Rugby" Slot tocoincide with the Rugby World Cup and, in October 2007, released the "BlondLegend" Video Slot. This Video Slot, featuring "Marilyn Monroe" pictures,provided by the "Sam Shaw Collection", has proven very popular among customers.888 aims to identify further themed content for Casino games. Both games rankedamongst the 3 most popular Video Slots in 888's Casino immediately upon theirlaunch, and made themed Video Slots one of the most significant acquisition andretention tools 888 has. Following this success, 888 is planning to maintain itsfront-line position through internal development programs, as well as acquiringor licensing third party games to be integrated directly into 888's gamingenvironment. 2007 saw 888 move product localisation to the next level by enabling theestablishment of partnerships with local providers. These partnerships arepossible as 888 has successfully opened its platform to third party games, byproviding an "integration platform" layer. This "integration platform" enablesthe swift integration of third party games, and will be used to add additional,new and localised games, adapted to 888's own high standards, to its Casinooffering during 2008. This will provide its customers with a large variety ofquality entertainment, and will contribute to customer acquisition by appealingto expanded demographics. Customer retention will be further re-inforced by theexcitement and the choice of an ever expanding proposition. The Group's latest partnership was entered into with Entertasia, one of theleading providers of gaming solutions for the Asian market. Through thispartnership, 888 has launched in January 2008 a Live Dealer Casino offeringBaccarat, Asian Roulette and Sic Bo. These games are an entry level requirementto compete in the Asian market and will be a key tool for growing 888's presencein this region. 888 continues to seek such partnerships and to integrate otherlocalised games to further target the Asian market. Once again, 888's Casino has maintained its position as the number 1 onlineCasino. The Group was proud to receive the prestigious "Casino Operator of theYear" award at the eGaming awards, in addition to the "Casino of the Year" atthe Gambling Online Awards 2007. Casino KPIs Year 2006* 2007Quarter 1 2 3 4 1 2 3 4NGR (US$'000) 21,496 22,531 22,646 22,088 25,952 27,900 28,992 35,276Active Customers 54,053 48,425 46,444 41,307 70,769 72,362 72,847 73,737NGR per Active 398 465 488 535 367 386 398 478Customer (US$) * NGR figures rounded. As can be seen from the previous table, the Casino experienced 60% NGR growthfrom Quarter 4 of 2006 to Quarter 4 of 2007. The inclusion of Casino games inthe Poker client at the end of 2006 greatly increased the customer base and thusthe number of quarterly active customers. This resulted in a 4.2% growth inquarterly active customers between Quarter 1 and Quarter 4 of 2007. Theincreased number of active customers resulted in substantially higher growth inNGR in 2007, particularly in Quarter 4 where NGR increased 22% to $35.3 million.As a result of the sharp increase in active customer base in Quarter 1 2007, NGRper active customer decreased, but has been steadily increasing since, and inQuarter 4 2007, reached $478 per active customer. During 2008, the Group aims to use its strong technological, CRM, data miningand optimisation capabilities to provide its customers with an even moreintimate experience tailored to their preferences and playing habits. While, today, 888's offering is already fully localised, in 2008, the Groupintends to extend this initiative. It will introduce further localised versionsof its popular games together with local games played in specific targetmarkets. It will also adapt its traditional Casino games to the localpreferences as best observed today in terrestrial Casinos. Asian and LatinAmerican customers will continue to be at the core of 888's focus. Leveraging its multi-million dollar marketing budget and the strongest globalbrand in online gaming, in 2008, 888 will launch www.888debut.com, a platformfor third party game developers to debut themselves in the online gaming worldand to make their product available on the stage of the world's largest onlinegaming entertainment destination. 888's first integration with a third partyprovider is in its final stages, and the first batch of games is aimed to bereleased during the first half of 2008. In order to complete the excitement and competitive environment which 888'scustomers seek, and to broaden its offering with additional gaming models, theGroup also plans to introduce Casino races and tournaments. The Group sees theseevents as additional marketing methods for enticing new customers, and as a toolfor retaining existing ones. With its expertise in tournament management, 888expects these events to form key part of its gaming environment. Poker Poker operations also enjoyed strong growth in 2007, with NGR increasing by 18%to US$80.8 million (2006: US$68.2 million) contributing 38% (2006: 43%) of theGroup's NGR. This growth has been achieved by combining the commitment to itslarge legacy customer base with the introduction of new software features;increasing the variety of tables and through the enrichment of 888's existingtournaments. During the year, 888 has demonstrated an ever increasing global reach. The Grouphas achieved further penetration in territories such as Latin America and AsiaPacific, and is operating a truly global 24/7 Poker room, in which customers canfind their game of choice at the time of their choice. 888 has moved a step forward in addressing the increased retention requirementsof its existing customers by integrating its Casino games into the Poker client.The success of Casino in Poker led to the integration of Backgammon and Bingo inPoker in 2007, with Sportsbook in Poker integration planned for 2008. Thisintegration strategy is the achievement of the Group's stated goal of deliveringa unified offering and adding new revenue streams to existing ones, and bycapitalising on the synergies between 888's offerings. Through 2007 and into 2008, the Group has enriched its user experience. In 2007,888 added 3D tables with avatars alongside its 2D classic view tables. While the2D addresses the needs of high stake and multiple table Poker customers, thenewly designed 3D tables with avatars have been very popular, and became thetable of choice for the majority of customers. Continuing this effort, 888 iscommitted to developing features such as its newly introduced "chat call-outs",which allow customers to get closer to a "live-like" user experience. In addition, In 2007 888 integrated Backgammon into its unified Poker client, inorder to enhance customer retention. In 2008, 888 plans to increase itsBackgammon liquidity, by further localising the game by targeting new customersegments. 888 also plans to integrate other local peer to peer games indifferent regions, to make its gaming environment a one stop shop, whichincludes globally popular games as well as locally popular ones. 2007 has also marked 888's evolution to become a new "Poker Network" providing afull, end to end solution for "white label" Poker operators, making 888 itself a"Poker Network Operator". As a Poker Network Operator, 888 stands out byoffering a complete solution, in which existing operators can leverage theircustomer base and new operators can grow from scratch using the shared liquidityoffered by 888's network and the robust back office operation that the Groupprovides. Poker KPIs Year 2006* 2007Quarter 1 2 3 4 1 2 3 4NGR (US$'000) 17,857 16,322 15,686 18,374 20,918 19,890 18,590 21,419Active Customers 134,710 122,087 132,995 147,805 168,066 166,772 168,105 170,401NGR per Active 133 134 118 124 124 119 111 126Customer (US$) * NGR figures rounded. As can be seen from the previous table, 888's Poker NGR grew by 18% in 2007.During the year, the historical seasonal pattern of a slower Quarter 2 andQuarter 3 was repeated with a stronger Quarter 4. This continuous growth in NGRin 2007 is particularly impressive given that the additional revenue derivedfrom Poker