Half Yearly Report

31 August 2011

888 Holdings Public Limited Company

("888" or the "Company")

Half Yearly Report for the six months ended 30 June 2011

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

Financial Summary1

Highlights

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

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

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

·; EBITDA3,4,5,6  up 59% to US$20m (H1 2010: US$13m)

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

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

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

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

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

Brian Mattingley, Deputy Chairman of 888, commented:

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

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

Analyst Presentation

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

Contacts and enquiries

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

Deputy Chairman's Review

Introduction

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

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

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

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

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

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

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

Strategy

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

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

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

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

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

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

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

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

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

B2C Review

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

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

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

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

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

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

Dragonfish Review

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

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

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

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

Social gaming

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

* See note 4 to the condensed financial statements.

Outlook

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

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

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

Brian Mattingley

Deputy Chairman

31 August 2011

Condensed Consolidated Income Statement

For the period ended 30 June 2011

Condensed Consolidated Statement of Comprehensive Income

For the period ended 30 June 2011

Condensed Consolidated Balance Sheet

At 30 June 2011

Condensed Consolidated Statement of Changes in Equity

For the period ended 30 June 2011

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

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

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

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

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

Condensed Consolidated Statement of Cash Flows

For the period ended 30 June 2011

Notes to the Condensed Consolidated Financial Statements

1 Basis of preparation

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

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

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

The financial information is presented in thousands of US dollars (US$'000) because that is the currency the Group primarily operates in. The comparatives for the year ended 31 December 2010 are not the Group's full statutory accounts for that year. A copy of the statutory accounts for that year has been delivered to the Registrar of Companies in Gibraltar and is also available from the Company's website. The auditors' report on those accounts was unqualified but it referred to a matter concerning the regulatory position of the Group to which the auditors drew attention by way of emphasis without qualifying their report. The details concerning this matter are given in note 8.

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

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

2 Segment information

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

2 Segment information (continued)

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

2 Segment information (continued)