LEADING THE FUTURE OF ONLINE GAMING

888 HOLDINGS PLC

ANNUAL REPORT & ACCOUNTS 2016 WELCOME TO

888: THE NAME CUSTOMERS CAN TRUST

888 is one of the world’s most popular online gaming entertainment and solutions providers. 888’s mission is to supply customers with market-leading online gaming entertainment, above all in a safe and secure environment.

At the heart of 888’s business is its cutting- edge proprietary gaming technology and associated platforms which are operated by highly sophisticated business analytics- driven marketing and customer relationship management. These strengths enable 888 to deliver to customers and Business to Business partners alike market-leading and continually innovative online gaming entertainment products and solutions.

888 is always mindful of the complex regulatory environment in which it operates and the social responsibility that comes hand-in-hand with the online gaming industry. 888 continually invests time and resources in caring for and protecting its customers and, by successfully doing this, 888’s business will continue to grow and prosper.

OVERVIEW OF 888

Overarching 888 brand

888’s B2C offering 888’s B2B offering

This Annual Report may contain statements which are not based on current or historical fact and which are forward looking in nature. These forward looking statements reflect knowledge and information available at the date of preparation of this Annual Report and 888 Holdings plc (the “Company”) and its subsidiaries (together, “888”, or the “Group”) undertake no obligation to update these forward looking statements. Such forward looking statements are subject to known and unknown risks and uncertainties facing 888 including, without limitation, those risks described in this Annual Report and other unknown future events and circumstances which can cause results and developments to differ materially from those anticipated. Nothing in this Annual Report should be construed as a profit forecast. STRATEGIC REPORT GOVERNANCE FINANCIAL STATEMENTS 01 16 14 71 81 01 32 35 67 24 26 36 42 54 78 78 48 02 79 82 03 46 05 08 04 40 117 112 115 113 80 114 IFC IBC ...... ANNUAL REPORT & ACCOUNTS 2016 ACCOUNTS & REPORT ANNUAL ...... For more information see our website: see our website: information more For GOVERNANCE STRATEGIC REPORT STRATEGIC Regulatory and General Regulation ...... Developments ...... Statement Viability . Risk Management Strategy Responsibility Corporate . Us Different Makes What ...... and Financial Review Business 2016 Review: Market ...... Markets in Regulated Growth ...... Report Directors’ Statement Directors’ ...... of Responsibilities ...... a Glance At Online Gaming is a . Market Global Growth 06 ...... Statement Chairman’s Officer’s Chief Executive . Report Strategic Model...... 09 Business 888’s ...... Strategy Growth 888’s ...... of Directors Board Governance Corporate Statement ...... Report Committee Audit ...... Welcome Highlights...... Operate we Where Remuneration Directors’ ...... Report FINANCIAL STATEMENTS FINANCIAL Statement Company of Changes in Equity...... of Cash Flows Statement Company ...... Statement Income Consolidated ...... of Cash Flows Statement Consolidated the Consolidated to Notes ...... Financial Statements Sheet...... Balance Company the Company to Notes ...... Financial Statements > corporate.888.com ...... Report Independent Auditors’ Statement Consolidated ...... Income of Comprehensive Sheet...... Balance Consolidated Statement Consolidated of Changes in Equity...... Information Shareholder ...... Information Company 888 HOLDINGS PLC HOLDINGS 888

1 1 1 Revenue Revenue - B2C at constant currency up 20% Actual - revenue B2C up 15% Actual Actual - revenue B2C Sport up 49% at EBITDA constant currency up 50% up EBITDA 34% Revenue - Revenue B2C Sport constant at currency up 58% 55 89 480 2016 2016 2016 up 14% currency currency Constant Constant currency Constant 52 80 114 460 2016 2016 2016 2016 Actual Actual

35 59 399 100 2015 2015 2015 2015 EBITDA US$ million Revenue – B2C Sport Revenue US$ million Revenue – B2C Revenue US$ million First Time Depositors Time First % (FTDs) up

1 1 1 Adjusted Adjusted EBITDA up 12% Adjusted Adjusted at EBITDA constant currency Revenue - Revenue B2C Casino constant at currency Revenue at at Revenue constant currency 24% up 26% Actual - revenue B2C Casino up 21% up 18% Actual revenue up 13%

2 291 546 100 2016 2016 2016 up 82% currency currency currency Constant Constant Constant 59 90 521 279 2016 2016 2016 2016 Actual Actual As defined in footnote on page 16. footnote As defined in As defined in table set out on page 17. 81 33 231 462 2015 2015 2015 2015 HIGHLIGHTS HIGHLIGHTS 1 2 Profit Before Tax Before Profit US$ million Revenue – B2C Casino Revenue US$ million Revenue US$ million Another successful year for 888 for year Another successful US$ million Adjusted EBITDA Adjusted 02 888 HOLDINGS PLC ANNUAL REPORT & ACCOUNTS 2016

AT A GLANCE

888 is one of the world’s most popular online gaming entertainment and solutions providers. More than a million customers enjoy our online gaming entertainment across more than 100 countries.

MISSION ABOUT US

888’s mission is to exceed its customers’ 888 has been at the forefront of the expectations and provide the most online gaming industry since foundation enjoyable online gaming experience in 1997, providing to players and B2B possible. 888 is mindful of the complex partners an always innovative and regulatory environment in which it world-class online gaming experience. operates and the social responsibility At the heart of 888’s business is its that comes hand-in-hand with the proprietary gaming technology and online gaming industry. 888 always associated platforms, allowing 888 to invests time and resources in caring for differentiate itself from and innovate and protecting its customers and, by ahead of competitors. successfully doing this, 888’s business will continue to grow and prosper.

IS AN…

ESTABLISHED AND TECHNOLOGY-CENTRIC INCREASINGLY GROWING REGULATED AND At the heart of 888’s business is its cutting-edge, proprietary online gaming DIVERSIFIED In the growing and dynamic global technology that underpins the Group’s online gaming industry, 888 has a ability to deliver a first class gaming The Group has a portfolio of proven track-record of consistent experience across platforms strong, trusted Business to growth and outperformance. Revenue to customers. Customer (“B2C”) brands and in 2016 increased by 13% and 18% a leading Business to Business at constant currency*. (“B2B”) business, Dragonfish. The Group has established leading positions in the Casino, Poker and Bingo markets and is focused on developing the fast-growing 888sport brand. The Group’s is truly diversified with successful operations under ten licences.

…GLOBAL INDUSTRY LEADER.

* Constant currency in this document as defined on page 16 888 HOLDINGS PLC ANNUAL REPORT & ACCOUNTS 2016 03

WHERE WE OPERATE

888’s strong performance continued in the core UK market as well as in key STRATEGIC REPORT regulated markets in Spain and Italy. During 2016, 888 received a sports betting licence in Ireland as well as casino, poker and sports betting licences in both Denmark and Romania.

UK SPAIN ITALY

888 continued to deliver strong growth In Spain 888 offers its Casino, Sport In Italy, 888 offers Casino and, as of in the core UK market with a revenue and Poker offering across mobile and Q1 2016, Sport on mobile and desktop GOVERNANCE increasing 16% year on year at constant desktop platforms. Spain is now 888’s platforms. 888 continued to grow currency and 5% increase in reported second largest market and revenue in with revenue rising 66% year on year. revenue, driven primarily by continued 2016 continued to grow impressively This was driven by the launch of momentum in Casino and Sport by 45%, further capitalising on the 888sport.it in Q1, supported by online supported by cost efficient marketing introduction of slot games midway and offline marketing campaigns. and effective CRM. through 2015 and its Sport offering.

DENMARK IRELAND ROMANIA

In Denmark, 888 offers Casino, Poker In 2015, the Group obtained a Sport During 2015, 888 received casino, poker and Sport products across mobile and betting licence in Ireland. and sports betting licences in Romania.

desktop platforms. 888 delivered a FINANCIAL STATEMENTS solid performance following the Group’s launch during 2015 and has quickly built momentum in this exciting market supported by effective online and offline marketing activities.

USA

888 is the only operator in all three regulated US states of Nevada, Delaware and New Jersey. Trading in the US has remained in line with the Board’s expectations and the Group continues to benefit from the successful launch of the shared poker player liquidity across Delaware and Nevada in early 2015. 04 888 HOLDINGS PLC ANNUAL REPORT & ACCOUNTS 2016

ONLINE GAMING IS A GLOBAL GROWTH MARKET

The global online gaming industry is fast-growing and dynamic, supported by technological developments and government regulation.

The online gaming industry has With the growth of online gaming, experienced rapid growth since its many governments have adopted inception during the mid-1990s and and are continuing to adopt specific continues to demonstrate strong regulatory frameworks for the industry growth fundamentals. This is supported and 888 remains focused on growing by product innovation, customers’ in sustainable, regulated markets. ever greater access to high-speed Whilst new regulation increases and reliable internet connections, duties and costs for operators, it the popularity of smart mobile devices, also creates opportunities for brands and government regulation. with scale, proprietary technology and a marketing edge to access new customers in new markets and grow.

PRODUCT 2015 – 2021E GLOBAL ONLINE GAMBLING MARKET BY PRODUCT CAGR

2015 2021

SPORTS BETTING €17.4bn €26.7bn 7.4%

CASINO €9.3bn €14.0bn 7.1%

POKER €2.5bn €2.5bn 0.1%

BINGO €1.6bn €2.6bn 8.9%

TOTAL GAMBLING* €35.8bn €55.5bn 7.6%

* Also includes skill games and lotteries.

Source: H2 Gambling Capital (2 March 2017).

2015 GLOBAL ONLINE 2021 ESTIMATED GLOBAL GAMBLING MARKET ONLINE GAMBLING MARKET

€35.8bn €55.5bn With 30.1% from mobile With 45.8% estimated to be from mobile 888 HOLDINGS PLC ANNUAL REPORT & ACCOUNTS 2016 05

WHAT MAKES US DIFFERENT

At the heart of 888’s business is its proprietary gaming technology and highly STRATEGIC REPORT sophisticated marketing, customer relationship management and business analytics. Together, these enable 888 to deliver to customers and B2B partners alike market-leading and continually innovative online gaming entertainment products and solutions. GOVERNANCE FINANCIAL STATEMENTS

888’S UNIQUE AREAS OF EXPERTISE STAKEHOLDERS

1. Proprietary Gaming Technology 3. Highly sophisticated marketing 5. Customers At the heart of 888’s business is its At the core of 888’s business philosophy The customer is at the heart of cutting-edge, proprietary online is an unwavering focus on return to everything 888 does and the business is gaming technology that underpin the cost driven marketing. Building on the fully committed to providing the most Group’s ability to deliver a first class business’ analytics-driven insights and enjoyable online entertainment possible. gaming experience to customers across expertise, 888 continuously develops 888 is always mindful of the complex platforms. Technology leadership and innovative marketing techniques and regulatory environment in which it continuous innovation are central channels, both online and offline to operates and the social responsibility to 888’s progress, and the Group is support its brands’ development and that comes hand-in-hand with the online constantly evolving and developing increase customer loyalty. gaming industry. The Group continuously its proprietary platforms and industry- invests time and resources in caring for leading back office systems to maintain and protecting its customers and, by its competitive edge. successfully doing this, 888’s business will continue to grow and prosper.

2. Business analytics 4. Customer Relationship 6. B2B partners 888 employs an extensive team Management Under its Dragonfish arm, the Group of highly trained and experienced Underpinned by sophisticated statistical offers gaming partners a comprehensive business analytics and data-mining models, 888 has a unique understanding end-to-end solution, encompassing professionals who have analysed and of its customers. This understanding technology, operations and advanced learned from customer behaviour since helps enable 888 to deliver to customers marketing tools, as well as online best 888’s foundation nearly two decades personalised communications across practices. Drawing on two decades ago. Teams across 888 from product relevant channels that increase loyalty of 888’s track record and reputation development to marketing to customer and activity. Underpinned by 888’s in online gaming, the Dragonfish support leverage this extensive and analytical approach, the Group offers a team is uniquely placed to support its constantly evolving data and, by broad range of appealing bonuses that partners and deliver a cutting-edge applying robust statistical models, are are localised from country to country, online proposition. able to drive 888’s success. from product to product, and according to a customer’s individual profile. 06 888 HOLDINGS PLC ANNUAL REPORT & ACCOUNTS 2016

STRONG GROWTH ACROSS A DIVERSIFIED BUSINESS

888’s success in 2016 was characterised by continued investment in our technology leadership; successful further expansion in regulated markets; and standout performances in Casino and Sport.

BRIAN MATTINGLEY Chairman

Our values place the community and the customer at the centre of all our endeavours. > See page 36

RESPONSIBLE PROTECTING PROTECTING THE GAMING CUSTOMERS VULNERABLE

CHAIRMAN’S STATEMENT devices, which expanded to represent Group’s business analytics, customer I am delighted to update our stakeholders 60% of B2C revenue in the UK (2015: relationship management and marketing on what has been another outstanding 47%). As a result, total B2C revenue was expertise, continues to provide the year for 888. Our strong financial results US$460.2 million, representing a 15% uplift foundation for 888’s competitive for the year have been underpinned by on the prior year (2015: US$399.4 million) advantages. In such a dynamic and rapidly significant progress against our strategic or a 20% increase at constant currency to developing industry, continually investing objectives. As you will read in more detail US$479.9 million. in and developing our own world class throughout this year’s Annual Report, technology means that we are able to 888’s success in 2016 was characterised Adjusted EBITDA increased by 12% to be nimble in relation to opportunities, by continued investment in our technology US$90.2 million (2015: US$80.6 million) respond to regulatory developments leadership; successful further expansion which represented 24% growth at and create new, engaging and — above in regulated markets; and standout constant currency to US$100 million all — safe and secure entertainment for performances in Casino and Sport. and profit before tax was 82% higher at our customers. US$59.2 million (2015: US$32.5 million). RESULTS The Group remains highly cash generative In 2016 we delivered further successful 2016 was another very busy year at with net cash generated from operating expansion across regulated markets 888 and, testament to the skill and activities of US$68.1 million (2015: where we are able to leverage the Group’s entrepreneurial spirit of our exceptional US$85.0 million). full marketing expertise to develop the team, our operational performance was 888 brands. We continued to make stronger than ever. This resulted in the Given the continuing strong financial outstanding progress in the UK; Spain, Group delivering revenue growth of 13% performance of the Group and the Board’s which is now our second largest market; to US$520.8 million (2015: US$462.1 confidence in the outlook, the Board of Italy, where we are benefitting from the million) despite significant adverse Directors is recommending a final dividend introduction of Sport in the first quarter currency movements impacting our of 5.1¢ per share in accordance with 888’s of the year; and Denmark, where we reported results. At constant currency dividend policy, plus an additional one- successfully launched in the second revenue increased impressively by 18% off 10.5¢ per share bringing the total for half of 2015 with a full suite of products to US$546.4 million. the year to 19.4¢ per share (2015: 15.5¢ and brands. Revenue from regulated per share). markets increased to represent 61% of Our core B2C business continued to grow, Group revenue (2015: 59%), significantly with a 5% increase in active customers, STRATEGIC PROGRESS outpacing growth from unregulated driven primarily by outstanding results The Board believes that 888’s proprietary “dot.com” markets. in Casino and Sport, growth in regulated online gaming technology is second to markets and by our offer on mobile none. This strength, coupled with the STRATEGIC REPORT GOVERNANCE FINANCIAL STATEMENTS 07 07 ANNUAL REPORT & ACCOUNTS 2016 ACCOUNTS & REPORT ANNUAL

ANNUAL REPORT & ACCOUNTS 2016 ACCOUNTS & REPORT ANNUAL BRIAN MATTINGLEY BRIAN Chairman 2017 21 March The Group continues to monitor and monitor to continues Group The the from implications potential plan for the European leave decision to UK’s do not anticipate we Union. However, Since significant impact on our operations. has devalued Sterling vote the ”Brexit” the US$ and, as the Group to compared the US$ as its reporting has adopted have financials our reported currency, been impacted. consequently to year during the financial Trading Board’s has been in line with the date daily with average expectations the than 11% above more revenue currency. constant at year previous operator diversified 888 is an increasingly now with the majority of its income markets. regulated from generated significant further has Group The its existing opportunities across growth and product platforms geographies, and evaluate to and will continue verticals 2017 Into growth. for avenues new explore as will remain focus 888’s and beyond a truly on delivering as ever resolute our customers, for experience satisfying long sustainable strong, delivering thereby our shareholders. for earnings growth term 888 HOLDINGS PLC HOLDINGS 888 888 HOLDINGS PLC HOLDINGS 888 OUTLOOK OUTLOOK The global online gaming market is global online gaming market The driven grow to dynamic and will continue the opening developments, technology by channels and marketing up of new further regulation. in a highly regulated 888 operates multiple geographies across industry will remain investment and the Group’s in markets on driving growth focused regulatory sustainable are there where online gaming. Regulated for frameworks of our industry the future are markets record track and 888 has an enviable and capitalising on in adapting to developments. regulatory new changes in 2017 In the UK, in August the tax gaming duty will expand remote bonuses and include customer base to an impact on the competitive this will have of operators. dynamics and profitability gaming platforms with our own However, to of adapting experience and significant 888 remains environments, regulatory new in part the mitigate positioned to well impact of and capitalise on opportunities these changes. by presented that their skill and dedication will ensure will ensure their skill and dedication that of the online the forefront at 888 remains come. to years for gaming industry thank Amos Pickel, to also like I would as a on the 888 Board who has served and as a Chairman Director Non-executive since Committees and member of Board offer to 2006, and who does not intend Annual the 2017 at re-election himself for a has brought Meeting. Amos General to and knowledge of experience wealth in his wish him well and we the Board, endeavours. future complying to committed is fully Board The with the principles of the UK Corporate can find the You Code. Governance and governance regulatory required and in this report throughout disclosures on page 48. statement the compliance On behalf of the Board, I would like to to like I would On behalf of the Board, thank each and this opportunity to take 888 for at colleagues one of my every during the year. their commitment the Group for year busy a very was 2016 been able to have we and the success regulated across under 10 licences deliver verticals major product four markets, and both B2C and B2B divisions speaks in depth of our the strength for volumes I am confident 888. people throughout 888’S WINNING TEAM WINNING 888’S In addition to our organic growth plans, growth our organic In addition to a part of the Group’s M&A remains agenda and, with 888 in great strategic able to are we that health, it is an area 888 a position of strength. from evaluate potential growth has significant organic this complement M&A might and — where and explore evaluate to will continue — we opportunities. appropriate 888’s success in Sport is just in Sport success 888’s of the Group’s one example identify new to ability and opportunities growth them. deliver successfully The Board had previously identified had previously Board The sports betting as a major opportunity was a major focus In 2016, the Group. for are in Sport, which we on driving growth time in our Annual Results the first for vertical. product as a standalone reporting increased significantly we During the year the 888sport behind marketing investment successful a very and enjoyed brand in the Championships Football European our ability to which demonstrated summer, during major sporting compete effectively Sport customers As a result, events. increased and revenue 49% by increased US$51.9 million (2015: to 49% by will the Group US$34.8 million). In 2017, the behind delivering invest to continue Sport opportunities for further exciting and growth of revenue both in terms acquisition. efficient customer 08 888 HOLDINGS PLC ANNUAL REPORT & ACCOUNTS 2016

CHIEF EXECUTIVE OFFICER’S STRATEGIC REPORT

888 today is a truly diversified operator across markets and product verticals with a unique technology platform and an outstanding team and culture at its core.

ITAI FRIEBERGER Chief Executive Officer

During 2016, 888 again made strong 888 employs an extensive team amongst the most trusted and recognised progress against its stated strategy. of highly trained and experienced in the online industry. The Group’s resolute We have continued to deliver business analytics and data-mining focus on product development, customer outstanding organic growth and expand professionals who have analysed and service and marketing continue to our brands across the regulated markets learned from customer behaviour since support the sustained strength and appeal we operate in. 888 today is a truly 888’s foundation nearly two decades of 888’s brands. diversified operator across markets ago. Teams across 888 from product and product verticals with a unique development to marketing to customer As a business we never lose sight of technology platform and an outstanding support leverage this extensive and our duty as a responsible operator and team and culture at its core. With these constantly evolving data and, by applying 888 acknowledges there is a potential qualities we continue to see a number of robust statistical models, are able to danger that its games may pose for clear growth opportunities for the Group successfully influence the following a small minority of people. We take both in existing and new markets. three key drivers of 888’s success: comprehensive steps to minimise fraud, problem gaming and eliminate minors 888’S ‘DNA’ ♦♦ increasing the number of new players from using our services. Through rigorous 888’s mission is to supply its customers (first time depositors or “FTDs”) and timely customer checks as well as with innovative and market-leading across 888’s brands; ongoing real-time tracking of customer online gaming entertainment, above activity, 888 continually monitors for ♦♦ reducing the cost per acquisition all in a safe and secure environment. irregular activity that may be an indication (“CPA”) of those new players to 888; The Group’s competitive advantages of compulsive gaming or fraud. 888’s and to achieve this are built on world fraud and prevention and customer class proprietary gaming technology; ♦♦ maximising the life time value (“LTV”) service teams are highly trained and have leading-edge Customer Relationship (measured as average forecasted developed efficient and proactive methods Management (“CRM”) based on business revenue over a customer’s entire life to identify issues and notify and protect analytics expertise; strong brands and cycle) to 888 of each customer. our customers. Further details on 888’s innovative marketing. robust Information Technology systems This is supported by 888’s strong, trusted are given in the Risk Management Strategy Technology leadership and continuous and award-winning brands that remain report on page 26. We pride ourselves on innovation are central to 888’s progress, crucial in the competitive global online the strength of our customer relationships and the Group is constantly evolving gaming market. The Group’s consistent and first class customer support is offered and developing its proprietary platforms and engaging customer offer, focused through telephone, email and online chat and industry-leading back office customer support and heritage in online functions to customers around the world systems to maintain its competitive gaming have meant that 888’s brands are in nine different languages. edge. This is supported by a strong corporate culture which encourages our skilled end entrepreneurial team to develop innovative ideas and test them. Whilst a significant number of our myriad ideas and projects may never reach the market, they are part of a process and mindset of continually striving to develop our edge and lead the industry. STRATEGIC REPORT GOVERNANCE FINANCIAL STATEMENTS 09 5. Customer 5. Customer relationship management leadership Underpinned by sophisticated models, statistical 888 has a unique of its understanding enabling customers, to deliver 888 to personalised customers across communications channels. relevant Across 888’s B2C 888’s Across is there brands VIP Support. dedicated VIP of the role The is to Support teams class first provide “high roller” support to and increase players 888. to their loyalty 10. Dedicated VIP Dedicated 10. support ANNUAL REPORT & ACCOUNTS 2016 ACCOUNTS & REPORT ANNUAL

888’s leading 888’s payment proprietary than 35 supports more methods in payment 18 languages, both for and on mobile/ desktop tablet devices. 4. A seamless 4. A seamless experience customer its 888 delivers gaming entertainment seamlessly products across and responsively mobile and desktop platforms. Payment 9. processing 888 HOLDINGS PLC HOLDINGS 888 Leading-edge business Leading-edge analytics expertise Increasing First Time Depositors + customer To exceed exceed To MISSION expectations 888 takes its duty as a 888 takes operator responsible seriously and very comprehensive takes minimise fraud, to steps gaming and problem minors from eliminate using its services. 3. Product innovation innovation 3. Product and leadership ability to The develop successfully “in-house” proprietary games and innovative on mobile and desktop help to platforms 888 from differentiate competitors. 8. Customer protection

technology

Key Drivers Key acquisition per player cost the Reducing Maximising player life-time value life-time player Maximising Proprietary gaming Proprietary are not limited to, the following: to, not limited but are include, factors Influencing gaming technology and leading-edge business analytics expertise. expertise. analytics and leading-edge business gaming technology Underpinning 888’s ability to deliver these key drivers are 888’s proprietary proprietary 888’s are drivers these key deliver ability to Underpinning 888’s

7. Excellent customer customer Excellent 7. support customer class First support is offered telephone, through email and online functions to chat the around customers in nine different world languages. 2. Innovative, driven driven 2. Innovative, marketing 888 is resolutely on devising focused return and delivering driven on investment campaigns. marketing

INFLUENCING FACTORS INFLUENCING 6. Cross-selling leverage 888 is able to of the the strength and customer brands in each of proposition major product its four using and, by verticals predictive proven modelling, cross-sell gaming entertainment customers. to A strong brand is a key is a key brand A strong is in what advantage global a competitive online gaming market. consistently 888’s and innovative is engaging brand the most amongst and recognised trusted in the industry. 1. Maintaining our and trusted strong brand

888 Holdings is structured into two lines of business: B2C, under the 888 brands, the 888 brands, B2C, under of business: lines two into is structured 888 Holdings Dragonfish. through and B2B, conducted 888’S BUSINESS MODEL BUSINESS 888’S 10 888 HOLDINGS PLC ANNUAL REPORT & ACCOUNTS 2016

888’S BUSINESS MODEL continued

B2C — ONLINE BUSINESS CYCLE 6. Gaming revenue 1. Marketing

5. Activity RETURN TO 2. Acquisition COST DRIVEN

4. CRM 3. Deposits

ONLINE BUSINESS CYCLE FACTORS

1. Marketing browsers into players. 888’s payment 888’s ability to successfully develop new At the core of 888’s business philosophy options include a cashier interface proprietary games and functionality on is an unwavering focus on return to cost available in 18 languages, both for desktop mobile and desktop platforms helps to driven marketing. The business continually and on mobile/tablet devices, with the differentiate the 888 experience in the develops innovative marketing techniques most relevant payment methods identified eyes of the customer. 888 combines and channels, both online (including and emphasised for different customers exclusive and high-quality “in house” online advertising, affiliate programmes, according to their market. created content with third-party search engine optimisation) and offline games and branded content to ensure (including TV and print media advertising, 4. Customer Relationship Management that we always offer the freshest and sponsorships) to support its brands and Once we have acquired a customer, most enjoyable customer proposition. increase customer loyalty. The returns we want to keep them enjoying their 888’s products are seamlessly available to cost of all marketing campaigns are experience with 888 for the longest and responsive across mobile and rigorously tested against 888’s strict time possible. desktop platforms and the flexibility and criteria before being extended to their consistent experience across devices target markets. This ensures that 888’s Underpinned by sophisticated statistical means that customers are able to marketing spend is both cost efficient models, the Group is able to effectively enjoy unrivalled gaming entertainment and highly effective. predict the life-time value of a new however and wherever they choose. customer within a short period of time 2. Acquisition of them joining 888. This helps enable With 888’s strengths in four major Effective marketing helps to attract 888 to deliver to customers personalised online gaming verticals – Casino, Poker, increased customers to 888’s brands in the communications across relevant Sport and Bingo – through the use of most cost effective manner. Strong levels channels that increase loyalty and analytics and proven predictive modelling, of customer acquisition, measured by activity. Underpinned by 888’s analytical 888 is able to enhance customer activity increases in first time depositors (“FTDs”), approach, the Group offers a broad range and life-time value by promoting each is the fuel for 888’s ongoing growth. of appealing bonuses that are localised relevant product to existing customers from country to country, from product to in a targeted and attractive way. 3. Deposits product, and according to a customer’s Customers need to be able to enjoy individual profile. Furthermore, 888 is able 6. Gaming revenue a seamless, enjoyable journey from the to apply these skills to accurately identify By generating upward trends in customer moment they visit our websites through potential “churning” players according LTV, our marketing teams are able to depositing into their accounts and to certain characteristics, interact with to increase investment in campaigns enjoying our games. those players accordingly, and retain to acquire more new customers and them for longer. still ensure that the business meets 888’s leading proprietary payment its strict return to cost criteria. processing capabilities support a wide 5. Activity variety of languages and currencies with Ensuring that we continually offer a more than 35 payment methods. It is vital high quality product across our brands that we are able to offer fast, efficient and helps to increase customer activity and, easy to use payment processing, both to consequently, life-time value with 888. ensure a positive customer experience but also to maximise revenue and convert STRATEGIC REPORT GOVERNANCE FINANCIAL STATEMENTS 1111 ANNUAL REPORT & ACCOUNTS 2016 ACCOUNTS & REPORT ANNUAL

888 HOLDINGS PLC HOLDINGS 888 Online casinos replicate the real-life casino experience casino experience real-life the Online casinos replicate online “the against house” across playing with players casino table games such as roulette of classic versions In these as slot and video games. and blackjack as well or “edge”. advantage a statistical games, the house has the difference by is represented Casino gaming revenue less customers by of bets placed the amounts between amounts won. acts as the virtual host operator the In online poker enables that a platform provides the game and for against of poker forms various play to customers each other. “rake”) (or the commission represents revenue Poker hand in ring games, and each poker from charged tournaments. in Poker participation for entry fees HOW WE GENERATE REVENUE GENERATE WE HOW Sportsbook online gaming revenue comprises bets comprises Sportsbook online gaming revenue customers. to pay-outs less placed its to of net gaming revenue a share 888 pays provider. sports betting platform third-party As with traditional bingo halls, online bingo rooms offer offer bingo halls, online bingo rooms As with traditional purchasing by of winning prizes the chance customers of choice. their bingo format and playing tickets the by is represented Bingo online gaming revenue by the amounts of bets placed between difference amounts won. less customers 888sport is a fast-growing sports betting destination. sports betting destination. 888sport is a fast-growing is genuine passion the heart of the 888sport offer At betting and pre-event sport, with thousands of live for the from of events, hundreds across on offer markets the obscure. to obvious 888casino is one of the most recognised and longest recognised most 888casino is one of the and the in the market, online casino brands standing awards. prestigious winner of numerous and jackpot prizes its generous for 888casino is known online experience enjoyable the most provide aims to in-house developed exclusive combining by available Casino video slots and “live” games alongside branded casino high-quality video streamed games, which offer dealers. of professional games with a range OUR OFFER OUR 888’s leading bingo brands each have engaging each have bingo brands leading 888’s sense of games and a strong of themes, a variety of traditional the experience replicating community, also benefit bingo brands Group’s bingo halls. The slot party developed of 888 and third a range from offered are that cards games, casino games and scratch bingo formats. alongside traditional includes 888 Ladies, of brands portfolio 888’s Bingo and others. Posh Bingo, Wink 888poker is a multi-award winning poker destination, destination, winning poker is a multi-award 888poker enables that environment poker a first-class offering the games of their choice enjoy of all abilities to players and Formats features. of innovative alongside a variety gaming with poker, (combining include BLAST features drawn a randomly for compete to players allowing “buy in” in times the player’s 10,000 pool of up to prize to players (enabling PokerCam game), a time-limited time in real available are games that poker secure enjoy 3D Poker, technology), webcam streaming via 888’s tournaments. and TeamsPoker 7 Card Omaha Hi’Lo, Hold’em, Texas offers 888poker Limit, in Pot variations Razz and other poker Stud, Limit and No Limit formats. Fixed PRODUCT SPORT BINGO POKER CASINO OUR B2C BRANDS B2C OUR 12 888 HOLDINGS PLC ANNUAL REPORT & ACCOUNTS 2016

888’S BUSINESS MODEL continued

B2B — DRAGONFISH, THE PARTNER OF CHOICE

Under its Dragonfish arm, the Group offers gaming partners a comprehensive end-to-end solution, encompassing technology, operations and advanced marketing tools, as well as online best practices. Drawing on two decades of 888’s track record and reputation in online gaming, the Dragonfish team is uniquely placed to support its partners and deliver a cutting-edge online proposition.

Dragonfish’s flexible platform and tools have been developed and certified to meet the rigorous regulatory requirements of the different jurisdictions in which its partner operate.

888’s B2B business model is based on an agreed share of the revenue generated by its gaming partners.

The division is one of the world’s largest providers and operators of bingo software. In addition, through its CasinoFlex platform, Dragonfish offers its partners a wide range of more than 600 Casino games releases, including video slots, progressive jackpots, Live Dealer, video poker, table games and branded titles. Dragonfish/888 is also the only provider of poker and casino solutions across all three regulated US states – New Jersey, Nevada and Delaware. Dragonfish has powered some of the most prominent gaming brands in this space, such as Foxy Bingo, World Series Of Poker (WSOP), Moon Games and Costa Bingo.

MARKETING TECHNOLOGY OPERATIONS RESPONSIBLE GAMING Dragonfish works and The Dragonfish technology Dragonfish’s turn-key solution We believe our primary supports its partners, and product stack was offers 24/7 support, risk and responsibility is to provide ever improving marketing developed and built over fraud management from the best online gaming effectiveness and value 20 years through its parent various global sites, utilising entertainment for our maximisation. 3600 multi- 888’s online track record. multiple communication partners. However, we also channel marketing includes Its Casino, Poker and Bingo channels that serve as the acknowledge the potential a full suite of CRM services. products have encompassed back bone to its award danger that gaming may pose Through utilisation of our both in-house and third-party winning proposition, for a small minority of people. cutting-edge back office tools, content, while its proprietary leveraging 20 years of online Therefore, we strive and are our CRM teams drive partners back office has been driving operational excellence. committed for excellence in forward through increased growth in the business our responsible gaming policy conversion, retention and using industry-leading and ethical conduct. customer life-time value. CRM and analytical tools and capabilities. STRATEGIC REPORT GOVERNANCE FINANCIAL STATEMENTS 13 13 Customer recycles winnings Customer keeps winnings to Contribution revenue Group ANNUAL REPORT & ACCOUNTS 2016 2016 ACCOUNTS ACCOUNTS & & REPORT REPORT ANNUAL ANNUAL

888 HOLDINGS PLC PLC HOLDINGS HOLDINGS 888 888 Customer loses Customer wins share Agreed revenue of net Branded Partners Customer Interaction B2B B2C CREATING VALUE FOR OUR STAKEHOLDERS OUR FOR VALUE CREATING 14 888 HOLDINGS PLC ANNUAL REPORT & ACCOUNTS 2016

888’S GROWTH STRATEGY 888 has a strategy for sustainable growth and to deliver long-term value for all stakeholders by exploiting organic potential as well as evaluating attractive M&A opportunities.

KEY PILLARS THE KEY PILLARS OF 888’S GROWTH STRATEGY REMAIN:

DEVELOPMENT 888’s B2C offering remains at the core 888 has established leading brands in OF CORE B2C of the Group and is the foundation Casino, Poker and Bingo as well as the BRANDS of our success. We remain resolutely fast-growing and rapidly developing focused on continuing to develop our 888sport. proposition to ensure that we offer customers the best possible online gaming entertainment.

ENHANCING Management remain steadfastly EFFICIENCIES focused on maximising operational efficiencies, including by constantly developing and refining marketing approaches and driving increased volumes.

EXPANSION IN 888’s focus is on driving growth in 888 has a proven track-record REGULATED markets where there are sustainable in successfully and efficiently MARKETS regulatory frameworks for online launching and growing in gaming and where we are able to attractive regulated markets. exploit marketing opportunities for our brands.

B2B PARTNER We will continue to invest in and OF CHOICE develop our B2B offer to establish THROUGH Dragonfish as the partner of choice in both regulated and DRAGONFISH newly regulating markets.

CONTINUE TO At 888, it’s all about having fun and 888 continues to invest resources in PROTECT OUR we are focused on ensuring it always caring for our customers, protecting CUSTOMERS remains that way for our customers. the vulnerable, and ensuring that The Group is constantly mindful we continue to entertain and delight AND ACT of its social responsibilities, which those who choose to play with 888. RESPONSIBLY includes protecting our customers and ensuring they enjoy a truly satisfying experience. STRATEGIC REPORT GOVERNANCE FINANCIAL STATEMENTS 15 15 ANNUAL REPORT & ACCOUNTS 2016 2016 ACCOUNTS ACCOUNTS & & REPORT REPORT ANNUAL ANNUAL

ITAI FRIEBERGER ITAI Chief Executive Officer Chief Executive 2017 21 March Mobile continues to drive growth growth drive to Mobile continues and in the UK verticals across 60% of UK represent to increased with an 47%) (2015: B2C revenue of 66% of revenues all-time record half of 2016 in the second Bingo active players up 8% up players Bingo active in Italy supported progress Continued driving launch of Sport in Q1 2016 by in revenue a 66% increase the Group in Denmark where Progress and Sport Poker launched its Casino, as in 888’s as well in H2 2015 brands – Romania territory regulated newest Bingo increased 7% at constant constant 7% at Bingo increased with high potential currency, Bingo Reported CasinoFlex. for 5% impacted decreased revenue GBP devaluation by Successful introduction of fast of fast introduction Successful in the BLAST” “Poker featured and record middle of the year during tournaments breaking our position fortifying the year for destination as the go-to players recreational ♦ ♦ ♦ ♦ ♦ ♦ ♦ ♦ ♦ ♦ ♦ ♦ 888 HOLDINGS PLC PLC HOLDINGS HOLDINGS 888 888 CasinoFlex platform already supports already platform CasinoFlex with significant further 26 brands potential growth Close partnership with major helping agencies and support centres environmental monitor to Continued and identify performance consumption energy opportunities for reduction and waste revenue increase during 2016 was was during 2016 increase revenue and 5% currency constant 16% at revenue on reported in Spain 45% growth Impressive in H2 launch of 888sport.es following to and slot games during 2015 2014 for market largest second become the Group New Casino brand, 777.com launched 777.com Casino brand, New well performing the end of 2015 at growth Sport revenue Outstanding currency) constant (58% at up 49% marketing increased by supported 2016 Euro strong investment, offering and enhanced performance alternative a credible remains 888poker and showed players Poker for trend superiority in relative up 6% time depositors first Poker continued the product’s demonstrating players of as a source importance and cross-selling retention acquisition, Casino and Sport into ♦ ♦ ♦ ♦ ♦ ♦ ♦ ♦ ♦ ♦ ♦ ♦ ♦ ♦ ♦ ♦ Sport – 49% increase in active in active increase Sport – 49% time in first increase and 52% players depositors Casino – 27% increase in active players players in active increase Casino – 27% time depositors first and 23% increase ♦ ♦ Continued review and optimisation of and optimisation review Continued such as self- gaming tools responsible and self-exclusion a break limits, take in staff investment Continued identify to and procedures training gambling and of problem instances behaviour fraudulent B2B Revenue up 6% at constant constant up 6% at B2B Revenue 3% on and decreased currency revenue reported the Dragonfish skins added to 23 new Bingo network Revenue from regulated markets markets regulated from Revenue (2015: 61% represent to increased at (63% revenue of Group 59%) currency) constant UK market in core performance Strong Casino continued primarily by driven adverse offset by and Sport growth, Underlying UK movements. currency Continued operational gearing enables operational Continued growth into more invest to the Group activities with the overall generating 83% at stable ratio revenue to cost the marketing in an increase despite and gaming 30.1%) (2015: 32.7% to ratio 10.8%) 11.6% (2015: duties rising to Casino revenue up 21% (26% at constant constant up 21% (26% at Casino revenue further product aided by currency) growth market regulated development, CRM and outstanding ♦ B2C revenue growth of 15% growth B2C revenue currency) constant (20% at be to continue drivers Growth onCasino and Sport, capitalising investments: our focused ♦ ♦ ♦ ♦ ♦ ♦ ♦ ♦ ♦ ♦ ♦ 2016 PERFORMANCE HIGHLIGHTS: PERFORMANCE 2016 ♦ ♦ ♦ ♦ ♦ ♦ ♦ ♦ ♦ ♦ 16 888 HOLDINGS PLC ANNUAL REPORT & ACCOUNTS 2016

2016 BUSINESS AND FINANCIAL REVIEW

The Group’s strong financial performance in 2016 is once again a reflection of 888’s continued success in attracting new customers, retaining them and increasing their overall spend.