customers playing Casino games is included in Casino NGR. Activecustomers increased during the year, showing 15% increase between Quarter 4 2006to Quarter 4 2007. Finally, quarterly NGR per active customer remainedrelatively constant. In order to drive further growth in 2008, 888 is currently working to improvethe conversion of its play for free "Demo" customers to real money customers byincluding the demo mode play option within the real money environment. The yearhas started with the keynote announcement of the "World Poker Crown", a sequenceof branded events, which will culminate with a $3 million guaranteed prize pool,offline tournament. To date, this is the largest single event of its kindoffered to the non-US market. This $3 million event is the tournament final anddaily and weekly satellite tournaments are run, customised to match 888'sgeographic customer base profiles in terms of game level, risk profile andfinancial capability. This activity will ultimately provide 10 qualifiers forthe final. The Group plans to introduce more features designed to maintain customers'engagement and commitment throughout the year. Such features include theaddition of advanced community and communication tools, which 888 has alreadystarted to roll out. In 2008, 888 will also introduce the broadcasting ofrelevant global and localised TV content, generated both by itself and by itsusers. Such content will be made available through 888's various marketingchannels and on its website, through a planned advanced Video Portal. Theseenhancements will further strengthen the performance and reach of 888's Pokerroom. Combined Casino and Poker KPIs With the gradual migration of the Group's customers onto the unified offering,the distinction between Casino and Poker revenue becomes more and moredifficult. As a result, the Group reports its KPIs for the combined Casino andPoker activity in the table below. Year 2006* 2007Quarter 1 2 3 4 1 2 3 4NGR (US$'000) 39,353 38,853 38,332 40,463 46,870 47,790 47,582 56,695Active Customers 188,763 170,512 179,439 189,112 205,907 208,876 209,811 209,918NGR per Active 208 228 214 214 228 229 227 270Customer (US$) * NGR figures rounded. As can be seen from the previous table, the combined Casino and Poker KPIsreveal strong NGR growth in 2007 compared to 2006, growth which acceleratedduring the Quarter 4. This, in part, can be attributed to increased activecustomer numbers that have grown in each quarter since the FIFA World Cup in thesummer of 2006, as well as migration into higher edge games. The growth in bothfactors has resulted in a stable NGR per active customer for the first threequarters, followed by a significant increase to $270 per quarter (2006: $214) inQuarter 4 2007, which benefited from the substantial NGR growth. Bingo 2007 heralded 888's entry into the online Bingo market with, in May 2007, thesuccessful Bingo acquisition. The acquired Bingo business constitutes theprovision of software, customer support and payment processing to some of thepremium Bingo partners in the UK, such as: www.foxybingo.com,www.mirrorbingo.com,www.thinkbingo.com,www.bingoscotland.com,www.thinkbingoplus.com In addition to the Bingo business, 888 now operates a white label Bingo networkwhich has some 50 white labels, including BingoBallroom and PoshBingo. 2007 continued to see growth in online Bingo with a number of new networks andwhite label sites entering the market, in which 888 Bingo has continued to be adominant customer. In parallel to increasing the number of 90-ball and 75-ball Bingo rooms, theGroup continued to strengthen the community feel of its offering, and achievedsignificant customer satisfaction and retention levels. The community feeling in888's Bingo rooms is a combination of its friendly, welcoming team of moderatorswho follow customers throughout their stay within 888's Bingo rooms, and itsrewarding website that includes a variety of interaction, chat tools and venues.An example of such features is the Ladies Lounge where 888's customers can findbirthday bulletins, the Bingo glossary, Bingo calls and loyalty point offers.Loyalty to 888ladies and to the Bingo venues powered by 888, whether one of888's premium partners or one of its white label partners, is proof of thepervasiveness of community characteristics of an online Bingo and furtherevidence of the appropriateness of 888's stated strategy to continuously investin expanding the scope of community services and tools in its Bingo offering. 888's Bingo virtual venues are places that people feel excited to enter into.Its view on promotions to customers is simply: to constantly give customers areason to return. The excitement in 888's Bingo rooms in 2007 took the forms ofmonthly guaranteed jackpots, special event jackpots, weekly and bi-weeklyindulging events such as shopping sprees and giveaway of daily prizes that werepart of the games themselves. The other side of excitement is providingcustomers with welcome "surprises". For this purpose, the Group worked closelywith its game and content providers, and together tailored its gaming so thatthey do not only expand its offering but also excite and surprise. This includeda variety of scratch card games, fixed odds games and branded games. 2008 has seen the launch of the new 888 Bingo network: www.888ladies.com. Thesite is positioned to appeal to a whole new market for the Group and willprovide women a place where they can enjoy Bingo games, with chat, communityfeatures and indulgent prizes. In addition to 888ladies, 888's latest licensee has released their Bingo networkwww.winkbingo.com in Quarter 1, 2008, which is further evidence of the Group'sdesire to grow its business by partnering with more licensees. Currently with predominately English language customers, the Group plans toexpand into the Spanish market in 2008. This market is increasingly a majormarket for online Bingo, and discussions are already underway with a number ofpotential licensees. 888 plans to introduce its Bingo offering in two additionallocalised versions of the game for identified high growth markets. In order to crystallise its position as a leading entertainment and contentdestination for women, the Group is planning to scale up its editorialcapabilities. This will turn 888's gaming offering into a more contextualexperience that links between what people read, consume and win on 888 website;ranging from linking personalised online horoscope, bonuses and invitations toplay on birthdays and lucky days, to games themed after the brands 888'scustomers care the most about, whether their favourite TV show or celebrity. Communities are comprised of customers and the community operator. In 2008, 888plans to strengthen the ties between the two by taking its community tools tothe next level, through 888's own community platform. This platform is theculmination of the vast experience obtained by 888's customer retention teamsthrough chat, interaction with customers and observing their behaviour, combinedwith the latest technology developments, including RSS feeds and web 2.0widgets. 888's community platform will centralise contemporary content editing,information distribution, sharing spaces and personalisation tools. The Groupbelieves that this platform will have a positive effect on its business andability to cross-sell new offers to its customers. Italian Sportsbook In December 2006, the Group was awarded one of the online sports bettinglicenses issued by the Italian Government. This license grants the right tooffer online betting facilities to the Italian market in conjunction with alocal partner. This license became operational and the business commencedtrading with a soft launch in late 2007. Sports Betting In early 2008, 888 unveiled its new international sports betting service tocompliment its existing product suite. "888sport" is a fully functioning portalallowing customers to place bets in various currencies via a number of languagespecific web sites. "888sport" offers a full range of Sport betting services, including; UK,European and International football, horse and greyhound races from around theworld and a whole host of other sporting events such as tennis, rugby, motorracing, golf and other popular sports, targeting both international and localmarkets. "888sport" also features an 'in play' betting service allowingcustomers to place bets on live events as they are taking place, in some casesright up to the final whistle. The Group's route into this challenging marketplace has been to develop itsproduct in conjunction with Blue Square, one of the most popular and wellestablished sportsbooks in the UK. Based in London, Blue Square was launched inMay 1999, and as well as providing internet based sports betting opportunities,also offers its services through other channels including Interactive TV, WAPand Telephone Betting. In 2003, Blue Square was acquired by the Rank Group, whoare a major force in land-based gambling, with Casinos and Bingo clubs acrossthe UK and Europe. As a result of the partnership with Blue Square, 888 benefits from Blue Square'sexperience in trading and risk management to reduce the inherent risksassociated with this business. Instead, 888 can concentrate on marketing to newcustomers using its sport related sponsorships, such as Sevilla football cluband the 888 World Snooker Championship, and cross-selling its other products tothese new customers. The launch of 888's sportsbook in March 2008 was an important milestone for theGroup. The UK version of the sportsbook immediately featured the popularCheltenham Festival and Champions League knockout stages, whilst April sees theclimax of the UK domestic football season, the Grand National, the 888 WorldSnooker Championships and the U.S. Masters golf from Augusta. In addition to theUK, 888sport will be launching versions of the sportsbook simultaneously inSpain, Germany, Austria, Sweden and Denmark and will be featuring prime sportingevents action from these countries. Additional territories will be addedthroughout the year in Europe, Asia and South America, each with its own localsporting events coverage. The Group sees significant opportunities with sportsbetting markets such as Spain being largely untapped. The complementary skills and work cultures of the 888 and Blue Square teams make888 confident of completing a global rollout by the end of 2008. Theinternational launch reinforces 888's strategy of creating a large community ofpeople consuming entertainment content online. New Platforms In 2007, 888 has become an interactive entertainment destination with "realestate" expanding beyond the www.888.com website, spanning mobile phones throughhotel-room entertainment into in-flight systems. As part of its unifiedoffering, 888 allows interactive gaming on each of these new platforms with thesame customer account, password and, where allowed, wallet which its customersuse online. The roll-out of 888's gaming offerings onto these platforms has enabled itscustomers to play anytime, anywhere on 888's global network, experiencing thesame branded user experience historically enjoyed only online. The purpose of developing these new platforms is two-fold: firstly, to improveretention of existing customers by giving them more ways to interact with 888and, secondly, to acquire new customers by offering 888's products to audiencesthat consume entertainment whilst travelling (airplanes, hotels) or on theirpersonal communication tool (mobile phone). For the platform developer and owner, 888's wide game variety and strong brandenables them to broaden the content they offer to their users by incorporating888's offering to their customers, thereby increasing their own revenues andshare of customers' time. During the year, 888 entered into a partnership agreement with one of theworld's leading in-room hospitality system providers. This agreement allowed 888to develop its first online Casino product, specially designed for internetenabled hotel room televisions, with its own branded look and feel. In addition,as part of this partnership, all Wi-Fi access in the hotels that install thissystem will feature free access to the www.888.com site for guests using laptopsin the hotel's network. 888 plans to extend its first trial in the UK in 2008,with the plan to launch this service throughout Europe during the remainder ofthe year. A further deal entered into by 888 in 2007 was with DTI, an in-flightentertainment industry leader. This agreement enables 888 to offer its Casinoon in-flight entertainment systems used by major international airlines. 888will be in a position to offer its gaming services on long-haul flights usingDTI's in-seat entertainment systems as soon as the technology is in place forin-flight internet connectivity and the necessary regulatory approvals areobtained. The product is currently in the final stages of development, and theplan is to finalise installation on the first airplane in late 2008. 888mobile plans to tap into the huge mobile phone market, by using existingcustomer registration details on Mobile Phone Casino which includes Blackjack,Roulette and Video Slots. The mobile potential is considerable given that inexcess of one billion mobile phones will be sold worldwide in 2008, compared to200 million personal computers. An increasing number of these mobile phones havebigger screens, faster processors, availability and portability which lendthemselves to a great gaming experience. This offering, developed in cooperationwith UK-based Cellectivity and M-Fuse, is available on over 250 models sold insome 200 countries, and will be distributed through 3, T-mobile, Orange UK andother mobile portals. In 2008, 888 intends to focus on Cable TV and IPTV. This untapped platform isexpected to become an acquisition channel as well as a platform to increasecustomer value. 888 is currently in discussions with several partners and isevaluating the best route to penetrate this market. Payments and Risk Management E-payments, Fraud and Risk Management Department ("e-payments") had asignificant role in supporting several strategic growth initiatives undertakenby 888 in 2007. In 2007, customers were offered 23 different deposit and 10 different withdrawalmethods. Credit cards and debit cards were the most popular internationalpayment method, representing 86.5% of total deposits in 2007 (2006: 86.7%), witheach region having its own distribution of preferred local methods. When customers enter www.888.com they are offered a range of payment optionstailored to suit their local market based on their physical location, from whichthey can choose their preferred payment method. The availability of paymentmethods is a key element to a localised offering, enabling customers to playtheir local entertaining game conveniently through their local preferred paymentmethod. By an analysis of geographical data and with the assistance of localknowledge, new payment methods are identified, carefully evaluated and assessedand, where suitable, implemented. Deposits and withdrawals are carefully monitored by 888's in-house Fraud andPayment Risk Management department. This department has a wealth of experiencein fraud prevention from years of operation and has integrated their internallydeveloped prevention and verification procedures with commercially availablethird party measures to enable robust verification. By constantly reviewing and analysing the performance of the payments process,the system is optimised to maximize deposit levels, approval rates, controlfraud activity and minimise payment processing costs. In Quarter 3 2007, 888 launched its state of the art payments processing system;an in-house developed new financial backbone system with both back officefunctionality and user side cashier interface. The new system provides a majorupgrade in processing capability and flexibility, providing better customerservice combined with an improved internal mechanism. This system increases easeof use for customers, significantly speeds up the integration of new paymentmethods and automates various back office procedures for greater efficiency andcost saving. Currently in trial, the Group intends to release the system to allits existing and new customers in 