AVIAD KOBRINE Chief Financial Officer

INTRODUCTION 888’s success is built on its technological strength in combination with the efficient utilisation of this technology, directed by extensive data analytics. The goals of 888’s business are simple: to maximise customer recruitment, increase customer life-time value and minimise the cost per customer acquisition, thereby optimising return on marketing investment. The Group’s strong financial performance in 2016 is once again a reflection of 888’s continued success in attracting new customers, retaining them and increasing their overall spend. FINANCIAL SUMMARY Change 20161 20151,3 Constant Change US$ million US$ million currency2 Reported Revenue – B2C Casino 279.3 230.6 26% 21% Poker 84.4 86.7 (3%) (3%) Sport3 51.9 34.8 58% 49% Bingo 41.8 44.0 7% (5%) Emerging Offerings3 2.8 3.3 (14%) (15%) Total B2C 460.2 399.4 20% 15% B2B3 60.6 62.7 6% (3%) Revenue 520.8 462.1 18% 13% Operating expenses4 (136.1) (127.4) Gaming duties5 (60.5) (50.0) Research and development expenses (34.3) (36.8) Selling and marketing expenses (170.2) (138.9) Administrative expenses6 (29.5) (28.4) Adjusted EBITDA4,5,6 90.2 80.6 24% 12% Depreciation and amortisation (19.0) (18.6) Share benefit charges, finance and other (8.1) (6.5) Exceptional acquisition costs (0.9) (14.6) Exceptional retroactive duties and associated charges (3.0) (8.4) Profit before tax 59.2 32.5 82% Basic earnings per share 14.4¢ 8.3¢ 74%

1 Totals may not sum due to rounding. 2 Constant currency: 888 reports its financial results in US$ but (i) generates certain revenue streams from customers using other currencies and (ii) incurs costs in various currencies. Due to the strong US$ in 2016, reported revenue and profit were adversely impacted. Constant currency has been calculated as follows: (i) Revenue: with the exception of Poker, by applying 2015 exchange rates to revenue generated during 2016. Poker revenue was also adversely impacted given that many Poker customers fund their US$ bankroll using other currencies, which suffered reduced purchasing power compared to the US$. It is difficult to quantify reliably this indirect impact (other than a small adjustment which was made to Poker revenue generated in Euro) (ii) Costs were retranslated by applying 2015 exchange rates. 3 Sport, which was previously included in the Emerging Offerings segment, is presented as a standalone segment. Brand licensing on third-party platforms, which was previously included in the Emerging Offerings segment, is now included in the B2B segment. 2015 revenue figures have been re-classified to allow a like for like comparison. These changes are described in note 2 to the financial statements. 4 Excluding depreciation of US$8.4 million (2015: US$8.9 million) and amortisation of US$10.6 million (2015: US$9.7 million). 5 Excluding exceptional retroactive duties and associated charges of US$3.0 million in respect of gaming taxes relating to activity in prior years (2015: US$8.4 million). 6 Excluding share benefit charges of US$6.7 million (2015: US$4.1 million). STRATEGIC REPORT GOVERNANCE FINANCIAL STATEMENTS 17 ANNUAL REPORT & ACCOUNTS 2016 ACCOUNTS & REPORT ANNUAL

1 8.4 17.5 (8.8) 59.3 888 HOLDINGS PLC HOLDINGS 888 US$ million 2015 32.5 4.1 0.1 1 — 5.9 — 1.3 2.3 0.1 6.7 8.4 8.9 3.0 0.9 9.7 10.6 79.5 59.2 80.6 90.2 2016

US$ million B2C OVERVIEW B2C Active B2C customers and first time and first B2C customers Active KPIs of the core two depositors, 5% and 14% increased B2C business, reflects This on year. year respectively relationship customer highly effective activity management and marketing as strong as well our brands across on mobile and in Sport growth time in the the first for are which we as reporting annual results Group’s number total The vertical. a standalone B2C 888’s across customers of active in the last brands Casino and Poker 728,000. was of 2016 quarter was during the year B2C revenue a 15% million, representing US$460.2 US$399.4 (2015: on the prior year increase revenue Group million) and 88% of total was outcome strong 86%). This (2015: momentum continued primarily by driven in Sport, growth outstanding in Casino, markets in regulated further growth popularity of mobile. and the increasing As at 31 December 2016, the Group’s the Group’s 2016, 31 December As at with strong remains financial position of US$172.6 cash and cash equivalents is million). This US$178.6 million (2015: Sterling impact from the adverse despite 31 of US$8.4 million. As at devaluation had US$75.7 the Group 2016, December (2015: customers million liabilities to effectively US$82.4 million), which was of million as a result US$3.7 by reduced devaluation. Sterling the year during results the strong Given is recommending of Directors the Board in per share a final dividend of 5.1¢ dividend policy with 888’s accordance per share plus an additional one-off 10.5¢ 19.4¢ to the year for bringing the total 15.5¢ per share). (2015: per share

2 Totals may not sum due to rounding. not sum due to may Totals and compare the Company evaluate use to community analyst is the main measure EBITDA Adjusted its peers. it to 1 2 FINANCIAL RESULTS AND DIVIDEND AND RESULTS FINANCIAL RECONCILIATION OF PROFIT BEFORE TAX TO EBITDA EBITDA TO TAX BEFORE PROFIT OF RECONCILIATION AND ADJUSTED EBITDA million) which represented 24% growth growth 24% million) which represented US$100 million. at currency constant at remained margin EBITDA Adjusted despite 17.4%) (2015: 17.3% at stable movements. currency significant adverse EBITDA Adjusted currency, constant At 18.3%. was margin to by 82% tax increased before Profit million) US$32.5 million (2015: US$59.2 to 75% by tax increased after and profit million). US$29.5 US$51.5 million (2015: by increased Basic Earnings per Share 8.3¢). 14.4¢ (2015: to 74% operating from Cash generated million in 2016 US$68.1 activities was decrease million). The US$85.0 (2015: than offset is more 2015 to compared million cash when adding back US$22.7 which made during the year payments periods: US$14.5 previous to relate in during 2015 incurred million costs of UK point of consumption respect and gaming duties (2015: tax, VAT million) and of US$8.2 million in US$3.0 duties retroactive of exceptional respect US$3.2 (2015: charges and associated million). In 2016 888’s revenue reached an all-time reached revenue 888’s In 2016 US$462.1 million (2015: high of US$520.8 strong the continued by million), driven Sport and of Casino, performances including Spain markets regulated on as further growth and Italy as well growth revenue This mobile devices. achieved was 2015 to of 13% compared compared currencies weaker despite the to US$ when compared the to Group currency, constant At prior year. to on year 18% year increased revenue US$546.4 million. increased the year for EBITDA Adjusted US$80.6 million (2015: US$90.2 12% to by

Profit before tax before Profit expense Finance expenses finance Exceptional Depreciation Amortisation EBITDA costs legal and professional Exceptional costs of acquisition reimbursement Exceptional charges duties and associated retroactive Exceptional benefit charges Share associates equity accounted from loss of post-tax Share EBITDA Adjusted 18 888 HOLDINGS PLC ANNUAL REPORT & ACCOUNTS 2016

2016 BUSINESS AND FINANCIAL REVIEW continued

Mobile remains a key driver in terms of revenue, deposits and customer recruitment across product verticals for 888 and the Group continues to benefit from owning its own proprietary mobile solution and games. B2C revenue from mobile devices in the UK increased to represent 60% (2015: 47%) of total UK revenue with customer recruitment and deposits from mobile devices also rising significantly.

B2C – PRODUCT SEGMENTATION 888’s revenue by product segment is set out in the table below:

2016 2015 Change Change US$ million US$ million Constant currency Reported Revenue – B2C Casino 279.3 230.6 26% 21% Poker 84.4 86.7 (3%) (3%) Sport1 51.9 34.8 58% 49% Bingo 41.8 44.0 7% (5%) Emerging Offerings1 2.8 3.3 (14%) (15%) Total B2C 460.2 399.4 20% 15% B2B1 60.6 62.7 6% (3%) Revenue 520.8 462.1 18% 13%

REVENUE BY GEOGRAPHIC MARKET Revenue from regulated markets increased to represent 61% of total Group revenue while revenue from regulated and taxed markets2 increased to 71% of total revenue (2015: 59% and 68% respectively). This expansion is in line with the Group’s strategic priority of targeting growth in sustainable regulated markets.

2016 2015 Growth (decline) % of US$ million US$ million from previous reported year revenue UK 223.2 212.7 5% 43% Europe (excluding UK) 231.0 178.4 29% 44% Americas 44.9 48.5 (7%) 9% Rest of world 21.7 22.5 (4%) 4% Revenue 520.8 462.1 13% 100%

1. The Group has changed its operating segments in the period to reflect a change in the way that the business is managed and reported internally. Sport is now presented separately, having previously been reported in Emerging Offerings. Brand licensing on third-party platforms, which was previously included in Emerging Offerings, is now included in the B2B segment. The comparative segment results for the year ended 31 December 2015 have been re-classified to reflect this change to allow a like for like comparison. Of the Emerging Offerings revenue of US$41.3 million, US$34.8 million has been classified in the Sport segment and US$3.2 million in the B2B segment. 2. Regulated and taxed markets refers to jurisdictions where there are regulations in place or where the Group is liable for gaming duties or VAT (or its equivalent).

888 continued to deliver growth in the UK market with a revenue increase of 16% year on year at constant currency and 5% increase year on year at reported revenue, driven by strong performances in Casino and Sport and supported by innovative multi-channel marketing initiatives and CRM enhancement enabling effective cross-sell.

Europe’s (excluding UK) significant growth of 29% reflects the strong progress delivered across regulated markets mainly in Italy which commenced offering Sport during the first quarter of 2016, and Spain, where a strong product suite offering and successful marketing campaigns are driving growth. The Group also saw new contributions from Denmark and Romania.

Other markets (America and Rest of world) continue to represent smaller proportion of Group’s revenue and, as such, fewer resources have been allocated to them, which resulted in a year. STRATEGIC REPORT GOVERNANCE FINANCIAL STATEMENTS 19

ANNUAL REPORT & ACCOUNTS 2016 ACCOUNTS & REPORT ANNUAL %

8 BINGO Product overview Product online bingo entertainment 888 offers bingo of branded range a broad across engaging each with its own sites, During the theme and rich content. also bingo brands Group’s the year, content new benefit from to continued games including in-house developed progressive shared and greater to contribute jackpots, which together 888 in enhancing and differentiating market. this competitive Results overview Results overview Results 8% increased players Bingo active in a highly competitive 2015 to compared the reflecting and challenging market, activity and CRM as of marketing success of our bingo brands as the growth well 54% represent devices Mobile on mobile. in the UK (2015: of Bingo B2C revenue revenue currency, constant 40%). At in part by 7% supported by increased notably Winkslots launched brands, newly of games. a wide variety which offers US$41.8 was Bingo revenue Reported million) as a result US$44.0 million (2015: impact currency of a significant adverse majority of Bingo revenue with the vast which was in Sterling, denominated the to compared on year year weaker currency. reporting US$, the Group’s + players in active 888 HOLDINGS PLC HOLDINGS 888 % 6 POKER In 2016, Poker again outperformed a again outperformed Poker In 2016, to backdrop market challenging poker by 6% and time depositors first increase Poker for alternative a credible remains was 2016 for revenue Poker players. million). US$86.7 US$84.4 million (2015: be an to continued product Poker The acquisition, of player’s source attractive Casino and into and cross-sell retention cross- 888poker’s Sport. When factoring did revenue 888poker sell contribution, on year. not decline year overview Product be to continues Poker Group’s The for destination as a premier recognised a and benefit from players recreational and casino gaming suite fully integrated supporting sports betting proposition, effectively. cross-sell ability to the Group’s the was in Q4 2016 revenue Poker currency) constant (at of the year highest launch of Poker the successful by driven a “Sit n’ Go” Poker in July 2016, “BLAST” number a pre-set for format tournament of players. an prides itself on delivering 888poker with gaming experience incomparable and of formats range possible the widest critical are Tournaments tournaments. business, of the Poker the success to and first customers driving both active 888 During the year, time depositors. (“XL tournaments major poker four hosted money prize with more Tournaments”), As before. than ever players to on offer through growth drive to as continuing well a majortournaments, in 2017 profitable by 888poker will be on growing focus and games that variants new developing the customer enhance designed to are on mobile devices. experience Results overview Results + time depositors in first overview Results %

21 CASINO The success of Casino remains of Casino remains success The our heritage as an online underpinned by customer and innovative casino operator CRM alongside highly effective proposition table classic offers Casino and marketing. games, such as blackjack and roulette, in-house developed as, exclusive as well games which differentiate proprietary Group The in the market. the brand and, its Casino offer develops constantly games across new added 57 during 2016, In addition platforms. mobile and desktop provide also we our unique content to third- selected and carefully best-in-class all our accommodate to party content needs. customers’ Product overview Product

Results overview Results its outstanding Casino continued of another year momentum delivering Casino growth. double digit revenue million US$279.3 21% to increased revenue constant At million). US$230.6 (2015: 26%. Active was growth currency, the prior to compared 27% rose players increased time depositors and first year prior year the strong 23% despite by comparatives. further reflected good result very This on mobile and excellent growth a number of regulated momentum across Casino and Italy. notably Spain markets, launch the successful from also benefitted the towards 777.com new of the Group’s cross-sell as effective as well end of 2015 notably the fast- other verticals, from Sport. growing + and 26% in revenue currency constant at Results overview Results 20 888 HOLDINGS PLC ANNUAL REPORT & ACCOUNTS 2016

2016 BUSINESS AND FINANCIAL REVIEW continued

SPORT This was a first in the market and in Sport, following exceptional growth in Results overview captured a wider consumer trend for geo- 2015, and Casino, with another year of technology games, helping to drive brand double digit revenue growth. engagement and customer recruitment. The continued growth in regulated and As well as providing a growing revenue taxed markets which represented 71% of +49% stream for 888, Sport is an increasingly total revenue, resulted in an increase in in revenue and 58% increase important customer acquisition channel gaming duties* levied in these markets for the Group, with the lowest cost per during the year. at constant currency acquisition for new customers across product verticals. Using the Group’s first The Group continues to sustain its class CRM and analytics capabilities, as operating efficiencies, which resulted Results overview well as leveraging 888’s strong brands in a lower expenses to revenue ratio for Sport is an increasingly important market in other verticals, 888 remains focused expenses other than selling and marketing for 888 both in terms of revenue and on cross-selling customers to other 888 and gaming tax. customer acquisition and, reflecting this, games and brands as a major driver the Group is now presenting Sport as of the Group’s overall strategy and a standalone operational segment. Operating expenses continued success. Strong performance of Sport product Following exceptional growth in 2015, which is powered by third-party platform Sport delivered another outstanding B2B REVIEW coupled with the substantial increase results in 2016 with revenue for the Results overview in Casino that was supplemented period of US$51.9 million (2015: US$34.8 Revenue from Dragonfish, 888’s B2B by Live Casino provider, resulted in million), a 49% increase compared to the offering, was US$60.6 million (2015: increased associated charges. This has prior year and 58% growth at constant US$62.7 million), with weaker Sterling contributed to the increase of 7% in currency. Active Sport customers in 2016 impacting the results from our UK bingo operating expenses* to US$136.1 million increased by 49% and first time depositors network. At constant currency, B2B (2015: US$127.4 million). increased by 52% year on year. This very revenue increased 6% to US$66.5 million. strong performance was supported by The proportion of operating expenses* accelerated marketing investment, growth B2B revenue from the USA business was (which mainly comprise employee related on mobile and a successful Euro 2016 slightly lower compared to prior year costs, commissions and royalties payable which demonstrated the Group’s ability reflecting continued operational changes to third parties, chargebacks, payment to successfully compete during major being implemented that are aimed at service providers’ (“PSP”) commissions sporting events. 888sport’s continued increasing the long term sustainability and costs related to operational risk growth and momentum also benefited of the business. management services) to revenues from launches into Denmark towards decreased to 26.1% (2015: 27.6%) reflecting the end of 2015 and Italy during the first Operational overview continued operating efficiencies, strict quarter of this year. During 2016 the B2B platform continued cost control and the effect of weaker to grow with 23 new skins added to the currencies compared to the US$. Reported operating expenses amounted to US$155.1 Product overview network and our partners continuing million (2015: US$146.0 million). Supported by increased marketing to benefit from new features and investment and the consistent functionality including the developments Staff costs as a percentage of revenues development of markets and events for of shared jackpots across bingo brands was 11%, compared to 12% in prior year, customers to enjoy, the 888sport brand on the network. In the US, our partners in with the reduction primarily a result of is increasingly recognised by customers the states of Delaware and New Jersey moderate cost increase offset by currency as a premier sports betting destination. continued to benefit from our unique interstate network launched in February movements. As well as agreeing sponsorship deals 2015 that enables the pooling of poker Deposit volumes substantially increased with four Championship League football players across the two states. during the year while the chargebacks clubs to raise the profile of the brand, ratio remained stable at 0.8% (2015: in September the Group launched a new Dragonfish continued to enjoy success 0.7%) of revenue, reflecting an optimised multi-channel marketing campaign in following the launch of the CasinoFlex balance between maintaining revenues the UK to support 888sport’s growth. brand (the Group’s Instant Games Only and increased deposits inflow whilst The new campaign, themed “Take’Em On”, Platform) towards the end of 2015 with reducing transactions with high risk is focused away from the noise of simply more brands added to the platform during profiles. This was achieved through the promoting customer offers and matching the year. Increased Casino games on offer continued use of risk management and odds and has greater emphasis on and integrations with vendors serving fraud detection mechanisms which customer engagement and empowering to further differentiate the Group’s B2B enhance internal monitoring systems, alert customers by placing them and their casino offering in the market. processes and reporting including the competitive spirit at the center of the continued use of 3DSecure verification 888sport experience. EXPENSES OVERVIEW systems. In addition, during the year 888’s strategic decision to accelerate the Group intensified its ability to verify We continued to develop our innovative Sport marketing activities, substantially members through document submission, mindset to sports betting with the invest in Casino and drive continued an integral part of our regulatory “Know development of a new ‘Free Bet Hunt’ expansion in regulated markets has Your Customer” obligations. game for customers. The Free Bet Hunt resulted in increased selling and marketing

is a geo-technology game allowing investment. This investment created * As defined in the table set out on page 16. customers to search for free-bet offers strong foundations for outstanding results when near to particular football stadia. STRATEGIC REPORT GOVERNANCE FINANCIAL STATEMENTS 21 ANNUAL REPORT & ACCOUNTS 2016 ACCOUNTS & REPORT ANNUAL

Administrative expenses Administrative to amounted expenses* Administrative US$28.4 million) million (2015: US$29.5 of proportion a lower but represented year the previous to compared revenue slight increase 6.2%). The (2015: 5.7% at is attributed expenses in administrative with the associated legal costs to markets. in regulated focus increased expenses administrative Reported US$36.2 million (2015: to amounted US$32.5 million). * As defined in the table set out on page 16. EBITDA Adjusted 12% to increased EBITDA Adjusted million). US$80.6 million (2015: US$90.2 external given result is a strong This including new during the year factors markets regulated gaming duties from activity during the which commenced namely Denmark, half of 2015, second of with costs and Ireland, Romania million), and US$1.7 US$4.4 million (2015: principally movements, currency adverse Sterling. of the weaker as a result currency constant at EBITDA Adjusted US$100 million. to 24% increased remained margin EBITDA Adjusted The or 18.3% at 17.4%) (2015: 17.3% at steady the period for EBITDA currency. constant million (2015: US$79.5 34% to increased million). US$59.3 888 HOLDINGS PLC HOLDINGS 888 Selling and marketing expenses and marketing Selling accelerate to decision strategic 888’s activities Sport and Casino marketing in regulated expansion and continued selling in increased has resulted markets of US$170.2 investment and marketing US$138.9 million). The million (2015: in stabilised ratio revenue to marketing 30.9%, at year half of the the second half of the first a peak of 34.4% in after ratio 32.7% in an overall resulting 2016, of this As a result 30.1%). (2015: in 2016 its strong Casino maintained investment, markets, regulated momentum across of the new success the benefiting from the end launched at brand 777.com of 2015. increase revenue a 49% Sport achieved supported year previous to compared the 2016, Euro successful a very by end the Denmark towards launches into quarter first and Italy during the of 2015 brand as continued as well of the year in the UK with the sponsorship expansion clubs. football Championship of four Research and development expenses and development Research expenses and development Research to decreased statement in the income US$36.8 million). US$34.3 million (2015: capitalised when adding back However, research overall expenses, development have spend would and development million (2015: US$43.9 4% to increased significant reflects million). This US$42.0 markets in regulated investment continued and the Group’s expansion including development, on product focus games, of new the development to of Flash technology conversion PC and mobile. HTML5 across advanced * As defined in the table set out on page 16. Further Revenue growth in regulated regulated in growth Further Revenue of the primarily as a result markets newly as as well launch of Sport in Italy which markets, and taxed regulated half second activity in the commenced and namely Denmark, Romania of 2015, in of 21% increase in an resulted Ireland, million (2015: US$60.5 gaming duties* to million). US$50.0 and duties gaming taxes Reported million (2015: US$63.5 to amounted US$58.4 million). Gaming taxes and duties and duties Gamingtaxes 22 888 HOLDINGS PLC ANNUAL REPORT & ACCOUNTS 2016

2016 BUSINESS AND FINANCIAL REVIEW continued

Share benefit charges Separately, 888 incurred exceptional Cash flow Share benefit charges relate to long- retroactive duties and associated The Group’s strong performance and term incentive equity awards granted charges relating to prior years of operating efficiency led to substantial to eligible employees. US$3.0 million in respect of gaming free cash allowing for dividend payments taxes (2015: US$8.4 million). during the year of US$56.6 million Equity settled share benefit charges (2015: US$53.5 million). of US$6.7 million (2015: US$2.4 million) In total 888 recorded US$3.9 comprise of new grants during million (2015: US$23.0 million) Cash generated from operating activities the year and the full year effect of of exceptional costs. amounted to US$68.1 million (2015: awards granted in previous years US$85.0 million). The decrease is more and amounted to US$2.4 million Profit before tax than offset when adding back US$22.7 and US$4.3 million, respectively. The Group’s excellent performance million payments in respect of previous resulted and continued success has periods comprising: US$14.5 million There are no Cash settled share benefit resulted in an 82% increase in profit relating to costs incurred during 2015 charges for 2016 (2015: US$1.7 million). before tax to US$59.2 million (2015: in respect of UK point of consumption Further details are given in the Directors’ US$32.5 million), representing a ratio tax, VAT and gaming duties (2015: Remuneration Report on page 54. of 11% to revenue (2015: 7%). US$3.0 million) and US$8.2 million in respect of exceptional retroactive Finance income and expenses Taxation and Profit after tax duties and associated charges (2015: Finance income of US$0.4 million Profit after tax substantially US$3.2 million). (2015: US$0.3 million) less finance increased by 75% to US$51.5 million expenses of US$1.7 million (2015: (2015: US$29.5 million). Balance sheet US$2.6 million, excluding exceptional 888’s balance sheet remains strong, items) resulted in a net expense of US$1.3 The tax charge for the year was with no debt and ample liquid million (2015: expense of US$2.3 million). US$7.7 million (2015: US$3.0 million). resources. 888’s cash position as at The decrease compared to the previous The higher tax charge is attributed to 31 December 2016 was US$172.6 million year is attributable to the fair value withholding tax payable on dividends (2015: US$178.6 million) impacted by of operational hedging instruments. distributed by a subsidiary to the Sterling’s devaluation of US$8.4 million. parent company during the year and Balances owed to customers were 888 continually monitors foreign one off tax credits in 2015 in respect US$75.7 million (2015: US$82.4 million) currency risk and takes steps, of prior years. In 2015 and early 2016 the effectively reduced by US$3.7 million where practical, to ensure that the Group reached agreement on a number as a result of the Sterling devaluation. net exposure is kept to an acceptable of tax matters with tax authorities in the level. This has resulted in an income of key jurisdictions from which it operates. US$0.9 million in respect of hedging Further information on the Group’s of the foreign exchange movements corporate tax is given in note 8 to 2016 between US$ and Israeli Shekels. An financial statements. additional expense of US$2.6 million is attributable to the valuation of Earnings per share assets and liabilities denominated Basic earnings per share increased in currencies other than the 888’s 74% to 14.4¢ (2015: 8.3¢). Adjusted basic functional currency mainly impacted earnings per share increased 9% to 17.4¢ by devaluation of the Sterling following (2015: 15.9¢). Further information on the UK’s EU membership referendum reconciliation of Adjusted basic earnings on 23 June 2016. per share is given in note 9 to 2016 financial statements. Exceptional costs During 2016 888 incurred exceptional Dividend legal and professional costs of Given the strong results during the year US$0.9 million associated with the the Board of Directors is recommending subsequently aborted proposal for a final dividend of 5.1¢ per share in a potential combination between accordance with 888’s dividend policy the Group, The Rank Group plc plus an additional one-off 10.5¢ per share and William Hill plc. bringing the total for the year to 19.4¢ per share (2015: 15.5¢ per share). STRATEGIC REPORT GOVERNANCE FINANCIAL STATEMENTS 23 ANNUAL REPORT & ACCOUNTS 2016 ACCOUNTS & REPORT ANNUAL

ANNUAL REPORT & ACCOUNTS 2016 ACCOUNTS & REPORT ANNUAL 888 HOLDINGS PLC HOLDINGS 888 888 HOLDINGS PLC HOLDINGS 888 24 888 HOLDINGS PLC ANNUAL REPORT & ACCOUNTS 2016

MARKET REVIEW: GROWTH IN REGULATED MARKETS

REGULATED UK & EUROPE The Group’s significant experience of 888 continued to deliver strong growth successfully entering regulated markets MARKETS in the core UK market with revenue and rapidly developing leading positions increasing 16% year on year at constant in those markets means that 888 remains UK currency and 5% increase as reported well placed to capitalise on positive to US$223.2 million (2015: US$212.7 regulatory developments across the 888 continued to deliver million). This growth was driven primarily global industry. strong growth in the by continued momentum in Casino and core UK market with a Sport and supported by cost efficient We maintain a close eye on the revenue increasing 16% multi-channel marketing investment regulatory environment across Europe year on year at constant and effective customer relationship and are monitoring developments currency and 5% increase management. in a number of countries that are in reported revenue, driven considering or are in the process of primarily by continued In August 2017, changes in remote reforming their regulatory landscapes. momentum in Casino and gaming duty impacting customer We are following progress in the Sport supported by cost bonuses in the UK are expected to be Netherlands and, on a broader level, efficient marketing and implemented that will impact on the continue to assess any potential effective CRM. competitive dynamics of the industry. impact of the UK’s decision to leave However, as a large, established the European Union on our business in various EU jurisdictions. DENMARK operator with its own gaming platforms and significant experience of adapting In Denmark, 888 offers to new regulatory environments, UNITED STATES Casino, Poker and Sport 888 remains well positioned to mitigate Trading in the US market during 2016 products across mobile in part the impact of and capitalise remained in line with the Board’s and desktop platforms. on opportunities presented by expectations. The Group continues 888 delivered a solid these changes. to benefit from the successful launch performance following of our shared poker player liquidity the Group’s launch during Europe (excluding UK) revenue across Delaware and Nevada in early 2015 and has quickly built continued to expand by 29% to 2015 and we continue to believe that momentum in this exciting US$231.0 million (2015: US$178.4 million). pooled liquidity arrangements will be an market supported by Within this performance, Spain, which is important feature of future states as and effective online and offline now the Group’s second largest market, when they regulate. marketing activities. continued to grow impressively by 45%, further capitalising on the introduction of As the only operator in all three slot games midway through 2015 and its regulated states, 888 has a unique IRELAND Sport offering. The scope, strength and experience of and operational edge in In 2015, the Group breadth of the Group’s offering in Spain the US market. We continue to monitor obtained a Sport betting is supporting the development of the the regulatory landscape in the US licence in Ireland. 888 brand in that market and enabling and we remain confident that 888 is the Group to capitalise on exceptionally well placed to capitalise on cross-sell opportunities. future potential regulatory developments ROMANIA as and when they occur. During 2015, 888 received In Italy, the Group continued to grow casino, poker and sports with revenue rising 66% year on year. betting licences in This was supported by the launch of Romania. 888sport.it in Q1 of the year, supported by online and offline marketing campaigns, which has helped to drive USA upward trends across the Group’s acquisition and activity KPIs. Now with 888 is the only operator a key Sport product in the Italian market, in all three regulated US the Group has a clear opportunity to states of Nevada, Delaware effectively cross-sell customers to and New Jersey. Trading Casino and drive further growth. in the US has remained in line with the Board’s In Denmark, 888 delivered a good expectations and the performance following the Group’s Group continues to benefit launch in that market during 2015. from the successful launch The Group launched in Denmark with of our shared poker player a comprehensive suite of Casino, liquidity across Delaware Poker and Sport products across and Nevada in early 2015. mobile and desktop platforms and this had enabled 888 to quickly build momentum in this exciting market supported by effective online and offline marketing activities. STRATEGIC REPORT GOVERNANCE FINANCIAL STATEMENTS 25 25 ANNUAL REPORT & ACCOUNTS 2016 ACCOUNTS & REPORT ANNUAL

% 888 HOLDINGS PLC HOLDINGS 888 45 SPAIN + in revenue Sport and its Casino, In Spain 888 offers mobile and desktop across offering Poker second 888’s Spain is now platforms. in 2016 and revenue market largest 45%, by impressively grow to continued of further capitalising on the introduction and its 2015 through slot games midway Sport offering. of the and breadth strength scope, The in Spain is supporting offering Group’s in of the 888 brand the development to and enabling the Group market that opportunities. capitalise on cross-sell % 66 ITALY + in revenue Casino and, as of 888 offers In Italy, Sport on mobile and desktop Q1 2016, grow to 888 continued platforms. on year. rising 66% year with revenue the launch of by driven was This online by 888sport.it in Q1, supported campaigns. and offline marketing trends has seen upward Group The and acquisition the Group’s across Sport with a key activity KPIs. Now the market, in the Italian product has a clear opportunity to Group to customers cross-sell effectively further growth. Casino and drive 26 888 HOLDINGS PLC ANNUAL REPORT & ACCOUNTS 2016

RISK MANAGEMENT STRATEGY

The Board acknowledges that there is no return without risk. However, key risks must be identified, evaluated and where possible quantified in order for the Board to rationally determine how to harness risk to generate optimal return.

In 2016, the Board adopted 888’s Risk 888’s culture emphasises the need for ♦♦ it is responsible for 888’s risk Management Policy, which aims to employees to take responsibility for management systems and for explicitly identify and evaluate key risks managing the risks in their own areas reviewing their effectiveness; underlying its core business strategy and to transparently and timely report and standardise the approach to risk “bad news” and “near miss” incidents, ♦♦ there is an on-going process for prioritisation and management across with a willingness to constantly learn identifying, evaluating and managing 888’s operations, which in turn means and improve. the principal risks faced by 888; that effective controls can be put in ♦♦ the systems have been in place during place to ensure 888 is able to manage The Board considers that 888 complies 2016 and up to the date of approval of its operations effectively now and into with the requirements of the Financial the annual report and accounts; and the future. The risk register has been Reporting Council’s Guidance on Risk updated and is being maintained as a Management, Internal Control and ♦♦ they are regularly reviewed by springboard for discussion at Board and Related Financial and Business Reporting the Board (please see page 51 management level of the role of risk in dated September 2014, and specifically for further details of the review 888’s business. The risk register is a living confirms that: conducted in 2016). document which is regularly reviewed on an ongoing basis, serves as a record of the high-level challenges faced by the business over time, and also serves as an action plan. The Board furthermore discussed its approach and response to 888’s various risks with a view to setting a clear boundary between acceptable and unacceptable types and levels of risk.

RISK APPETITE Risk is a high priority for the Board and effective risk management is an integral part of the way we conduct our business on a daily basis. The Board factors into the risk assessment impact, likelihood and appetite considerations. Risk is managed across the Group in the context of overall risk appetite and the Board considered risk appetite to ensure adequate resources are allocated to the risks. The Board reviewed and approved the following risk appetite statement:

Category of risk Tolerance Risk parameters

Strategic Medium During development and implementation of new propositions and assessing new opportunities including potential transactions, we are prepared to accept medium risks that support our pursuit of growth.

Operational Low to medium When operating within our business, we have a low to medium tolerance for risk. We will take a cautious approach to risk within our operations, but consider that certain risks will be taken in order to achieve our strategic objectives and maintain our competitive position.

Financial Low We consider that robust financial controls are necessary to manage our business effectively. All our operating processes are based around policies and procedures that minimise the risk of a loss of financial control.