2008. Expanding 888's global business requires tailored treatment for payment andwithdrawal methods. The Group's e-payments business development and accountmanagement teams constantly analyze customer deposit and withdrawal habits ineach country, and ensure customers are presented with their preferred methods asthe primary selections in the cashier and withdrawal module. In 2007, 888'scustomers were offered the option to deposit in their local currency, even whenthe games themselves were played in US dollars. At the beginning of 2008, Sportsmulti-currency was introduced in US Dollars, Euros, Pound Sterling, Danish Kroneand Swedish Krona, to further align the Group's cashier and games with customerneeds and payment preferences. Localisation and multi-currency support in Asia,Europe and Latin America, will be the Group's focus in 2008 as well as theintegration of new local payment and withdrawal options into the cashier. Customer Service The Group remains committed to being market leader in the global online gamingindustry, as measured by customer satisfaction. The Group's dedicated teams oftrained in-house customer support representatives provide the highest levels ofservice and support for each of the Group's brands and white labels. In 2007, the Group continued to invest in the support infrastructure, andexpanded its language portfolio, including expanding its existing English LiveChat service to cover three new languages. The Group offers first class customersupport via email and telephone, 24 hours a day, seven days a week, to customersaround the world in up to 13 different languages. The ongoing relationship and dialogue with customers is maintained by CustomerRelationship Management teams in two dedicated contact centres, located inGibraltar and Antigua. The main Gibraltar contact centre focuses on providingsupport to the Group's principal markets of Europe, Asia/Pacific and LatinAmerica, with the Antiguan contact centre focused on supporting the Group's mainEnglish speaking markets in Europe, Australia, Asia Pacific and Canada. Thecontact centres in Gibraltar and Antigua played a vital role in the successfullaunch of the Group's first strategic partnerships; with Rileys in the UK andTower Torneos in Latin America. Operating a dual contact centre system is a cost effective way of managing theoverflow of phone calls, chats and emails and allows efficient balancing ofoperational demands. The Group is therefore able to maintain the same high levelof service throughout the day. In addition, the centres complement each other ina number of respects: • Staff schedules are created jointly, taking into consideration business trends from previous years and/or anticipated promotional campaigns in a particular location • Follow up on customer issues can be completed from either location, from a shared database, in 888's integrated back office system. Representatives in each location are cross-trained to provide service for eachof the Groups brands. Their aim is to resolve customers' issues during the firstcontact. The following performance levels were attained in 2007: Casino in English • 94% of all phone calls are answered within 21 seconds • 95% of all emails are replied to within 12 hours • 91% of all chat contacts are answered within 28 seconds Poker in English • 96% of all calls are answered within 21 seconds • 97% of all e-mails are replied to within 12 hours • 91% of all chats are answered within 32 seconds In addition, expert teams in both locations initiate outbound interaction withnew and existing customers experiencing deposit issues. Selected customers arealso contacted about special offers and new products, and to reactivate thosethat have become inactive. The launch and upgrade to the new 3D Poker softwareand various new Casino games launched in all 13 supported languages provided theGroup's customer support representatives with further opportunities forcross-selling. VIP service The service level provided to individual customers is differentiated with theGroup's best customers receiving more personalised service. This allows theGroup to offer its customers tailor-made incentives to suit their profile andmaximise their lifetime values. A separate, highly skilled team is dedicated toproviding a high level of proactive customer service and hospitality to theGroup's most valued Casino customers. The VIP department adopts a thorough approach to following up on sensitive andcomplex cases. Every VIP customer is provided with a Personal Account Managerwho strives to create a personal relationship with his customers in order tooffer the ultimate in personal service, determine customer's interests andreward individual customers with gifts tailored to suit their personal tastes. The VIP team organises targeted, worldwide hospitality events to reward VIPs ina tangible manner. Events range from horse racing, football and other sportingevents, to weekend breaks, sold-out concerts and social gatherings, which alsogive customers the opportunity to meet their Account Managers face-to-face. The VIP hospitality programme significantly enhances customer loyalty andindividual lifetime value. In 2008, the VIP department is set to expand intoproviding their hospitality programme to each of the Group's brands and WhiteLabels. Customer Satisfaction 888 continuously monitors customer satisfaction by requesting and analyzingreal-time feedback, and in 2007, conducted a comprehensive survey to benchmarkthe Group's service level in its primary markets. Compared to previous studies,the results show a significant overall increase in customer satisfaction. Respondents attributed the highest rating to the level of professionalism ofcustomer support representatives, achieving ratings of 4.27 and 4.15 out of amaximum of 5 for Casino and Poker respectively. Additional rating include: • English Casino customers rated their satisfaction with the quality of service at 4.11 • English Poker customers rated their satisfaction with the quality of service at 4.01 • Overall satisfaction of customers from various other countries and languages is similar • Response time ratings were 4.29 and 4.16 for Casino and Poker respectively. A vital component in maintaining and exceeding customer expectations is theability to access each customer's full and complete history in real time,optimising customer interactions at all levels. The Group's advanced proprietaryback office application functions as the backbone for the Group's entireBusiness Operation. Data from various divisions is integrated and streamlinedinto a single point of reference, and provides representatives from everydepartment - Customer Support, VIP, Risk Management, Business Production andFinance - the tools to provide superior assistance to customers regardless ofthe department the query is directed to. Customer contacts are strictly monitored to ensure quality and parity. The Grouphave retained leading contact centre experts to further enhance the quality ofits customer support, and representatives benefit from ongoing refreshertraining courses, including responsible gaming training. Reporting and Data Mining The Group has developed outstanding reporting and data mining tools that assistin identifying and predicting customer behaviour, based on data collected sincethe Group was founded in 1997. Sophisticated customer tracking technology gives the Group the ability toextract and analyze relevant information that enables it to better target itsoffering and marketing activities to customers around the world. Customers also benefit from the Group's ability to generate tailored statisticaland contact category reports, which identify trends, habits and expectations ofcustomers in real time highlighting bottlenecks and possible training needs atan early stage. Responsible Gaming "Because we care, responsible gaming means investing time, energy and resources in the people we interact with daily - our employees, our customers and our community!" The Group's aim is to raise awareness to responsible gaming through educationand research programmes and to provide staff with the right tools to ensure aresponsible gaming environment. The Group is constantly implementing new ways to create a caring, ethical gamingenvironment and to ensure customers are safe. Responsible gaming is a keyfeature in the Group's business strategy, reflecting the importance it feelstowards this issue. In acknowledging the risks that the Group's games can posefor a small minority of people, the Group strives to achieve excellence in itsresponsible gaming policy and ethical conduct. The Group's Director of CSR & Responsible Gaming has wide-rangingresponsibilities that include responsible gaming, fair gaming, outreachprogrammes with local charities and donations. Training 888 believes that responsible gaming begins from within. The Group has thereforedeveloped a cross-Group global training programme in which all Group employeeshave participated throughout the past year. The Group's responsible training programme includes every department in theGroup. The training has been tailor-made for each department so that responsiblegaming awareness occurs from the first stage of each and every activity withinthe Group, including the game development. Protecting customers Gamcare, one of the leading authorities on the provision of information, adviceand practical help in addressing the social impact of gambling, has recognisedwww.888.com's dedication to responsible gaming and customer protection and hasawarded the Group its certificate this year. After undergoing an audit covering staff training, underage verification, selfdeposit limits, self exclusion, referral processes to relevant agencies andrelated issues, the Group was commended for maintaining excellent standards ofpractice. As a responsible, regulated gaming group, 888 also complies with all guidelinespublished by eCOGRA, a non-profit, independent, regulatory body based in the UK.By examination of procedures and controls eCOGRA ensures that approved operatorsare properly and transparently monitored to provide customer protection. www.888.com also adheres to the stringent rules concerning underage gamblingestablished by the Interactive Gaming Council of which it is a member. Preventative measures Keeping in mind its motto "responsible gaming means investing in the people wecare about", Group staff are trained to respect customer privacy. Should aproblem arise, 888 aims to work together with customers towards the best andmost comfortable solution for them. The Group has established several measures designed to help prevent gamblingfrom becoming a problem. Personal limits are in place across all Group brands, and are voluntarilyavailable to all members using the new payment system planned to be fullyintegrated this year. If, at any stage, a customer becomes concerned about theirplay behaviour, they can request to be self-excluded for a chosen period. Duringthis period, 888 will block the account. Any new accounts the customer mightattempt to open during the exclusion period will also be blocked as soon asdetected. In addition, the Group will take all reasonable measures to make surethe customer will not receive any promotional material during the designatedtime. All customers who reactivate their account following a self-exclusionperiod are given the opportunity to set their own limits. The Group has also added the "Gambling Therapy" button on its website to provideits customers with information and support for those who feel their gambling isa matter of concern. Gambling Therapy provides online support to anyone affectedby problem gambling. Protecting minors In accordance with its responsible gambling policy, the Group does not knowinglyallow anyone under the age of 18 to play its games and none of its promotionsare targeted at minors. Together with Gamcare, the Group trains call centre staff to identify and dealwith anyone who might be underage. The Group has trained staff to be mostsensitive to the possibility of underage gambling; whenever an account issuspected of belonging to an underage customer, it is suspended until a fullinvestigation has been carried out. In order to protect minors, verificationsystems are used, where applicable, to verify and identify the age and identityof the customer. Raising awareness During 2007, the Group launched a new website dedicated exclusively toresponsible gaming called 888responsible.com (http://www.888responsible.com/).888responsible.com offers comprehensive and easily accessible information aboutresponsible gaming practices, dealing with problem gambling, preventing underagegambling, charity activities and more. The new website provides tools with which to address online gaming. Parents canlearn how to identify the signs indicating that their children might have aproblem related to gambling, while customers can take the self-assessment testto determine their gambling habits, learn how to keep out of debt and even howto exclude themselves from playing at online Casinos. Education During 2007, 888 joined the RIGT (Responsibility in Gambling Trust) and donatedto their new educational programme. The aim of the programme is to help youngpeople understand the risk of problem gambling and to show them how they canreduce harm to themselves and their friends by developing skills, attitudes andknowledge. Corporate social responsibility policy Working with the community As a global Group, 888 aims to reach out to its communities worldwide and towork with them for a better future. On 10 October, 2007, in celebration of its tenth birthday, the Group held itsfirst Charity Day in collaboration with two global charities. The Charity Dayfocused on fundraising campaigns to support humanitarian and environmentalprojects worldwide. The day involved all aspects of the Group, from Group employees who volunteeredtheir time at local charities, to customers, whose losses during the day,playing Casino, Poker and Bingo, were earmarked for donation. At the end of theday a total of $100,000 was raised and donated to two global charities:EarthAction and World for World. During the day, the Group's employees also volunteered their time to their localregional charity - Macmillan Cancer Support in the UK, St. Martin's School inGibraltar, The Adele School in Antigua and "Up for the Challenge" in Israel. This day was only the start of what is expected to be a long lastingrelationship between the Group, its employees and the various charities. As part of its ongoing CSR initiatives in Spain through our Gibraltar site, theGroup will sponsor a pair of Lynxes, which are new additions to the CastellarZoo in Spain, for the next five years. In March 2008, 888 received formal confirmation from FTSE4GOOD that allrequirements had been met, and that the Group is now part of the index. Environment As an on-line company, the Group has a low environmental impact. Nevertheless,the Group acknowledges that everyday actions may affect the environment withpotentially adverse consequences. The Group's offline operations are primarilyoffice based, and its main environmental impact stems from transportation andthe use of paper, lighting, heating, air conditioning and IT. 888 hasestablished a committee to deal with office paper use, waste, recycling andother relevant environmental issues. The committee, led by the Group's Directorof Global Purchasing and Operations, is responsible for overseeing newprocedures, their practical implementation within the Group, and the explorationof new ways to minimise environmental footprint. This year a pilot project designed to use energy and resources as efficiently aspossible was launched at the Group's offices in Israel. As the pilot wassuccessful, both these actions will be implemented at all Group offices duringthe coming year. As a global business, extensive employee travel is another environmentalchallenge with which the Group is faced. In order to minimise travel, the Grouphas invested in the latest multi-media technology and encourages employees touse teleconferencing facilities. For daily commuting, 888 provides its employeeswith bus transportation to minimize the use of private vehicles. The Group hasalso provided bicycle locking stations in the parking lots and other bicyclefacilities in order to encourage employees to cycle to work. During 2008, theGroup intends to finalise its carbon footprint and process an action plan thatwill reduce its carbon release. Life @ 888.com 888 invests a great deal of time and resources ensuring that customers haveaccess to a friendly and caring gaming environment, employees and suppliersenjoy an ethical and rewarding workplace, and the greater community as well asshareholders benefit from the Group's success. We follow a creed which serves asa guideline for global work life. Entertainment@888 - We believe that entertainment is what completes our lives.After the challenges and routine that occupy most of our time, everyone isentitled to some fun and excitement. Customers@888 - We believe that our first responsibility is to provide the bestgaming experience to our customers. This means offering the most entertaining,innovative, exciting and rewarding opportunities to win, combined withunparalleled customer service that is available from any location at any giventime. 