Compliance Extremely low to zero We have an extremely low to zero tolerance when complying with laws and regulations that relate to bribery, corruption and AML. We have controls in place that are designed to mitigate these risks, and detailed and tested procedures in place for dealing with these types of scenarios when they arise. STRATEGIC REPORT GOVERNANCE FINANCIAL STATEMENTS 27 ANNUAL REPORT & ACCOUNTS 2016 ACCOUNTS & REPORT ANNUAL

How the risk is managed: How or mitigate control not be able to 888 would it would however political changes of this nature, of remaining the appropriateness reconsider in Gibraltar and operational licensed registered, be considered Malta may in these circumstances. jurisdiction. licensing com” “dot as an alternative happened in 2016: What UK decided by it was On June 23, 2016, the EU. the UK should leave that referendum has not yet the UK Prime Minister However, under Article 50 of the notice written given then Union, which would on European Treaty period on negotiation two-year an up to start between and the relationship of exit the terms exit. the UK and the EU following robust understanding of the understanding such jurisdiction. A robust locations in key position legal and regulatory risk. this mitigating is crucial to worldwide What happened in 2016: happened in 2016: What and scrutiny regulatory In light of increased in the UK, policy of enforcement a review with its process a review 888 commenced and improve enhance aimed to English counsel customer to related processes its internal gaming, and responsible AML on boarding, with which is ongoing. Consistent a process markets, in regulated strategy its growth 888 obtained a permanent gambling licence in Romania. How the risk is managed: the risk is managed: How routinely risk by 888 manages its regulatory with legal advisers in the jurisdictions consulting accessible, or are offered are its services where legal opinions obtaining formal necessary where 888 obtains Furthermore, local counsel. from regarding updates and routine frequent its be applicable to may that changes in the law assess to with local counsel working operations, changes on its operations. the impact of any its and moderates adapts 888 constantly with legal and regulatory comply to services from 888 blocks players Finally, requirements. using multiple jurisdictions” “blocked certain methods as appropriate. technological 888 HOLDINGS PLC HOLDINGS 888 Remained stable Remained Relevance to strategy: to Relevance on EU principles underpins rely ability to The regarding strategy regulatory 888’s major EU markets. The risk: The in relation of Gibraltar status proposed The of “Brexit” Kingdom as a result the United to remain to If 888 were unclear. present is at in Gibraltar and operating licensed registered, on EU rely its ability to in these circumstances, principles of services/establishment freedom will be within the EU in supplying its services ineligible become it may furthermore, limited; in licences hold regulatory to continue to adversely could EU jurisdictions. “Brexit” certain in the conditions or market economic affect or globally and could Kingdom, Europe United in global financial instability to contribute is more in particular until there markets, will take “Brexit” that the form as to certainty Kingdom the United Gibraltar, on and its effect and the EU. Relevance to strategy: to Relevance and requirements with regulatory Compliance relationships of regulatory the maintenance maintaining to in multiple jurisdictions is key critical which are gaming licences online 888’s of its online and growth operation the to be In addition, 888 may gaming business. claims in jurisdictions which do to exposed block online gaming, seeking to not regulate in located of players offering 888’s to access The risk: The is of online gaming framework regulatory The Change in the regulatory dynamic and complex. a jurisdiction can have in a specific regime volume on business effect adverse material jurisdiction. in that and financial performance In addition, a number of jurisdictions have online gaming, and in several regulated of those jurisdictions 888 holds licences. in some cases, lack of clarity in However, and legislative or conflicting the regulations, 888 may mean that developments, regulatory licence, obtain an appropriate to risk failing affected, adversely licences existing having sanctions. other regulatory or being subject to legal and other action may Furthermore, in incumbent gaming providers by be taken regulate seeking to jurisdictions which are frustrate to online gaming, in an attempt 888. to licences of online gaming the grant Decreased Increased BREXIT-RELATED RISKS RISKS BREXIT-RELATED REGULATORY RISK REGULATORY KEY OF CHANGE OF KEY 888 FACES THE FOLLOWING SIGNIFICANT RISKS: SIGNIFICANT FOLLOWING THE FACES 888 28 888 HOLDINGS PLC ANNUAL REPORT & ACCOUNTS 2016

RISK MANAGEMENT STRATEGY continued

KEY OF CHANGE

Increased Decreased Remained stable

INFORMATION The risk: systems are protected properly and effectively, TECHNOLOGY IT systems may be impacted by unauthorised external security scans and assessments are AND CYBER RISKS access, cyber-attacks, DDoS (Distributed Denial carried out on a regular basis. 888 has a disaster of Service) attacks, theft or misuse of data by recovery site to ensure full recovery in the event internal or external parties, or disrupted by of disaster. All critical data is replicated to the increases in usage, human error, natural hazards disaster recovery site and stored off-site on or disasters or other events. 888 processes a daily basis. In the event of loss of functionality a large quantity of personal customer data of 888’s critical services, the business can be including sensitive data such as name, address, fully recovered through the resources available age, bank details and gaming/betting history at the disaster recovery site. In order to minimise as part of its business; such data could be dependence on telecommunication service wrongfully accessed or used by employees, providers, 888 invests in network infrastructure customers, suppliers of third parties, or lost redundancies whilst regularly reviewing its or disclosed or processed in breach of data service providers. 888 has two Internet service protection regulation. Cyber-attack and data providers in Gibraltar in order to minimise reliance theft incidents may expose 888 to “ransom” on one provider. As a part of its monitoring demands and costs of repairing physical and system, 888 deploys set user experience tests reputational damage. Failure of IT systems, which measure performance from different infrastructure or telecommunications/third-party locations around the world. Network-related infrastructure may cause significant cost and performance issues are addressed by rerouting disruption to the business and harm revenues. traffic using different routes or providers. 888 888 could also face liability under data protection operates a 24/7 Network Operations Centre laws and could be exposed to action by (NOC). The NOC’s role is to conduct real time government agencies or private litigation and loss monitoring of production activities using state- of customer goodwill and confidence. Lengthy of-the-art systems. These systems are designed down-time of the site (including in transitioning to identify and provide alerts regarding problems to activated disaster recovery servers) could also related to systems, key business indicators and cause 888 to breach regulatory obligations. issues surrounding customer usability experience. The IT environment tracks changes, incidents Relevance to strategy: and SLA KPIs in order to ensure that client As an online B2C and B2B business, the experience is consistent and well managed. integrity of 888’s IT infrastructure is crucial As part of these procedures, capacity planning to the supply of its offerings and compliance takes place and infrastructure is built accordingly. with its regulatory obligations. The holding System-wide availability and business-level and processing of sensitive data in a lawful availability is measured and logged in the IT and robust manner is furthermore central to information systems. 888’s analytics-based business strategy. These are also key to maintenance of the impressive What happened in 2016: customer loyalty with which 888 is entrusted. At 888, IT security is deeply embedded within the organisation, and security projects are How the risk is managed: implemented on a constant ongoing basis. Cutting-edge technologies and procedures Awareness training is carried out for Group are implemented throughout 888’s technology personnel at all office locations by the CISO. operations and designed to protect its networks Software development personnel are trained in from malicious attacks and other such risks. IT security and computerised systems monitor These measures include traffic filtering, anti- coding vulnerabilities in real time and provide DDoS devices and Anti-Virus protection from timely notifications to management. Various IT leading vendors. Physical and logical network security projects were implemented by 888’s IT segmentation is also used to isolate and protect Department under the guidance of its IT Security 888’s networks and restrict malicious activities. Committee. 888 continued to undergo regular IT The IT environment is audited by independent security audits, including reviews by the internal auditors, such as PCI DSS security audit and IT team and external audit by gaming regulators. eCOGRA audit. These audits form part of 888’s approach to ensuring proper IT procedures and a high level of security. In order to ensure STRATEGIC REPORT GOVERNANCE FINANCIAL STATEMENTS 29 ANNUAL REPORT & ACCOUNTS 2016 ACCOUNTS & REPORT ANNUAL

What happened in 2016: What with relevant discussions into 888 entered its tax regularise to tax authorities in order In addition, exposures. position and mitigate in light of the BEPS its structure it reviewed with tax and consulted recommendations the manner determine and legal advisers to in relevant and timing of their implementation compliance ensure to jurisdictions, in order obligations. tax reporting with increased to with regard advice took 888 furthermore and registered and gaming duty obligations VAT in order jurisdictions in relevant such taxes for on the and payment timely reporting ensure to jurisdictions, basis in the appropriate correct its position concerning reserving whilst cases. its liability in appropriate contesting the UK closely following 888 is furthermore of free taxation regarding developments Gaming Duty purposes, and Remote for plays of “use and enjoyment” imposition possible directly advertising, rules regarding VAT as bodies, as well industry and via relevant actions. mitigation preparing Relevance to strategy: to Relevance consequences the financial In addition to tax tax structure, 888’s of a challenge to the be paying — and being seen to compliance a serious“right amount” of tax — is becoming as being a regulatory well as issue reputational 888 As such, it is crucial that issue. compliance in its tax positions taken has a solid basis for jurisdictions. relevant the risk is managed: How each legal entity within that ensure 888 aims to of the jurisdiction is a tax resident its group and has no taxable in which it is incorporated jurisdiction. In addition, other in any presence to reference jurisdictions impose tax by certain 888 of whether regardless activity, customers’ in such jurisdiction. In this presence has a taxable in countries in certain VAT 888 incurred respect, are of its online gaming offerings which certain Furthermore, VAT. to subject services considered jurisdictions in which online gaming is regulated and operators impose gaming duties on licensed In operators. on unlicensed in some cases even comply and seeks to 888 monitors this respect, jurisdictions, various in with its legal obligations to action as is necessary taking such whilst imposition of unlawful improper the prevent or double taxation. 888 HOLDINGS PLC HOLDINGS 888 The risk: The of cross- matters to attention Heightened the G20/ including through taxation, border Shifting (BEPS) and Profit OECD Base Erosion and the as in other public forums as well project, of scrutiny the likelihood media, has increased tax authorities in relevant by of tax practices of the presence jurisdictions. A finding of taxable jurisdictions (including in one or more 888 group of the interpretations revised pursuant to as considered concept permanent establishment pricing or a transfer in the BEPS reports), of profit attribution to with respect adjustment a substantial have may jurisdiction(s), such to tax or VAT impact on the amount of income the UK Diverted of introduction 888. The paid by whilst to a risk that, rise Tax also gives Profits and Gibraltar from 888 carries out its operations elements there, presence has a considerable be may the UK out from carried of its business PE” giving rise an “avoided constitute to found to attributed of 25% of the profit a rate at tax to the imposition by possible PE. The such avoided rules with respect UK of “use and enjoyment” be implemented which could advertising, to significantly increase may or 2018, during 2017 the UK VAT expense; marketing UK-facing 888’s Bill 2017 UK Finance 20%. The is presently rate will be plays which free pursuant to provisions Gaming Duty Remote for as taxable treated tax an adverse have to purposes is expected 2017; 1 August from impact on 888 with effect this how regarding remain questions however, Uncertainties in practice. will be implemented certain to of VAT the application to with regard be applied and the tax base to offerings of 888’s with the risk of disputes rise to also gives thereto tax authorities, as do the imposition of gaming in jurisdictions in which 888 has customers taxes Furthermore, but does not hold a local licence. jurisdictions of the imposition in certain imposition winnings and/or of player taxation operators on foreign of a withholding obligation to attractive less offerings 888’s make may jurisdictions. in relevant players TAXATION RISK TAXATION 30 888 HOLDINGS PLC ANNUAL REPORT & ACCOUNTS 2016

RISK MANAGEMENT STRATEGY continued

KEY OF CHANGE

Increased Decreased Remained stable

REPUTATIONAL RISK The risk: identify compulsive or underage activity. The reputation of 888 is affected by the profile 888 also complies with eCOGRA guidelines to of both other online gaming and betting protect customers. Web links to professional operators, as well as the gaming and betting help agencies are provided on 888’s real industry as a whole. The perception could money gaming sites, and 888 has a dedicated therefore develop that minors and vulnerable website which provides information regarding players are not adequately protected, and responsible gaming. Players can also limit their there could also be claims for damages due play pattern or request to be self-excluded. to compulsive gambling. It is also difficult 888 furthermore — directly or via industry to ensure that affiliate marketers ethically bodies — seeks to ensure that legislators source reliable data for marketing purposes and regulators are provided with accurate such that advertising codes can be strictly and useful information regarding protections adhered to and only appropriate age groups against problem and underage gaming. or demographics are targeted. What happened in 2016: 888 continued to invest in staff training and Relevance to strategy: procedures to identify instances of problem Underage and problem gaming are risks gambling and fraudulent behaviour, as well associated with an online gaming business, as reviewing and optimising responsible and ensuring compliance with regulatory gaming tools such as self-limits, take a break requirements for the protection of vulnerable and self-exclusion, continuing to monitor the people is critical to maintaining 888’s online effectiveness of responsible gaming measures, gaming licences. and continuing its close partnerships with major helping agencies and support centers. How the risk is managed: 888 furthermore updated its business practices 888 devotes resources to putting in place in order to comply with specific new regulatory prevention measures coupled with strict requirements imposed in its major regulated internal procedures to protect customers, markets, including responsible gaming measures and monitor and update their procedures to required under the UK Gambling Commission’s ensure that minors are unable to access their Licensing Conditions and Codes of Practice. gaming sites. Staff are trained to provide a In this context, 888 implemented a new version safe gaming experience to customers and to of its player behaviour monitoring system recognise and take appropriate actions if they during 2016.

PARTNERSHIP RISK The risk: How the risk is managed: 888 has in recent years rationalised its Whilst 888 generally protects itself contractually B2B contracts to focus on fewer, higher- in this respect, it is often not commercially value contracts. This exposes 888 more to practicable to compel B2B partners to termination or reduction of volume under continue utilising the Dragonfish platform in existing B2B contracts. the long term. The main method of mitigation is therefore to maintain commercial relevance Relevance to strategy: in terms of the functionality and technology B2B is a material part of 888’s business. 888’s of the B2B platform offered, competitive key B2B contracts in terms of financial impact pricing, maintaining an ongoing relationship are its major Bingo B2B contracts; in addition, with B2B partners, and ensuring that 888 has its US B2B contracts have strategic importance a good understanding of the needs of its B2B for the longer term. partners and their owners.

What happened in 2016: During the year, 888 maintained its ongoing dialogue with major B2B partners, with a view to continued renewal of contracts aligned with 888’s strategy, and mitigation of the risk of termination of contracts due to changes in partner circumstances. STRATEGIC REPORT GOVERNANCE FINANCIAL STATEMENTS 31 31 ANNUAL REPORT & ACCOUNTS 2016 ACCOUNTS & REPORT ANNUAL

ANNUAL REPORT & ACCOUNTS 2016 ACCOUNTS & REPORT ANNUAL 888 HOLDINGS PLC HOLDINGS 888 888 HOLDINGS PLC HOLDINGS 888 32 888 HOLDINGS PLC ANNUAL REPORT & ACCOUNTS 2016

REGULATION AND GENERAL REGULATORY DEVELOPMENTS

With regulation playing an increasingly dominant role in defining and framing our business, 888 continues to monitor closely global legal and regulatory developments.

As a business operating in a highly Although changes were often unforeseen Naturally, with regulation playing an regulated environment, which is and inconsistent, which called for increasingly dominant role in defining deeply committed to operating in constant vigilance, 888 remains a strong and framing our business, 888 continues a lawful, compliant and responsible proponent of the forming of strong to monitor closely global legal and manner, 888 is profoundly impacted regulatory regimes. Such regimes regulatory developments and to assess by regulatory changes related to its would, in 888’s view, contribute towards their impact on 888’s operations. business operations. advancing the online gambling industry We continue to support regulation in its entirety, providing added clarity and of the industry and to work with our The online gambling industry underwent certainty in the business environment, partners in the industry and with our a number of legal and regulatory benefitting regulators and compliant, regulators towards shaping a regulatory changes in jurisdictions around the responsible operators alike. Strong, landscape that is business-friendly while world during 2016. Each such change well-structured frameworks inevitably safeguarding the objectives of regulation. initiated an internal review process within trickle down and ultimately improve 888, aimed at analysing the potential the services provided to customers, The following paragraphs summarise the opportunities, and managing potential enhancing operators’ reliability. main relevant regulatory developments risks, resulting from each such change. of 2016 and our expectations regarding changes that will impact 888 in 2017. STRATEGIC REPORT GOVERNANCE FINANCIAL STATEMENTS 33 ANNUAL REPORT & ACCOUNTS 2016 ACCOUNTS & REPORT ANNUAL

In the course of 2016, several several of 2016, In the course expressed have regulators European the sharing promote to their intent liquidity within Europe of poker were Such statements and beyond. the UK, from regulators made by In Spain and Portugal. Italy, France, meeting an informal 2016, November regulators of the abovementioned it where place, took on the issue would efforts that concluded was liquidity agreed reach be made to mid-2017. by sharing arrangements France 2016, in late Consequently, the French a bill allowing adopted liquidity into enter to gaming regulator with other EU/ sharing agreements In addition, EEA member states. notified draft Portugal early in 2017, such liquidity for standards technical Commission, the European sharing to future of possible in preparation with liquidity sharing agreements EU member states. Regulatory reform in The Netherlands Netherlands in The reform Regulatory lower the Dutch pending, after is still a bill house of parliament passed online gambling in July regulate to pending before which is now 2016, conduct to 888 continued Senate. Netherlands in in The its operations guidelines with interim accordance the local authorities and by issued in this important developments awaits estimates reasonable However, market. final change in this do not predict sooner than 2018. respect Switzerland pushed on its draft bill bill on its draft pushed Switzerland casinos the country’s allow would that bill has The online gaming. offer to the upper unanimously passed now of Assembly house of the Federal be brought due to and is Switzerland house early in 2017, the lower before blocking of which supports website However, unauthorised operators. of these changes is implementation earlier than 2019. not anticipated The Greek Government’s Government’s Greek The and 2016 during 2015 announcements in regime put a licensing of plans to measure as a revenue-generating place materialise. to yet have In late 2016, the Norwegian the Norwegian 2016, In late published a white government gambling paper on the country’s supporting the existing policy, monopoly model. process for the award of 20 sports- the award for process suspended has been betting licenses and local indefinitely), (possibly the industry regulating at attempts as the Hesse in other manners (such aimed which was process “toleration” of remote local provision regulating at in Hesse) sports betting services It is unclear how unsuccessful. were Germany landscape in the regulatory of the as the term in 2017 will evolve expiry. nears Treaty current ♦ ♦ ♦ ♦ ♦ ♦ ♦ ♦ ♦ ♦ 888 HOLDINGS PLC HOLDINGS 888 As in 2015, the UK’s move to a place- to move the UK’s As in 2015, based regulatory of-consumption a dramatic have to continued regime the given impact on 888 in 2016, UK-facing of 888’s prominence adaptation continued 888’s operations. metrics and regulatory the new to of the UK market requirements significant necessitate to continued of and the implementation efforts of the business. areas changes in many in the prominence continued 888’s the overall speaks to UK market however process, of that success adapt our to work to continue we modalities and working operations the to ongoing adherence ensure to requirements (and evolving) various our UK operations. applicable to the Group of 2016, During the course a permanent operating awarded was operating after in Romania, licence its since licence based on an interim licensure Romanian for application in 2015. landscape in Germany regulatory The be mired to as a whole continued with courts in 2016 uncertainty by issuing German states in various to respect rulings with conflicting of and interpretation the validity Gambling the German Inter-State tender The (the “Treaty”). Treaty ♦ ♦ ♦ The general trend throughout the throughout trend general The the was Union in 2016 European local regulation towards strive continued Some of individual member states. by towards directed were those efforts it will better so that amending local law and some focused with EU law, comply law non-EU existing, on bolstering regimes. compliant taken no significant actions were There with Commission the European by online gambling in 2016. to respect with respect Other than minimal action are whose gaming laws states member to as (such infringe EU law to considered took Commission the European Greece), the to related little action directly very of online gambling. regulation of a number were there Nonetheless, which developments EU law general the online gambling also impacted requirements new example, For industry. resolution dispute consumer to relating of the beginning at force came into incorporated As a business 2016. EU member in various and licensed by impacted jurisdictions, 888 is directly be to these changes and will continue as the changes (such future by impacted of the 4th AML Directive force entry into mid-2017). scheduled for now in developments regulatory Several jurisdictions affected specific European in 2016: operations 888’s ♦ ♦ ♦ ROMANIA SPAIN ITALY DENMARK IRELAND UK Regulated European European Regulated in include: markets that 888 that markets currently operates currently operates EUROPE 34 888 HOLDINGS PLC ANNUAL REPORT & ACCOUNTS 2016

UNITED STATES

In 2016 888 continued to operate in the made its appeal to the Supreme US online gaming market with activity Court on the matter in late 2016. A in all three states in which commercial decision by the Court whether to hear internet gaming is operational – Nevada, New Jersey’s appeal is expected in New Jersey and Delaware. 888 continues early 2017. to be the only online gaming operator authorised to conduct business in each ♦♦ In 2016, the California state legislature of these jurisdictions. debated a bill for the regulation of online poker. However, the bill ended Despite debates in the legislatures of up being abandoned mid-year. various states regarding online gaming Pennsylvania made a similar effort to (in some cases – online poker) during amend an existing bill on slot machine 2016, no significant legislative changes tax to include text authorising casinos occurred. 888 continues to closely to offer internet gambling in late 2016. monitor discussions and initiatives This bill was similarly abandoned but in the various jurisdictions, with the may be reintroduced in 2017. knowledge that positive developments in these large-scale markets could present The 2016 election cycle brought with tremendous opportunities for 888. it uncertainty about changes that may take place in the US’s approach (federal ♦♦ The New York state legislature and state alike) towards gambling in debated a bill in 2016 to regulate coming years. The incoming US Attorney online provision of poker. The bill was General, Jeff Sessions, commented in stalled after passing the state senate. his Senate confirmation hearing that he This legislative initiative is likely to intended to review the DOJ’s position recommence in 2017. on the interpretation of the Federal Wire Act which is the keystone to the current ♦♦ In addition, we anticipate another attempt on New York’s side to try remote casino and poker offerings in the and challenge the federal prohibition US. Also on the federal level, a bill has on sports betting embodied in the been proposed to levy a federal tax on Professional and Amateur Sports gambling-related income. As of yet, the Protection Act of 1992 (“PASPA”). position of the Trump administration on 2017 will most likely see a new bill gambling issues remains uncertain. being introduced in an attempt to regulate sports betting within the On the state level, various legislative State of New York, which if passed, initiatives are already surfacing which is expected to be challenged would seek to introduce online gaming immediately in federal court. on the intra-state level.

♦♦ The state of New Jersey continued 888 will, of course, continue to follow its legal challenges to the federal these developments as they evolve. prohibition on sports betting and FURTHER AFIELD

In 2016, the Australian Government presented draft legislation to Parliament aimed at strengthening the 2001 Interactive Gambling Act’s prohibition on online gaming.

As anticipated, regulatory reform reached Latin America in 2016, with Colombia adopting a regime for the regulation and licensing of online gambling and sports betting.

Further reforms may be brought forward in 2017, in places such as Mexico and Brazil.

The Indian State of Nagaland adopted a regime for the regulation of online games of skill in 2016.

888 continues to follow these developments to assess their impact on our business and to identify potential opportunities for growth. STRATEGIC REPORT GOVERNANCE FINANCIAL STATEMENTS 35 35 ANNUAL REPORT & ACCOUNTS 2016 ACCOUNTS & REPORT ANNUAL

ANNUAL REPORT & ACCOUNTS 2016 ACCOUNTS & REPORT ANNUAL 888 HOLDINGS PLC HOLDINGS 888 888 HOLDINGS PLC HOLDINGS 888

Both qualitative and quantitative analyses, including analyses, and quantitative Both qualitative of impact of the crystallisation the combined as stress as well multiple risks simultaneously, and sensitivity testing stress reverse testing, sufficiently consider which the directors analyses, and a sound statement; make to robust threaten may that matters of relevant range A broad viability. 888’s 888’s resilience to threats to its viability in severe its viability in severe to threats to resilience 888’s but plausible scenarios; ♦ ♦ ♦ ♦ ♦ The Directors are mindful that the Company operates operates the Company mindful that are Directors The having which, whilst in the online gaming sector of the the early days since substantially matured subject industry fast-moving a remains internet, and change in the global regulatory ongoing to landscape; and competitive a detailed bottom-up prepares Management currently plans of up to on an annual basis, long range forecast approach, using a top-down prepared are years three planned over are projects and capital investment years. five to a period of three ♦ ♦ ♦

STATEMENT STATEMENT VIABILITY VIABILITY Specific scenarios tested and considered by the considered and tested Specific scenarios due to of major markets included: exit/closure Directors of major B2B customers, loss or legal events, regulatory tax developments and anticipated a major cyber-attack, of tax risks. In addition, with the crystallisation together to carried out in order was test” stress a “reverse bring about of risks which could combinations analyse raised; capital were unless of the Company insolvency measures mitigation that in such cases it is anticipated could in dividends and overheads) (including reduction such an outcome. forestall to in order be implemented robust carried out a have they confirm Directors The 888, including of the principal risks facing assessment model, future its business threaten would those that has been and liquidity, solvency performance, carried out. they confirm the Directors In light of the foregoing, 888 will be able that expectation a reasonable have and meet its liabilities as they in operation continue to 2019. 31 December period to year the three due over fall it and how risk management strategy Details of 888’s set out in the Risk its risks are manages and mitigates on page 26. Management Strategy The Directors have carefully considered 888’s current current 888’s considered carefully have Directors The assessed risks, and have position and principal years. a period of three of 888 over the prospects the for this period appropriate consider directors The gaming company of viability of an online assessment the account into taking circumstances, in 888’s factors: following ♦ ♦ the Directors assessed, the period to respect With considered: have 36 888 HOLDINGS PLC ANNUAL REPORT & ACCOUNTS 2016

CORPORATE RESPONSIBILITY

As global leaders in online gaming entertainment we are committed to a pro-active policy of corporate and social responsibility, which reflects the high professional and ethical standards we have set for ourselves.

OUR OUR OUR RESPONSIBILITIES PHILOSOPHY VALUES

ENVIRONMENTAL Our philosophy of responsibility is Our values place the community and 888’s activities have a relatively small comprehensive and diverse. the customer at the centre of all our impact on the environment. However, endeavours. We are constantly creating we remain committed to ensuring that ♦♦ We sponsor and participate new and innovative ways to create a wherever possible we minimise what little in activities in the neighbourhoods caring, responsible gaming environment effect we have. in which we live and work. and to ensure all those who visit our site can do so with confidence and safety, ♦♦ We create collaborative and rewarding OUR EMPLOYEES and that those for who our games work environments where new ideas are not intended, notably underage 888’s success depends on the quality and can flourish and employees can grow. commitment of its people. We take our individuals and those vulnerable to responsibilities to our staff around the ♦♦ We encourage responsible gaming addiction, will not be drawn into the world very seriously and aim to provide practices to avoid the dangers of gaming environment. an enjoyable, fair and rewarding work problem gambling, and we have taken environment. rigorous steps at all our online sites to prevent underage gambling.

SOCIAL COMMUNITY AND ♦♦ We acknowledge the fact that even HUMAN RIGHTS our most minuscule actions may Our values place the community and affect the environment and take the customer at the centre of all our pro active measures to protect endeavours. the world we live in.

RESPONSIBLE GAMING 888 places customer protection at the heart of its business and is always mindful of its customers’ enjoyment and welfare.

PROTECTING MINORS Underage activity on our sites is strictly prohibited and 888 takes the matter of underage gaming extremely seriously. We constantly revise innovative procedures to ensure minors are unable to access our gaming sites.

DIVERSITY Diversity is important to 888 as we believe that only through access to the most diverse pool of talent will we recruit Our dedicated website is available at and retain the most talented individuals 888responsible.com to serve our customers. STRATEGIC REPORT GOVERNANCE FINANCIAL STATEMENTS 37 ANNUAL REPORT & ACCOUNTS 2016 ACCOUNTS & REPORT ANNUAL

We ran a number of management skills ran We both senior managers for programs all divisions. leaders from and team building had team we During the year better create to activities intended members and among team connections fun day a half day managers, including event overnight each department, for engagement activities and combining as holiday as well lectures, professional sites. on all Company celebrations our annual continued have We based on which is process evaluation getting giving and the principle that each employee’s to is key feedback and that and development growth on the job evaluating regularly success achieve helps performance of the well-being for and is essential all employees. extend to our efforts continued We including channels, our recruitment and a friend”, social networks “refer channels. internet should employees that believe We This success. part of 888’s share achievements our great due to year, granted we success, and business bonuses to performance various of 888. some employees in involved were 888 employees according charity initiatives various location. office to carried were efforts retention Specific employees. key to out with respect ♦ ♦ ♦ ♦ ♦ ♦ ♦ Some highlights from 2016 include 2016 Some highlights from the following: ♦ ♦ ♦ ♦ ♦ ♦ ♦ 888 HOLDINGS PLC HOLDINGS 888 Travel: to minimise the impact of travel the impact of travel minimise to Travel: encourage we on the environment and, work to either cycle to employees buses for provide locations, in certain invest to also continue We commuters. to technology in the state-of-the-art remotely. help meetings occur ♦ EMPLOYEES 888’s success depends on the quality and depends on the quality success 888’s our take We of its people. commitment the around staff our to responsibilities provide seriously and aim to very world where environment work an enjoyable challenged and motivated are employees rewarded, flair is where excel, to and the balance is fair compensation is respected. and family work between ♦ AVIV by a study 888 commissioned provide to 2015 regarding AMCG its regarding information quantitative impact, as reflected environmental Gas emissions Greenhouse 888’s through 31 December to the period 1 January for ways in finding it assist and to 2015, Gas its Greenhouse reduce further to were of the results Details emissions. Annual 2015 set out in the Company’s 888 is committed Whilst Report. with UK disclosure complying to and appropriately requirements Gasemissions, managing its Greenhouse and in light emissions has low 888 given and in monitoring involved of the costs has the Board measuring such emissions, will be carried a review that concluded than rather years several every out once its acknowledges Board The annually. environmental for responsibility overall environmental 888’s and monitors issues targets. of internal in light performance We also continue continue also We in the invest to state-of-the-art to technology meetings help remotely. occur Energy consumption: we continuously continuously we consumption: Energy consumption our energy monitor being as are we us ensure help to efficient as possible. energy use only ecological we Water: water and use in our offices detergents of our locations. in most devices saving ♦ ♦ ENVIRONMENTAL IMPACT IMPACT ENVIRONMENTAL As an online business, 888’s activities 888’s As an online business, on the small impact a relatively have remain we However, environment. wherever ensuring that to committed little effect minimise what we possible being areas with the following have we points: focus the key ♦ ♦ 888 is always mindful of the complex mindful of the complex 888 is always in which it environment regulatory and the social responsibility operates hand-in-hand with the online comes that customer 888 places gaming industry. its business the heart of at protection mindful of its customers’ and is always looking after By and welfare. enjoyment is able to business 888’s its customers, flourish. to continue than 1,300 of more As an employer on focused 888 is constantly people, rewarding a collaborative, creating all for environment working and fair the world. across employees 888 is mindful of its environmental monitor to and continues footprint and identify performance environmental consumption energy opportunities for reduction. and waste 38 888 HOLDINGS PLC ANNUAL REPORT & ACCOUNTS 2016

CORPORATE RESPONSIBILITY continued

888 takes its employees’ health and Responsible gaming Protecting minors safety seriously and has written policies Our values place the community Underage activity on our sites is strictly in place with regard to occupational and the customer at the centre of all prohibited and 888 takes the matter of health and safety issues in its major our endeavours. We aim to provide underage gaming extremely seriously. offices. The Board will consider setting our customers with the best online Our offering is not designed to attract targets with regard to occupational gaming entertainment experience. minors. We make every effort to prevent health and safety issues in order to However, we acknowledge that gaming minors from playing on our sites and use monitor performance. The Board poses a potential risk to a small minority sophisticated verification systems as well acknowledges its overall responsibility of people. We are constantly revising as a third-party verification supplier to for human resources issues, including for our innovative procedures to ensure identify and track minors if they log into human resources and labour standards, minors are unable to access our gaming our software. The verification process implementing management structures sites. We also continuously train all our today consists of two independent and systems to monitor and evaluate staff in how to provide a safe gaming verification systems, ID3 Global by GB employee performance and satisfaction, experience to our customers. Our training Group and Call Validate by Call Credit. promoting diversity at all levels of 888 programme incorporates methods and within 888’s supplier base, providing and techniques to help our employees We train our staff to be highly sensitive employees with the opportunity to have recognise and take appropriate actions to the possibility of underage activity formal input into matters that affect if they identify compulsive or underage and make sure we suspend any account them, oversee and allocate resources activity. We continue to innovate in suspected to be an underage account. to employee training, and to monitor this area including the development key health and safety performance of our proprietary sophisticated player 888RESPONSIBLE goals and indicators. During 2016, behaviour monitoring system to help Since 2007, 888 has made available a there were no material labour disputes, identify and prevent compulsive activity; dedicated website, www.888responsible. litigation, or health and safety related in this respect, a new version of this com, providing information regarding all fines or sanctions imposed on 888. system was implemented during 2016. aspects of responsible gaming. 888 does not have a written policy for the employment, training, career Protecting customers COMMUNITY development and promotion of disabled ♦ As a responsible, regulated gaming ♦ 888 is committed to supporting both persons, but in certain of its locations is group we comply with the eCOGRA the various local communities in which subject to statutory requirements in this guidelines. eCOGRA ensures that it operates and also the broader global respect. During 2016, steps were taken approved online casinos are properly community. Our community investment to maintain and develop arrangements and transparently monitored to programme includes charitable to provide information to employees provide player protection. regarding financial and economic factors donations and long-standing community affecting 888’s performance, including ♦♦ Our sites include links to professional involvement in our key areas across the divisional and company-wide seminars, help agencies and we have placed world. In the past 888 supported the email communications and publication many safeguards for those who need International Medical Corps in their efforts of pertinent public financial information help with controlling their gaming. to assist people affected by Typhoon on the 888 internal portal. Haiyan which struck the Philippines. ♦♦ Self-assessment test: for players who are worried about their gaming habits FISCAL CONTRIBUTIONS and want to know more about the SOCIAL, COMMUNITY AND HUMAN During the year the Group made fiscal signs of compulsive gambling. RIGHTS ISSUES contributions totalling US$79.5 million Our values ♦♦ Controlling deposit limits: should clients (2015: US$ 71.6 million) comprising of At 888 we are fully committed to feel the need to, they can control corporation tax of US$7.7 million (2015: maintaining a high standard of corporate their play pattern by self limiting US$3.0 million), VAT of US$8.3 million and social responsibility. This ethos is part the amounts they deposit per day, (2015: US$ 10.2 million) and gaming of our culture and permeates throughout per week or per month. duties of US$63.5 million (2015: US$58.4 our business into the everyday business million). decisions we make on a day-to-day basis. ♦♦ Self exclusion: a player can request to be self excluded for a chosen period, HUMAN RIGHTS We also recognise that a responsible due to different concerns. Based on 888 ensures that its policies comply with approach is not only the correct way to internal studies we decided to increase local law, in addition to reflecting 888’s do business but one that enhances our time periods available for clients to values. These policies set clear standards credibility amongst all our stakeholders “cool off”. Customers can choose from of behaviour to which all Group personnel and thereby supports the development six different exclusion periods from one are expected to adhere, including as of 888. The Board acknowledges day to six months or more. During this regards social, ethical and environmental its overall responsibility for social, period, 888 blocks the account and matters. In this respect, 888 is guided by community and human rights issues. no promotional emails are sent to the ten principles of the United Nations the customer. (UN) Global Compact, which encourages ♦♦ During 2016, we revised our anti-money companies to make human rights, labour laundering considerations in general, standards, environmental responsibility and specifically how they relate to and anti-corruption part of their our social responsibility program. business agenda. STRATEGIC REPORT GOVERNANCE FINANCIAL STATEMENTS 39 ANNUAL REPORT & ACCOUNTS 2016 ACCOUNTS & REPORT ANNUAL

888 HOLDINGS PLC HOLDINGS 888 41% 25% 33.3% 0% Percentage 552 6 2 0 Women Number 59% 75% 66.6% 100% Percentage 801 18 4 Men Number 5 All Employees Vice Presidents Vice Senior Vice Presidents Vice Senior Board of Directors Board BRIAN MATTINGLEY BRIAN DIVERSITY Chairman 2017 21 March The Board acknowledges that the lack that acknowledges Board The is a major on the Board of women it is the and that 888, challenge for this. address to responsibility Board’s Non-executive new recruit In seeking to the Nominations the Board, to Directors to seeks specifically Committee amongst candidates include female for presented of candidates the list its consideration. On behalf of the Board: Diversity is important to us as we believe believe us as we is important to Diversity the most to access only through that and recruit pool of talent will we diverse individuals to talented the most retain seek actively We our customers. serve our into women and advance recruit to of the management. A summary top across of men and women breakdown is as follows: 2016, 888 as of 31 December 40 888 HOLDINGS PLC ANNUAL REPORT & ACCOUNTS 2016

BOARD OF DIRECTORS

BRIAN MATTINGLEY ITAI FRIEBERGER AVIAD KOBRINE Chairman Chief Executive Officer Chief Financial Officer Age: Age: Age: 65 46 53

EXPERIENCE EXPERIENCE EXPERIENCE Brian Mattingley was Deputy Chairman Itai Frieberger was appointed Chief Aviad Kobrine has been Chief Financial of the Company and Senior Independent Executive Officer of the Company on Officer of the Company since June Non-executive Director from March 2 March 2016. He was previously Chief 2005, and was appointed to the Board 2006 until March 2012, and was then Operating Officer since April 2011, and in August 2005. From October 2004 Chief Executive Officer until March 2016. was appointed to the Board as an he was a consultant to the Company. He joined the Board in August 2005. Executive Director on 13 May 2015. He Previously, he was a banker with the He was previously Chief Executive of Gala also serves as Managing Director of the Media Telecoms Investment Banking Regional Developments Limited until Company’s Israeli subsidiary, Random Group of Lehman Brothers and prior 2005. From 1997 to 2003 he was Group Logic Ltd. He has worked for the Group to that, he was a senior associate with Finance and Strategy Director of Gala since 2003, and previously served Slaughter and May. He holds a Masters Group Plc, prior to which he was Chief as Senior Vice President of Product in Finance from the London Business Executive of Ritz Bingo Limited. He has Technologies, as well as leading various School (Distinction), a BA in Economics held senior executive positions with parts of the business such as marketing, and an LLB from Tel Aviv University. Kingfisher Plc and Dee Corporation Plc. product and business development. Prior to joining the Group, he held several Mr Kobrine brings with him extensive In his capacity as Chairman of the UK management positions at Orange, one of finance, economic and analytical Bingo Association, Mr Mattingley spent the world’s leading telecommunications experience, in-depth knowledge of the a great deal of time with regulators, operators. group and detailed knowledge of the which has assisted in the Board’s City’s workings. understanding of UK gaming regulation Mr Frieberger brings to the role and laws. Mr Mattingley has been in operational experience both from within > Read more from Aviad on pages 16 to 22 the gaming industry since 1993, and and outside the online gaming sector, as launched one of the UK’s first online well as personal relationships and valuable Bingo sites whilst at Gala. insight into the industry as a whole.