888 is proud to develop and acquire new products to maintain its edge. Weare always mindful of the complex regulatory environment in which it operatesand the social responsibility that comes with the gaming industry. 888understand that it must invest time and resources in caring for customers andprotecting the vulnerable. Employees@888 - We are responsible for our employees who work with us worldwide.We must provide an enjoyable work environment where people are challenged andmotivated to excel, where flair is rewarded, compensation is fair and thebalance between work and family is respected. Individual development isencouraged and advancement is based solely on merit. We must always invest indeveloping our employees so that they can achieve their personal aspirations.All employees should expect their managers to be capable, knowledgeable andmotivating. We must always treat our suppliers and other partners with respect,enabling them to make a fair profit. We will never expose our employees to risksand all employees should be comfortable that their actions are just and ethical. Responsibility@888 - We must use our financial success for the greater good. Weare in a wonderful position to invest in the charities and organizations thatare important to our employees and our customers. We must especially encourageand support the social responsibility that accompanies our work. We arecommitted to providing a fair and responsible gaming environment and to guidingour customers to play responsibly. Investors@888 - Our final responsibility is to our shareholders. We must striveto operate as efficiently as possible, achieving profitable excellence, ensuringthat we treat their capital as if it were our own. We must take risks that allowstep-changes in performance while always calculating the risk and measuring ourresults, retaining knowledge and learning from our experiences. By doing all ofthe above, we will increase shareholder value. Implementing our values We set high standards for ourselves, and we take pride in our ability toconsistently maintain them. Following the belief that "it's in our nature" andafter extensive internal workshops involving employees across the organization,we have outlined and implemented a set of comprehensive values that representthe way we operate: Excellence: We consistently challenge ourselves to reach the highest performancelevel in everything we do. Innovation: We dare to question our own "way of doing things", keeping an openmind, experimenting, and constantly creating new and surprising solutions. Caring: At 888.com, we value every employee, colleague and customer. We show itby creating a nurturing environment of respect and sensitivity to the needs ofothers. We do not forget our commitment to provide a responsible gamingenvironment to all. Customer centricity: Keeping our customers (both internal and external) at thecentre of all decision-making processes, we strive to exceed customerexpectations and provide the best customer experience. Leading: We strive to remain one step ahead of the competition. This means weare constantly on our toes, thinking ahead and keeping a close eye on industrydevelopments. Collaboration: Our success depends on our ability to work as a single unit whilesharing our knowledge, capabilities and opinions in an open, respectful andtrusting environment. These values underpin the Group's strategic goals, giving all employees a senseof identification and a defined way of behaving as well as ensuring alignmentbetween the organization's business objectives and those of individualemployees. These values serve us as our guidelines, and we strive to obtain ahigh level of integrity in the way we work, communicate and act. Professional development The Group recognises that investment in the professional development of itsemployee is a key factor in its ongoing success. This year, the Group developeda leadership programme which focused on providing managers with leading globalmanagerial tools and solutions (e.g. Ken Blanchard and Myers Briggs) for leadingand managing their employees successfully. The leadership programme focused on coaching managers to adopt appropriateleadership styles to suit individuals in their team and to develop the behaviourrequired by managers to achieve excellent performance and team work. Building on effective communications, motivation skills and concentrating on therelationship between manager and employee, the programme succeeded in enablingmanagers to analyze and resolve a variety of possible situations that they mayexperience and apply themselves in the most appropriate way. This embedded theGroup's value of leadership in its daily operations. Training Ensuring that staff have all the skills and knowledge required to perform theirjob well and assisting them to develop the next generation of products andservices is crucial to a growing business. The Group is dedicated to theprofessional development of its employees so that they can achieve theirpersonal aspirations. Training is therefore part of [email protected]. Training initiatives are offered both internally and externally and includetechnical skills as well as soft skills training. In 2007, 80% of all Groupemployees participated in internal and/or external professional trainingseminars. The training sections were divided into three levels; soft skill training,technological training and industry training. In each training section, theGroup used professional trainers together with well designed materials. This year, 888 has also initiated a "Train the Trainer" internal programme whichfocused on assisting expert employees to improve their presentational skills andtheir professionalism. Equal opportunity The Group believes in promoting equal opportunities through every aspect of theemployment relationship and by providing a workplace that welcomes differenceand enables employees to feel comfortable. As 888 enjoys a cosmopolitan workforce from a large variety of nationalities allworking side by side, the Group's diversity policy is explicit. The Group doesnot tolerate any form of harassment, including any uninvited, unwelcomebehaviour which offends, humiliates or intimidates. 