> Read more from Brian on pages 06 > Read more from Itai on pages 08 to 15 and 07 STRATEGIC REPORT GOVERNANCE FINANCIAL STATEMENTS 41 ANNUAL REPORT & ACCOUNTS 2016 ACCOUNTS & REPORT ANNUAL

888 HOLDINGS PLC HOLDINGS 888 Member of Commitee Chairman of Commitee Gaming Compliance Committee Gaming Compliance EXPERIENCE AMOS PICKEL AMOS COMMITTEES 50 in March appointed was Amos Pickel Chairman of the Board 2006. Formerly Limited, Residential of Berggruen Atlas of Officer Chief Executive Chief Limited, Management Company and member of the Officer Executive Sea Hotels of Red of Directors Board of Director and a Non-executive Ltd., Plc, he is a non- Group Hotel Gresham a Master’s holding solicitor practising and an University York New from in Law He currently University. Aviv Tel LLB from of Director Executive as an serves Pickel Mr SA. Technologies Swiftstake Remuneration is the Chairman of 888’s Committee, and Nominations Committee Committee and is a member of the Audit Committee. and Gaming Compliance offer to does not intend Amos Pickel the 2017 at re-election himself for Meeting. Annual General Independent Non-executive Director Independent Non-executive Age: Nominations Committee Nominations Audit Committee Audit Committee Remuneration COMMITTEES EXPERIENCE RON MCMILLAN RON Ron McMillan was the McMillan was Ron Global Finance PricewaterhouseCoopers Chairman Regional Northern Partner, of the UK firm and Deputy Chairman the Middle for and Head of Assurance to serving as audit firm, in addition East engagement leader on a number of He is the Senior companies. major listed and Chairman of Independent Director Group of N Brown Committee the Audit Plc and SCS Plc, Chairman of the Audit Value European of B&M Committee to of Welcome and Chairman SA Retail Chairman Mr McMillan is the Yorkshire. Committee Audit of the Company’s and a member of the Remuneration Committee Nominations Committee, Committee. and Gaming Compliance assurance in PWC’s worked Having Mr McMillan brings 38 years, for business of a deep understanding the Board to regulatory reporting auditing, financial governance. and corporate matters as appointed McMillan was Ron 2014, on 15 May Director Non-executive on and Senior Independent Director 2016. 9 May Senior Independent Director Age: 64 COMMITTEE KEY COMMITTEE 42 888 HOLDINGS PLC ANNUAL REPORT & ACCOUNTS 2016

DIRECTORS’ REPORT

The Directors submit to the members their Annual Report or other arrangements as they consider expedient in and Accounts of the Group for the year ended 31 December relation to treasury shares, fractional entitlements, record 2016. The Strategic Report, Corporate Governance Statement dates, shares represented by depositary receipts, legal or and Directors’ Remuneration Report on pages 8, 48 and 54 practical problems under the laws in any territory or the respectively, form part of this Directors’ Report. requirements of any relevant regulatory body or stock exchange or any other matter; Results The Group’s profit after tax for the financial year of US$51.5 (b) to the allotment (otherwise than pursuant to sub-paragraphs million (2015: US$29.5 million) is reported in the consolidated (a) above and (c) below) of equity securities up to an income statement on page 78. The Board is recommending a aggregate nominal value of £89,317.50; and final dividend of 5.1¢ per share plus an additional one-off 10.5¢ per share (which together with the interim dividend equals (c) to the allotment (otherwise than pursuant to sub-paragraphs 19.4¢ per share for the year (2015: 15.5¢ per share). (a) and (b) above) of equity securities in connection with an acquisition or specified capital investment up to an Directors and their interests aggregate nominal value of £89,317.50; Biographical details of the current Board of Directors, setting out their relevant skills and experience and their professional and shall expire upon the earlier of: (i) the conclusion of the commitments, are shown on page 40. The Directors who next Annual General Meeting of the Company after passing served during the year are shown below. In line with the UK the resolution, save that the Company may before such expiry Corporate Governance Code and as required by the Company’s make an offer or agreement which would or might require Articles of Association, all Directors retire at each Annual equity securities to be allotted after such expiry and the Board General Meeting and those who wish to continue to serve offer may allot equity securities in pursuance of such an offer or themselves for re-election. agreement as if the power conferred hereby had not expired; and (ii) 30 June 2017. Brian Mattingley (first appointed 30 August 2005). Itai Frieberger (first appointed 13 May 2015). In paragraph (c) “specified capital investment” means Aviad Kobrine (first appointed 30 August 2005). one or more specific capital investments in respect of which Ron McMillan (first appointed 15 May 2014). sufficient information regarding the effect of the transaction Amos Pickel (first appointed 14 March 2006). Amos Pickel on the Company, the assets the subject of the transaction does not intend to offer himself for re-election at the 2017 and (where appropriate) the profits attributable to those Annual General Meeting. assets is made available to shareholders to enable them to reach an assessment of the potential return. The beneficial and non-beneficial interests of the Directors in shares of the Company are set out in the Directors’ In 2016, the Company did not exercise any of the foregoing Remuneration Report on pages 54 to 66. There has been no powers and authorities. change in the interests of Directors in shares of the Company between 31 December 2016 and the date of this Report. The Directors do not have any power in relation to the buy back by the Company of its own Ordinary Shares. Except as noted above, none of the Directors had any In 2016, the Company did not seek authority to and did not interests in the shares of the Company or in any material purchase any of its own shares. contract or arrangement with the Company or any of its subsidiaries. Rights attaching to Ordinary Shares in the Company The rights and obligations attaching to Ordinary Shares Share capital are set out in the Memorandum & Articles of Association Changes in share capital of the Company during the financial of the Company. year are given in the Consolidated Statement of Changes in Equity. As at 31 December 2016, the issued share capital Holders of Ordinary Shares are entitled to attend and speak of the Company comprised 358,585,958 Ordinary Shares at general meetings, to appoint one or more proxies and of GBP £0.005 each (Ordinary Shares). to exercise voting rights. Holders of Ordinary Shares may receive a dividend and on liquidation may share in the At the Annual General Meeting held in May 2016, the Company’s assets. Holders of Ordinary Shares are entitled Board was empowered to allot securities of a value up to to receive the Annual Report. Subject to meeting certain 66.66% of the Company’s ordinary share capital in issue thresholds, holders of Ordinary Shares may requisition as at 31 March 2016. Furthermore, the Board was empowered a general meeting or the proposal of resolutions at to equity securities of the Company for cash without general meetings. application of pre-emptive rights under the Company’s Articles, provided that such power is limited: Memorandum & Articles of Association The Memorandum & Articles of Association of the Company (a) to the allotment of equity securities in connection with can only be amended by a special resolution at a general an offer or issue of equity securities to or in favour of: meeting of shareholders. There were no changes to the (i) Ordinary Shareholders where the equity securities Memorandum & Articles of Association of the Company respectively attributable to the interests of all Ordinary during 2016. Shareholders are proportionate (as nearly as may be) to the respective numbers of Ordinary Shares held by them; and (ii) holders of other equity securities if this is required by the rights of those securities, or if the Directors consider it necessary, as permitted by the rights of those securities; so that the Directors may make such exclusions STRATEGIC REPORT GOVERNANCE FINANCIAL STATEMENTS 43 ANNUAL REPORT & ACCOUNTS 2016 ACCOUNTS & REPORT ANNUAL

888 HOLDINGS PLC HOLDINGS 888 suspend certain rights of its members who do not rights of its members who suspend certain gaming regulations of the with the provisions comply Members); (the Affected dispose of their Members to such Affected require and Shares; Ordinary Shares dispose of the Ordinary above, (b) subject to Members. of such Affected At 31 December 2016, Virtual Share Services Limited (a wholly Limited Services Share Virtual 2016, 31 December At Ordinary held 3,403,891 subsidiary of the Company) owned with the 888 capacity in connection in its administrative Shares Plan and under the 888 Holdings plc Long- Share All-Employee set out on page 57. Full details are Plan 2015. Incentive Term Entities holding company shares on behalf shares company holding Entities employees of Group very broad discretion in determining whether an applicant in determining discretion broad very be or should for licensing or individual) qualifies (corporate suitable. found beneficial person who acquires any jurisdictions require Many (typically five percentage than a certain of more ownership acquisition the report to securities, of the Company’s percent) a finding of suitability. and apply for the gaming authorities to investor” an “institutional allow gaming authorities Many investor such institutional allows that a waiver apply for to of securities without percentage a certain up to acquire to to the fulfillment subject a finding of suitability, applying for In some jurisdictions, suitability conditions. of certain personal and financial extensive require may investigations such individuals or entities to of any failure The disclosure. the required checks and provide such background submit to a required eligibility for the Group’s jeopardise could disclosure or approval. licence gaming a relevant unsuitable by person who is found Any or applicable gaming laws by be prohibited authority may the beneficial or indirectly, holding, directly from regulations securities. the Company’s of of any ownership and Articles of Association Memorandum Company’s The the has Company the that ensure to include provisions with applicable comply to continue to powers required gaming regulations. in the event the Company, providing include provisions These the Articles), (as defined in Event Regulatory of a Shareholder with the right to: (a) (b) (c) in order required these rights are that considers Company The held Shares in Ordinary an interest the risk that mitigate to action being taken lead to a particular person could by lead which in turn could Authority Regulatory a relevant by the Group held by licences of existing the withdrawal to in other further licences of being awarded or the exclusion potential This pursue. seeks to the Group jurisdictions that cause substantial therefore action could Authority Regulatory or prospects. business the Group’s damage to holds a licence from the Nevada Gaming Commission Gaming Commission the Nevada from holds a licence Gaming Service of an Interactive as the sole shareholder the Nevada and as such is subject to licencee, Provider and regulatory the licensing and to Act Gaming Control and Board Gaming Control State of the Nevada control Gaming Commission; the Nevada Jersey the New from waiver holds a transactional the be permitting it to Division of Gaming Enforcement Enterprise Industry of a Casino Service sole shareholder holder of a transactional applicant (presently licence online gaming related conduct it to allowing waiver the and as such is subject to Jersey), in New business and the licensing and to Act Casino Control Jersey New Division of Gaming Jersey of the New control regulatory and Enforcement; Delaware the from Licence holds a Gaming Vendor and as Office, Lottery State Department of Finance, and Code 29 of the Delaware Title such is subject to of the Delaware control and regulatory the licensing to Office. Lottery State Department of Finance, Requirements of gaming regulations Requirements the Group: others, Amongst (i) (ii) (iii) may therein Shares and holders of Ordinary Company The in other similar restrictions be subject to also in the future a gaming licence. secures the Group jurisdictions where make authorities to regulatory relevant used by criteria The licensure suitability of an applicant for as to determinations require jurisdiction, but generally jurisdiction to from varies of detailed personal and financial information the submission Gaming authorities have investigation. a thorough by followed Restrictions on transfer of shares and limitations and limitations of shares on transfer Restrictions on holdings on the or limitations on transfer no restrictions are There under restrictions other than Shares holding of Ordinary insider trading example, (for or regulation law imposed by dealing code. share the Company’s or pursuant to laws) Dealing Share a revised adopted the Company During 2016, in line Policy, Disclosure as an Inside Information as well Code (MAR). (EU 596/2014) Abuse Regulation with the EU Market disclose to obligation the Company’s acknowledges policy The via a the market to as soon as possible inside information of disclosure (RIS), and that Service Information Regulatory set in circumstances only be delayed may inside information legitimate the Company’s protect is: (i) to out in MAR, that mislead the to is not likely disclosure (ii) if delaying interests, is the information that can ensure public; and (iii) the Company of control for sets out procedures The policy confidential. kept as as well of insider lists, and the preparation inside information of inside information the disclosure disclosing or delaying for the media. and with analysts and communication Electronic and paper proxy appointment and voting and voting appointment and paper proxy Electronic not registrars the Company’s by be received must instructions Forms 2017. GMT) on 5 May CET (8.00am 9.00am than later the in interests persons holding depository from of Direction be must CREST form through in uncertificated Company than 9.00am not later registrars the Company’s by received 2017. GMT) on 4 May CET (8.00am Deadlines for exercising voting rights voting exercising for Deadlines 44 888 HOLDINGS PLC ANNUAL REPORT & ACCOUNTS 2016

DIRECTORS’ REPORT continued

Substantial shareholdings As at 31 December 2016, the Company had been notified of the following interests in 5% or more of its share capital under Disclosure Guidance and Transparency Rules (DTR) Rule 5 of the UK Listing Authority:

% issued Number of share Nature Principal shareholders shares capital of Holding Sinitus Nominees Limited in trust on behalf of Dalia Shaked 86,283,534 24.1% Indirect O Shaked Shares Trust 86,283,534 24.1% Indirect Majedie Asset Management Limited 35,336,801 9.9%1 Indirect

1 Holding disclosed under Rule 8.3 of the Takeover Code. No notifications pursuant to DTR Rule 5 have been received by the Company between 31 December 2016 and the date of this Annual Report. Information provided to the Company pursuant to the DTRs is publicly available via the regulatory information services and the Company’s corporate website corporate.888.com.

Shareholder agreements and consent requirements There are no known arrangements under which financial rights are held by a person other than the holder of the shares.

Relationship Agreement Any person who exercises or controls, on their own or together with any person with whom they are acting in concert, 30% or more of the votes able to be cast at general meetings of a company is known as a “Controlling Shareholder” for the purposes of the UK Listing Rules. The UK Listing Rules require companies with Controlling Shareholders to enter into an agreement which is intended to ensure that the Controlling Shareholders comply with certain independence provisions in the UK Listing Rules. Sinitus Nominees Limited in trust on behalf of Dalia Shaked, O Shaked Shares Trust and Ben-Yitzhak Family Shares Trust (together, the Principal Shareholder Trusts) are “Controlling Shareholders” of the Company.

The Company entered into a relationship agreement with the Principal Shareholder Trusts on 14 September 2005 which was amended on 28 August 2015 and 22 November 2015 (the Amended Relationship Agreement).

The Amended Relationship Agreement includes the following provisions in respect of the independence of 888 Holdings plc (in accordance with the UK Listing Rules) which provide that each of the Principal Shareholder Trusts shall, and shall procure as far as it is legally able, that each of their respective associates:

♦♦ will conduct all transactions and relationships with 888 Holdings plc and any member of the Group on an arm’s length basis and on a normal commercial basis;

♦♦ will not take any action which precludes or inhibits 888 Holdings plc, or any member of the Group, from carrying on its business independently of them;

♦♦ will not take any action that would have the effect of preventing the Company, or any member of the Group, from complying with its obligations under the UK Listing Rules; and

♦♦ will not propose or procure the proposal of any shareholder resolution which is intended, or appears to be intended, to circumvent any proper application of the UK Listing Rules.

It further provides that each of the Principal Shareholder Trusts will not solicit Group employees without consent, that only independent directors can vote on proposals to amend the Relationship Agreement, that the Principal Shareholder Trusts will consult the Company prior to disposing of a significant number of shares in order to maintain an orderly market and shall not disclose confidential information unless required to do so by law or relevant regulation or having first received the Company’s consent.

The Amended Relationship Agreement also includes restrictions on the Principal Shareholder Trusts’ power to appoint Directors and includes obligations on the trusts to exercise their voting rights to ensure that the majority of the Board, excluding the Chairman, is independent.

The Principal Shareholder Trusts can nominate a non-executive director for appointment to the Board. In the event that this right is exercised and it results in fewer than half the Board (excluding the Chairman of the Board) being Independent Directors, such appointment shall only become effective upon the appointment to the Board of an additional Independent Director acceptable to the Nominations Committee. There are no such nominated directors at present.

Such restrictions and obligations apply in respect of the O Shaked Shares Trust and Sinitus Nominees Limited in trust on behalf of Dalia Shaked whilst they collectively hold not less than 7.5% of the issued share capital of the Company. STRATEGIC REPORT GOVERNANCE FINANCIAL STATEMENTS 45 ANNUAL REPORT & ACCOUNTS 2016 ACCOUNTS & REPORT ANNUAL

888 HOLDINGS PLC HOLDINGS 888 Corporate governance Corporate 53 is on pages 48 to statement governance corporate The reference. by Report in this Directors’ and is incorporated statements and viability Going concern be to required and viability statements going concern The the UK Corporate pursuant to included in the annual report respectively, and 35 on pages 53 are Code Governance reference. by Report in this Directors’ incorporated and are Directors’ indemnities Directors’ to permit the Company of Association Articles Company’s The as to as well circumstances, in certain indemnify its Directors Company The the benefit of its Directors. for insurance provide of its Non-executive certain indemnify to has undertaken or whether civil proceedings, any (a) in defending Directors: of such Non- in favour criminal, in which judgment is given Director or in which such Non-executive Director executive under application with any in connection or (b) is acquitted; which (pursuant to Act Companies of the Gibraltar Section 477 Director such Non-executive to relief provide may the court of duty or breach default, negligence, for proceedings in any Director such Non-executive that on grounds of trust breach to regard having and that, and reasonably, honestly has acted with including those connected of the case, all circumstances liability from be excused to his appointment, he ought fairly also Company The thinks fit). as the court on such terms the indemnify him to to Kobrine of Aviad in favour undertook Articles and 888’s applicable law by permitted extent fullest of his duties with the execution in connection of Association authorities and discretions of his powers, exercise and/or In addition, certain agreement. his employment pursuant to Directors the Executive to provided special indemnities were procedures and licensing with the compliance in connection details of which States, in the United business 888’s to relating Annual Report. 2011 in 888’s provided were Change of control Change of control of failure in the event may, in the Company A change of control certain to rise give requirement, consent applicable any fulfil to gaming rights under the Group’s or termination revocation are companies which Group to contracts or certain licences a party. Donations political party any to donations any did not make Group The or organisation non-EU political party) or (including any political any or incurred independent election candidate during the year. expenditure Financial instruments financial to exposure the Group’s considers Company The countries and trading specific to risks, including and exposure the Group’s hedging of During 2016, be low. to counterparties, out solely with leading banks carried risks was currency foreign on the Group’s plc. Further information including Barclays to the annual 24 is set out in note use of financial instruments on page 107. accounts Shaked, a deed of adherence was executed pursuant to which which pursuant to executed was a deed of adherence Shaked, on behalf of Dalia Shaked in trust Sinitus Nominees Limited in all respects and comply be bound by observe, to undertook pursuant it as a shareholder applicable to with the provisions the benefits assume and to Agreement, the Shareholders‘ to the as if it had executed Agreement, of the Shareholders‘ it. party to named as a and was Agreement Shareholders‘ the Company has complied with the independence with the independence has complied the Company Agreement; included in the Relationship provisions provisions the independence is aware, as the Company so far been complied have Agreement included in the Relationship and and their associates; shareholders the controlling with by none of the Principal is aware, as the Company so far associates of their respective or any Trusts Shareholder shareholder of any the proposal or procured proposed of application the proper which circumvented resolution Rules. the UK Listing ♦ ♦ ♦ Shareholders’ Agreement Shareholders’ the Principal that has been informed Company The entered other shareholders and certain Trusts Shareholder 2005 on 14 September agreement a shareholders’ into Agreement). (the Shareholders’ are restrictions Agreement, the Shareholders’ Pursuant to by Shares disposals of Ordinary imposed on substantial without Agreement the Shareholders’ of the parties to any to the other Principal Shares such Ordinary offering first the Principal Shareholder to respect With Trusts. Shareholder than 1% disposal is a disposal of more a substantial Trusts, This capital of the Company. share ordinary of the issued of disposal in the context (i) does not apply to: provision or (ii) the Company; for public takeover a recommended or a party Trust another Principal Shareholder to transfers Trust. a Principal Shareholder to associated that requires Agreement In addition, the Shareholders’ of any in favour all vote Trusts the Principal Shareholder against or all vote meeting a general at proposed resolution(s) the Principal amongst agreement failing or, such resolution(s) status the maintains manner as such in vote Trusts, Shareholder will Agreement the Shareholders’ other parties to The quo. or action taken cast with the vote accordance or act in vote Trusts. the Principal Shareholder by be, as the case may that: in the event shall terminate Agreement Shareholders’ The Trust, Shares and the O Shaked Trust Shares (i) the E Shaked interest an have collectively associates, and their respective capital of the Company share of the issued than 5% in less and its associates Trust Shares Family and the Ben-Yitzhak share than 5% of the issued in less interest an have collectively or (ii) all the parties and the associates capital of the Company; in aggregate, collectively, Trusts of the Principal Shareholder capital share than 10% of the issued in less an interest have of the Company. of the with the transfer in connection 2015, On 22 November Shares E Shaked held by in the Company shareholding entire on behalf of Dalia in trust Sinitus Nominees Limited to Trust There were no instances in which an independent in which no instances were There did not support the Board’s of the Company director with the aforementioned compliance regarding statements criteria. independence ♦ ♦ ♦ Confirmation of independence of independence Confirmation confirms the Board LR 9.8.4(14)R, to pursuant As required year 2016: the financial during that The obligations of the parties to the Amended Relationship Relationship the Amended of the parties to obligations The legal and all relevant subject to all times at are Agreement parties thereto of the obligations and requirements regulatory or elsewhere. Gibraltar Kingdom, in the United 46 888 HOLDINGS PLC ANNUAL REPORT & ACCOUNTS 2016

DIRECTORS’ REPORT continued

Principal subsidiary undertakings (Auditors) Act 2009, is the statutory auditor of the Company The principal subsidiary undertakings are listed on page 103. including for the purposes of issuing an audit report pursuant to the Gibraltar Companies Act 2014. Research and development activities In 2016, the Group maintained its focus on delivery of its During 2016, EY charged 888 US$0.3 million in audit fees offerings to regulated markets, expansion of its mobile channel and US$0.3 million in non-audit fees, and during 2015, EY strategy and expansion of the capabilities of its gaming charged 888 US$0.4 million in audit fees and US$3.4 million platform and offerings. in non-audit fees (out of which US$3.3 million was associated with the proposed acquisition of bwin.party digital Some relevant achievements during the year in the field entertainment plc). of research & development included: Directors’ statement of responsibilities ♦♦ Further development of our gaming and betting offerings Company law requires the Directors to prepare financial in regulated markets, including Italy (Sports) and Romania statements in accordance with the Gibraltar Companies (Casino, Poker and Sport); Act 2014.

♦♦ Modification of our back-end and front-end systems International Accounting Standard 1 requires that financial to support the re-launched 888poker customer statements present fairly for each financial year the Company’s loyalty program; and the Group’s financial position, financial performance and cash flows. This requires the faithful representation of ♦♦ Poker Blast, a new speedy and exciting poker variation, the effects of transactions, other events and conditions in was launched during August with great success; accordance with the definitions and recognition criteria for assets, liabilities, income and expenses set out in the ♦♦ Bingo new variants added to the Bingo offering expanding International Accounting Standards Board’s “Framework for Dragonfish’s proposition and player experience; the preparation and presentation of financial statements”. In virtually all circumstances, a fair presentation will be achieved ♦♦ Addition of more than 100 new games by PC and mobile, by compliance with all applicable IFRSs as adopted by the EU. with an emphasis on development in HTML5; A fair presentation also requires the Directors to:

♦♦ Continued investment in special features and usability ♦♦ consistently select and apply appropriate accounting policies; for the company’s Mobile channel, including rating of apps and special payment methods such as Apple Pay; ♦♦ present information, including accounting policies, in a manner that provides relevant, reliable, comparable and ♦♦ Development of a Sport “Freebet Hunt” mobile app understandable information; and allowing freebet tokens to be scattered on a real-life map for players to “grab” when they reach the ♦♦ provide additional disclosures when compliance with the designated location; specific requirements in IFRSs as adopted by the EU is insufficient to enable members to understand the impact of ♦♦ Development of new marketing tools for improved particular transactions, other events and conditions on the optimisation of bonuses and customer experience; entity’s financial position and financial performance.

♦♦ Enhancements to customer verification tools for The Directors are responsible for keeping adequate accounting customer due diligence, responsible gaming and records which disclose with reasonable accuracy at any time anti-money-laundering; the financial position of the Group, for safeguarding the assets, for taking reasonable steps for the prevention and detection of ♦♦ Ongoing improvement to our back office and support fraud and other irregularities and for the preparation of tools; and a Directors’ report which complies with the Gibraltar Companies Act 2014. ♦♦ Continued investment in our core platform and data centre infrastructure. Financial statements are published on the Company’s website in accordance with legislation in the UK governing Greenhouse gas emissions the preparation and dissemination of financial statements, Details of 888’s greenhouse gas emissions are set out in the which may vary from legislation in other jurisdictions. Corporate Responsibility section of the Strategic Report The maintenance and integrity of the Company’s website on pages 36 and 37. is the responsibility of the Directors. The Directors’ responsibility also extends to the ongoing integrity Auditors of the financial statements contained therein. A resolution for the reappointment of Ernst and Young LLP and EY Limited, Gibraltar, (together, EY), as auditors of the The Directors are responsible for preparing the annual Company will be proposed at the 2017 Annual General Meeting. report and the financial statements. The Directors are required to prepare financial statements for the Group in accordance During the year ended 31 December 2016, Ernst and Young LLP with IFRSs as adopted by the EU and have also chosen to were reappointed auditors for the purposes of the Company prepare financial statements for the Group in accordance preparing financial statements as required pursuant to the with IFRSs as adopted by the EU. UK Listing Rules. EY Limited, Gibraltar, which is approved as a registered auditor under the Gibraltar Financial Services STRATEGIC REPORT GOVERNANCE FINANCIAL STATEMENTS 47 ANNUAL REPORT & ACCOUNTS 2016 ACCOUNTS & REPORT ANNUAL

888 HOLDINGS PLC HOLDINGS 888 the financial statements, prepared in accordance with in accordance prepared statements, the financial as adopted Standards Financial Reporting International liabilities, of the assets, view a true and fair give the EU, by and Company of the or loss financial position and profit taken the undertakings included in the consolidation as a whole; and of the review includes a fair Report the Strategic and the of the business and performance development and the undertakings included position of the Company with a together as a whole, taken in the consolidation that description of the principal risks and uncertainties face. they ITAI FRIEBERGER ITAI Chief Executive Officer Chief Executive 2017 21 March The Directors consider that the annual report and accounts, and accounts, the annual report that consider Directors The and and understandable balanced is fair, as a whole, taken to shareholders for necessary information the provides model business position and performance, the Group’s assess and strategy. of his knowledge: to the best confirms, Each of the Directors (a) (b) that all the steps taken have Directors All of the current of aware themselves make to taken have ought to they the for auditors the Company’s needed by information any are the auditors that establish purposes of their audit, and to of any not aware are Directors The information. that of aware unaware. are of which the auditors audit information relevant On behalf of the Board: 48 888 HOLDINGS PLC ANNUAL REPORT & ACCOUNTS 2016

CORPORATE GOVERNANCE STATEMENT

The Company is admitted to the UK Official List and its shares Leadership are traded on the London Stock Exchange under a Premium The Directors consider it essential that the Company should Listing. As such, despite being incorporated in Gibraltar, the be both led and controlled by an effective Board. UK Corporate Governance Code (the “Code” or “UK Corporate Governance Code”) applies to the Company pursuant to the Board responsibilities and procedures UK Listing Rules and is available at www.frc.org.uk. The version The Board focuses upon the Company’s long-term objectives, of the Code published in September 2014 applied to the strategic and policy issues and formally and transparently financial year under review, and 888 has applied the version of considers the management of key risks facing the Group, the Code published in April 2016 since its financial year end. as well as determining the nature and extent of significant risks it will take in achieving its strategic objectives, The Board remains committed to the principles of corporate maintaining sound risk management and internal control governance in the UK Corporate Governance Code which it systems and reviewing annually the effectiveness of the considers to be central to the effective management of the Company’s risk management and internal control systems. business and to maintaining the confidence of investors. The Board is responsible for acquisitions and divestments, This report explains how the Company has applied the major capital expenditure projects and considering the main principles of the UK Corporate Governance Code. Company’s budgets and dividend policy. The Board also determines key appointments. The Board receives regular The statement contained in this section explains the key updates on shareholders’ views. features of the Company’s governance structure and compliance with the UK Corporate Governance Code. Board-level responsibilities of the Chairman are clearly Where the Company has not complied with the UK and formally defined, with the Chairman being responsible Corporate Governance Code, explanations are given below. for the effective operation of the Board as a whole, leadership of the Board in achieving a culture of constructive challenge This statement also includes items required by the UK Listing by Non-executive Directors (including the Senior Independent Rules and the Disclosure Guidance and Transparency Rules, Director), regularly agreeing and reviewing each Director’s including how the “Main Principles” of the UK Corporate training and development needs, and supporting key external Governance Code have been applied. relationships; the CEO has the overall executive responsibility for the running of the Company’s business; and the Non- The Board remains committed to the principles of executive Directors (including the Senior Independent Director) corporate governance in the UK Corporate Governance are responsible to constructively challenge and help develop Code which it considers to be central to the effective and proposals on strategy; no one individual has unfettered powers efficient management of 888’s business and to maintaining of decision. the confidence of investors for its long-term success. This report explains how the Company has applied the The Board has an established calendar of business. This covers main principles of the UK Corporate Governance Code. the financial calendar, strategic planning, annual budgets and performance self-assessments, as well as the conduct of Statement of compliance with the UK Corporate standing business. The calendar forms the basis for effective Governance Code integration of business activities as between the Board and its During 2016, the Company was in material compliance with principal committees (see pages 48 to 53), which individually the UK Corporate Governance Code 2014, other than as consider their own operating frameworks against the Board’s regards the following: business programme.

♦♦ A.2.1: The roles of chairman and chief executive were The Directors have wide-ranging business experience, and exercised by the same individual, Brian Mattingley, no individual, or group of individuals, dominates the Board’s until the appointment of Itai Frieberger as Chief Executive decision making. Officer of the Company and Brian Mattingley as Chairman, on 2 March 2016. Reserved powers and delegation A schedule of matters reserved to the Board has been ♦♦ A.4.1: There was no designated Senior Independent Director adopted and its content is reviewed to align it with operational until Ron McMillan’s appointment in May 2016. needs and the Board’s preference to monitor and, where appropriate, approve matters of substance to 888 as a whole. ♦♦ C.3.1/D.2.1: As there are only two Independent Non- Senior executives have given written undertakings to ensure executive Directors serving on the Board, it has not been compliance within their business operations with the Board’s possible for the Board to appoint three Independent formal schedule of matters reserved to it for decision Non-executive Directors to the Audit and Remuneration or approval. Committees. The appointment of an additional Non- executive Director to the Board was delayed in light of Chairman and Chief Executive Officer potential corporation transactions which were under Brian Mattingley, who served as Chief Executive Officer from discussion during the year. The Board is in advanced stages March 2012, became Executive Chairman in May 2015, a role of appointing one additional Non-executive Director to the which he fulfilled until the appointment of Itai Frieberger Board; in addition, a recruitment agency has been engaged as Chief Executive Officer on 2 March 2016, at which time with a view to recruiting a further Non-executive Director. Mr Mattingley became a non-executive Chairman. The Board consulted with 888’s major shareholders in 2016 with regard to these succession planning matters. STRATEGIC REPORT GOVERNANCE FINANCIAL STATEMENTS 49 ANNUAL REPORT & ACCOUNTS 2016 ACCOUNTS & REPORT ANNUAL

888 HOLDINGS PLC HOLDINGS 888 Independent Directors Independent Directors the Chairman, are excluding Half of the Directors, Board the by determined Directors Non-executive of the UK Corporate the purposes be independent for to Code. Governance provide is to Director of the Senior Independent role The the Chairman’s evaluate the Chairman, to for a sounding board planning, succession and lead the Board’s performance the other Directors for as an intermediary serve and to necessary. where Senior as the 888 Board’s appointed McMillan was Ron 2016. on 9 May Independent Director Committee Nominations on an planning matters succession considers Board The planning on succession ongoing basis, with particular focus Board senior management. At as for as well the CEO role for of experienced has prioritised the recruitment the Board level, delayed although appointments were Directors, Non-executive transactions. corporate potential due to during 2016 to committee a nomination has established Board The make and to appointments Board for lead the process Committee). (the Nominations the Board to recommendations comprised Committee the Nominations During the year, (Chairman), Pickel Amos Director independent Non-executive McMillan. Ron and Senior Independent Director discharging in the Board assists Committee Nominations The of the Board. the composition to relating its responsibilities reviewing, for is responsible Committee Nominations The determining of the Board, the structure time, time to from Officer, the Chairman and Chief Executive plans for succession for suitable candidates and identifying and recommending with the Nominations In accordance appointment as Directors. Chairman does the Committee of reference, terms Committee’s when it is dealing with Committee not chair the Nomination and the the chairmanship, to the appointment of a successor a description with preparing is tasked Committee Nomination particular roles. for and the capabilities required of the role available are of reference terms Committee’s Nominations The corporate.888.com. website, on the Company’s its will continue and the Board Committee Nominations The independent suitable and experienced recruit to in 2017 efforts Directors. Non-executive pursuing for is also responsible Committee Nominations The including setting of its mandate, within the scope diversity on progress monitoring and objectives measurable any Board new In considering such objectives. achieving is one (including gender diversity) appointments, diversity Committee. the Nominations by considered of the criteria is set out in diversity regarding statement Company’s The Report section of the Strategic Responsibility the Corporate 39. on pages 36 to EFFECTIVENESS EFFECTIVENESS During 2016, the Board consisted of five Directors, as follows: follows: as Directors, of five consisted the Board During 2016, McMillan), an independent (Ron a Senior Independent Director a Chairman (Brian (Amos Pickel), Director Non-executive Chairman until the appointment Executive who was Mattingley 2016), on 2 March Officer as Chief Executive of Itai Frieberger as the Chief (Itai Frieberger Directors Executive and two 2016) until 2 March Officer (Chief Operating Officer Executive Officer). as the Chief Financial Kobrine and Aviad setting out details of all of the Directors, biographical The and their professional skills and experience their relevant 40 and 41. on pages given are commitments, Diversity policy Diversity position and involvement diversity Details of the Company’s the set out in are in management of the Group of women Report section of the Strategic Responsibility Corporate 39. on pages 36 to Directors’ insurance cover insurance Directors’ its expense, and maintains, at has arranged Company The respect in policy liability insurance and officers’ a directors’ the by as recommended its Directors, of legal actions against by permitted the extent To Code. Governance UK Corporate also indemnify the Directors. may Company the law, Gibraltar where cover nor the indemnity provides Neither the insurance or dishonestly. fraudulently has acted a director Amos Pickel served as a Non-executive Director of 888 since 888 since of Director as a Non-executive served Amos Pickel considered carefully the Board 2016, 2006. During March his had compromised length of service whether Mr Pickel’s independent in he remained that and concluded independence no relationships were there and judgement and that character or could affect, to likely which were or other circumstances the rigorous from judgement. Moreover, his affect, appear to of its members’ performance, the Board by carried out review bring invaluable to continued Mr Pickel that it concluded contribute and to the Board and insight to experience Board The deliberations. and committee Board to positively performance to Mr Pickel’s as satisfied entirely therefore was independence. and continued Senior Independent Director appointed McMillan was Ron remains he is and that is confident and the Board during 2016 no are there and judgment and that independent in character or affect, to likely which are or circumstances relationships his judgement. affect, appear to could Non-executive Director independence Director Non-executive Itai Frieberger was appointed as Chief Executive Officer on Officer Chief Executive as appointed was Itai Frieberger a close have and Mr Frieberger Mr Mattingley 2016. 2 March of the decision the integrity ensure to relationship working of delivery successful and the the Board of making process a clear division of responsibilities is now There strategy. 888’s which the Board the Chairman and the CEO, between governance. part of its corporate an important considers Board composition Board 50 888 HOLDINGS PLC ANNUAL REPORT & ACCOUNTS 2016

CORPORATE GOVERNANCE STATEMENT continued

Re-election and appointment of Directors discussion and decision making. The Directors regularly All Directors are subject to reappointment by shareholders on communicate and exchange information irrespective of an annual basis in accordance with the provisions of the UK the timing of meetings. Corporate Governance Code. During 2016, the Board met eight times. Set out below When proposing Directors for re-election, the Board rigorously are details of the Directors’ attendance record at Board reviews the performance of each Director and assesses and Committee meetings in 2016. The reason for holding whether the individual’s performance continues to be effective more annual meetings than the usual six was primarily the and that he or she continues to demonstrate commitment Company’s proposed takeover offer of William Hill plc which to the role, taking into account the need for progressive was subsequently withdrawn. refreshing of the Board. The Chairman has responsibility for ensuring that agendas for The Board may appoint any person to be a Director of the Board meetings are set in advance. Board papers are issued to Company and such Director shall hold office only until the next Directors sufficiently in advance of meetings to facilitate both AGM, when he or she shall be eligible for reappointment by the informed debate and timely decisions. If a Director is unable shareholders. to attend a meeting, he is given the opportunity to raise any issues and give any comments to the Chairman in advance. Commitment The opportunity to hold office as Non-executive Directors None of the Directors have raised any concerns about the of other companies enables the Directors of 888 to broaden running of the Company or a proposed action which needed their experience and knowledge, which benefits the Company. to be recorded in the Board minutes of the Company or in Executive Directors may be allowed to accept non-executive a statement to the Chairman for circulation to the Board. appointments with the Board’s prior permission, so long as these are not likely to lead to any conflict of interest. Executive Meetings with Non-executive Directors Directors may be required to account for fees received from The Chairman holds meetings at least once per year with such other companies. Non-executive Directors are required the Non-executive Directors without the Executive Directors to allocate sufficient time to perform all applicable roles and being present. to both disclose any external appointments and consult with the Company prior to accepting any new major external The Non-executive Directors meet once per year without appointments. During 2016, the Board considered Amos the Chairman present in order to appraise the performance Pickel’s executive role with Swiftstake Technologies S.A. and of the Chairman and take into account the views of the concluded that it did not derogate from his commitment of Executive Directors. Under the UK Corporate Governance sufficient time to his Non-executive Director role with 888. Code, it is part of the role of the Senior Independent Director to lead this process. The Chairman has disclosed details of his other significant commitments to the Board during 2016 and these are detailed Board evaluation in his biography on page 40. The Board has established a formal process for the annual evaluation of its performance, and the performance of its The Board considers that Brian Mattingley’s other committees and individual Directors. The evaluation process commitments do not interfere with the discharge of his covers a range of issues such as Board processes, Board roles responsibilities to the Group and is satisfied that he makes and responsibilities, Board agendas and committee processes. sufficient time available to serve 888 effectively. An externally facilitated evaluation of the Board and its The terms of appointment for each Non-executive Director, Committees relating to performance in 2016 was carried out including expected time commitment are available for in September 2016, and included evaluation of the performance inspection at the Company’s registered office during normal of the Board and each Committee as a whole as well as business hours and at the AGM. evaluation of individual Directors and the Chairman against criteria and minimum requirements set by the Board. The Meetings and attendance evaluation was carried out by Mr Raymond Dinkin of Consilium The Board plans to meet six times a year. When urgent Board and Leadership Development, a London based decision making is required between meetings on matters management consulting firm to Boards and executives which reserved to the Board, there is a process in place to facilitate has no other connection with 888. The evaluation included

Total number of meetings held during the year ended December 2016 and the number of meetings attended by each Director Audit Remuneration Nominations Board Committee Committee Committee Total held in year 8 3 2 1 Brian Mattingley 8 N/A N/A N/A Itai Frieberger 8 N/A N/A N/A Aviad Kobrine 7 N/A N/A N/A Ron McMillan 7 3 2 1 Amos Pickel 8 3 2 1 STRATEGIC REPORT GOVERNANCE FINANCIAL STATEMENTS 51 ANNUAL REPORT & ACCOUNTS 2016 ACCOUNTS & REPORT ANNUAL

888 HOLDINGS PLC HOLDINGS 888 Reporting information of companies around the Group the Group around of companies information Reporting consolidated prepare to which enable the Company including management accounts. statements financial Measures that safeguard proper IT-based processing of processing IT-based proper safeguard that Measures accounting; to relevant and data matters Preventative control measures in the finance and in the finance measures control Preventative of the companies and of the Company systems accounting and statements financial included in the consolidated that processes performance-oriented in the operative, of the for the preparation significant information generate Strategic including the statements financial consolidated of functions and pre-defined including a separation Report, areas; in relevant processes approval Controls to monitor the consolidated accounting accounting the consolidated monitor to Controls and at of the Board the level at and its results process included in the consolidated of the companies the level statements; financial Identification of significant risk and control areas of control of significant risk and Identification processes; accounting group-wide to relevance ♦ ♦ ♦ ♦ ♦ ACCOUNTABILITY ACCOUNTABILITY ♦ ♦ ♦ ♦ The Directors acknowledge that they are responsible for the for responsible are they that acknowledge Directors The on setting policy for control, of internal system Company’s the reviewing and risk management, and for control internal and risk management. control of internal effectiveness of internal systems the Company’s monitor Directors The and risk management on an ongoing basis, including control faced and managing the significant risks identifying, evaluating its risk management that believes Board The the Company. by on Risk Management, with the FRC Guidance accords process Reporting Financial and Business and Related Control Internal covering of its effectiveness and carries out an annual review and including financial, operational controls, all material controls. compliance individual risk control considers annual review The assessments lines and qualitative reporting responsibilities, of the carried out in respect was a review risks. Such of residual up until the date 2016 throughout in place were that processes No significant and Accounts. of the Annual Report of approval review. in the identified were or weaknesses failings policies implement Board to role It is management’s of internal system The including reporting. on risk and control, the risk than eliminate manage rather is designed to control and can only provide objectives business achieve to of failure material against assurance and not absolute, reasonable, or loss. misstatement and the appropriateness also reviews Committee Audit The and risk management control of internal of systems adequacy on an ongoing reporting process the financial to in relation based the Board to recommendations basis and makes on its findings. in relation and risk management systems control internal 888’s include accounts consolidated of preparing the process to the following: ♦ Risk management and internal control and internal Risk management in the Company) which is to his knowledge material, except except material, his knowledge which is to in the Company) operated Such procedures circumstances. in specific limited during the year. effectively Conflicts of interest Conflicts dealt with in are of the Directors of interest Conflicts set out in the Company’s with the procedures accordance by monitored and are & Articles of Association Memorandum or on Board vote does not a Director the Chairman. Specifically, with persons connected in which he or resolutions Committee virtue of a shareholding than by (other an interest him have Each of the Directors has access to the advice and services and services the advice to has access Each of the Directors of the Under the direction Secretary. of the Company include responsibilities Secretary’s Chairman, the Company its the Board, within and between flows ensuring information as facilitating and senior management, as well Committees activities, development and professional induction, evaluation legal and governance, on corporate and advising the Board matters. procedural Secretary of the Company appointment or removal The as a whole. the Board for is a matter Information and support Information Development and advice and advice Development should be a formal, there that understands Board The the induction for procedure and transparent rigorous with the which has been formulated Directors, of new Committee. of the Nominations guidance of the and services the advice to access have All Directors advisers, nominated and the Company’s Secretary Company are procedures Board ensuring that for responsible who are seek independent professional able to are Directors followed. that provided expense the Company’s at if required, advice, so. to do of their intention Company notified the first have they 2016, On 9 May 2016. during appointed were Directors No new Senior Independent Director. appointed McMillan was Ron as Chief appointed was Itai Frieberger 2016, On 2 March became at which time Brian Mattingley Officer, Executive Chairman. a non-executive and reviews agrees the Chairman regularly above, As noted needs. Members of and development training each Director’s are that on matters specific updates receive the committees Members of the senior management team their role. to relevant periodic make business the Group’s for with responsibility meetings about their functions, Board at presentations and strategy. markets performance, questionnaires and face to face meetings with Board members, meetings with Board face to face and questionnaires and of major shareholders representatives senior management, legal advisers. external 888’s in a number of recommendations, culminated evaluation The the structure planning, succession including as regards decisions and of Board meetings, tracking of Board adopted The Board to the Board. reporting financial the evaluation. from arose which all recommendations and its Committees Board the that concluded evaluation The meaningful for a forum and are and effective, well-balanced are the to challenge with regard and constructive deliberation the Company. to importance of strategic matters each of that satisfied was the Board the evaluation, Following and to be effective to continues Directors the Non-executive Board The roles. their respective to commitment demonstrate and notes the Board to re-election McMillan for Ron proposes at re-election himself for will not be offering Amos Pickel that Meeting. Annual General the 2017 52 888 HOLDINGS PLC ANNUAL REPORT & ACCOUNTS 2016

CORPORATE GOVERNANCE STATEMENT continued

The reporting structure relating to all the companies The Directors’ Remuneration Report, which outlines the included in the consolidated financial statements requires that Remuneration Committee’s work and details of Directors’ significant risks are to be reported immediately to the Board remuneration, is on pages 54 to 66. The Remuneration on identification. Committee’s terms of reference are available on the Company’s website, corporate.888.com. Audit Committee and auditors The Board has established an Audit Committee. Details of Gaming Compliance Committee the Audit Committee’s functions, together with its specific In accordance with Nevada Gaming Control Board activities in 2016, are set out in the Audit Committee Report requirements, the Board has appointed a Gaming Compliance on pages 67 to 70. Committee. Its members are Michael Alonso (an external consultant to the Company), Ron McMillan and Amos Pickel. During the year the Company’s Audit Committee comprised Senior Independent Director Ron McMillan (Chair) and The Gaming Compliance Committee is entrusted with making Independent Non-executive Director Amos Pickel. As there are sure that the Group’s licensed gaming activity is carried out only two Independent Non-executive Directors serving on the with honesty and integrity, in accordance with high moral, legal Board, it has not been possible for the Board to appoint three and ethical standards, and free from criminal and corruptive Independent Non-executive Directors to the committee. elements. As such, the committee is responsible and has the power to identify and evaluate situations arising in the course During 2016, Deloitte carried out the Company’s internal audit of the Company’s and its Affiliates’ business that may adversely function, reporting to the Audit Committee; during 2016, the affect the objectives of gaming control. internal auditor provided seven reports to the Audit Committee and discussed the internal audit working plan for 2017. The Committee is not intended to displace the Board or the Company’s executive officers with decision-making authority 888’s payment risk management team, based in Gibraltar, but is intended to serve as an advisory body to better ensure has developed stringent payment risk management and achievement of the Company’s goals of avoiding unsuitable fraud control procedures. The team makes use of external situations and in entering into relationships exclusively with and internal systems to manage the payment risks. Detailed suitable persons. procedures exist throughout the Company’s operations and compliance is monitored by operational management and the The Committee’s work is being done independently and internal audit function. impartially. To this end, its members are appointed by and report directly to the Board of Directors. Details of the Company’s risk management strategy and the Board’s assessment of the Company’s viability in light of its Whistle-blowing policy risks are set out on pages 26 and 35 respectively. The Company’s whistle-blowing policy sets out the overall responsibility of the Board for implementation of the policy, Remuneration Committee but notes that the Board has delegated day-to-day The Board has overall responsibility for determining the responsibility for overseeing and implementing it to the framework of executive remuneration and its cost. It is designated whistle-blowing officer. The policy provides that required to take account of any recommendation made by where an employee is not comfortable making a disclosure the Remuneration Committee in determining the remuneration, to his/her respective direct line manager, disclosure can be benefits and employment packages of the Executive Directors made to the designated whistle-blowing officer whose details and senior management and the fees of the Chairman. are provided. If the subject of the disclosure in any way involves the designated whistle-blowing officer, the disclosure During the year the Company’s Remuneration Committee may be made directly to the Chairman of the Audit Committee comprised Independent Non-executive Director Amos Pickel or to another member of the Group’s senior management. (Chair) and Senior Independent Director Ron McMillan. Whilst employees are permitted to make disclosures As there are only two Independent Non-executive Directors anonymously, disclosing employees are encouraged to reveal serving on the Board, it has not been possible for the Board their identity to the designated whistle-blowing officer in order to appoint three Independent Non-executive Directors to to allow a full and proper investigation to take place; measures the Committee. can be taken to preserve the confidentiality of the disclosure where appropriate. The Board commits to investigating all The Remuneration Committee determines the Chairman’s disclosures fully, fairly, quickly and, where circumstances and Executive Directors’ fees, whilst the Chairman and the permit, confidentially. Undertakings are made to employees Executive Directors determine the fees paid to the who raise genuinely held concerns in good faith under the Non-executive Directors. Further details are provided procedure that they will not be dismissed or subjected to any on page 61. detriment as a result of his/her action. Employees of the Group are regularly sent reminders regarding the whistle-blowing The Remuneration Committee is advised by New Bridge Street, policy as part of general refreshers of various Group policies. a trading name of Aon Hewitt, being a subsidiary of Aon plc, which has no other connection with 888. Further details are No reports of incidents under the whistle-blowing policy provided on page 66. were received in 2016 and up to the date of this annual report.

All new long-term incentive schemes and significant changes to existing long-term incentive schemes are put to the shareholders of the Company for approval before they are adopted (save for certain circumstances as set out in the Listing Rules). STRATEGIC REPORT GOVERNANCE FINANCIAL STATEMENTS 53 N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A Page 44 Page provided Disclosure ANNUAL REPORT & ACCOUNTS 2016 ACCOUNTS & REPORT ANNUAL

888 HOLDINGS PLC HOLDINGS 888 the Group capitalised by Interest financial information unaudited of Publication schemes only incentive Details of long-term a Director involving a Director by of emoluments Waiver a Director emoluments by of future Waiver cash (issuer) allotments for Non pro-rata cash allotments for Non pro-rata major subsidiaries by in a placing participation Parent subsidiary a listed by of significance Contracts shareholder a controlling by of services Provision of dividends waivers Shareholder dividends future of waivers Shareholder shareholders with controlling Agreements BRIAN MATTINGLEY MATTINGLEY BRIAN Chairman 2017 21 March Other disclosures on the in this report can be found matters following The pages: following within LR 9.8.4 Applicable sub-paragraph (1) (2) (3) (4) (5) (6) (7) (8) (9) (10) (11) (12) (13) On behalf of the Board:

Corporate Social Responsibility Statement Social Responsibility Corporate responsible is the Director Officer Chief Executive Group’s The within 888. social responsibility corporate monitoring for activities on the Group’s periodic reports receives Board The Further details Officer. the Chief Executive from in this area section on Responsibility set out in the Corporate are 39. pages 36 to Viability Statement Viability is set out on page 35. Statement Viability Company’s The Principal risks and uncertainties are the Group by faced principal risks and uncertainties The on page 26. report disclosed in the Risk Management Strategy After careful review of the Group’s budget for 2017, its 2017, budget for of the Group’s review careful After matters, all relevant and plans, liquid resources medium-term and the Group Company the that confident are the Directors continue in operational to resources financial adequate have a period of at and for future the foreseeable for existence of this Annual Report. the approval 12 months from least adopt the going concern to continued therefore have They statements. the financial basis in preparing Going concern As the Company is registered in Gibraltar, it is subject to it is subject to in Gibraltar, registered is As the Company main The requirements. statutory with Gibraltar compliance in Gibraltar the Company to relevant legislation corporate is in full Company The 2014. Act Companies is the Gibraltar Act. Companies with the Gibraltar compliance Compliance with statutory provisions with statutory Compliance The Company maintains an active and regular dialogue with dialogue with and regular maintains an active Company The analysts and sell-side shareholders principal and institutional and relations of investor a planned programme through with the to date keeps up also The Board financial PR activity. meetings and discussions through of major shareholders views the year. throughout representatives with shareholder the to dialogue and meetings is reported of this outcome The of full presentations includes formal programme The Board. calls and periodic conference analysts’ results, and interim year and strategy of the Company’s and discussion roadshows advisory held with shareholder were Discussions governance. remuneration Directors’ discuss in particular to bodies in 2016, policy. the remuneration to relating and matters Director and Non-executive Senior Independent Director The issues any have if they shareholders talk to to available are with contact where matters any are or if there or concerns Financial and Chief Officer the Chairman, Chief Executive failed contact has such or where is inappropriate Officer the issue. resolve to Annual the 2017 attend to welcome are All shareholders and 2017) be held on 9 May to Meeting (scheduled General of the advantage take to encouraged are investors private members All Board ask questions. to opportunity given and Remuneration (including the Chairmen of the Audit, the meeting and be will attend Committees) Nominations questions. answer to available Relations with shareholders and with shareholders Relations audiences financial key 54 888 HOLDINGS PLC ANNUAL REPORT & ACCOUNTS 2016

DIRECTORS’ REMUNERATION REPORT

ANNUAL STATEMENT In relation to long-term incentives, the awards granted in 2014 under the All Employee Share Plan vested based on Dear shareholder, a performance measure comprising 50% of an absolute EPS growth target and 50% on relative TSR. EPS growth I am pleased to present our Directors’ Remuneration Report performance was measured over the three year period to to shareholders. 31 December 2016; EPS growth performance over this period was 89% against a target range of 15.76% (5% p.a. compounded) As a company incorporated in Gibraltar, 888 Holdings plc is to 72.80% (20% p.a. compounded).TSR performance was not bound by UK law or regulation in the area of Directors’ measured over three years to 31 December 2016; TSR remuneration to the same extent that it applies to UK performance was 50%, putting it above the stretch target. incorporated companies. However, by virtue of 888’s Premium This will result in 100% of the 2014 award vesting in March 2017. Listing on the London Stock Exchange and reflecting the Committee’s approach to good governance, we have adopted Overall, in light of the annual and long-term performance in full the disclosure requirements of a UK incorporated delivered, the Committee is satisfied that there has been company, and shareholders will be given the opportunity to a robust link between performance and reward. approve our Annual Report on Remuneration, which is subject to an advisory vote at the 2017 Annual General Meeting. Remuneration Policy No changes are proposed to the Remuneration Policy Remuneration and strategy adopted by the Company at its 2016 Annual General Meeting, Our goal is to reward executives fairly, by providing an which is reproduced in the following pages for reference. appropriate balance between fixed and variable remuneration, linked to the achievement of suitably challenging performance The second section of this report is the Annual Report on measures. As highlighted at the front of this Annual Report, Remuneration which provides detailed disclosure on how the our strategy focuses on the following pillars: remuneration policy will be implemented for 2017 and how Directors have been paid in 2016. The disclosures provide ♦♦ Development of core B2C brands; shareholders with the information necessary to form a judgment as to the link between Company performance and ♦♦ Driving margin growth through operational efficiencies; how the Executive Directors were paid. This Annual Statement together with the Annual Report on Remuneration will be ♦♦ Expansion in regulated markets; subject to an advisory vote and I hope that you will be able to support the resolution at the forthcoming AGM. ♦♦ B2B partner of choice; and The Committee is committed to maintaining an open and ♦♦ Continue to protect our customers and act responsibly. constructive dialogue with our shareholders on remuneration matters and I welcome any feedback you may have. Our incentive plans are aligned to profitability of the 888 business and shareholder value, which we believe derive from implementation of this strategy.

Pay outcomes for 2016 The annual bonus was focused on the achievement of stretching like-for-like adjusted EBITDA growth1 targets. Like- for-like adjusted EBITDA growth in 2016 was 24%, resulting in AMOS PICKEL bonuses to the Directors of the maximum amount of 150% of Chairman of the Remuneration Committee salary. For full details of Executive Directors’ bonuses and the 21 March 2017 associated performance delivered see page 61.

1 Like-for-like adjusted EBITDA growth was calculated as the increase in adjusted EBITDA (i) excluding certain external charges that were not applicable during 2015, such as gaming duties and VAT, and (ii) on a constant currency basis. STRATEGIC REPORT GOVERNANCE FINANCIAL STATEMENTS 55 ANNUAL REPORT & ACCOUNTS 2016 ACCOUNTS & REPORT ANNUAL

888 HOLDINGS PLC HOLDINGS 888 our sector, where the market for executive talent is intense talent is intense executive for the market where our sector, of the individual; and performance the experience or position; changes in responsibility and salary; workforce changes in broader 888 as a whole. of the performance ♦ ♦ ♦ ♦ ♦ Contribution towards the funding of post-retirement life. the funding of post-retirement towards Contribution providers) pension contribution pension scheme (via outsourced a defined 888 offers or cash in lieu of pension. 15% of base salary. Up to Market competitive structure to support recruitment and retention. and retention. support recruitment to structure competitive Market of illness. as a result interruption minimal business ensure aims to Medical cover terms. benefits in kind as part of their employment various receive may Directors Executive the executive 888 has required (where allowance include an accommodation may These a contribution (or health insurance car allowance), car (or use of a company relocate), to benefit in Israel), savings fund” (a common “study scheme), a health insurance towards indemnities and directors’ directors’ expenses, relocation assurance, disability and life at the and other ad hoc benefits by law permitted extent to the insurances and officers’ of the Committee. discretion maximum is no pre-determined to 888 and there cost is based on the of benefits value The limit. periodically. reviewed is offered of the benefits value and range The To recruit, motivate and retain high-calibre Executive Directors by offering salaries salaries offering by Directors Executive high-calibre retain and motivate recruit, To levels. competitive market at role. and experience individual Reflects Positioning 1 January. from normally effective changes annually with any Reviewed by: influenced are and annual increases ♦ ♦ ♦ ♦ ♦ pay account into takes basis and remuneration Benchmarking is carried out on a total – including and sector of similar size of organisations a range at roles comparable for levels gaming industry. and in the international companies in other UK listed practices pay increase be no higher than the average salaries will generally directors’ to increase Any a role of in the event be proposed may a higher increase However, other employees. for circumstances. or in other exceptional change or promotion, Pension Benefits Base salary DIRECTORS’ REMUNERATION POLICY POLICY REMUNERATION DIRECTORS’ Purpose and link to strategy Purposeand link to Operation Opportunity Purpose and link to strategy Purpose and link to Operation Opportunity Operation Operation Opportunity Purpose and link to strategy Purpose and link to No changes are proposed to the Remuneration Policy adopted by the Company at its 2016 Annual General Meeting and detailed Meeting General Annual its 2016 at Company the by adopted Policy the Remuneration to proposed No changes are convenience. for below table is reproduced Policy the Remuneration However, Annual Report. in the 2015 table policy Remuneration 56 888 HOLDINGS PLC ANNUAL REPORT & ACCOUNTS 2016

DIRECTORS’ REMUNERATION REPORT continued

Remuneration policy table continued Annual bonus Purpose and link to strategy Rewards the achievement of annual financial and, if appropriate, non-financial strategic targets. Operation Bonus targets (percentage of salary) are based on objective and disclosable calculations for financial and non-financial performance where possible.

The precise weightings between metrics may differ each year, although there will be always be a greater focus on financial as opposed to non-financial performance.

Any bonus payment in excess of 100% of salary is deferred into shares which vest in equal tranches after one, two and three years.

A dividend equivalent provision operates enabling dividends to be accrued (in cash or shares) on unvested deferred bonus shares (or up to the point of exercise in the case of nil cost options).

The bonus is subject to a recovery and withholding provision if the financial statements of 888 were materially misstated or an error occurred in assessing the performance conditions on bonus and/or if the Executive ceased to be a Director or employee due to gross misconduct. Opportunity The maximum opportunity is 150% of base salary.

The level of pay-out for the achievement of target performance, as set by the Committee is 50% of the maximum amount. Presently the target is based on like-for-like Adjusted EBITDA growth in addition to exceeding budgeted Adjusted EBITDA for the year as approved by the Board.

The threshold level of payment may be up to 25% of the maximum. Performance metrics Financial Performance The financial component is based on 888’s key financial measures of performance. This will normally be based on like-for-like Adjusted EBITDA growth but may include other financial KPIs.

A sliding scale of targets applies for financial performance targets which are measured annually.

The degree of stretch in targets may vary each year depending on the business aims and the broader economic or industry environment at the start of the relevant year.

Non-financial Performance There is no intention initially to use non-financial performance conditions, but the Committee wishes to retain flexibility to do so, for a minority of the bonus opportunity. STRATEGIC REPORT GOVERNANCE FINANCIAL STATEMENTS 57 ANNUAL REPORT & ACCOUNTS 2016 ACCOUNTS & REPORT ANNUAL

888 HOLDINGS PLC HOLDINGS 888 Rewards Executive Directors for achieving superior returns for shareholders over a longer- over shareholders for superior returns achieving for Directors Executive Rewards timeframe. term time and align goals over shareholding build a meaningful to Directors Enables Executive with shareholders. 2015. the EGM held on 30 September at LTIP the 2015 for approval 888 sought shareholder 2015. in August plans which expired share the previous replaced This with awards options or conditional of nil cost made annually in the form are awards LTIP three least at over conditions of performance dependent on the achievement vesting year of grant. commencing with the years, financial is a material if there and withholding provision a recovery subject to are Awards performance any of in the calculation an error statements, financial in 888’s misstatement gross due to or employee be a Director to ceases Director or if the Executive conditions misconduct. (in cash or be accrued enabling dividends to operates provision A dividend equivalent vest. they the extent to awards on LTIP shares) limit of individual grant A maximum seniority. primarily by determined are levels Award current The of grant. the date at of shares value 200% of salary applies, based on the face the Chief of salary for and 150% the Chief Executive is 200% of salary for level award Financial Officer. period based on performance performance year the end of a three at vest Awards at the time of of the business strategy the outputs of the long-term reflecting measures grant. shareholder total EPS and 50% on relative based 50% on adjusted currently are Awards cycles. award future for differ of metrics may and weightings choice but the (TSR), return the level peers, but recognising of 888’s a basket to will be compared TSR possible Where Sector the Leisure to broadened be may the selection criteria in the sector of consolidation generally. more companies or listed prior to ranges and the target measures between the weightings will review Committee The appropriate. remains of stretch and level balance the overall that ensure to grant each LTIP award than 25% of the financial metrics with no more applies for A sliding scale of targets performance. threshold at vesting will vest and awards median ranking below will vest none of this part of the award TSR, For targets. and stretch the threshold between performance on a sliding scale for Share ownership guidelines ownership Share Long-Term Incentives (LTIP) Incentives Long-Term Under the guidelines, Executive Directors are expected to build and maintain an interest equivalent in value to no less than no less to in value equivalent and maintain an interest build to expected are Directors Under the guidelines, Executive will be of tax basis) on a net options (valued nil-cost unexercised vested and fully owned shares Beneficially times salary. two is Until such time as the guideline threshold holding is achieved. which the guideline to the extent included when determining or deferred under the LTIP vest that of awards 50% of the net of tax value retain to required are Directors Executive achieved. annual bonus. Operation Opportunity metrics Performance Purpose and link to strategy Purpose and link to Remuneration policy table continued policy Remuneration 58 888 HOLDINGS PLC ANNUAL REPORT & ACCOUNTS 2016

DIRECTORS’ REMUNERATION REPORT continued

Remuneration policy table continued Chairman and Non-Executive Directors’ (NEDs) fees Purpose and link to strategy To recruit, motivate and retain a Chairman and Non-executive Directors of a high calibre by offering a market competitive fee level and which takes account of the specific circumstances of 888. Operation The Chairman and the Executive Directors determine the fees paid to the Non-executive Directors. The Chairman’s fees are determined by the Remuneration Committee with reference to prevailing fee rates amongst other gaming companies. Fees paid to the Non-executive Directors are set by reference to an assessment of the time commitment and responsibility associated with each role, and the Chairman and Executive Directors have reference in this respect to prevailing fee rates amongst other gaming companies. Levels take account of additional demands placed upon individual Non-executive Directors by virtue of their holding particular offices, such as Committee Chairman and/or Senior Independent Director, and travel time to Board meetings (which are held outside the UK). Additional fees may be paid as appropriate to reflect increased time commitments of the role.

The Chairman and the Non-executive Directors are not eligible to participate in any bonus plan, pension plan, share plan, or long-term incentive plan of 888. The Chairman and Non-executive Directors are entitled to be reimbursed for any reasonable travel and accommodation expenses incurred in the performance of their duties (including any tax incurred thereon). Opportunity No maximum.

Annual report on remuneration This Annual Report on Remuneration together with the Chairman’s Annual Statement, as detailed on page 54 will be subject to an advisory vote at the 2017 AGM. The information on page 60 with respect to Directors’ emoluments and onwards through page 66 has been audited.

Implementation of Remuneration Policy for 2017 In relation to the Remuneration Policy described in the previous section, the expected application of the Remuneration Policy for 2017 is set out below.

Base salary and fees Executive Directors Salaries for 2017 are set out below:

♦♦ CEO – Itai Frieberger: ILS 3,180,000 (2016: ILS 3,024,495).

♦♦ CFO – Aviad Kobrine: £437,000 (2016: £416,000).

A 5% increase has been awarded, in line with the average increase for 888’s wider workforce.

Chairman and Non-Executive Director fees The fees remain unchanged at:

♦♦ Chairman’s fee: £290,000; ♦♦ Non-executive Director fee: £85,000; and ♦♦ Senior Independent Director fee: £105,000.

STRATEGIC REPORT GOVERNANCE FINANCIAL STATEMENTS 59 ANNUAL REPORT & ACCOUNTS 2016 ACCOUNTS & REPORT ANNUAL

888 HOLDINGS PLC HOLDINGS 888 Unexpired Term of Service Contract of Service Term Unexpired subject notice, prior written six months’ at Terminable Meeting. the Annual General at annual re-election to set out provisions termination to subject Indefinite in his Agreement. set out provisions termination to subject Indefinite in his Agreement. each at re-election subject to 2017, Until 15 May at re-election Subject to Meeting. Annual General that Meeting, it is intended Annual General the 2017 for appointment will be extended McMillan’s Ron term. year a further three 2017. Until 9 May Chairman Officer Chief Executive Chief Financial Officer Senior Independent Director Director Non-executive Position 0% will vest if 888’s TSR is below the TSR of the median company in the comparator group; in the comparator of the median company the TSR is below TSR if 888’s 0% will vest and (“Threshold”); group in the comparator of the median company the TSR is equal to TSR if 888’s 25% will vest in the comparator company of the median the TSR above 10% per annum) or more is 33% (i.e. TSR if 888’s 100% will vest (“Maximum”). group and Maximum. Threshold between performance basis for will be on a proportionate Vesting Threshold – 3 year CAGR of 5%; CAGR year – 3 Threshold of 20% CAGR Maximum – 3 year ♦ ♦ ♦ ♦ ♦ ♦ DIRECTORS’ SERVICE CONTRACTS SERVICE DIRECTORS’ ♦ ♦ ♦ ♦ ♦ maximum. at and 100% will vest threshold, at 25% will vest threshold, if EPS is below will vest None of the award basis. on a straight-line and maximum is determined threshold between Performance awards: 2017 for target TSR Holdings plc, GVC follows: companies as peer five comprising group a comparator against be compared will TSR 888’s Hill plc. plc, William Betfair Power plc, Paddy plc, Playtech Group Coral Ladbrokes ♦ Detail and target ranges ranges Detail and target awards: 2017 for range EPS target 2017 LTIP awards will be subject to EPS and relative TSR performance conditions, each with a 50% weighting. These metrics These each with a 50% weighting. conditions, performance TSR relative EPS and will be subject to awards LTIP 2017 reward an objective TSR provides relative and financial performance, underlying on 888’s a focus chosen as EPS provides were peers. 888’s to compared shareholders to value delivering for The CEO and CFO will be granted awards worth 200% of base salary and 150% of salary respectively. worth awards granted will be CEO and CFO The conditions Performance Long-Term Incentive Plan Incentive Long-Term levels Award For 2017, the CEO and CFO will have a bonus opportunity of 150% of salary. have will the CEO and CFO 2017, For which will be disclosed 100% vesting, to 25% for targets EBITDA of like-for-like Bonus will be based on a sliding scale range on remuneration. annual report year’s in next retrospectively shares. of salary will be paid in deferred 100% bonus above Any Annual bonus Brian Mattingley Itai Frieberger Kobrine Aviad McMillan Ron Amos Pickel The unexpired term of the directors’ service contracts or appointment letters are as follows: are or appointment letters contracts service of the directors’ term unexpired The Name 60 888 HOLDINGS PLC ANNUAL REPORT & ACCOUNTS 2016

DIRECTORS’ REMUNERATION REPORT continued

Remuneration paid to Executive Directors for service in 2016 The following table presents the Executive Directors’ emoluments in respect of the year ended 31 December 2016.

Other Items in the Taxable Annual Long-Term nature of Salary3 benefits4 bonus5 Incentives6 Pension7 remuneration8 Total Executive Directors1 US$ 000 US$ 000 US$ 000 US$ 000 US$ 000 US$ 000 US$ 000 Itai Frieberger, CEO2 2016 769 169 1,153 899 110 — 3,100 2015 401 129 597 — 56 — 1,183 Aviad Kobrine, CFO 2016 564 49 769 686 85 — 2,153 2015 605 56 876 1,521 91 347 3,496 Brian Mattingley, former CEO9 2016 — — — — — — — 2015 230 12 336 4,837 — — 5,415

1 Directors’ remuneration is converted into US Dollar from Sterling and New Israeli Shekels at the average rate of exchange for the relevant month it was paid save for the annual cash bonus which is converted into US Dollar at the year-end exchange rate. The recorded decrease in Aviad Kobrine’s salary, pension and annual bonus amounts reflect fluctuations in the USD:GBP exchange rate, and not a decrease in the GBP amounts. 2 Remuneration of Itai Frieberger is shown with respect to the period following his appointment to the Board on 13 May 2015. Itai Frieberger was appointed as Chief Executive Officer on 2 March 2016. 3 Salaries for 2016 were ILS 2,948,982 for Itai Frieberger and GBP 416,000 for Aviad Kobrine. The 2016 salary anticipated in Remuneration Scenarios set out in the 2015 Annual Report for Itai Frieberger was ILS 3,024,495, which was an annualised figure based on his updated salary as of 2 March 2016. 4 Benefits for Aviad Kobrine include car allowance and health, disability and life insurance; and for Itai Frieberger include convalescence and health insurance for Itai Frieberger and his family, contribution to “study fund” up to the Israeli tax-free ceiling with the excess up to 7.5% of Itai Frieberger’s salary paid in cash, as well as gross-up of car allowance, meals allowance and transport allowance. 5 A breakdown of the 2016 annual bonus targets and the extent of their achievement is set out overleaf. Out of the total bonus payment made to Itai Frieberger of ILS 4,423,473 (total of 150% of salary), an amount of ILS 2,948,982 (100% of salary) was granted in cash, and an amount of ILS 1,474,491 (50% of salary) will be deferred into shares of the Company under the Company’s Deferred Share Bonus Plan once approved by the Board. Out of the total bonus payment made to Aviad Kobrine of GBP 624,000 (total of 150% of salary), an amount of GBP 416,000 (100% of salary) was granted in cash, and an amount of GBP 208,000 (50% of salary) will be deferred into shares of the Company under the Company’s Deferred Share Bonus Plan once approved by the Board. 6 Performance-based long-term incentives are disclosed in the year in which they vest. A breakdown of the performance conditions applying to the payments under long-term incentives is set out on page 62. Brian Mattingley’s long-term incentive relates to the phantom award granted in 2012 which vested on 27 March 2016. Aviad Kobrine’s long-term incentive in 2015 was governed by the 888 All-Employee Share Plan; Aviad Kobrine and Itai Frieberger’s long-term incentives in 2016 were governed by the 888 Long-term Incentive Plan 2015. In 2016, 213,000 nil-cost options granted to Aviad Kobrine, and 279,407 Ordinary Shares granted to Itai Frieberger on 7 April 2013 and due to vest on 7 April 2016 subject to fulfilment of the performance conditions set out in the Directors’ Remuneration Report in 2015, vested in full. 7 In accordance with standard practice in Israel, Itai Frieberger was granted personal pension scheme contributions in an amount of 13.33% of base salary until July 2016, and 14.03% of base salary from such date, in addition to 0.6% of base salary contribution for loss of working capacity. Aviad Kobrine receives a cash payment in lieu of pension in the amount of 15% of base salary. 8 Other items in the nature of remuneration includes share awards and nil-cost options (including dividends accrued thereupon) that are not subject to performance conditions, and which were granted in the reporting year, regardless of vesting date. These are valued by reference to the market price of the shares upon grant. In 2015, this includes 136,524 nil-cost options granted to Aviad Kobrine as a like-for-like replacement for options previously granted under the 888 All-Employee Share Plan which expired on 4 October 2015, of which 136,000 were vested immediately and 524 will vest on 28 August 2018 in accordance with their terms. 9 Brian Mattingley stepped down as CEO on 13 May 2015 and was appointed Chairman on the same date. Brian Mattingley’s remuneration as Chairman is excluded from the table above and included in the table on the next page. STRATEGIC REPORT GOVERNANCE FINANCIAL STATEMENTS 61 — — 47 115 128 132 301 130 130 Total Total US$ 000 US$ 000 150% of salary Total Total 1 Bonus awarded — — — — — — — — 18 417 24 Other Other US$ 000 US$ 000

Itai Frieberger – ILS 4,423,473 Itai Frieberger Aviad Kobrine – GBP 624,000 Kobrine Aviad

— — 47 47 ANNUAL REPORT & ACCOUNTS 2016 ACCOUNTS & REPORT ANNUAL 115 128

132 130 130 Fee Fee Fee 283 393 24% Actual US$ 000 US$ 000 performance

2015 2015 2015 2015 2016 2016 2016 2016 2016 888 HOLDINGS PLC HOLDINGS 888 Max 20%

(100% pay-out)

12.5% Target

2015 (50% pay-out)

5% Threshold (25% pay-out)

3

5

4

2 “Other” for Brian Mattingley reflects reimbursement of expenses connected with his role. with his connected expenses of reimbursement reflects “Other” Brian Mattingley for from increased was fee capacity his director and in that 2016, on 9 May as Senior Independent Director appointed McMillan was Ron GBP 105,000. to GBP 85,000 remuneration Only Brian Mattingley’s Chairman on the same date. appointed and was 2015 as CEO on 13 May down stepped Brian Mattingley as Chairman is included in the table above. 2015. as Chairman on 13 May down stepped Kilsby Richard 2015. on 13 May Director as a Non-executive down John Anderson stepped Brian Mattingley

Richard Kilsby Richard Ron McMillan Ron Amos Pickel John Anderson Directors Non-executive Former The extent to which the EBITDA performance conditions were achieved is as follows: is as follows: achieved were conditions performance which the EBITDA to extent The EBITDA performance EBITDA Annual bonus payments in respect of 2016 performance of 2016 Annual bonus payments in respect in the annual bonus plan, under which performance participates Director each Executive Policy, As detailed in the Remuneration year. a single financial over is measured challenging like-for-like to reference by determined bonus was 150% of base salary and the annual bonus opportunity was The conditions. performance EBITDA adjusted 2 3 4 5 1 and Chairman Directors Non-executive Current Non-executive Directors’ and Chairman’s fees and Chairman’s Directors’ Non-executive

Measures Performance Like-for-like adjusted EBITDA EBITDA adjusted Like-for-like growth per annum growth

The Committee determined that like-for-like adjusted EBITDA growth, for the 2016 bonus onwards, would be measured on be measured would bonus onwards, the 2016 for growth, EBITDA adjusted like-for-like that determined Committee The basis. currency a constant Company the of performance exceptional of the reflective bonus out-turn was the overall that considered Committee The appropriate. were levels the pay-out and that the year over and the management team under the Deferred in shares will be deferred of 100% of salary, in excess of bonus awarded the proportion on page 59, As noted the Board. by approved Bonus plan once Share 62 888 HOLDINGS PLC ANNUAL REPORT & ACCOUNTS 2016

DIRECTORS’ REMUNERATION REPORT continued

Long-term incentive awards with performance periods ending in the year ended 31 December 2016 888 All Employee Share Plan The 2014 All Employee Share Plan awards are due to vest in March 2017. The tables below set out the achievement against the performance conditions attached to the award, resulting in aggregate vesting of 100%, and the actual number of awards vesting (with their estimated value).

TSR1 Like-for-like EPS growth Performance level Performance required % vesting Performance required % vesting Below threshold Below median 0% Below 15.76%2 0% Threshold Median = 33% 25% 15.76%2 25% Stretch or above 33% (i.e. 10% p.a.) 100% 72.8% or above2 100% above median = 43.9% Actual achieved 50% 100% 89% 100%

1 Relative to a comparator group of 5 gaming companies – bwin.party digital entertainment plc (now GVC Holdings plc – see below), Sportech plc, Ladbrokes plc (now Ladbrokes Coral Group plc – see below), Playtech plc, and Paddy Power plc (now Paddy Power Betfair plc). On 1 February 2016, the acquisition of bwin.party by GVC Holdings plc was completed. As of such date, bwin.party was delisted and therefore peer group data reflects the share price of GVC Holdings plc from 2 February 2016. In addition, during 2016, Ladbrokes plc acquired Gala Coral and changed its listing to Ladbrokes Coral Group plc; and Paddy Power plc acquired Betfair plc and changed its listing to Paddy Power Betfair plc. Playtech Ltd listed on 2 July 2012 and is referred to as Playtech plc. 2 15.76% aggregate EPS growth is the equivalent of 5% EPS growth compounded annually. 72.8% aggregate EPS growth is the equivalent of 20% EPS growth compounded annually.

Details of the expected level of vesting for each Director, based on the above, are shown in the table below:

Dividend Value of accrual awards on vested including Number of Number of Number of awards Dividend awards awards awards value2 accrual1 Executive at grant to lapse to vest US$ US$ Itai Frieberger 310,697 0 310,697 0 830,899 Aviad Kobrine 248,845 0 248,845 0 665,488

1 The value of the vested shares is based on the share price on the date of vesting, currently estimated at US$2.67 (based on the exchange rate of 1.232) on 31 December 2016. 2 Dividends accrue on awards at the date of a dividend payment and upon exercise the cash value of the accrued dividends is paid to the employee on the number of vested awards, the value of such dividends cannot presently be reliably estimated.

Long-term incentive awards with performance periods ending in the year ended 31 December 2015 888 All Employee Share Plan The 2013 All Employee Share Plan awards vested in full in April 2016. The tables below set out the achievement against the performance conditions attached to the award, resulting in aggregate vesting of 100%, and the actual number and value of awards vested.

TSR Like-for-like EPS growth Performance level Performance required % vesting Performance required % vesting Below threshold Below median 0% Below 15.76% 0% Threshold Median = 30% 25% 15.76% 25% Stretch or above 33% (i.e. 10% p.a.) 100% 72.8% or above 100% above median = 39.9% Actual achieved 79% 100% 96% 100% STRATEGIC REPORT GOVERNANCE FINANCIAL STATEMENTS 63 3 2 % of N/A N/A N/A 25% 25% 25% 25% US$ 472% 944% against awards 899,132 accrual 685,756 Value Value dividend including % vesting at threshold at achievement shareholding

1 — guideline Total US$ value 44,146 vested 142,857 33,670 awards accrual 100,000 4,073,491 6,252,875 Dividend 50% on 100% 100% 100% salary performance

1,2 — — — ANNUAL REPORT & ACCOUNTS 2016 ACCOUNTS & REPORT ANNUAL awards as % as awards

Face value of value Face Vested 50,657 vest to 213,100 awards 279,407 3,262,883 unexercised Number of options 1

1 — — — — 524 — — options without 888 HOLDINGS PLC HOLDINGS 888 Unvested awards to lapse to US$822,153 US$822,153 US$627,757 US$627,757 US$299,750 US$299,750 performance US$800,063 US$800,063 conditions Face value of value Face 1 Number of — — — — awards granted awards 810,084

2 2 2 2 Unvested At 31 December 2016 31 December At conditions 213,100 awards awards options with grant at 279,407 Number of Ordinary Shares Number of Ordinary performance Number of 94,761 — — — — 221,277 252,927 289,799

Number of shares without Unvested 1,250,000 1,250,000 awards granted granted awards conditions performance — — — —

Unvested 3,602,847 conditions shares with shares performance date Grant 2016 9 May 2016 9 May

— — 2016 23 March 2016 23 March owned Legally 142,857 142,857 100,000 100,000 1,349,371 Nil Cost Options. Nil Cost of £1.49. price options with exercise of £1.22 and 34,692 price has 15,965 options with exercise Itai Frieberger this towards counting Shares 200% of base salary. to equivalent build and maintain a shareholding to required are Directors Executive The against Achievement on a net of tax basis). options (valued nil-cost but unexercised and fully vested shares guideline include legally owned 2016. 31 December at price using the share the guideline holding is calculated Face value was calculated using share price on the date of grant, which was £2.01 (23 March 2016) and £2.195 (9 May 2016). The awards awards The 2016). (9 May and £2.195 2016) (23 March £2.01 which was of grant, on the date price using share calculated was value Face options. nil-cost were Kobrine Aviad to the awards whilst Shares, of Ordinary awards were Itai Frieberger to 2018. period ending 31 December of the performance the end being met at conditions performance to subject vest due to are awards These and 50% is subject to 5% and 20% p.a., of between annual EPS growth requiring condition an EPS performance is subject to 50% of an award Betfair Power plc, Paddy plc, Playtech Group Coral Holdings, Ladbrokes of GVC comprised a peer group versus condition performance a TSR 10% the median by out-performance for achieved with full vesting median performance for vest awards Hill plc (25% of the TSR plc and William of the revised 2016 Meeting on 9 May the Annual General at approval due to 2016 and 9 May 2016 made on 23 March were awards Separate p.a.). the Chief Executive of salary for 200% to Directors the Executive limit to the maximum individual grant which increased Policy Remuneration Policy). Remuneration (100% of salary under the prior the Chief Financial Officer and 150% of salary for Dividends accrue on awards at the date of a dividend payment and upon exercise the cash value of the accrued dividends is paid to the dividends is paid to of the accrued the cash value and upon exercise payment of a dividend the date at on awards Dividends accrue awards. on the number of vested employee rate (based on the exchange being US$3.06 (7 April 2016), of vesting the date on price is based on the share shares of the vested value The of 1.405).