35% of the Group's worldwidemanagement team is female. At year end, the Group had 805 employees (2006: 736) at the following locations;Gibraltar 270, Israel 451, Antigua 68, London 16. Regulation and General Regulatory Developments The regulatory framework of online gaming in different countries around theworld remains as dynamic and rapidly evolving as ever. While some jurisdictionshave moved to curtail the activities of online gaming sites, many others arecurrently contemplating liberalisation and regulation of the industry, and somehave already taken this route. The Board notes that there are significantrisks, unique to the online gaming industry, including from activity withcustomers in the USA prior to the Group's withdrawal from the market in October2006, where customers of 888 generated 55% of its Net Gaming Revenue. The Boardremains committed to monitoring closely and addressing regulatory changes asthey occur, and to fostering, so far as possible, the trend towardsliberalisation and regulation of online gaming throughout the world. Gibraltar 888 is licensed and regulated in Gibraltar. Italy In Italy, 888 received a sports betting license, which allows it to offer sportsbetting services (supervised by the State Monopoly Authority). Followingregulations issued by the Italian authorities in 2007, the license will allow888 to offer skill games (including Poker tournaments), subject to receiving theproper authorizations from the Italian authorities. EU The European Commission is challenging the online gambling and bettingregulatory regimes of various European States, as the Commission holds that asregards EU licensed companies, these regimes might infringe the enshrinedfreedom to provide services, the freedom of establishment and the concept ofmutual recognition. This effort is reflected in, inter alia, the infringementproceedings initiated against several EU States - Italy, Denmark, Finland,Germany, Hungary, the Netherlands, Sweden, France, Austria and Greece; shouldthese Member States fail to supply adequate reasoning of their gamblinglegislation, the Commission may refer the issue with each Member State to theEuropean Court of Justice. While these proceedings may, in the end, cause theEuropean States to liberalize their gambling markets, it should be noted that itcould be a very long time before resolutions or judgments are reached (if atall). In this light, in France, during March 2007, 888's non-executive directorand former Chief Executive Officer, John Anderson, attended an interview withthe French authorities. 888 is in consultation with its legal advisers withregard to this matter, and closely monitors the situation for any developments.Specifically as to France, the French Supreme Court annulled a French Court ofAppeals judgment issued against Zeturf, an online gambling operator licensed inMalta, due to the fact that the Court of Appeals failed to examine whether theFrench gambling legislation is compatible with EU law. The Supreme Court orderedthe Court of Appeals to re-examine the issue according to EU law, and also toconsider whether the social goals which justify the gambling monopoly are notfulfilled by the Maltese gambling legislation. In addition to these infringement proceedings, the EU Commission is involved inother instances in which the online gambling and betting regulatory regimesappear to contravene rights and freedoms of online gambling and bettingoperators (e.g., issuing detailed opinions against the enactment of prohibitivelegislation, and intervening in the WTO process described above). On 6 March 2007, the European Court of Justice issued its judgment in thePlacanica case, which focuses on the compatibility of the Italian gamblinglegislation with EU law. The Court ruled, inter alia, that insofar as theprohibition to offer gambling services which is set within a Member State'slegislation is found to be incompatible with EU law, such Member State may notapply criminal sanctions to an activity which contravenes this prohibition. TheCourt found this to be the case there, as a specific prohibition contained inthe Italian gambling legislation which was reviewed by the Court was found tocontravene EU law. Therefore, the Court ruled that Italy cannot apply criminalsanctions for breaching this prohibition. USA/WTO In the USA, UIGEA added a new section to the United States Code making itillegal for anyone engaging in the business of betting or wagering to knowinglyaccept any credit, electronic funds transfer, check, draft, etc. in connectionwith the participation of another person in unlawful internet gaming. Inessence, the UIGEA act prohibits online gambling operators from receiving theproceeds of financial transactions in connection with internet gaming if thegaming is illegal in the state where the bettor is located. In addition, theUnited States Secretary of Treasury and Federal Reserve are directed under UIGEAto promulgate regulations which will require financial institutions to blocktransactions in connection with internet gaming (draft regulations were issuedin October 2007). In October 2006, the Group stopped taking bets from UScustomers. On 5 June 2007, the Group announced that it had initiated preliminarydiscussionswith the United States Attorney's Office for the Southern District of New Yorkregarding activity prior to enactment of the legislation. It is too early toassess any particular outcome of these discussions. It was recently found by the World Trade Organization that the US legislativeposition with respect to Internet Gambling violates US trade commitments.Following this decision, the US withdrew its trade commitment in the sphere ofgambling; while several trade partners required compensation from the USfollowing this withdrawal, none of the agreements reached, so far, between theUS and some of these trade partners, have had an impact within the onlinegambling market. Antigua and Costa Rica did not reach agreement with the US, andapplied to the WTO to arbitrate a settlement between them and the US, inconnection with the withdrawal of the US commitment. In December 2007, the Remote Gaming Association (a trade body representingseveral online gaming operators, of which the Group is a member) filed acomplaint with the European Union against the US in connection with the breachof its trade commitments. Following this complaint, the European Commissiondecided to open an investigation into whether the United States is in breach ofits WTO obligations in the sphere of gambling (in relation to the period priorto the withdrawal of its commitment). The investigation is expected to take fiveto seven months, at the end of which the Commission will present its findings,which could lead to the initiation of WTO proceedings. The Board continues to monitor these developments closely, and is alert tochanges as they may occur in areas where the Group operates. Risk Report The Group operates in a new and dynamic business environment. In addition to theday to day commercial risks faced by most enterprises, the online gamingindustry presents the Group with particular challenges in respect of Regulatoryrisk, Reputational risk, Information Technology risk and Taxation risk, each ofwhich is detailed below. Regulatory risk The regulatory framework of online gaming is dynamic and complex. Change in theregulatory regime in a specific jurisdiction could have a material adverseeffect on business volume and financial performance in that jurisdiction. Adetailed regulatory review is set out below. Reputational risk The Group is exposed to the risk of under-age and problem gamblers accessingits online real money gaming sites. The Group devotes considerable resources inputting into place prevention measures coupled with strict internal proceduresdesigned not to allow under-aged players from accessing its real money sites. Inaddition, the Group promotes a safe and responsible gaming environment to itscustomers supplemented by its corporate culture. The Group appointed a dedicateddirector of CSR & Responsible Gaming tasked with the responsibility ofimplementing such policies. Further details about the Group's responsible gaminginitiatives are set out above. Information technology risks As a leading online business, the Group's IT systems are critical to itsoperation The Group is reliant on the performance of these systems whilstensuring exposure to external risks is minimal Cutting-edge technologies and procedures are implemented throughout the Group'stechnology operations designed to protect its networks from malicious attacksand other such risks. These measures include traffic filtering, anti-DDoS(Distributed Denial of Service) devices, Anti-Virus protection from leadingvendors and other such means. Physical and logical network segmentation is usedto isolate and protect the Group's networks and restrict malicious activities.In order to ensure systems are protected properly and effectively, externalsecurity scan and assessments are carried out in a timely manner. In addition,the Group has recently implemented a new high-end storage solution enhancingstorage availability and performance. All critical data is replicated toanother storage device for disaster recovery purposes and all data is storedoff-site on a daily basis. In order to minimize dependencies on telecommunication service providers, theGroup invests in network infrastructure redundancies whilst regularly reviewingits service providers. As a part of its monitoring system, the Group deploys set user experience testswhich measure performance from different locations around the world.Network-related performance issues are addressed by re-routing traffic usingdifferent routes or providers. 