No Director was materially interested during the year in any contract which was significant in relation to the business of 888. business to the relation significant in which was contract in any during the year interested materially was No Director 2 3 1 Itai Frieberger Itai Frieberger Executive

Directors’ shareholdings and share interests and share shareholdings Directors’ build and maintain to Directors the Executive requiring has been introduced, guidelines shareholding formal for A policy Policy. as set out in the Remuneration times annual salary two in 888 worth a shareholding on which the date Directors, in the case of former (or 2016 31 December as at in shares interests Details of the Directors’ between in shares interests no changes in the Directors’ were There in the table below. shown are the Board) from retired they of this Report. date and the 2016 31 December Details of all outstanding share awards Details of all outstanding share based share of all outstanding sets out details overleaf the table year, financial made during the 2016 awards In addition to Directors. by held awards Loss of office payments of office Loss Directors. Executive to past made were and no payments Directors, to Executive made were payments of office no loss In 2016, 2 1 Scheme interests awarded during the year during the awarded Scheme interests in 2016. Plan 2015 Incentive under the 888 Holdings plc Long-Term sets out the grants table below The Itai Frieberger Itai Frieberger Kobrine Aviad 1 2 Executive

Details of the level of vesting for each Director, based on the above, are shown in the table below: in the table shown are above, on the based Director, each for of vesting the level Details of Kobrine Aviad Director Itai Frieberger Kobrine Aviad Aviad Kobrine Kobrine Aviad Brian Mattingley Amos Pickel Ron McMillan Ron 64 888 HOLDINGS PLC ANNUAL REPORT & ACCOUNTS 2016

DIRECTORS’ REMUNERATION REPORT continued

Performance graph The following graph shows 888’s performance, measured by TSR, compared with the performance of the FTSE 250 Index. The Directors consider that the FTSE 250 Index is the most appropriate comparator benchmark as it has been a member of this index for a significant period of the time covered by the chart.

320 Value of £100 Sterling in 888 1/1/2009 - 31/12/2016 v. FTSE 250

300

280

260

240

220

200

180

160

140

120

100

80

60

40

20

0

2009 2010 2011 2012 2013 2014 2015 2016

888 dividend reinvested FTSE 250

Total remuneration history for CEO The table below sets out the total single figure remuneration for the CEOs over the last eight years with the annual bonus paid as a percentage of the maximum and the percentage of long-term share awards vesting in the year.

2009 2010 20111 20122 2013 2014 20153,4 20165 Total remuneration (US$ 000) 1,168 958 3,783 1,060 1,275 1,640 5,415 1,855 Annual bonus (%) 100% 100% 100% 100% 100% 100% 100% 100% LTI vesting (%) 68% 0% 100% N/A N/A N/A 59% N/A

1 Gigi Levy was the CEO of 888 from 2009 to 30 April 2011. There was no CEO from 1 May 2011 to 26 March 2012. 2 Brian Mattingley was CEO from 27 March 2012 to 13 May 2015. Brian Mattingley‘s total remuneration in 2015 included a phantom award granted to him on 27 March 2012 which vested on 27 March 2015. There was no CEO from 14 May 2015 to 1 March 2016. 3 Brian Mattingley’s total remuneration in 2015 included a phantom award granted to him on 27 March 2012 and which vested on 27 March 2015. 4 Figures in 2015 reflect Brian Mattingley’s tenure as CEO until 13 May 2015. 5 Itai Frieberger was appointed as Chief Executive Officer on 2 March 2016. Figures reflect the period during which Itai Frieberger served as Chief Executive Officer and do not include LTIP awards granted during the period prior to his appointment as Chief Executive Officer. STRATEGIC REPORT GOVERNANCE FINANCIAL STATEMENTS 65 80 Tax** +12% 72 ANNUAL REPORT & ACCOUNTS 2016 ACCOUNTS & REPORT ANNUAL

57 888 HOLDINGS PLC HOLDINGS 888 +6% Dividends 53 US$ million 170 +22% Selling and Selling 139 marketing expenses marketing 108 +2% 2016 106 Employee pay & benefits* Employee ■ 2015 ■ 0 Employee pay & benefits is calculated in accordance with note 6 of the financial statements, and include share benefit charges benefit charges and include share statements, 6 of the financial with note in accordance & benefits is calculated pay Employee million). US$4.1 million (2015: of US$6.7 million) and gaming duties US$10.2 of US$8.3 million (2015: million), VAT US$3.0 million (2015: tax of US$7.7 Includes corporation US$58.4 million). million (2015: of US$63.5 The employee pay figure includes employee benefits in accordance with the financial statements (including both statements with the financial accordance benefits in includes employee figure pay employee The benefit charges). and share costs staff stream revenue of the future in development the amount invested reflects – This expenses Sales and marketing acquisition. customer by of 888 driven to shareholders. amounts distributed reflects Dividends – This environment. business in a regulated of doing business cost is a necessary – This and duties Taxes 20 80 60 40 ♦ ♦ ♦ ♦ 120 180 160 140 100 ♦ ♦ ♦ ♦ The comparables chosen were the following: chosen were comparables The * ** The following graph sets out the actual expenditure by 888 in financial years 2015 and 2016 on various items, including various items, on and 2016 years 2015 888 in financial by actual expenditure sets out the graph following The employees. Group to on remuneration As the Chief Executive position remained vacant for a significant portion of 2016, as well as for most of 2015, it is not possible it is not possible of 2015, for most well as as a significant portion of 2016, for vacant remained position As the Chief Executive requirement. this disclosure for analysis year-on-year meaningful provide to of spend on pay importance Relative Percentage change in CEO remuneration compared to the average for other employees for the average to compared remuneration in CEO change Percentage 66 888 HOLDINGS PLC ANNUAL REPORT & ACCOUNTS 2016

DIRECTORS’ REMUNERATION REPORT continued

Committee members, attendees and advice The Remuneration Committee consists solely of Non-executive Directors, currently Amos Pickel (Chair) and Ron McMillan. Details of attendances at Committee meetings are contained in the statement on Corporate Governance on page 50. The Chairman and Company Secretary attend meetings by invitation.

The Remuneration Committee’s remit includes such matters as:

♦♦ Determining and agreeing with the Board the remuneration policy with regard to 888’s Chairman, Chief Executive Officer, Chief Financial Officer and other members of the executive management;

♦♦ Regularly reviewing the ongoing appropriateness and relevance of 888’s remuneration policy;

♦♦ Setting and monitoring performance criteria for bonus arrangements operated by 888 ensuring that they represent achievable and motivating rewards for appropriate levels of performance and, where appropriate, are justifiable taking into account 888’s and Group’s overall performance and the corresponding return on shareholders’ investment in the same period;

♦♦ Recommending to the Board the policy for and scope of pension arrangements for the Executive Directors; and

♦♦ In relation to 888’s share option and share award schemes, setting or recommending vesting criteria which are appropriate in terms of 888’s performance and return on shareholders’ investment over the same period.

The formal terms of reference of the Remuneration Committee are available on 888’s corporate website, corporate.888.com.

Remuneration Committee adviser The Remuneration Committee is advised by New Bridge Street, a trading name of Aon Hewitt, being a subsidiary of Aon plc. New Bridge Street was appointed by the Remuneration Committee in 2007. New Bridge Street has discussions with the Remuneration Committee Chairman regularly on Committee process and topics which are of particular relevance to 888.

The primary role of New Bridge Street is to provide independent and objective advice and support to the Committee’s Chair and members. In order to manage any possible conflict of interest, New Bridge Street operates as a distinct business within the Aon Group and there is a robust separation between the business activities and management of New Bridge Street and all other parts of Aon Hewitt and the wider Aon Group. The Committee is satisfied that the advice that it receives is objective and independent. New Bridge Street is also a signatory to the Remuneration Consultants Group Code of Conduct which sets out guidelines for managing conflicts of interest, and has confirmed to the Committee its compliance with the Remuneration Consultants Group Code.

The total fees paid to New Bridge Street in respect of its services to the Committee for the year ending 31 December 2016 were £11,730 (2015: £57,721). Fees are charged on a “time spent” basis.

Engagement with shareholders Details of votes cast for and against the resolution to approve last year’s Remuneration Report and the Remuneration Policy, are shown below.

Advisory Vote to approve Advisory Vote to approve Directors’ Remuneration Policy Annual Report on Remuneration Total number Total number of votes % of votes cast of votes % of votes cast For 278,617,899 94.60% 291,087,062 99.28% Against 15,900,728 5.40% 2,115,145 0.72% Vote withheld 37,443 — 1,353,863 —

Approved by the Board of Directors and signed on behalf of the Board:

AMOS PICKEL Chairman of the Remuneration Committee 21 March 2017 STRATEGIC REPORT GOVERNANCE FINANCIAL STATEMENTS 67 ANNUAL REPORT & ACCOUNTS 2016 ACCOUNTS & REPORT ANNUAL

888 HOLDINGS PLC HOLDINGS 888

The complex legal and regulatory environment in which 888 operates, together with changes in laws and regulations and regulations with changes in laws together in which 888 operates, environment legal and regulatory complex The and market. sector business, impact 888’s which may jurisdictions. and gaming duties in various tax, VAT corporation to exposure 888’s statements. in the financial disclosures and related of goodwill and other intangible assets carrying value The and controls. IT systems of 888’s adequacy The on which management relies. controls and systems of the adequacy The management. by prepared of risk and the risk register assessment Board’s The management. by prepared statement and going concern viability statement The obligations. and human trafficking anti-slavery 888’s anti-bribery obligations. 888’s laundering obligations. anti-money 888’s

♦ ♦ ♦ ♦ ♦ ♦ ♦ ♦ ♦ ♦ AUDIT COMMITTEE REPORT COMMITTEE AUDIT RON MCMILLAN RON LETTER TO SHAREHOLDERS TO LETTER Chairman of the Audit Committee Chairman of the Audit ♦ ♦ ♦ ♦ ♦ ♦ ♦ ♦ ♦ ♦ set out below are discharged are and the manner in which they responsibilities on the Committee’s Further information corporate.888.com. website corporate on 888’s available and are colleague thank my to like and would questions any answer to 2017 meeting in May the Annual General at I will be available his help and support. for on the Committee Sincerely, The Audit Committee exercises oversight of 888’s financial reporting policies, monitors the integrity of the financial statements statements of the financial the integrity reporting policies, monitors financial of 888’s oversight exercises Committee Audit The It statements. preparing the financial and judgments applied in estimates accounting financial and the significant and considers an independent auditors external the and obtains from appropriate are statements in the financial disclosures that also ensures and of this Annual Report end the front at the narrative has reviewed Committee and risks. The issues disclosure of the key view of the account and understandable balanced fair, a shareholders to give provided has been sufficient information that considers business. Company’s on considered all significant risks are that ensure to with the Board closely works the Committee its objectives, achieve To considered. properly are shareholders with all communications an ongoing basis, and that audits. and external of internal and effectiveness nature the scope, review is to of the Committee responsibility A key with both management and the Audit is agreed of their work and the scope Deloitte by conducted is audit work Internal EY. by which is conducted audit, external aspects of 888’s the key and reviews also monitors Committee The Committee. responsibilities appropriate and that been identified these have that ensures the Committee risks and controls, to In relation been set. have and accountabilities considered: the Committee during the year other things, Amongst Dear shareholders, 68 888 HOLDINGS PLC ANNUAL REPORT & ACCOUNTS 2016

AUDIT COMMITTEE REPORT continued

Committee composition Activities The Committee comprises two members, Senior Independent The key matters discussed by the Committee during the year Director Ron McMillan and Independent Non-executive Director included the following: Amos Pickel. Legal and regulatory environment Two members constitute a quorum. The Committee 888 operates within an increasingly regulated marketplace requires the inclusion of at least one financially qualified and is challenged by regulatory requirements across the Board. member with recent and relevant financial experience. This creates risk for the business as non-compliance can lead The Committee’s Chairman fulfils that requirement. Both to financial penalties, reputational damage and the loss of members of the Committee are expected to have an licences to operate. understanding of financial reporting, 888’s internal control environment, relevant corporate legislation, the functions of The Company manages its regulatory risk with input from its internal and external audit and the regulatory framework of legal advisors and seeks to balance regulatory requirements the business, in addition to competence relevant to the online with those of the business. The Company works with its gaming sector. Amos Pickel has extensive industry experience lawyers to produce regular updates so that the Board and through his various roles in the leisure and gaming industry, Audit Committee understand what is happening in the and Ron McMillan has served in the past as the auditor of regulatory landscape. betting and gaming companies. Details of meetings of the Audit Committee are set out in the Corporate Governance During 2016, the Audit Committee received a detailed Report on page 52. regulatory briefing from the Company’s lawyers and reviewed updates on the management of regulatory risk from The timing of Audit Committee meetings is set to management, as well as reviewing the status of litigation accommodate the dates of release of financial information at involving 888 and the accounting for 888’s obligations in the the half year and full year ends and the approval of scope and financial statements. outputs from work programmes executed by the internal and external auditors. Taxation The Board oversees and sets the Company’s tax strategy and In addition to scheduled meetings, the Chairman of the evaluates tax risk. In undertaking this task the Company uses Committee met with the Chief Financial Officer and the its legal advisors and receives reports from its external auditors internal and external auditors on a number of occasions. on its audit work. During the year, the Company’s legal advisors Although not members of the Committee, the Chairman, have kept the Audit Committee apprised of both existing and Chief Executive Officer and Chief Financial Officer normally emerging tax risks and, where appropriate, these have been attend meetings together with representatives from the elevated to the Board for consideration in conjunction with internal and external auditors. 888’s commercial strategy.

Responsibilities In 2016, the Board and Audit Committee again received a The committee is responsible for: detailed tax briefing from the Company’s lawyers regarding tax, VAT and gaming duty obligations to which the Group may ♦♦ Monitoring the integrity of 888’s financial statements and be exposed. The Committee noted that the Group registered reviewing significant financial judgments and estimates in for taxes in relevant jurisdictions in order to ensure timely advance of these being considered by the Board; reporting and payment on the correct basis in the appropriate jurisdictions, whilst reserving its position concerning contesting ♦♦ Reviewing internal financial controls and management’s its liability in appropriate cases. Uncertainty remains as to response to required corrective actions identified in both whether VAT is due in respect of certain services provided by internal and external audit reports; 888 to customers in some EU Member States prior to 2015. However, based on a legal assessment, the Board and the ♦♦ Monitoring and reviewing the role and effectiveness of the Committee again concluded that it is unlikely that any liability internal audit function, including activities and resources; will arise and again decided not to record any liability in the financial statements. ♦♦ Overseeing the role and effectiveness of the external auditors, reviewing and monitoring their objectivity and For further information, see notes 8 and 26 to the independence and agreeing the scope of work and fees for financial statements. audit and non-audit services; and

♦♦ Assisting the Board in its consideration of relevant risk factors and determining appropriate mitigation actions. STRATEGIC REPORT GOVERNANCE FINANCIAL STATEMENTS 69 ANNUAL REPORT & ACCOUNTS 2016 ACCOUNTS & REPORT ANNUAL

888 HOLDINGS PLC HOLDINGS 888 The accounting principles, policies and practices adopted adopted policies and practices principles, accounting The in the reports; disclosures of related and the adequacy and judgments estimates issues, accounting significant The reporting; financial to of management in relation arising required were adjustments significant Whether any the audit; from the and tax obligations with statutory Compliance tax policy; Company’s Report set out in the Strategic Whether the information clear and concise comprehensive, balanced, was aspects of and negative both positive and covered and performance; measures” performance Whether the use of “alternative IFRS measures. obscured Reviewing the going concern position of 888 and concern the going Reviewing set out on page 35. Statement the Viability Making recommendations to the Board in respect of in respect the Board to Making recommendations matters. respect of all of the above its findings in Reporting to the Board on how it has discharged it has discharged on how the Board to Reporting its responsibilities. Overseeing the management of the Company’s the management of the Company’s Overseeing for procedures which contain procedures whistleblowing complaints and in confidence, receive, to the Committee matters. on all operational notifications Meeting with internal and external auditors, both with and auditors, and external Meeting with internal Directors. of the Executive in the absence Reviewing the draft interim and annual reports and annual reports interim the draft Reviewing and considering: 1. 2. 3. 4. 5. 6. ♦ ♦ ♦ ♦ ♦ ♦ ♦ the by undertaken the processes that considers Board The and robust be appropriately to continue Committee Audit the by issued the guidance with and in compliance effective has the Board During the year, Council. Financial Reporting nor identified of, Committee the Audit not been advised by control in internal or weaknesses frauds failings, any itself, of the in the context be material to which it has determined statements. financial controls internal appropriate that believes Committee The 888 has a well-defined that the Group, through in place are and a with clear lines of responsibility structure organisational also Committee The system. reporting financial comprehensive on with the FRC Guidance complies the Company that believes Financial and and Related Control Risk Management, Internal Reporting. Business ♦ ♦ ♦ ♦ In addition to the matters described above, the work of the the work described above, the matters In addition to included: during the year Committee ♦ The risks and impact they may have may risks and impact they The risks mitigate to Actions implications and the likelihood highlight to Risk scores of occurrence risks of owners The mitigate. actions to for dates Target The Board has overall responsibility for ensuring that the ensuring that for responsibility has overall Board The control. of internal a sound system maintains Company control of internal system in any limitations inherent are There material against assurance absolute can provide and no system guarantee can system no Equally, or failure. loss misstatements, of objectives meet the to of the risk of failure elimination has the Committee this background, Against the business. and maintain an approach develop help the Board to continued and risk appetite risk management which incorporates to within which risk is managed and the framework tolerance, application pertaining to and procedures the responsibility of the policy. and corporate in ensuring that is proactive Company The by and managed identified, assessed risks are operational is risk register A corporate identifying suitable controls. maintained which details: 1. 2. 3. 4. 5. A description of the principal risks is set out on pages 27 30. to robust it has carried out a that confirmed has Board The 888, including those of the principal risks facing assessment performance, model, future its business which threaten or liquidity. solvency Internal controls and risk management controls Internal IT systems developed and in the main are complex are IT systems 888’s on the relies of the business success The in house. and innovative which are of IT platforms development and security In addition, the integrity customers. appealing to standpoint. a commercial vital from are of the IT systems has reviewed Committee the Audit During the year, security and disaster management on data from reports a reviewed planning. In addition, the Committee recovery the IT regarding auditor external of the Company’s report environment. control As set out in note 11 to the consolidated financial statements, statements, financial the consolidated 11 to As set out in note goodwill and other intangible assets 888 has significant and the development of businesses the acquisitions to relating and software. of gaming platforms forecasts the cash flow reviewed Committee Audit The and other intangible of goodwill value supporting the carrying and and estimates, assumptions including the key assets relation in required were no impairments itself that satisfied of the addition, the appropriateness In values. carrying to of gaming the development to relating of costs capitalisation reports in light of reviewed was and software platforms auditor. management and the external from received Goodwill and intangible assets assets Goodwill and intangible 70 888 HOLDINGS PLC ANNUAL REPORT & ACCOUNTS 2016

Performance of Audit Committee Non-audit work The Audit Committee’s performance was evaluated as part The Audit Committee remains mindful of the attitude investors of the Board evaluation carried out during 2016, as detailed have to the auditors performing non-audit services, and has on page 51. updated its approach in light of the UK auditor independence rules which are now operative. The Committee monitors the Internal auditors appointment of the auditors for any non-audit work involving The Company’s internal audit function is outsourced to fees above US$0.1 million, with a view to ensuring that non- Deloitte. The Audit Committee reviewed and modified the audit work does not compromise the Company’s auditors internal audit plan in accordance with the principal risks objectiveness and independence. From 2016, the Committee to 888’s business as set out in the Risk Register. It has also has committed to ensure that fees for non-audit services reviewed reports from Deloitte in relation to all internal audit performed by the auditors will not exceed 70% of aggregate work carried out during the year and monitored response and audit fees measured over a three year period, and the US$0.1 follow up by management to internal audit findings. In the million threshold will no longer apply. past three years, the internal auditors have reviewed various aspects of 888’s customer services and business operations, In 2016, the external auditors carried out non-audit work finance, B2B and B2C activities, product technologies, human for 888 involving fees in the aggregate amount of US$0.3 resources, global operations and regulation. In 2016, Deloitte million (2015: US$3.4 million, out of which US$3.3 million was issued reports on payroll audits (various locations), customer associated with the proposed acquisition of bwin.party digital credits, software licences management, treasury and PSPs, entertainment plc). The non-audit work carried out in 2016 change management, insurance, and procurement. Whilst no included audit-related and IT assurance work and corporate critical issues were identified by Deloitte, a number of matters finance services relating to the proposed transaction between were identified which required modifications to procedures the Company, William Hill plc and Rank Group plc which and improved controls which either have been or are being eventually did not proceed. With regard to the latter services, implemented by management. The Committee has evaluated information barriers were implemented between the EY team the performance of Deloitte and has concluded that they involved in audit of the Company’s financial statements and provide constructive challenge and consistently demonstrate the independent team which were separately engaged to carry a realistic and commercial view of the business. out the review of the proposed transaction. The Board took the decision to engage EY for the corporate finance work in light External auditors of the cost effectiveness and timing benefits to the Company EY has been the Company’s external auditor since their given EY’s familiarity with the online gaming industry. Going appointment in 2014. The partners responsible for the external forward and in line with the Board’s policy the Committee audit are Jose Julio Pisharello, a partner in EY’s Gibraltar will ensure that fees for non-audit services performed by the office, and Cameron Cartmell, a partner in EY’s London auditors will not exceed 70% of aggregate audit fees measured office. Jose Julio and Cameron have been responsible for the over a three year period. audit since EY was appointed. The Committee has reviewed the performance of EY, a process which involved all Board members and senior members of 888’s finance function. The conclusions reached were that EY continued to perform the external audit in a very professional and efficient manner, and it was therefore the Committee’s recommendation that the reappointment of EY be put to shareholders at the Annual General Meeting in May 2017. If reappointed, EY will hold office until the conclusion of the next Annual General Meeting at which accounts are laid. Given EY’s short tenure to date, the Board has no present plans to consider an audit tender process.

The Committee reviewed the reports prepared by the external auditors (EY) on key audit findings and any significant deficiencies in the financial control environment, as well as the recommendations made by EY to improve processes and controls together with management’s responses to those recommendations. EY did not highlight any significant internal control weaknesses and management has committed to making appropriate changes to controls in areas highlighted by EY. STRATEGIC REPORT GOVERNANCE FINANCIAL STATEMENTS 71 ANNUAL REPORT & ACCOUNTS 2016 ACCOUNTS & REPORT ANNUAL

888 HOLDINGS PLC HOLDINGS 888 The components where we performed full audit procedures full audit procedures performed we where components The profit revenue, of the Group’s the entirety for accounted assets. tax and total before of US$3.2 million, which represents materiality Group Overall items. exceptional tax and before 5% of profit Capitalisation of development costs of development Capitalisation financial information the complete an audit of performed We and the one being a subsidiary in Israel components, of two of the Group. other being the remainder Revenue recognition Revenue Taxation Regulatory and legal risks Regulatory ♦ ♦ ♦ ♦ ♦ ♦ ♦ ♦ ♦ ♦ ♦ ♦ ♦ ♦ Company 2016 31 December as at sheet balance Company then ended the year in equity for of changes statement Company year then ended for the of cash flows statement Company statements the financial 10 to 1 to notes Related

888 Holdings plc’s Group financial statements and Company financial statements (the ‘financial statements’) give a true statements’) (the ‘financial statements financial Company and statements financial Group 888 Holdings plc’s profit and of the Group’s 2016 31 December as at affairs and of the Company’s of the Group’s of the state view and fair then ended; the year for Standards Reporting Financial with International in accordance prepared been properly have statements financial the Group Union; the European by (‘IFRSs’) as adopted Union by the European with IFRSs as adopted in accordance prepared been properly have statements financial the Company and 2014; Act Companies of the Gibraltar with the provisions and as applied in accordance and, Act 2014 Companies of the Gibraltar requirements with the in accordance been prepared have statements the financial Regulation. IAS Article 4 of the statements, financial the Group as regards

♦ ♦ ♦ ♦ INDEPENDENT AUDITORS’ REPORT AUDITORS’ INDEPENDENT OVERVIEW OF OUR AUDIT APPROACH AUDIT OUR OF OVERVIEW WHAT WE HAVE AUDITED HAVE WE WHAT OPINION ON FINANCIAL STATEMENTS FINANCIAL ON OPINION Materiality Audit scope Audit Risks of material misstatement Risks of material 888 Holdings plc’s financial statements comprise: statements financial 888 Holdings plc’s Group The financial reporting framework that has been applied in their preparation is applicable law and IFRSs as adopted and IFRSs as adopted is applicable law has been applied in their preparation that reporting framework financial The with the provisions as applied in accordance statements, financial the Company Union and, as regards the European by 2014. Act Companies of the Gibraltar Consolidated income statement for the year ended the year for statement income Consolidated 2016 31 December income of comprehensive statement Consolidated then ended the year for 2016 31 December sheet as at balance Consolidated of changes in equity statement Consolidated then ended the year for year then ended for the of cash flows statement Consolidated statements the financial 26 to 1 to notes Related ♦ ♦ ♦ ♦ In our opinion: to the members of 888 Holdings plc 888 Holdings of the members to 72 888 HOLDINGS PLC ANNUAL REPORT & ACCOUNTS 2016

INDEPENDENT AUDITORS’ REPORT continued

OUR ASSESSMENT OF RISK OF MATERIAL MISSTATEMENT AND RESPONSE TO THAT RISK We identified the risks of material misstatement described below as those that had the greatest effect on our overall audit strategy, the allocation of resources in the audit and the direction of the efforts of the audit team. In addressing these risks, we have performed the procedures below which were designed in the context of the financial statements as a whole and, consequently, we do not express any opinion on these individual areas.

What we concluded Risk Our response to the risk to the Audit Committee Regulatory and legal risks ♦♦ Given the industry and jurisdictions ♦♦ We understood the Group’s process Based on our audit procedures on the in which the Group operates, and related controls over the Group’s accounting conclusions in each as described in the Principal Risks identification and mitigation of of its major jurisdictions, we concluded and Uncertainties on page 27, there regulatory and legal risks and the that the accruals for amounts payable to is a risk that the Group will operate related accounting, and assessed regulatory authorities are conservative, without an appropriate licence, whether the controls are designed within an acceptable range and that the have an existing licence adversely effectively to achieve this. disclosures in the financial statements affected or be subject to other were appropriate. regulatory sanctions. ♦♦ We inquired of management and the Group’s legal advisers about any ♦♦ Judgement is also applied in known instances of material breaches estimating amounts payable in regulatory or licence compliance to regulatory authorities in certain that needed to be disclosed or jurisdictions. This gives rise to a risk required accruals to be recorded. over the accuracy of accruals and disclosure of contingent liabilities. ♦♦ Based on the Group’s correspondence There is also a risk that management with regulators and any legal advice may influence these significant the Group has received, we understood estimates and judgements in order management’s interpretation and to meet market expectations or application of relevant laws and bonus targets. regulations. With support from our own indirect tax experts, we ♦♦ Refer to the Audit Committee Report challenged the appropriateness of its (page 67; significant accounting assumptions and estimates in relation policies (Note 2 on page 82); and to accruals and contingent liabilities Note 26 to the Consolidated Financial with reference to historical payments Statements (page 111). made by the Group and the period to which any accrued liabilities relate.

Taxation ♦♦ The Group recognised a taxation ♦♦ We discussed with management We concluded that management’s charge of US$7.7 million in 2016 and its legal advisers, with support judgements in relation to the taxation (2015: US$3.0 million) and had income from our tax experts, how the Group charge, provisions for taxation and the tax receivables of US$1.1 million manages and controls the companies related disclosures were appropriate. (2015: US$2.7 million) and payables in countries in which it operates. of US$0.1 million at 31 December 2016 (2015: US$2.8 million). ♦♦ We obtained and read the results of the third party tax studies ♦♦ The Group operates in a number of obtained by the Group and read countries, resulting in complexities in its correspondence with the relevant the payment of and accounting for tax. tax authorities, in order to support The Group faces a risk that given the the tax position of the Group. international nature of its operations, material tax exposures may not be ♦♦ With support from our international appropriately provided or disclosed in tax experts we understood the financial statements. management’s interpretation and application of relevant tax law and, ♦♦ Refer to the Audit Committee Report based on our experience challenged (page 67); significant accounting the appropriateness of its assumptions policies (Note 2 on page 82); and and estimates in relation to provisions Notes 8 and 14 to the Consolidated and contingent liabilities. We also Financial Statements (pages 94 compared the prior year estimate and 101). to amounts actually paid.

♦♦ We considered whether the Group’s disclosure of its tax estimates were in accordance with IFRS requirements. STRATEGIC REPORT GOVERNANCE FINANCIAL STATEMENTS 73 ANNUAL REPORT & ACCOUNTS 2016 ACCOUNTS & REPORT ANNUAL

What we concluded concluded we What Committee the Audit to We concluded that the revenue recognised recognised the revenue that concluded We of its B2B including in respect in the year, of certain and the treatment contracts correct. bonuses, is materially customer the Group’s that concluded We costs of development capitalisation and in appropriate was during 2016 38. with IAS accordance 888 HOLDINGS PLC HOLDINGS 888 We understood and tested the and tested understood We the over controls and key process of internal capitalisation Group’s including its costs, development systems. and purchasing payroll capitalised projects development For of made enquiries we in the year, technical to management with respect to of a sample of projects feasibility met challenge whether the Group 38 for set out in IAS the conditions on a also tested We capitalisation. supplier and sample basis external capitalised. costs payroll internal the impact of the considered We costs of development capitalisation of bonus achievement on the Group’s expectations. and analysts’ targets of the useful lives compared We to costs capitalised development each plans for business the Group’s historical and to project development in the online lives project of experience gaming industry. not are projects where that checked We has been in use and no amortisation yet be to expected still are they charged, and meet the conditions implemented 38. set out in IAS We understood and tested the key the key and tested understood We and manual controls application principal gaming the Group’s over then applied IT-based We systems. re-perform to auditing techniques the between the reconciliation cash and gaming revenue, Group’s also agreed We accounts. customer transactions a sample of revenue cash deposits. customers’ to contractual the Group’s read We how observed and arrangements check to in practice operate they to judgement as management’s operating was whether the Group as a principal or an agent in its B2B in the context with customers, contracts also 18. We in IAS of the guidance of certain challenged the treatment considering by bonuses customer obligations contractual the customer’s provide bonuses to of these in respect services. marketing ♦ ♦ ♦ ♦ ♦ ♦ ♦ Our response to the risk to Our response ♦ ♦ ♦ ♦ ♦ ♦ ♦ The Group capitalised development capitalised development Group The million in 2016 of US$10.6 costs had net US$6.8 million) and (2015: of costs capitalised development 2016 December 31 US$28.8 million at US$26.5 million). (2015: associated of costs capitalisation The of the Group’s with the development with the in accordance systems, set out in IFRS, involves criteria significant management judgement for of focus an area and is therefore are costs is a risk that our audit. There affecting capitalised inappropriately, is also There profitability. the Group’s override management may a risk that the significant influence to controls of the judgements in respect costs of development capitalisation expectations meet market to in order or bonus targets. the significant accounting to Refer 2 on page 82); and policies (Note Financial the Consolidated 11 to Note (pages 96 and 97). Statements The Group recognised revenue revenue recognised Group The million in 2016 of US$520.8 million). US$462.1 (2015: a number of makes Group The revenue, judgements in recognising of whether the principally in respect a principal or an is acting as Group and agent with its B2B customers bonuses customer whether certain as a deduction from treated are inappropriate Any as a cost. or revenue in a material result judgements could and operating of revenue misstatement risk that is also a There expenses. to controls override management may the significant judgements in influence in order recognition of revenue respect expectations. market meet to the significant accounting to Refer 2 on page 82); and policies (Note Financial the Consolidated 3 to Note 89). (page Statements ♦ ♦ ♦ ♦ ♦ ♦ Risk Capitalisation of development costs of development Capitalisation Revenue recognition Revenue ♦ ♦ ♦ ♦ ♦ ♦ The above risk areas are consistent with those in the prior year other than that the classification and presentation of exceptional exceptional of and presentation the classification other than that with those in the prior year consistent are risk areas above The items exceptional reduction in a significant following their quantum. However, audit given our 2015 for of focus an area was items of audit effort a significant proportion no longer constitutes million), auditing this area US$23.0 (2015: US$3.9 million in 2016 to statements. financial the consolidated 5 to described in note are items exceptional Group’s The or audit strategy. 74 888 HOLDINGS PLC ANNUAL REPORT & ACCOUNTS 2016

INDEPENDENT AUDITORS’ REPORT continued

AN OVERVIEW OF THE SCOPE OF OUR AUDIT Tailoring the scope Our assessment of audit risk, our evaluation of materiality and our allocation of performance materiality determine our audit scope for each entity within the Group. Taken together, this enables us to form an opinion on the consolidated financial statements. We take into account size, risk profile, the organisation of the group and effectiveness of group-wide controls, changes in the business environment and other factors such as recent internal audit results when assessing the level of work to be performed at each entity.

The Group operates from a small number of locations and as an online gaming operator the Group’s accounting is centrally managed. In assessing the risk of material misstatement to the Group financial statements, we determined that there were two components, one being a subsidiary in Israel and the other being the remainder of the Group.

We performed an audit of the complete financial information of both of these components (“full scope”). The components we audited therefore account for the entirety of the Group’s revenue, profit before tax and total assets. This is consistent with our approach in the prior year.

Involvement with component teams In establishing our overall approach to the Group audit, we determined the type of work that needed to be undertaken at each of the components by us, as the Group audit team, or by component auditors from other EY global network firms operating under our instruction. The Israeli subsidiary was subject to a full scope audit by a component team in Israel and the remainder of the Group was audited directly, as a full scope audit, by the Group audit team.

The Group audit team performed the majority of its audit fieldwork in Israel and Gibraltar, with visits to both locations at the planning, interim and year end phases of the audit.

During these visits the Group audit team attended audit planning and closing meetings, the Group’s Audit Committee meetings and conducted and reviewed audit work. For the Israeli subsidiary, in addition to the location visits the Group audit team interacted regularly during the various stages of the audit, reviewed key working papers, participated in the component team’s planning, including its discussion of fraud and error and were responsible for the scope and direction of the audit process. The allocation of responsibilities between the Group audit team and the Israeli component team was such that the audit work on each of the areas of risk described above was led by the Group audit team. This, together with the procedures performed at Group level, gave us appropriate evidence for our opinion on the Group financial statements.

OUR APPLICATION OF MATERIALITY We apply the concept of materiality in planning and performing the audit, in evaluating the effect of identified misstatements on the audit and in forming our audit opinion.

Materiality “The magnitude of an omission or misstatement that, individually or in the aggregate, could reasonably be expected to influence the economic decisions of the users of the financial statements. Materiality provides a basis for determining the nature and extent of our audit procedures.”

We determined materiality for the Group to be US$3.2 million (2015: US$2.7 million), which is approximately 5% (2015: 5%) of profit before tax and exceptional items.

We believe that profit before tax, adjusted for the exceptional items described below, provides us with a consistent year on year basis for determining materiality and is the most relevant performance measure to the stakeholders of the Group. The increase from the prior year predominately reflects continued growth achieved by the Group.

In calculating materiality, we excluded the effects of certain non-recurring exceptional items from profit before tax. For 2016, these related to the exceptional acquisition costs of US$0.9 million and exceptional retroactive duties and associated charges of US$3.0 million, as highlighted in Note 5 to the consolidated financial statements.

During the course of our audit, we reassessed initial materiality and adjusted our materiality to reflect the reported profit before tax and exceptional items. STRATEGIC REPORT GOVERNANCE FINANCIAL STATEMENTS 75

ANNUAL REPORT & ACCOUNTS 2016 ACCOUNTS & REPORT ANNUAL

888 HOLDINGS PLC HOLDINGS 888 OPINION ON OTHER MATTER PRESCRIBED BY THE GIBRALTAR COMPANIES ACT 2014 ACT COMPANIES GIBRALTAR THE BY PRESCRIBED MATTER OTHER ON OPINION RESPECTIVE RESPONSIBILITIES OF DIRECTORS AND AUDITORS AND DIRECTORS OF RESPONSIBILITIES RESPECTIVE SCOPE OF THE AUDIT OF THE FINANCIAL STATEMENTS FINANCIAL THE OF AUDIT THE OF SCOPE In our opinion the information given in the Strategic Report and the Directors’ Report for the financial year for which the financial year the financial for Report and the Directors’ Report in the Strategic given In our opinion the information Act. with the in accordance prepared and has been properly statements with the financial is consistent prepared are statements As explained more fully in the Directors’ Statement of Responsibilities set out on page 46, the Directors are responsible for for responsible are set out on page 46, the Directors of Responsibilities Statement fully in the Directors’ more As explained are also The directors fair view. a true and give they that for being satisfied and statements of the financial the preparation being under no prepare, chosen to have which they Report, Remuneration of the Directors’ the preparation for responsible on going and statement Statement Governance of the Corporate and the preparation law, Gibraltar do so under to obligation in accordance statements an opinion on the financial audit and express is to Rules. Our responsibility under the Listing concern with the comply us to require standards Those (UK and Ireland). on Auditing Standards and International with applicable law Auditors. for Ethical Standards Board’s Practices Auditing and 2014 Act Companies with the Gibraltar in accordance members, as a body, the Company’s solely to is made report This 2015. 30 November dated our engagement letter required are we members those matters the Company’s to might state we so that has been undertaken Our audit work or do not accept we law, by permitted extent the fullest To no other purpose. and for report them in an auditor’s to state to this for our audit work, for members as a body, and the Company’s other than the Company anyone to responsibility assume formed. have the opinions we or for report, An audit involves obtaining evidence about the amounts and disclosures in the financial statements sufficient to give reasonable to give sufficient statements in the financial about the amounts and disclosures obtaining evidence An audit involves This includes an or error. by fraud whether caused misstatement, material from free are statements the financial that assurance been and have circumstances and the Company’s the Group’s to appropriate policies are of: whether the accounting assessment by the directors; made estimates of significant accounting the reasonableness disclosed; applied and adequately consistently in information the financial and non-financial read all we In addition, statements. of the financial presentation and the overall to identify any and statements financial with the audited inconsistencies identify material to and Accounts the Annual Report the us in by acquired knowledge with, the inconsistent based on, or materially incorrect materially is apparently that information the consider we or inconsistencies misstatements material apparent of any aware become the audit. If we of performing course our report. for implications We agreed with the Audit Committee that we would report to them all uncorrected audit differences in excess of US$160,000 of US$160,000 in excess audit differences all uncorrected them to report would we that Committee with the Audit agreed We in our view that, threshold that below as differences as well 5% of planning materiality, which is set at US$135,000), (2015: grounds. on qualitative reporting warranted and in light above discussed of materiality measures the quantitative both against misstatements uncorrected any evaluate We our opinion. in forming considerations qualitative of other relevant Reporting threshold Reporting “An amount below which identified misstatements are considered as being clearly trivial.” “The applicationlow of level materiality the probability at the individual that our judgement environment, control overall of the Group’s our assessment with together risk assessments, On the basis of our the aggregate account million). US$1.35 (2015: namely US$2.4 million 50%) of our planning materiality, (2015: 75% was materiality performance or that was of balance uncorrected a reduction indicates of the audit that level. experience our past due to 75% 50% to from materiality our performance increased We andIt is setundetected at an and uncorrected. both corrected in the risk of misstatements, amount misstatements to reduce exceedsto an accounts statement appropriately financial significant over the purpose of obtaining audit coverage materiality.” subsidiary for the Israeli at work Audit is component that set for materiality performance The materiality. performance of total on a percentage based is undertaken component. that at of the risk of misstatement as a whole and our assessment the Group scale and risk to based on its relative million). US$0.6 US$1.3 million (2015: subsidiary was the Israeli to allocated materiality the performance year, In the current materiality. using Group undertaken was of the Group on the remainder audit work The Performance materiality Performance 76 888 HOLDINGS PLC ANNUAL REPORT & ACCOUNTS 2016

INDEPENDENT AUDITORS’ REPORT continued

OPINION ON OTHER MATTERS AS PER THE TERMS OF OUR ENGAGEMENT WITH THE COMPANY In our opinion:

♦♦ the information given in the Corporate Governance Statement with respect to internal control and risk management systems in relation to financial reporting processes and share capital structures is consistent with the financial statements; and

♦♦ the section of the Directors’ Remuneration Report that is described as audited has been properly prepared in accordance with the basis of preparation described therein.