888 operate a 24x7 Network Operations Centre (NOC). The NOC's role is toconduct real time monitoring of production activities using state-of-the-artsystems. These systems are designed to identify and provide alerts regardingproblems related to systems, key business indicators and issues surroundingcustomer usability experience. Taxation risk The Group aims to ensure that each legal entity within the Group is a taxresident of the jurisdiction in which it is incorporated and has no taxablepresence in any other jurisdiction. While the Group's customers are locatedworldwide, certain jurisdictions may seek to tax such activity which could havea material adverse effect on the amount of tax payable by the Group or oncustomers' behaviour. The Group benefit from favourable fiscal arrangements in some of thejurisdictions in which it has taxable presence without which its results wouldbe adversely affected. All gaming activities are based in Gibraltar, where theGroup currently benefits from a tax exempt status. A change of control oractivity of a tax exempt subsidiary would result in the loss of its tax status.However, this is not expected to have a material adverse effect on the overalltax rate of the Group. The tax exempt status is due to expire by the end of 2010when the Government of Gibraltar intends to introduce a new fiscal regime thatcomplies with EU requirements. The replacement regime is still to be unveiledalthough the Gibraltar Government has pledged its commitment to maintain fiscalcompetitiveness and a low effective tax rate. The Group is required to pay agaming tax, currently set at 1% of gaming yield, with an annual maximum cap of£425,000 in aggregate, in respect of its Casino, Poker, Bingo and Backgammonactivities. From 2008, additional gaming tax at the same rate is due in respectof the Group's new Sports offering. The Group's subsidiary in Israel, Random Logic Limited, and the Israeli branchof Intersafe Global Limited, have each entered into separate transfer pricingagreements on an arm's-length basis with the Israeli Income Tax Commissioner.The arrangements for Random Logic Limited are effective until 2010, while thearrangement for the Intersafe Global Limited branch has terminated on 31December 2007. Accordingly, the Group is in the process of discontinuing the useof this branch and so does not intend to enter into a new agreement. The operation in Antigua also benefits from a low tax regime further mitigatedby the current small scale of the operation Financial Information Audited Consolidated Income Statement for the year ended 31 December 2007 Year ended Year ended 31 December 31 December 2006 2007 Note US$'000 US$'000Net Gaming Revenue 2 213,383 157,000Other operating income 2 3,563 -Total operating income 216,946 157,000 Operating expenses 64,864 49,448Research and development expenses 23,496 19,381Selling and marketing expenses 70,897 51,037Administrative expenses 4 24,660 28,653Operating Profit before share benefit charges 40,829 17,310Share benefit charges 7,800 8,829 Operating Profit 5 33,029 8,481 Finance income 4,957 4,883Profit before tax before share benefit charges 45,786 22,193Share benefit charges 19 7,800 8,829 Profit before tax 37,986 13,364Taxation 6 3,199 3,117Profit from Continuing operations 34,787 10,247(Loss)/Profit from Discontinued operations 23 (552) 64,254Profit after tax for the year attributable to equity holders of 34,235 74,501parent Year ended Year ended 31 December 31 December 2007 2006Earnings per share NoteContinuing operations 7Basic 10.3c 3.0cDiluted 10.1c 3.0cDiscontinued operations 23(e)Basic (0.2)c 19.1cDiluted (0.2)c 18.8cTotalBasic 10.1c 22.1cDiluted 9.9c 21.8c Audited Consolidated Balance Sheet at 31 December 2007 31 December 31 December 2007 2006 Note US$'000 US$'000AssetsNon-current assetsIntangible assets 10 40,656 -Property, plant and equipment 11 16,496 13,033 Financial assets 12 654 -Deferred taxes 13 537 546 58,343 13,579Current assetsCash and cash equivalents 14 104,308 114,356Trade and other receivables 15 19,530 9,669 123,838 124,025 Total assets 182,181 137,604 Equity and liabilitiesEquity attributable to equity holders of the parent Share capital 16 3,097 3,073 Available for sale reserve (105) -Retained earnings 89,735 83,929 Total equity attributable to equity holders of the parent 92,727 87,002 LiabilitiesCurrent liabilitiesTrade and other payables 17 63,040 27,931 Member deposits 26,414 22,671Total liabilities 89,454 50,602 Total equity and liabilities 182,181 137,604 Audited Consolidated Statement of Changes in Equity for the year ended 31 December 2007 Available for Retained Total sale reserve earnings Share capital US$'000 US$'000 US$'000 US$'000Balance at 1 January 2006 3,068 - 29,262 32,330Net Profit for the year - - 74,501 74,501 Dividend paid - - (28,658) (28,658) Issue of shares 5 - (5) -Share benefit charges - - 8,829 8,829Balance at 1 January 2007 3,073 - 83,929 87,002Net Profit for the year - - 34,235 34,235Dividend paid - - (36,205) (36,205)Issue of shares 24 - (24) -Valuation (losses) of available for sale investments - (105) - (105)Share benefit charges - - 7,800 7,800Balance at 31 December 2007 3,097 (105) 89,735 92,727 The following describes the nature and purpose of each reserve within equity. Share Capital - represents the nominal value of shares allotted, called-up andfully paid for. Available for sale reserve - represents the gain or loss arising from a changein the fair value of an available-for-sale financial assets. Retained earnings - represents the cumulative net gains and losses recognised inthe consolidated income statement. Audited Consolidated Statement of Cash Flows for the year ended 31 December 2007 Year ended Year ended Year ended Year ended 31 December 31 December 31 December 31 December 2007 2007 2006 2006 US$'000 US$'000 US$'000 US$'000Cash flows from operating activitiesProfit before income tax 37,434 77,618Adjustments forDepreciation 4,192 3,801Loss on sale of property, plant and - 29equipmentAmortisation 1,550 -Interest received (5,434) (4,879)Share benefit charges 7,800 8,829 45,542 85,398 (Increase)/decrease in trade receivables (7,241) 6,346Decrease in related party balances - 1,331Increase in other accounts receivables (2,620) (1,002)Increase/(decrease) in trade payables 2,186 (1,439)Increase/(decrease) in member deposits 3,743 (6,654)Increase in other accounts payables 7,663 3,527Cash generated from operations 49,273 87,507Income tax paid (3,075) (3,052)Net cash generated from operating activities 46,198 84,455Cash flows from investing activitiesAcquisition of assets comprising of theonline bingo business of GlobalcomLimited (see note 9) (17,142) -Purchase of property, plant and equipment (7,574) (8,621)Proceeds from sale of property, plant and - 99equipmentInterest received 5,434 4,879Acquisition of available for sale assets (759) -Net cash used in investing activities (20,041) (3,643)Cash flows from financing activitiesDividends paid (36,205) (28,658)Net cash used in financing activities (36,205) (28,658)Net (decrease)/increase in cash and cash (10,048) 52,154equivalentsCash and cash equivalents at the beginning 114,356 62,202of the yearCash and cash equivalents at the end of the 104,308 114,356year This information is provided by RNS The company news service from the London Stock Exchange

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