MATTERS ON WHICH WE ARE REQUIRED TO REPORT BY EXCEPTION

ISAs (UK and Ireland) We are required to report to you if, in our opinion, financial and We have no exceptions reporting non-financial information in the Annual Report and Accounts is: to report.

♦♦ materially inconsistent with the information in the audited financial statements; or

♦♦ apparently materially incorrect based on, or materially inconsistent with, our knowledge of the Group acquired in the course of performing our audit; or

♦♦ otherwise misleading.

In particular, we are required to report whether we have identified any inconsistencies between our knowledge acquired in the course of performing the audit and the Directors’ statement that they consider the annual report and accounts taken as a whole is fair, balanced and understandable and provides the information necessary for shareholders to assess the entity’s performance, business model and strategy; and whether the annual report appropriately addresses those matters that we communicated to the audit committee that we consider should have been disclosed.

Gibraltar Companies We are required to report to you if, in our opinion: We have no exceptions Act 2014 reporting to report. ♦♦ we have not received all the information and explanations we require for our audit; or

♦♦ there are material misstatements in the Directors’ Report based on our knowledge and understanding of the Company and its environment obtained in the course of the audit.

Listing Rules review We are required to review: We have no exceptions requirements to report. ♦♦ the Directors’ statement in relation to going concern, set out on page 45, and longer-term viability, set out on page 35; and

♦♦ the part of the Corporate Governance Statement relating to the Company’s compliance with the provisions of the UK Corporate Governance Code specified for our review. STRATEGIC REPORT GOVERNANCE FINANCIAL STATEMENTS 77

We have nothing have We add or to material to. attention draw to ANNUAL REPORT & ACCOUNTS 2016 ACCOUNTS & REPORT ANNUAL

(Statutory Auditor) (Statutory 888 HOLDINGS PLC HOLDINGS 888 Jose Julio Pisharello Julio Pisharello Jose For and on behalf of EY Limited, Registered Auditors Registered and on behalf of EY Limited, For Gibraltar 2017 21 March

the Directors’ confirmation in the Annual Report and Accounts that that Accounts Report and in the Annual confirmation the Directors’ of the principal risks assessment carried out a robust have they its business threaten would those that including the entity, facing or liquidity; solvency performance, model, future describe that and Accounts Annual Report in the the disclosures being managed or mitigated; are they how those risks and explain about whether statements in the financial statement the Directors’ basis adopt the going concern to it appropriate considered they of any them, and their identification in preparing of accounting do so to continue ability to the entity’s to uncertainties material approval of the date months from twelve least a period of at over and statements; of the financial as and Accounts in the Annual Report explanation the Directors’ what over of the entity, the prospects assessed have they how to period to that consider they and why done so have period they a have whether they as to and their statement be appropriate, in continue the entity will be able to that expectation reasonable the period due over fall and meet its liabilities as they operation drawing disclosures related including any of their assessment, or assumptions. qualifications necessary any to attention ♦ ♦ ♦ ♦ We are required to give a statement as to whether we have anything anything have whether we as to a statement give to required are We to: in relation to attention draw add or to to material ♦ ♦ ♦ ♦ (Non-Statutory Auditor) (Non-Statutory THE SOLVENCY OR LIQUIDITY OF THE ENTITY THE OF LIQUIDITY OR SOLVENCY THE STATEMENT ON THE DIRECTORS’ ASSESSMENT OF THE PRINCIPAL RISKS THAT WOULD THREATEN THREATEN WOULD THAT RISKS PRINCIPAL THE OF ASSESSMENT DIRECTORS’ THE ON STATEMENT Ernst & Young LLP & Young Ernst London 2017 21 March Cameron Cartmell Cartmell Cameron ISAs (UK and Ireland) (UK and Ireland) ISAs reporting 78 888 HOLDINGS PLC ANNUAL REPORT & ACCOUNTS 2016

CONSOLIDATED INCOME STATEMENT For the year ended 31 December 2016

2016 2015 Note US$ million US$ million Revenue 3 520.8 462.1

Operating expenses (155.1) (146.0) Gaming duties 4 (63.5) (58.4) Research and development expenses (34.3) (36.8) Selling and marketing expenses (170.2) (138.9) Administrative expenses (36.2) (32.5) Exceptional acquisition costs 5 (0.9) (17.5) Exceptional acquisition income 5 — 8.8 Operating profit before exceptional costs and share benefit charge 71.2 62.0 Exceptional items 5 (3.9) (17.1) Share benefit charge 21 (6.7) (4.1) Operating profit 4 60.6 40.8 Finance income 7 0.4 0.3 Finance expenses 7 (1.7) (2.6) Exceptional finance expenses 5 — (5.9) Share of post-tax loss of equity accounted joint ventures and associates 13 (0.1) (0.1) Profit before tax 59.2 32.5 Taxation 8 (7.7) (3.0) Profit after tax for the year attributable to equity holders of the parent 51.5 29.5

Earnings per share 9 Basic 14.4¢ 8.3¢ Diluted 14.1¢ 8.2¢

CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME For the year ended 31 December 2016

2016 2015 Note US$ million US$ million Profit for the year 51.5 29.5 Items that may be reclassified subsequently to profit or loss Exchange differences on translation of foreign operations (0.8) (1.1) Items that will not be reclassified to profit or loss Remeasurement of severance pay liability 6 (0.5) (1.1) Total other comprehensive expense for the year (1.3) (2.2) Total comprehensive income for the year attributable to equity holders of the parent 50.2 27.3

The notes on pages 82 to 111 form part of these consolidated financial statements.

STRATEGIC REPORT GOVERNANCE FINANCIAL STATEMENTS 79 US$ million 2.7 11.2 156.8 2.8 82.4 0.8 1.2 1.1 1.1 9.1 1.6 1.5 0.1 1.9 1.7 3.2 3.2 3.3 2.2 0.7 75.7 157.1 32.9 35.9 222.4 215.1 172.1 171.0 2015 2016 224.1 217.0 178.6 172.6 137.2 139.3 157.3 158.6 162.2 163.6 386.3 380.6 386.3 380.6 214.2 209.6 ANNUAL REPORT & ACCOUNTS 2016 ACCOUNTS & REPORT ANNUAL

US$ million

11 17 17 12 15 18 16 19 16 14 14 888 HOLDINGS PLC HOLDINGS 888 Chief Financial Officer Aviad Kobrine Aviad

CONSOLIDATED BALANCE SHEET SHEET BALANCE CONSOLIDATED and other receivables Trade tax receivable Income Current assets Current Cash and cash equivalents The notes on pages 82 to 111 form part of these consolidated financial statements. financial part of these consolidated 111 form on pages 82 to notes The Itai Frieberger Officer Chief Executive

13 Investments Note

At 31 December 2016 31 December At Total equity and liabilities Total Non-current liabilities Non-current tax liabilities Deferred liabilities Total Assets assets Non-current intangible assets Goodwill and other Property, plant and equipment Property, The consolidated financial statements on pages 78 to 111 were approved and authorised for issue by the Board of Directors of Directors by the Board for issue and authorised approved were to 111 78 on pages statements financial consolidated The behalf by: signed on its and were 2017 on 21 March Equity and liabilities equity holders of the parent to Equity attributable capital Share premium Share earnings Retained equity holders of the parent to attributable equity Total Liabilities liabilities Current and other payables Trade Total assets Total tax payable Income deposits Customer receivables Non-current tax assets Deferred 80 888 HOLDINGS PLC ANNUAL REPORT & ACCOUNTS 2016

CONSOLIDATED STATEMENT OF CHANGES IN EQUITY For the year ended 31 December 2016

Foreign currency Share Share Retained translation capital premium earnings reserve Total US$ million US$ million US$ million US$ million US$ million Balance at 1 January 2015 3.2 1.3 181.1 (0.5) 185.1 Profit after tax for the year attributable to equity holders of the parent — — 29.5 — 29.5 Other comprehensive expense for the year — — (1.1) (1.1) (2.2) Total comprehensive income — — 28.4 (1.1) 27.3 Dividend paid (note 10) — — (53.5) — (53.5) Equity settled share benefit charges (note 21) — — 2.4 — 2.4 Issue of shares to cover employee share schemes (note 17) — 0.9 — — 0.9 Balance at 31 December 2015 3.2 2.2 158.4 (1.6) 162.2 Profit after tax for the year attributable to equity holders of the parent — — 51.5 — 51.5 Other comprehensive expense for the year — — (0.5) (0.8) (1.3) Total comprehensive income — — 51.0 (0.8) 50.2 Dividend paid (note 10) — — (56.6) — (56.6) Equity settled share benefit charges (note 21) — — 6.7 — 6.7 Issue of shares to cover employee share schemes (note 17) — 1.1 — — 1.1 Balance at 31 December 2016 3.2 3.3 159.5 (2.4) 163.6

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. Retained earnings – represents the cumulative net gains and losses recognised in the consolidated statement of comprehensive income and other transactions with equity holders. Foreign currency translation reserve – represents exchange differences arising from the translation of all Group entities that have functional currency different from US$.

The notes on pages 82 to 111 form part of these consolidated financial statements. STRATEGIC REPORT GOVERNANCE FINANCIAL STATEMENTS 81 US$ million 0.3 27.1 0.1 4.1 0.9 32.5 — (1.5) — (2.5) — 0.2 1.1 0.1 2.7 6.7 8.4 8.9 0.4 (1.3) (3.0) (1.8) (0.1) 85.0 68.1 12.9 (5.7) (5.2) 16.8 (2.5) (1.6) (6.0) (9.2) (6.3) (4.6) 91.0 77.3 9.7 10.6 (1.3) (0.8) (0.3) (0.4) 59.2 84.6 55.2 (15.6) (17.8) 2015 2016 (6.8) (10.6) 178.6 172.6 163.1 178.6 (55.5) (52.6) (56.6) (53.5) US$ million

7 7 7 7 11 11 11 17 12 21 15 13 13 18 16 16 19 10 ANNUAL REPORT & ACCOUNTS 2016 ACCOUNTS & REPORT ANNUAL

888 HOLDINGS PLC HOLDINGS 888

15 1

Cash and cash equivalents includes restricted short-term deposits of US$1.1 million (2015: US$3.3 million) (see note 15). note US$3.3 million) (see million (2015: deposits of US$1.1 short-term includes restricted Cash and cash equivalents

CONSOLIDATED STATEMENT STATEMENT CONSOLIDATED OF CASH FLOWS CASH OF Acquisition of property, plant and equipment of property, Acquisition received Interest of intangible assets Acquisition intangible assets generated Internally activities Net cash used in investing Cash generated from operations from Cash generated benefit charges Share Cash flows from financing activities financing from Cash flows schemes share employee cover to of shares Issue Dividends paid Net cash used in financing activities Income tax paid Income activities operating from Net cash generated Cash flows from investing activities investing from Cash flows associates in equity accounted of investment Acquisition Cash flows from operating activities operating from Cash flows tax before Profit for: Adjustments the beginning of the year at Cash and cash equivalents the end of the year at Cash and cash equivalents Net (decrease) increase in cash and cash equivalents increase Net (decrease) and other payables in trade Increase difference exchange Net foreign receivables in trade Increase receivables in other accounts Increase deposits in customer increase (Decrease) derivatives exchange in foreign Decrease and associates joint ventures accounted of equity loss of post-tax Share Amortisation Amortisation income Interest expense Interest Included in net cash generated from operating activities are amounts paid during 2016 in respect of exceptional items items of exceptional in respect amounts paid during 2016 activities are operating from Included in net cash generated million). of US$17.8 net payment million (2015: of US$9.1 statements. financial part of these consolidated 111 form on pages 82 to notes The 1

12 Depreciation Note For the year ended 31 December 2016 ended 31 December the year For 82 888 HOLDINGS PLC ANNUAL REPORT & ACCOUNTS 2016

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

1 GENERAL INFORMATION Company description and activities 888 Holdings Public Limited Company (the “Company”) and its subsidiaries (together the “Group”) was founded in 1997 in the British Virgin Islands and since 17 December 2003 has been domiciled in Gibraltar (Company number 90099). On 4 October 2005, the Company listed on the London Stock Exchange.

The Group is the owner of innovative proprietary software solutions providing a range of virtual online gaming services over the internet, including Casino and games, Poker, Bingo, Sport, Emerging Offerings (comprising Mytopia social games), and brand licensing revenue on third party platforms. These services are provided to end users (“B2C”) and to business partners through its business to business unit, Dragonfish (“B2B”). In addition, the Group provides payment services, customer support and online advertising.

Definitions In these financial statements:

The Company 888 Holdings Public Limited Company. The Group 888 Holdings Public Limited Company and its subsidiaries. Subsidiaries Companies over which the Company has control (as defined in IFRS 10 – Consolidated Financial Statements) and whose accounts are consolidated with those of the Company. Related parties As defined in IAS 24 – Related Party Disclosures. Joint ventures and associates As defined in IFRS 11 – Joint Arrangements and IAS 28 – Investments in Associates and Joint Ventures.

2 SIGNIFICANT ACCOUNTING POLICIES The significant accounting policies applied in the preparation of the consolidated financial statements are as follows:

Basis of preparation The consolidated financial statements of the Group have been prepared in accordance with International Financial Reporting Standards (“IFRSs”), including International Accounting Standards (“IAS”) and Interpretations adopted by the International Accounting Standards Board (“IASB”), endorsed for use by companies listed on an EU regulated market. The consolidated financial statements have been prepared on a historical cost basis, except for available for sale investments and derivative financial instruments, which have been measured at fair value.

The Group has changed its operating segments in the year to reflect a change in the way that the business is managed and reported internally. Sport is now presented separately, having previously been reported in Emerging Offerings. Brand licensing on third party platforms, which was previously included in Emerging Offerings, is now included in the B2B segment. The comparative segment results for the year ended 31 December 2015 have been restated to reflect this change, as described in note 3.

The consolidated financial statements are presented in US Dollars (US$ million) because that is the currency the Group primarily operates in.

The consolidated financial statements comply with the Gibraltar Companies Act 2014.

The significant accounting policies applied in the consolidated financial statements in the prior year have been applied consistently in these consolidated financial statements, with the exception of the amendments to accounting standards adopted during 2016. These are described in more detail below.

The following amendments to IAS, issued by the IASB and adopted by the EU, were effective from 1 January 2016 and have been adopted by the Group during the year with no significant impact on its consolidated results or financial position:

♦♦ Amendments to IAS 1 – Disclosure Initiative.

♦♦ Amendments to IAS 16 and IAS 38 – Clarification of Acceptable Methods of Depreciation and Amortisation.

♦♦ Amendments to IAS 27 – Equity Method in Separate Financial Statements.

♦♦ Amendments to IFRS 10, IFRS 12 and IAS 28 – Investment Entities: Applying the Consolidation Exception.

♦♦ Amendments to IFRS 11 – Accounting for Acquisitions of Interests in Joint Operations.

♦♦ Annual Improvements 2012-2014 Cycle, including minor amendments to IFRS 5 – Non-Current Assets Held for Sale and Discontinued Operations, IFRS 7 – Financial Instruments: Disclosures, IAS 19 – Employee Benefits and IAS 34 – Interim Financial Reporting. STRATEGIC REPORT GOVERNANCE FINANCIAL STATEMENTS 83 ANNUAL REPORT & ACCOUNTS 2016 ACCOUNTS & REPORT ANNUAL

888 HOLDINGS PLC HOLDINGS 888 continued Amendments to IAS 7 – Disclosure initiative (effective for accounting periods beginning on or after 1 January 2017). periods beginning on or after accounting for (effective initiative – Disclosure 7 IAS Amendments to periods accounting for (effective Losses Unrealised for Assets Tax Deferred of – Recognition 12 IAS Amendments to 1 January 2017). beginning on or after periods beginning accounting for in Other Entities (effective of Interests – Disclosure IFRS 12 Process Annual Improvements 1 January 2017). on or after 1 January 2018). periods beginning on or after accounting for (effective IFRS 9 – Financial Instruments 1 January 2018). periods beginning on or after accounting for (effective with Customers Contracts from IFRS 15 – Revenue for accounting (effective Transactions Payment of Share-based and Measurement IFRS 2 – Classification Amendments to 1 January 2018). periods beginning on or after periods beginning on or after accounting for (effective Property of Investment 40 – Transfer IAS Amendments to 1 January 2018). periods accounting for (effective Consideration and Advance Transactions Currency 22 – Foreign IFRIC Interpretation 1 January 2018). beginning on or after for (effective Standards Financial Reporting of International Adoption First-time IFRS 1 – Process Annual Improvements 1 January 2018). periods beginning on or after accounting periods accounting for (effective and Joint Ventures in Associates 28 – Investments IAS Process Annual Improvements 1 January 2018). beginning on or after 1 January 2019). periods beginning on or after accounting for (effective IFRS 16 – Leases Joint Venture or and its Associate an Investor between of Assets 28 – Sale or Contribution IFRS 10 and IAS Amendments to of its pending the outcome of this amendment indefinitely date effective the postponed the IASB 2015, (in December the equity method of accounting). on project research ♦ ♦ ♦ ♦ ♦ ♦ ♦ ♦ ♦ ♦ ♦ ♦ Due to the international nature of the Group and the complexity of tax legislation in the jurisdictions in which it operates, the in the jurisdictions in which it operates, of tax legislation the complexity and of the Group nature the international Due to However, taxes. income for provision and the resultant of tax matters outcome the likely applies judgement in estimating Group jurisdictions from with tax authorities in the key of tax matters on a number agreement reached the Group and early 2016 in 2015 statements. the financial be made in preparing of judgement to the level reduce materially agreements These which it operates. 8. see note further information For appropriate. are tax liabilities for its accruals that believes Group The Taxation Revenue business to services it provides whether it is acting as a principal or an agent where judgement in determining applies Group The each contract examining by considers, unit. In making these judgements the Group business to its business partners through the majority to and is exposed the services providing for partners, which party has the primary responsibility with its business either directly prices, in establishing as if it has latitude as well the services, with providing associated of the risks and rewards set out below. policy accounting is described in further detail in the revenue This or indirectly. Critical accounting estimates and judgments estimates accounting Critical estimates to make the Group requires by the EU under IFRS as adopted statements financial of consolidated preparation The continually and judgements are amounts. Estimates of policies and reported the application affect and judgements that believed are that events of future including expectations and other factors experience based on historical and are evaluated these estimates. from differ may results Actual under the circumstances. be reasonable to and assumptions estimates require consider the Directors that areas policies which cover accounting are Included in this note and liabilities in the future. to the carrying amount of assets adjustment a significant risk of causing a material which have commentary which include further statements, the financial to notes the related to with references policies together These below: can be found made, and judgements of the estimates on the nature ♦ ♦ ♦ ♦ ♦ ♦ ♦ ♦ ♦ ♦ ♦ ♦ The following standards, interpretations and amendments issued by the IASB have not been adopted by the Group as they as they Group the by adopted not been have the IASB by issued and amendments interpretations standards, following The on the and amendments will have the impact these standards assessing currently is Group The year. the for not effective were periods: in future results in, its consolidated and recognition of, presentation 2 SIGNIFICANT ACCOUNTING POLICIES POLICIES ACCOUNTING SIGNIFICANT 2 84 888 HOLDINGS PLC ANNUAL REPORT & ACCOUNTS 2016

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS continued

2 SIGNIFICANT ACCOUNTING POLICIES continued Impairment of goodwill and other intangible assets Determining whether goodwill is impaired requires an estimation of the value in use of the cash-generating units to which the goodwill has been allocated. The value in use calculation requires the entity to estimate the future cash flows expected to arise from the cash-generating unit and a suitable discount rate in order to calculate present value. For further information see note 11.

Internally generated intangible assets Costs relating to internally generated intangible assets, are capitalised if the criteria for recognition as assets are met. The initial capitalisation of costs is based on management’s judgment that technological and economic feasibility criteria are met. In making this judgement, management considers the progress made in each development project and its latest forecasts for each project. Other expenditure is charged to the consolidated income statement in the year in which the expenditure is incurred. Following initial recognition, intangible assets are carried at cost less any accumulated amortisation and any accumulated impairment losses. For further information see note 11.

Contingent liabilities and regulatory matters The Group makes a number of judgements in respect of the accounting for and disclosure of expenses and contingent liabilities for regulatory matters, including gaming duties. These are described in further detail in note 26.

Basis of consolidation The consolidated financial statements include the accounts of the Company and its subsidiaries. The subsidiaries are companies controlled by 888 Holdings Public Limited Company. Control exists where the Company has power over an entity; exposure, or rights, to variable returns from its involvement with an entity; and the ability to use its power over an entity to affect the amount of its returns. Subsidiaries are consolidated from the date the Parent gained control until such time as control ceases.

The financial statements of subsidiaries are included in the consolidated financial statements using the purchase method of accounting. On the date of the acquisition, the assets and liabilities of a subsidiary are measured at their fair values and any excess of the fair value of the consideration over the fair values of the identifiable net assets acquired is recognised as goodwill.

Intercompany transactions and balances are eliminated on consolidation.

The financial statements of subsidiaries are prepared for the same reporting period as the Parent Company and using consistent accounting policies.

Revenue Revenue is recognised provided that it is probable that economic benefits will flow to the Group and the revenue can be reliably measured. Revenue is recognised in the accounting periods in which the transactions occurred after deduction of certain promotional bonuses granted to customers and VAT, and after adding the fees and charges applied to customer accounts, and is measured at the fair value of the consideration received or receivable.

Revenue consists of income from online activities and income generated from foreign exchange commissions on customer deposit and withdrawals and account fees, which is allocated to each reporting segment.

Revenue from online activities comprises:

Casino and Bingo Casino and Bingo online gaming revenue is represented by the difference between the amounts of bets placed by customers less amounts won, adjusted for the fair value of certain promotional bonuses granted to customers and the value of loyalty points accrued.

Poker Poker online gaming revenue represents the commission charged from each poker hand in ring games and entry fees for participation in Poker tournaments less the fair value of certain promotional bonuses and the value of loyalty points accrued. In Poker tournaments entry fee revenue is recognised when the tournament has concluded.

Sport Sport online gaming revenue comprises bets placed less payouts to customers, adjusted for the fair value of open betting positions.

Emerging Offerings Revenue from Emerging Offerings is mainly comprised of Social games. Revenue represents the Group’s share from the sale of virtual goods to customers playing the Group’s games. STRATEGIC REPORT GOVERNANCE FINANCIAL STATEMENTS 85 ANNUAL REPORT & ACCOUNTS 2016 ACCOUNTS & REPORT ANNUAL

888 HOLDINGS PLC HOLDINGS 888 continued Where the Group is considered to be the principal, income is recognised as the gross revenue generated from use of from generated revenue as the gross is recognised principal, income be the to is considered the Group Where expenses. marketing to charged of the revenue activities with the partners’ share in online gaming platform the Group’s platform. use of the Group’s from generated of the net revenue share as the Group is recognised In other cases income partners. to services gaming related of certain the provision from B2B also includes fees earned. are as they liabilities and released within current income as deferred treated are received advances Customer assets and liabilities for each balance sheet presented are translated at the closing rate at the date of that balance sheet; and balance of that the date at the closing rate at translated are sheet presented each balance and liabilities for assets is not this average (unless rate exchange an average at translated are statement each income for and expenses income in which case income dates, on the transaction prevailing of the rates effect of the cumulative approximation a reasonable of the transactions). the dates at translated are and expenses ♦ ♦ ♦ ♦ Revenue derived from brand licensing on third party platforms represents the Group’s net revenue share from that activity. that from share net revenue the Group’s represents party platforms on third licensing brand from derived Revenue For services provided to business partners through its B2B unit, the Group considers whether for each customer it is acting as it is each customer whether for considers unit, the Group its B2B through partners business to provided services For is exposed and the services providing for party has the primary responsibility which considering by a principal or as an agent prices, in establishing as if it has latitude as well the services, with providing associated and rewards the majority of the risks to or indirectly: either directly ♦ ♦ ♦ ♦ ♦ ♦ Taxation Taxation applicable tax rates. based on currently the year for tax payable represents tax expense The sheet differs or liability in the balance amount of an asset the carrying where recognised and liabilities are tax assets Deferred is restricted tax assets of deferred sheet liability method. Recognition using the balance for accounted are They its tax base. from can be utilised. Such the difference which against available will be profits taxable that it is probable where those instances to than (other the initial recognition goodwill or from from arise differences if the temporary not recognised and liabilities are assets nor the accounting profit neither the taxable affects that in a transaction and liabilities of other assets combination) in a business by the enacted substantively or been enacted have that rates using tax or liability is determined of the asset The amount profit. settled/recovered. are tax liabilities/assets apply when the deferred to expected and are sheet date balance Foreign currency currency Foreign are company of the relevant other than the functional currency in currencies and liabilities denominated Monetary assets and liabilities are assets Non-monetary rates. exchange spot foreign using year-end functional currency that into translated currency on foreign differences rate Exchange of the transactions. the dates at prevailing rates using exchange translated as appropriate. statement, income consolidated expenses in the or financial income included in financial are transactions translated US$ are from different a functional currency have entities that financial position of all Group and results The recorded are arising, if any, differences Exchange as set out below. rates exchange foreign at currency the presentation into income. of other comprehensive as a component income comprehensive of statement in the consolidated (i) (ii) Exceptional items Exceptional it allows considers that as the Group exceptional, expense as and of income certain items and presents classifies Group The of underlying a measure to present also seeks The Group of the Group. of the underlying performance reflection a better for the used by and are described as “adjusted” are measures These items. exceptional by is not impacted which performance items non-recurring any considers Group The underlying performance. the Group’s and monitor measure management to exceptional as classified The items and size. by virtue of their nature exceptional as classification for and expense of income 5. in further detail in note described are measures) the adjusted from excluded (and are Administrative expenses Administrative recognised are both of which expenses, professional and corporate costs primarily of staff consist expenses Administrative basis. on an accruals Operating expenses consists primarily of staff costs, payment service providers’ commissions, chargebacks, commission commission chargebacks, commissions, providers’ service payment costs, of staff primarily consists expenses Operating and amortisation. basis, and depreciation on an accruals recognised parties, all of which are third to payable and royalties Operating expenses Operating ♦ ♦ Revenue from B2B is mainly comprised of services provided to business partners and brand licensing on third party platforms. on third licensing partners and brand business to provided of services B2B is mainly comprised from Revenue 2 SIGNIFICANT ACCOUNTING POLICIES POLICIES ACCOUNTING SIGNIFICANT 2 B2B 86 888 HOLDINGS PLC ANNUAL REPORT & ACCOUNTS 2016

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS continued

2 SIGNIFICANT ACCOUNTING POLICIES continued Intangible assets Acquired intangible assets Intangible assets acquired separately consist mainly of software licences and domain names and are capitalised at cost. Those acquired as part of a business combination are recognised separately from goodwill if the fair value can be measured reliably. These intangible assets are amortised over the useful life of the assets, which for software licences is between one and five years and for domain names is five years.

Internally generated intangible assets Expenditure incurred on development activities of gaming platform is capitalised only when the expenditure will lead to new or substantially improved products or processes, the products or processes are technically and commercially feasible and the Group has sufficient resources to complete development. All other development expenditure is expensed. Subsequent expenditure on intangible assets is capitalised only where it clearly increases the economic benefits to be derived from the asset to which it relates. The Group estimates the useful life of these assets as between three and five years, except for certain licence costs which are amortised over either the life of the licence, or up to 20 years, whichever is the shorter period.

Goodwill and business combinations Goodwill represents the excess of the fair value of the consideration in a business combination over the Group’s interest in the fair value of the identifiable assets, liabilities and contingent liabilities acquired. Consideration comprises the fair value of any assets transferred, liabilities assumed and equity instruments issued.

Goodwill is capitalised as an intangible asset with any impairment in carrying value being charged to the consolidated income statement and not subsequently reversed. Where the fair values of identifiable assets, liabilities and contingent liabilities exceed the fair value of consideration paid, the excess is credited in full to the consolidated income statement on the acquisition. Changes in the fair value of the contingent consideration are charged or credited to the consolidated income statement. In addition, the direct costs of acquisition are charged immediately to the consolidated income statement.

Property, plant and equipment Property, plant and equipment is stated at historic cost less accumulated depreciation. Assets are assessed at each balance sheet date for indicators of impairment.

Depreciation is calculated using the straight-line method, at annual rates estimated to write off the cost of the assets less their estimated residual values over their expected useful lives. The annual depreciation rates are as follows:

IT equipment 33% Office furniture and equipment 7-15% Motor vehicles 15% Leasehold improvements Over the shorter of the term of the lease or useful lives

Impairment of non-financial assets Impairment tests on goodwill are undertaken annually and where applicable an impairment loss is recognised immediately in the consolidated income statement. Other non-financial assets are subject to impairment tests whenever events or changes in circumstances indicate that their carrying amount may not be recoverable. Where the carrying value of an asset exceeds its recoverable amount (being the higher of value in use and fair value less costs to sell), the asset is written down accordingly through the consolidated income statement.

Where it is not possible to estimate the recoverable amount of an individual asset, the impairment test is carried out on the asset’s cash generating unit (i.e. the smallest group of assets to which the asset belongs for which there are separately identifiable and largely independent cash inflows). STRATEGIC REPORT GOVERNANCE FINANCIAL STATEMENTS 87 ANNUAL REPORT & ACCOUNTS 2016 ACCOUNTS & REPORT ANNUAL

888 HOLDINGS PLC HOLDINGS 888 continued Cash comprises cash in hand and balances with banks. Cash equivalents are short-term, highly liquid investments that are are that highly liquid investments short-term, are with banks. Cash equivalents cash in hand and balances Cash comprises of three with maturities deposits originally purchased include short-term amounts of cash. They known to convertible readily months or less. Cash and cash equivalents equivalents Cash and cash Derivative financial instruments Derivative to hedge operational contracts currency forward such as financial instruments derivative for contracts into enters Group The carried in value and are fair at measured are instruments financial Such derivative rates. exchange with foreign risks associated gains Any is negative. value and as liabilities when the fair is positive value when the fair sheet as assets balance the consolidated statement. income in the consolidated immediately recorded are of derivatives values changes in the fair arising from or losses Fair value measurement value Fair at each value fair at for sale investments, available and including derivatives instruments, financial certain measures Group The be would that is the price value and 25. Fair 24 included in notes are disclosures related value fair The sheet date. balance for either in the principal market a particular date, participants at market between transaction or paid in an orderly received or liability accessible asset that for market advantageous most in the market, of a principal in the absence or, or liability the asset the Group. to available are which sufficient data and for in the circumstances appropriate are that techniques valuation uses Group The inputs. inputs and minimising the use of unobservable observable maximising the use of relevant value, fair measure to inputs The value. fair measure used to techniques valuation is based on the inputs to hierarchy measurement value fair The prices quoted unadjusted are which there inputs for to 1) given (level level with the highest levels, three into categorised are 2 inputs are inputs. Level unobservable to 3) given (level level or liabilities and the lowest identical assets for markets in active prices. inputs other than quoted observable or indirectly directly Trade receivables are initially recognised at fair value and subsequently measured at amortised cost and principally comprise and principally comprise amortised cost at and subsequently measured value fair at initially recognised are receivables Trade doubtful debts is made when for An estimate companies. e-payment and from companies card credit amounts due from the full that evidence is objective off when there written Bad debts are of the full amount is no longer probable. collection not be collected. amount may Trade receivables receivables Trade Joint ventures are those entities over relevant activities the Group has joint control, established by contractual agreement agreement contractual by established has joint control, activities the Group relevant over those entities are Joint ventures decisions. financial and operating strategic for unanimous consent and requiring over influence significant exercise and is able to interest has a long-term in which the Group those businesses are Associates policies. those over control or joint control policies but does not have the financial and operational Group’s The cost. initially at recognised equity method and are using the for accounted are and associates Joint ventures excess in losses that except statement, income consolidated in the recognised is and losses profits of post-acquisition share good make to is an obligation there unless not recognised are and associates in the joint ventures investment of the Group’s those losses. the to only recognised are or associates ventures and its joint the Group between arising on transactions and losses Profits of the and losses in the profits share investor’s The and associates. in the joint ventures interests investors’ of unrelated extent of the investment. value the carrying against is eliminated these transactions from resulting investment contingent liabilities acquired liabilities and assets, of the identifiable share of the Group’s value the fair paid above premium Any has the investment that evidence is objective there Where amount of the investment. is capitalised and included in the carrying and as other non-financial assets, impairment in the same way for is tested carrying amount of the investment the been impaired statement. income the consolidated to impairments is taken of previous or reversal charge any of net value of the fair share of the Group’s in excess are and associates in joint venture an investment for amounts paid Where immediately. statement income the consolidated to and released goodwill as negative is recognised the excess acquired, assets statement the consolidated to partners is taken other joint venture from of additional equity contributions share Group’s The income. of comprehensive 2 SIGNIFICANT ACCOUNTING POLICIES POLICIES ACCOUNTING SIGNIFICANT 2 Investment in equity accounted joint ventures and associates joint ventures accounted in equity Investment 88 888 HOLDINGS PLC ANNUAL REPORT & ACCOUNTS 2016

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS continued

2 SIGNIFICANT ACCOUNTING POLICIES continued Equity Equity issued by the Company is recorded as the proceeds received from the issue of shares, net of direct issue costs.

Trade and other payables Trade and other payables are initially recognised at fair value and subsequently measured at amortised cost.

Liabilities to customers Liabilities to customers comprise the amounts that are credited to customers’ bankroll (the Group’s electronic “wallet”), including provision for bonuses granted by the Group, less fees and charges applied to customer accounts, along with full progressive provision for jackpots. These amounts are repayable in accordance with the applicable terms and conditions.

Leases Leases are classified as finance leases wherever the terms of the lease transfer substantially all the risks and rewards of ownership to the Group. All other leases are classified as operating leases and rentals payable are charged to the consolidated income statement on a straight-line basis over the term of the lease.

Provisions Provisions are recognised when the Group has a present or constructive obligation as a result of a past event from which it is probable that it will result in an outflow of economic benefits that can be reasonably estimated.

Dividends Dividends are recognised when they become legally payable. In the case of interim dividends to equity shareholders, this is when declared by the Board of Directors and paid. In the case of final dividends, this is when approved by the shareholders at the Annual General Meeting.

Share benefit charges Equity-settled Where the Company grants its employees or contractors shares or options, the cost of those awards, recognised in the consolidated income statement over the vesting period with a corresponding increase in equity, is measured with reference to the fair value at the date of grant. Market performance conditions are taken into account in determining the fair value at the date of grant. Non-market performance conditions, including service conditions, are taken into account by adjusting the number of instruments expected to vest at each balance sheet date so that, ultimately, the cumulative amount recognised over the vesting period is based on the number of instruments that eventually vest.

Cash-settled For transactions treated as cash-settled share benefit charges, the Company recognises an expense in the consolidated income statement and a corresponding liability as the employees render services.

Until the liability is settled, the Company measures the fair value of the liability at each reporting date and at the date of settlement, with any changes in fair value charged or credited to the consolidated income statement.

Severance pay schemes Severance pay scheme surpluses and deficits are measured as:

♦♦ the fair value of plan assets at the reporting date; less

♦♦ plan liabilities calculated using the projected unit credit method, discounted to its present value using yields available for the appropriate government bonds that have maturity dates appropriate to the terms of the liabilities; plus

♦♦ unrecognised past service costs.

Remeasurements of the net severance pay scheme assets and liabilities, including actuarial gains and losses on the scheme liabilities due to changes in assumptions or experience within the scheme and any differences between the interest income and the actual return on assets, are recognised in the consolidated statement of comprehensive income in the period in which they arise.

Financial guarantee contracts Where the Group or Company enters into financial guarantee contracts these are classified as financial liabilities and measured at fair value, by estimating the probability of the guarantees being called upon and the related cash outflows from the Group or Company. STRATEGIC REPORT GOVERNANCE FINANCIAL STATEMENTS 89 0.4 (1.7) (0.1) (7.7) 51.5 75.7 60.6 141.3 217.0 520.8 380.6 380.6 (164.7) Consolidated US$ million 6.3

1 225.3 30.9 60.6 B2B

US$ million

69.4 194.4 ANNUAL REPORT & ACCOUNTS 2016 ACCOUNTS & REPORT ANNUAL

Total B2C Total US$ million

1 2.8 460.2 Emerging 888 HOLDINGS PLC HOLDINGS 888 US$ million Offerings 1 51.9 Sport US$ million 41.8 US$ million 84.4 Bingo Poker US$ million

279.3 Casino US$ million assets liabilities

2 associates corporate corporate corporate

liabilities 3 and income expenses The comparative segment results for the year ended 31 December 2015 have been restated to reflect this change, as described on the this change, reflect to restated been have 2015 ended 31 December the year for segment results comparative The page. following parties, selling and third to payable royalties VAT, gaming duties, commissions, providers’ service payment net of chargebacks, Revenue expenses. marketing amortisation, depreciation, costs, acquisition exceptional expenses, other administrative expenses, professional corporate costs, Including staff charges. duties and associated retroactive exceptional and benefit charges share B2C (Business to Customer): including Casino and games, Poker, Bingo, Sport and Emerging Offering; and Offering; Emerging Sport and Bingo, Poker, including Casino and games, Customer): to B2C (Business to its offers Dragonfish brand. trading under the Dragonfish Gaming Services Total offering Business): to B2B (Business the through services, marketing and advanced E-payments operations, software, partners use of technology, business relationship customer (SEO), engine optimisation search management of affiliates, marketing, of offline/online provision analytics. and business management (CRM) ♦ ♦ Unallocated corporate corporate Unallocated expenses 1 2 3 ♦ ♦ continues team management purposes. The reporting segments for operating of these two has been no aggregation There net of chargebacks, revenue being and segment profit, on revenue segments based of operating the performance assess to expenses. selling and marketing parties, third to payable gaming duties, royalties commissions, providers’ service payment B2C The Group has changed its operating segments in the year to reflect a change in the way that the business is managed and the business that way a change in the reflect to segments in the year has changed its operating Group The licensing Brand Offerings. in Emerging been reported previously having separately, presented Sport is now internally. reported included in the B2B segment. is now Offerings, included in Emerging previously which was party platforms, on third decision maker. the chief operating to provided reporting the internal with consistent in a manner reported are Segmental results Officer Executive comprising mainly the Chief team has been identified as the management decision maker chief operating The are: identified segments The operating Officer. and the Chief Financial 3 SEGMENT INFORMATION SEGMENT 3 Segment revenue 2016 Segment result

Finance Finance Finance Taxation profit Operating loss of post-tax Share joint of equity accounted ventures year for the tax after Profit Assets Unallocated Unallocated liabilities Total assets Total Liabilities Segment 90 888 HOLDINGS PLC ANNUAL REPORT & ACCOUNTS 2016

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS continued

3 SEGMENT INFORMATION continued B2C B2B1 Consolidated

Emerging Casino Poker Bingo Sport1 Offerings1 Total B2C 2015 (restated1) US$ million US$ million US$ million US$ million US$ million US$ million US$ million US$ million Segment revenue 230.6 86.7 44.0 34.8 3.3 399.4 62.7 462.1 Segment result2 181.2 33.4 214.6 Unallocated corporate expenses3 (173.8)

Operating profit 40.8 Finance income 0.3 Finance expenses (2.6) Exceptional financeexpenses (5.9) Share of post-tax loss of equity accounted joint ventures and associates (0.1) Taxation (3.0) Profit after tax for the year 29.5 Assets Unallocated corporate assets 386.3 Total assets 386.3 Liabilities Segment liabilities 68.6 13.8 82.4 Unallocated corporate liabilities 141.7 Total liabilities 224.1

1 The comparative segment results for the year ended 31 December 2015 have been restated to reflect this change. Of the Emerging Offerings revenue of US$41.3 million, US$34.8 million has been classified in the Sport segment and US$3.2 million in the B2B segment. Of the previously reported B2C segment result of US$182.2 million, US$1.0 million relating to brand licensing on third party platforms has been reclassified in the B2B segment result, reducing the B2C segment result to US$181.2 million and increasing the B2B segment result from US$32.4 million to US$33.4 million. 2 Revenue net of chargebacks, payment service providers’ commissions, gaming duties, royalties payable to third parties, selling and marketing expenses. 3 Including staff costs, corporate professional expenses, other administrative expenses, depreciation, amortisation and share benefit charges.

Other than where amounts are allocated specifically to the B2C and B2B segments above, the expenses, assets and liabilities relate jointly to all segments. These amounts are not discretely analysed between the two operating segments as any allocation would be arbitrary.

Geographical information The Group’s performance can also be reviewed by considering the geographical markets and geographical locations within which the Group operates. This information is outlined below:

Revenue by geographical market (based on location of customer) 2016 2015 US$ million US$ million UK 223.2 212.7 Europe (excluding UK) 231.0 178.4 Americas 44.9 48.5 Rest of world 21.7 22.5 Total revenue 520.8 462.1 STRATEGIC REPORT GOVERNANCE FINANCIAL STATEMENTS 91

US$ million US$ million US$ million 3.2 3.3 0.1 0.3 26.0 17.5 170.9 138.9 14.6 8.4 — 0.1 — (8.8) — 5.9 4.1 0.1 3.9 23.0 8.4 8.9 0.2 0.3 3.0 0.9 0.9 9.7 10.6 27.6 58.4 63.5 2015 2016 2015 2016 2015 2016 102.2 101.2 170.2 142.3 144.9 Carrying amount of US$ million US$ million US$ million 21.3 21.2

169.9

non-current assets by location by assets non-current 5 6 11 12 ANNUAL REPORT & ACCOUNTS 2016 ACCOUNTS & REPORT ANNUAL

Note

888 HOLDINGS PLC HOLDINGS 888

4

2

1

1

1 continued

3 duties During the year the Group incurred legal and professional costs of US$0.9 million associated with the subsequently aborted proposal proposal with the subsequently aborted million associated of US$0.9 costs legal and professional incurred the Group During the year legal and professional incurred the Group Hill plc. During 2015 plc and William Rank Group The Group, the between combination potential for plc. digital entertainment of bwin.party acquisition proposed with the subsequently aborted million associated of US$17.5 costs of US$8.8 million income reimbursement received the Group described above, acquisition of the proposed the termination following In 2015, agreement. plc, in line with its contractual digital entertainment bwin.party from plc bwin.party digital entertainment of acquisition connection with the proposed of US$5.9 million in costs finance incurred the Group In 2015, with associated exposure hedge the currency to into entered on derivatives movements value fair represent costs The described above. the transaction. years activity in prior to relating of gaming taxes million in respect of US$3.0 charges duties and associated retroactive Exceptional US$8.4 million). (2015: Selling and marketing expenses reflecting management’s strategic decision to accelerate targeted investment in Casino and Sport marketing Sport marketing in Casino and investment targeted to accelerate decision strategic management’s reflecting expenses Selling and marketing activities during the year. Excludes deferred tax assets of US$1.1 million (2015: US$1.2 million). US$1.2 million (2015: of US$1.1 tax assets deferred Excludes Corporate finance services services finance Corporate services Other assurance Other statutory audits Other statutory statements financial of the consolidated audit Statutory Chargebacks commissions providers’ of service Payment expenses) (within operating Amortisation expenses) (within operating Depreciation

Gaming expenses Selling and marketing

Operating profit is stated after charging: after stated is profit Operating Directors) (including Executive costs Staff

Total non-current assets by geographical location geographical by assets non-current Total Exceptional acquisition income: Reimbursement of acquisition costs of acquisition Reimbursement income: acquisition Exceptional 2 3 4 1 The Group classifies certain items of income and expense as exceptional, as the Group considers that it allows for a better for a better it allows considers that as the Group exceptional, expense as and of income certain items classifies Group The expense and of income items non-recurring considers any The Group of the Group. of the underlying performance reflection and size. by virtue of their nature exceptional as classification for 1 ITEMS EXCEPTIONAL 5

1 PROFIT OPERATING 4

3 SEGMENT INFORMATION INFORMATION SEGMENT 3 Non-current assets by geographical location geographical by assets Non-current Exceptional acquisition costs: Legal and professional costs and professional Legal costs: acquisition Exceptional Exceptional finance costs finance Exceptional Fees payable to EY Limited, Ernst & Young LLP and its affiliates: Young & Ernst Limited, EY to payable Fees costs acquisition exceptional Total Exceptional retroactive duties and associated charges charges duties and associated retroactive Exceptional statement) income (included within gaming duties in the consolidated of world Rest Gibraltar costs exceptional Total 92 888 HOLDINGS PLC ANNUAL REPORT & ACCOUNTS 2016

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS continued

6 EMPLOYEE BENEFITS Staff costs, including Executive Directors’ remuneration, comprises the following elements:

2016 2015 US$ million US$ million Wages and salaries 97.9 96.8 Social security 5.1 4.7 Pension and severance pay scheme costs 7.8 6.6 110.8 108.1 Staff costs capitalised in respect of internally generated intangible assets (9.6) (5.9) 101.2 102.2

In the consolidated income statement total staff costs, excluding share benefit charges of US$6.7 million (2015: US$4.1 million), are included within the following expenditure categories:

2016 2015 US$ million US$ million Operating expenses 56.0 53.8 Research and development expenses 26.7 28.7 Administrative expenses 18.5 19.7 101.2 102.2

The average number of employees by category was as follows:

2016 2015 Number Number Operations 832 800 Research and development 394 377 Administration 129 122 1,355 1,299

At 31 December 2016 the Group employed 1,353 (2015: 1,318) staff.

At 31 December 2016 the Group used the services of 312 chat moderators (2015: 324) and 93 contractors (2015: 97).

Severance pay scheme – Israel The Group’s employees in Israel are eligible to receive certain benefits from the Group in specific circumstances on leaving the Group. As such the Group operates a defined benefit severance pay plan which requires contributions to be made to separately administrated funds.

The current service cost and the present value of the defined benefit obligation are measured using the projected unit credit method.

The following table summarises the employee benefits figures as included in the consolidated financial statements:

2016 2015 US$ million US$ million Included in the balance sheet: Severance pay scheme liability (within trade and other payables) 1.6 2.5 Included in the income statement: Current service costs (within operating expenses) 1.8 1.7 Current service costs (within research and development) 1.7 1.7 Current service costs (within administrative expenses) 0.7 0.6 Included in the statement of comprehensive income: Remeasurement of severance pay scheme liability 0.5 1.1 STRATEGIC REPORT GOVERNANCE FINANCIAL STATEMENTS 93 US$ million US$ million US$ million US$ million (0.3) 1.67 75 0.8 — 0.5 — 2.6 0.5 0.3 0.3 % % — 0.2 1.7 0.1 0.1 2.6 2.3 5.6 3.8 4.3 4.0 0.2 0.8 0.8 1.71 0.4 0.4 5.12 5.12 18.5 15.8 18.8 16.0 (3.2) (2.6) (0.7) 14.6 16.0 (2.6) (3.0) 0.1(0.9) 4.58 4.52 18.5 20.4 2015 2016 2015 2016 2015 2016 2015 2016 2015 2016 US$ million US$ million US$ million US$ million

75

— (0.3)

ANNUAL REPORT & ACCOUNTS 2016 ACCOUNTS & REPORT ANNUAL

888 HOLDINGS PLC HOLDINGS 888

continued differences differences paid paid expense income income expense Inflation rates based on Israeli bonds based on Israeli rates Inflation rate termination Voluntary costs benefits in employee increase Estimated Employees can determine individually into which type of investment their share of the plan assets are invested, therefore therefore invested, are of the plan assets their share which type of investment individually into can determine Employees of asset. in each class invested of the plan assets disclose the proportions accurately to is unable the Group is US$4.3 million. 2017 for contribution expected The below: shown are plan pay severance of the Group’s value the fair used in determining main actuarial assumptions The (nominal) rate Discount

Exchange Exchange end of year At on changes in financial assumptions loss Actuarial Benefits experience gain on past Actuarial Interest Interest costs service Current

Severance pay plan liabilities pay Severance beginning of year At Exchange Exchange end of year At Benefits Benefits recorded already income interest less on assets Return expenses Finance Details of the exceptional finance expenses are included in note 5. included in note expenses are finance Details of the exceptional Interest Interest the Group by Contributions losses exchange Foreign 7 FINANCE INCOME AND FINANCE EXPENSES FINANCE AND INCOME FINANCE 7 income: Finance Interest income Finance Movement in severance pay scheme liability: pay in severance Movement 6 EMPLOYEE BENEFITS BENEFITS EMPLOYEE 6 scheme assets pay Severance beginning of year At Finance expenses: Finance Interest derivatives exchange on foreign movements value Fair 94 888 HOLDINGS PLC ANNUAL REPORT & ACCOUNTS 2016

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS continued

8 TAXATION Corporate taxes 2016 2015 US$ million US$ million Current taxation Gibraltar taxation 1.1 1.3 Other jurisdictions taxation 7.4 4.6 Adjustments in respect of prior years (1.1) (3.9) 7.4 2.0 Deferred taxation Origination and reversal of temporary differences 0.3 1.0 Taxation expense 7.7 3.0

The taxation expense for the year differs from the standard Gibraltar rate of tax. The differences are explained below:

2016 2015 US$ million US$ million Profit before taxation 59.2 32.5 Standard tax rate in Gibraltar (2016: 10%, 2015: 10%) 5.9 3.3 Higher effective tax rate on other jurisdictions 2.1 3.1 Tax on dividends distributed from other jurisdictions 2.9 — Utilisation of previously unrecognised tax losses — (0.1) Expenses not allowed for taxation 1.0 2.4 Non-taxable income (3.4) (2.9) Adjustments to prior years’ tax charges (0.8) (2.8) Total tax charge for the year 7.7 3.0

Current tax is calculated with reference to the profit of the Company and its subsidiaries in their respective countries of operation. Set out below are details in respect of the significant jurisdictions where the Group operates and the factors that influenced the current and deferred taxation in those jurisdictions:

Gibraltar Gibraltar companies are subject to a corporate tax rate of 10%. During 2015, the Group changed certain elements of its tax calculation in Gibraltar, which have been agreed with the tax authorities. These changes resulted in adjustments in respect of prior years in 2015 and have been applied consistently in 2016.

Israel The domestic corporate tax rate in Israel in 2016 is 25% (2015: 26.5%). From 1 January 2017 the rate has been reduced to 24%. Prior to reporting its 2015 results, the Company’s Israeli subsidiary concluded an assessment agreement with respect to all tax years up to and including 2013 and entered into certain transfer pricing agreements with the Israeli Income Tax Commissioner as regards 2014-2015. This agreement resulted in adjustment in respect of prior years in 2015. The tax charge has increased in the current year as a result of tax payable on dividends distributed to 888 Holdings plc.

UK The Group’s subsidiary in the UK is subject to a corporate tax rate of 20% (2015: 20.25%). During the year, in addition to the previously enacted reduction in the UK corporation tax rate to 19% from April 2017, the UK government announced and substantively enacted a further reduction to 17% from April 2020.

STRATEGIC REPORT GOVERNANCE FINANCIAL STATEMENTS 95 359,710,705 US $ million US$ million 4.1 3,581,592 0.1 6.7 0.1 3.9 23.0 51.5 29.5 51.5 29.5 62.2 56.7 56.6 53.5 8.2¢ 14.1¢ 15.9¢ 17.4¢ 15.8¢ 17.0¢ 2015 2016 2015 2016 2015 2016 14.4¢ 8.3¢ 7,789,841 US$ million 356,129,113 358,154,255 356,129,113 358,154,255 US $ million 365,944,096

359,710,705 365,944,096

ANNUAL REPORT & ACCOUNTS 2016 ACCOUNTS & REPORT ANNUAL

888 HOLDINGS PLC HOLDINGS 888

paid earnings per share Diluted Basic earnings per share Shares Ordinary number of dilutive average Weighted Effect of dilutive Ordinary Shares and Share options and Share Shares Ordinary of dilutive Effect Share of post-tax loss of equity accounted associates (see note 13) note (see associates of equity accounted loss of post-tax Share to equity holders of the parent attributable for the period Profit 5) note (see items Exceptional 21) (see note benefit charges Share An interim dividend of 3.8¢ per share was paid on 6 October 2016 (US$13.6 million). The Board of Directors will recommend will recommend of Directors Board (US$13.6 million). The 2016 paid on 6 October was dividend of 3.8¢ per share An interim and an additional per share, comprising 5.1¢ 2016 year ended 31 December respect of the a final dividend in the shareholders to approved. once statements financial in the 2017 both of which will be recognised per share, one-off dividend of 10.5¢ of 4¢ per share (US$12.5 million) and a final dividend 2015 paid on 30 September was dividend of 3.5¢ per share an interim In 2015 million). (US$43.0 2016 paid on 12 May were plus an additional one-off 8¢ per share 10 DIVIDENDS 10 profit Adjusted in issue Shares number of Ordinary average Weighted Shares Ordinary number of dilutive average Weighted basic earnings per share Adjusted earnings per share diluted Adjusted Dividends

Adjusted earnings per share Adjusted of equity accounted loss of post-tax and share charges benefit share items, exceptional EPS excluding that believe Directors The of view a clearer in providing and assists of the business the underlying performance reflects EPS”) better (“Adjusted associates the Group. of the performance loss of equity post-tax of and share benefit charges share items, exceptional excluding to profit of profit Reconciliation profit”): (“Adjusted associates accounted Diluted earnings per share earnings per share Diluted all potentially account into takes earnings per share diluted for number of shares average the weighted Earnings per share, equity Certain basic earnings per share. for not included in the number of shares which are granted, equity instruments dilutive not deemed to were being issued of EPS as their conditions of diluted the calculation from been excluded have instruments exercise holders to for period or it will not be advantageous of the performance the end at conditions the performance satisfy consist EPS calculation included in the diluted of equity instruments number the case of options. The in shares, them into 158,484). (2015: options market-value and 101,447 3,423,108) (2015: Shares Ordinary of 7,688,394 3,051,243). is 1,551,580 (2015: EPS calculation the diluted from excluded number of equity instruments The Basic earnings per share (“EPS”) has been calculated by dividing the profit attributable to ordinary shareholders by the weighted weighted by the shareholders to ordinary attributable dividing the profit by been calculated (“EPS”) has Basic earnings per share the year. during in issue number of shares average 9 EARNINGS PER SHARE PER EARNINGS 9 share Basic earnings per (US$ million) parent to equity holders of the attributable for the period Profit in issue Shares number of Ordinary average Weighted 96 888 HOLDINGS PLC ANNUAL REPORT & ACCOUNTS 2016

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS continued

11 GOODWILL AND OTHER INTANGIBLE ASSETS Internally Acquired generated intangible intangible Goodwill assets assets Total US$ million US$ million US$ million US$ million Cost or valuation At 1 January 2015 146.1 14.5 52.0 212.6 Additions — 3.0 6.8 9.8 At 31 December 2015 146.1 17.5 58.8 222.4 Additions — 1.3 10.6 11.9 At 31 December 2016 146.1 18.8 69.4 234.3 Amortisation and impairments: At 1 January 2015 20.7 10.3 24.4 55.4 Amortisation charge for the year — 1.8 7.9 9.7 At 31 December 2015 20.7 12.1 32.3 65.1 Amortisation charge for the year — 2.3 8.3 10.6 At 31 December 2016 20.7 14.4 40.6 75.7 Carrying amounts At 31 December 2016 125.4 4.4 28.8 158.6 At 31 December 2015 125.4 5.4 26.5 157.3 At 1 January 2015 125.4 4.2 27.6 157.2

Internally generated intangible assets This category of assets includes capitalised development costs in accordance with IAS 38, which in nature includes research and development projects. The material projects as included within the carrying amount above include compliance with local regulatory requirements in certain jurisdictions US$11.1 million (2015: US$14.7 million) and a major upgrade to the gaming systems platform US$17.7 million (2015: US$11.8 million).

Analysis of goodwill by cash generating units Bingo online Total business Other goodwill US$ million US$ million US$ million Carrying value at 31 December 2015 and 31 December 2016 125.1 0.3 125.4

Impairment In accordance with IAS 36 and the Group’s stated accounting policy an impairment test is carried out annually on the carrying amounts of goodwill and a review for indicators of impairment is carried out for other non-current assets. Where an impairment test was carried out, the carrying value is compared to the recoverable amount of the asset or the cash generating unit. In each case, the recoverable amount was the value in use of the assets, which was determined by discounting the future cash flows of the relevant asset or cash generating unit to their present value.

Goodwill – Bingo online business Goodwill and intangible assets associated with the Bingo online business unit arose following the acquisition of the Bingo online business of Globalcom Limited during 2007 and the acquisition of the Wink Bingo business in 2009. The income streams generated from the Bingo online business, comprising the B2C Bingo cash generating unit and the B2B cash generating unit, have been considered together as the risks and rewards associated with those income streams are deemed to be sufficiently similar. STRATEGIC REPORT GOVERNANCE FINANCIAL STATEMENTS 97 2 1% 2% year 6+ year increase expenses 3 8% 4% increase years 1-5 years expenses Operating Operating 1% ANNUAL REPORT & ACCOUNTS 2016 ACCOUNTS & REPORT ANNUAL 2%

year 6+ year Long-term rate growth 2% 888 HOLDINGS PLC HOLDINGS 888 years 2-5 years rate growth

2 4% (1%) 7% year 1 year growth rate growth continued

1 9% 9% Underlying Underlying Pre-tax rate discount The pre-tax discount rate is recalculated every year by taking into account prevailing risk free rates, equity risk premium and company beta and and company equity risk premium rates, risk free prevailing account into taking by year every is recalculated rate discount pre-tax The the Group. of Capital applied to Cost Average upon the Weighted commenting data external to regard having The underlying in GBP. denominated revenue majority of Bingo vast changes with the by GBP currency significantly affected is Bingo revenue in 2016. rate GBP exchange the average to compared rate GBP exchange average the expected by is effected 2017 for rate growth revenues. of percentage a fixed as included in the projections which are costs marketing exclude expenses Operating 2015 31 December At 2016 31 December At Other intangible assets Other intangible assets of other intangible assets and the carrying value 2016 31 December at be required to considered were No impairment tests be appropriate. to is considered Licences is considered of licences and the carrying value 2016 31 December at be required to considered were No impairment tests appropriate. be to The Directors have concluded that there are no reasonably possible changes to key assumptions that would lead to impairment lead to would that assumptions key changes to possible no reasonably are there that concluded have Directors The in the Bingo goodwill and intangible assets. 1 2 3

Key assumptions and inputs used and inputs used assumptions Key Cash flow projections have been prepared for a five year period, following which a long term growth rate has been assumed. has been rate growth term which a long following period, year for a five been prepared have projections Cash flow experience, on past based and are revenue to been applied have table below, in the as shown rates, Underlying growth assumptions Key gaming market. changes in the online of future and projections and 2015 in 2016 results including the positive acquisition per customer costs of level stable a revenue, in growth include moderate projections these cash flow in preparing remote UK incremental gaming duties (including subject to and be operate to will continue the Group that and the expectation jurisdictions. its core in on all freeplays) a tax charge introduce to the intention by driven 2017 August gaming duty commencing Cost Average Weighted specific is the Group’s be appropriate to the Directors by is considered that rate discount pre-tax The units. Bingo cash generating the online for be appropriate to is considered tax, which for of Capital, adjusted 11 GOODWILL AND OTHER INTANGIBLE ASSETS ASSETS INTANGIBLE OTHER AND GOODWILL 11 applied 98 888 HOLDINGS PLC ANNUAL REPORT & ACCOUNTS 2016

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS continued

12 PROPERTY, PLANT AND EQUIPMENT Office furniture, equipment and Leasehold IT equipment motor vehicles improvements Total US$ million US$ million US$ million US$ million Cost At 1 January 2015 63.0 3.5 14.6 81.1 Additions 3.8 0.6 0.2 4.6 Disposals (17.6) — — (17.6) At 31 December 2015 49.2 4.1 14.8 68.1 Additions 5.6 0.3 0.4 6.3 Disposals (4.9) — (0.1) (5.0) At 31 December 2016 49.9 4.4 15.1 69.4 Accumulated depreciation At 1 January 2015 51.9 2.7 11.0 65.6 Charge for the year 7.4 0.3 1.2 8.9 Disposals (17.6) — — (17.6) At 31 December 2015 41.7 3.0 12.2 56.9 Charge for the year 6.8 0.3 1.3 8.4 Disposals (4.9) — (0.1) (5.0) At 31 December 2016 43.6 3.3 13.4 60.3 Carrying amounts At 31 December 2016 6.3 1.1 1.7 9.1 At 31 December 2015 7.5 1.1 2.6 11.2 At 1 January 2015 11.1 0.8 3.6 15.5

Following a review of fully written down assets, assets no longer in use with a total cost and accumulated depreciation of US$5.0 million were written off in 2016 (2015: US$17.6 million).

STRATEGIC REPORT GOVERNANCE FINANCIAL STATEMENTS 99 — 1.5 1.4 (0.1) (0.1) Associates US$ million 31 December 47% 47% — — — 1.3 — — — 47% 47% 20% 20% 2015 2016 interest interest ventures Effective Effective US$ million 31 December Joint

of ANNUAL REPORT & ACCOUNTS 2016 ACCOUNTS & REPORT ANNUAL

USA USA Israel Country Country incorporation

888 HOLDINGS PLC HOLDINGS 888 Associate Joint venture Joint venture

Relationship

Limited Come2Play below: is shown and associates joint ventures in equity accounted interest in the Group’s of the movements A reconciliation and associates joint ventures of equity accounted loss of post-tax Share 2016 31 December At Acquisitions and associates joint ventures of equity accounted loss of post-tax Share 2015 31 December At LLC AGN 1 January 2015 At Name AAPN Holdings LLC US joint ventures (“Avenue”) LLC Entertainment OLG with Avenue (“JVA”) agreement a joint venture into entered the Group In 2013 in AAPN. interest has a 47% under which the Group (“AAPN”), AAPN Holdings LLC form to and other minority shareholders Jersey. in New has a B2C gaming offering NJ”), which (“AAPN LLC Jersey AAPN New subsidiary, AAPN has a 100% owned with connection in casino licensee with a Las Vegas which contracted the entity (“AGN”), LLC AGN 2016, 31 December As at that considers the Group However, the Group. by 100% owned remained in Nevada, of a B2C gaming offering the operation as a joint venture. it is regarded in the JVA, arrangements under the contractual is operated the manner in which AGN due to upon fulfilment no consideration AAPN for to of AGN its ownership contribute to commitment also has an irrevocable Group The conditions. of certain their aggregated in 47% interest effective the Group’s reflecting for, been equity accounted have On this basis AAPN and AGN and assets. results

The following entities meet the definition of joint ventures and associates and have been equity accounted in the consolidated consolidated in the been equity accounted have and and associates ventures entities meet the definition of joint following The statements: financial 13 INVESTMENT IN EQUITY ACCOUNTED JOINT VENTURES AND ASSOCIATES AND VENTURES JOINT ACCOUNTED EQUITY IN INVESTMENT 13 100 888 HOLDINGS PLC ANNUAL REPORT & ACCOUNTS 2016

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS continued

13 INVESTMENT IN EQUITY ACCOUNTED JOINT VENTURES AND ASSOCIATES continued Amounts relating to the joint ventures and the Group’s share of net assets and post-tax losses of the joint ventures are as follows:

Net assets of US joint ventures 2016 2015 US$ million US$ million Non-current assets 4.1 4.7 Current assets 9.6 12.9 Current liabilities (1.4) (1.9) Net assets of joint ventures 12.3 15.7 Assets attributed to class B holders (12.3) (15.7) Net assets of joint ventures attributed to the Group — — Group effective interest in joint ventures 47% 47% Group share of net assets of joint ventures — — Income statement of US joint ventures Revenue 2.7 3.8 Expenses (6.1) (8.7) Post tax loss of joint ventures (3.4) (4.9) Expenses attributed to class B holders (2.0) (2.0) Total post tax loss of joint ventures attributed to the Group (5.4) (6.9) Group effective interest in joint ventures 47% 47% Group share of post tax loss of joint ventures1 (2.5) (3.2)

1 As at 31 December 2016 the Group’s investment in the US joint ventures had reduced to nil due to the US joint ventures’ cumulative losses exceeding the Group’s investment. In 2016 the US joint ventures incurred further losses and, as a result, the Group’s investment remained at nil. As the Group’s investment remained at nil, the Group did not recognise the losses of US$2.5 million in its consolidated income statement in 2016 (2015: US$3.2 million).

Associates On 15 April 2015 the Group acquired 20% of the Ordinary Shares of Come2Play Limited for a cash payment of US$1.5 million. Further disclosures have not been provided as the investment is not material to the Group.

Other investments The Group holds available for sale investments of US$0.2 million at 31 December 2016 (31 December 2015: US$0.2 million). STRATEGIC REPORT GOVERNANCE FINANCIAL STATEMENTS 101 US$ million US$ million US$ million 1.0 — 1.2 0.8 0.6 3.3 0.5 82.4 — 0.1 1.1 1.1 1.0 0.7 4.5 3.1 0.2 0.3 0.6 11.2 11.2 (1.9) (1.7) (2.9) (2.7) (0.5) (0.8) 75.7 32.9 35.9 92.9 95.8 36.6 33.7 18.6 20.2 2015 2016 2015 2016 2015 2016 178.6 172.6 US$ million US$ million US$ million

ANNUAL REPORT & ACCOUNTS 2016 ACCOUNTS & REPORT ANNUAL

888 HOLDINGS PLC HOLDINGS 888

assets funds receivables future for offset against indefinitely available are million) that US$1.8 (2015: 2016 31 December at has no tax losses Group The arose. companies in which the losses of the profits taxable Intangible

Deferred tax liabilities Deferred plant and equipment Property, The carrying value of trade receivables and other receivables approximates to their fair value as the credit risk has been the credit as value their fair to approximates and other receivables receivables of trade carrying value The not subject to are they of the receivables nature the short-term and, due to as part of impairment provisioning addressed receivables. and other on trade risk disclosures credit 24 provides note rates. in market ongoing fluctuations

plant and equipment Property, and prepayments other receivables Non-current accrual pay Vacation Customer funds represent bank deposits matched by liabilities to customers and progressive prize pools of an equal value of an equal value pools prize and progressive customers to liabilities by bank deposits matched funds represent Customer in respect support guarantees banks primarily to amounts held by represent deposits short-term 19). Restricted note (see requirements. licence markets of regulated and other receivables trade Current Prepayments Customer Customer benefit charges Share deposits short-term Restricted Other receivables Other receivables 16 TRADE AND OTHER RECEIVABLES OTHER AND TRADE 16 Trade 15 CASH AND CASH EQUIVALENTS EQUIVALENTS CASH AND CASH 15

Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities the carrying amounts of assets between differences temporary of net tax effects the reflect taxes income Deferred and liabilities tax assets deferred The Group’s tax purposes. for income purposes and the amounts used reporting financial for as follows: settled on a net basis, are be to expected some of which are differences, temporary from resulting 14 DEFERRED TAXES DEFERRED 14 tax assets Deferred pay severance Accrued deposits Cash and short-term 102 888 HOLDINGS PLC ANNUAL REPORT & ACCOUNTS 2016

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS continued

17 SHARE CAPITAL Share capital comprises the following:

Authorised 31 December 31 December 31 December 31 December 2016 2015 2016 2015 Number Number US$ million US$ million Ordinary Shares of £0.005 each 1,026,387,500 1,026,387,500 8.1 8.1

Allotted, called up and fully paid 31 December 31 December 31 December 31 December 2016 2015 2016 2015 Number Number US$ million US$ million Ordinary Shares of £0.005 each at beginning of year 357,081,283 354,436,608 3.2 3.2 Issue of Ordinary Shares of £0.005 each 1,504,675 2,644,675 — — Ordinary Shares of £0.005 each at end of year 358,585,958 357,081,283 3.2 3.2

The narrative below includes details on issue of Ordinary Shares of £0.005 each as part of the Group’s employee share option plan (see note 21) during 2016 and 2015:

During 2016, the Company issued 1,504,675 shares (2015: 2,644,675) out of which 535,958 shares (2015: 458,256) were issued in respect of employees’ exercising market value options giving rise to an increase in share premium of US$1.1 million (2015: US$0.9 million).

Shares issued are converted into US$ at the exchange rate prevailing on the date of issue. The issued and fully paid share capital of the Group amounts to US$3.2 million (2015: US$3.2 million) and is split into 358,585,958 (2015: 357,081,283) Ordinary Shares. The share capital in UK sterling (GBP) is £1.8 million (2015: £1.8 million).

18 TRADE AND OTHER PAYABLES 2016 2015 US$ million US$ million Trade payables 38.0 29.7 Accrued expenses 69.4 72.2 Other payables 31.9 35.3 139.3 137.2

The carrying value of trade and other payables approximates to their fair value given the short maturity date of these balances.

19 LIABILITIES TO CUSTOMERS AND PROGRESSIVE PRIZE POOLS 2016 2015 US$ million US$ million Liabilities to customers 70.7 76.1 Progressive prize pools 5.0 6.3 75.7 82.4 STRATEGIC REPORT GOVERNANCE FINANCIAL STATEMENTS 103 ANNUAL REPORT & ACCOUNTS 2016 ACCOUNTS & REPORT ANNUAL

Data hosting and hosting Data services development Holder of US Joint Venture and transmission Payment social gaming Customer call center operator call center Customer and development Research, support marketing Holder of group IP assets Holder of group of US-based services Provider US operations for Nature of business Nature Holder of gaming licences in Gibraltar in Holder of gaming licences markets European for Gibraltar regulated not locally which are operator Bingo business operator B2B business Bingo) (except gaming licence Holder of UK remote Holder of Italian online gaming licence Holder of Spanish online gaming licence Gaming Service Holder of Interactive licence and Manufacturer Provider of Nevada in the state Waiver Holder of Transactional full licensing for pending application Jersey of New in the state License Holder of Gaming Vendor of Delaware in the state online gaming Holder of Romanian licence Holder of Irish online betting licence Holder of Danish online gaming licence of social games – Development Mytopia

% 100 Software 100 development 100 100 100 100 100 100 Marketing 100 acquisition Advertising 100 services 100 Holding 100 company 100 100 100 100 100 100 100 100 100 100 100 100 100 100 Payment transmission 888 HOLDINGS PLC HOLDINGS 888 Percentage of Percentage equity interest

% 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 2015 2016 Percentage of Percentage equity interest UK BVI USA Israel Ireland Antigua Gibraltar Gibraltar Gibraltar Gibraltar Gibraltar Gibraltar Gibraltar Gibraltar Gibraltar Gibraltar Gibraltar Gibraltar Gibraltar Gibraltar Gibraltar Gibraltar Gibraltar Gibraltar Romania Delaware, Country of Country New Jersey, Jersey, New Limited Services Internet Virtual 888 US Inc. USA Limited (Ireland) Services Marketing Virtual Limited Random Logic SRL Technologies Sparkware Limited (Gibraltar) Services Marketing Virtual (UK) Limited Services Marketing Virtual Inc. 888 US Services Limited Dixie Operations VHL Financing Limited Limited (Gibraltar) Enterprises Cassava Limited Digital Services Virtual Brigend Limited Limited Fordart 888 UK Limited Italia Limited Services Marketing Virtual Company 888 Spain Public Limited 888 US Limited Limited 888 Atlantic 888 Liberty Limited Limited 888 Romania Limited 888 (Ireland) 888 Denmark Limited Limited Ventures Virtual Wave New Gisland Limited Limited IP Assets Virtual incorporation Name

The consolidated financial statements include the following principal subsidiaries of 888 Holdings plc: principal subsidiaries following the include statements financial consolidated The 20 INVESTMENTS IN SIGNIFICANT SUBSIDIARIES SIGNIFICANT IN INVESTMENTS 20 104 888 HOLDINGS PLC ANNUAL REPORT & ACCOUNTS 2016

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS continued

21 SHARE BENEFIT CHARGES Equity-settled share benefit charges As at 31 December 2016 the Group has equity-settled employee shares and share options granted under two equity- settled employee share incentive plans – the 888 All-Employee Share Plan, which expired according to its terms in August 2015, and the 888 Long-Term Incentive Plan 2015 which was adopted at the Extraordinary General Meeting on 29 September 2015. The 888 Long-Term Incentive Plan 2015 is open to employees (including Executive Directors) and full-time consultants of the Group, at the discretion of the Remuneration Committee. Awards under this scheme will vest in instalments over a fixed period of at least three years subject to the relevant individuals remaining in service. Certain of these awards are subject to additional performance conditions imposed by the Remuneration Committee at the dates of grant, further details of which are given in the Directors’ Remuneration Report on page 54.

Details of equity settled shares and share options granted as part of the 888 All-Employee Share Plan and the 888 Long-Term Incentive Plan 2015 are set out below:

Share options granted 2016 2015 Weighted Weighted average average exercise exercise price Number price Number Outstanding at the beginning of the year £1.35 908,224 £1.48 2,136,633 Market value options lapsed during the year £1.70 (112,285) £1.75 (770,153) Market value options exercised during the year £1.31 (535,958) £1.28 (458,256) Outstanding at the end of the year1,2,3 £1.27 259,981 £1.35 908,224

1 Of the total number of options outstanding at 31 December 2016 259,981 had vested and were exercisable (2015: 908,224). 2 The range of exercise prices for options outstanding at 31 December 2016 is £1.02-£1.50 (2015: £1.02-£1.80). 3 The weighted average remaining contractual life at the year-end was 1.62 years (2015: 2.26 years).

Ordinary Shares granted (without performance conditions) 2016 2015 Number Number Outstanding at the beginning of the year 1,327,483 738,746 Shares granted during the year 3,041,045 1,320,000 Lapsed future vesting shares (92,754) — Shares issued during the year (35,508) (731,263) Outstanding at the end of the year 4,240,266 1,327,483 Averaged remaining life until vesting 2.09 years 2.63 years

Shares are granted at a nominal exercise price.

Ordinary Shares granted (subject to performance conditions) 2016 2015 Number Number Outstanding at the beginning of the year 5,273,963 3,496,205 Shares granted during the year 1,621,450 3,367,724 Lapsed future vesting shares (388,592) (134,810) Shares issued during the year (933,209) (1,455,156) Outstanding at the end of the year 5,573,612 5,273,963 Averaged remaining life until vesting 1.61 years 2.00 years

Of these grants, 50% of each are dependent on an EPS growth target, and 50% on total shareholder return (“TSR”) compared to a peer group of companies. Further details of performance conditions that have to be satisfied on these awards are set out in the Directors’ Remuneration Report on page 57. The EPS growth target is taken into account when determining the number of shares expected to vest at each reporting date, and the TSR target is taken into account when calculating the fair value of the share grant. STRATEGIC REPORT GOVERNANCE FINANCIAL STATEMENTS 105 With £1.56 US$ million Monte Carlo Monte 4.1 2.4 — 1.7 6.7 31% 32% 33% 45% £1.31 £1.06 2015 2016 2015 2016 1.18% 0.50% 1,683,862 810,725 US$ million Monte Carlo Monte 2015

6.7

ANNUAL REPORT & ACCOUNTS 2016 ACCOUNTS & REPORT ANNUAL

conditions conditions conditions performance performance performance 2016

888 HOLDINGS PLC HOLDINGS 888 £2.28 £1.64 £2.15 £1.63 £1.63 £2.05 £2.02 Without With Without performance performance

conditions

continued rate interest risk-free Average deviation standard Average group of peer deviation standard Average Report. Remuneration in further detail in the Directors’ is described measure TSR granted Number of shares benefit charges share Total value fair Determined Cash-settled Award of the Phantom in respect Charges Share pricing model used Share

of shares issue at price share average Weighted Ordinary Shares granted for future vesting with EPS growth performance conditions are valued at the share price at grant date, date, grant at price the share at valued are conditions performance with EPS growth vesting future for granted Shares Ordinary period, primarily during the vesting on the shares restrictions The value. the fair to approximates considers which the Group option charge. on the share effect an immaterial have to considered are of dividends, non-receipt to relating or shares of any in respect statement income the consolidated to a charge Payment, Share-based with IFRS 2 – In accordance or options based on of the shares period the vesting over and spread is recognised schemes the above under options granted sheet date. each balance at conditions changes in vesting for adjusted date, the grant or options at shares of the value the fair no cash impact. have charges These Share benefit charges Share As there were no outstanding cash-settled share-based payment awards at either 31 December 2016 or 31 December 2015, 2015, or 31 December 2016 either 31 December at awards payment cash-settled share-based no outstanding were As there either date. sheet at balance in the consolidated been recorded no amounts have Equity-settled the year for charge Equity-settled Valuation information Valuation Cash-settled share-based payment share-based Cash-settled award the Chairman) a cash-settled share-based (now Officer its Chief Executive awarded the Company 2012, March On 27 fulfilled. were requirements as all vesting 2015 March on 27 vested Award Phantom The Award”). (“Phantom share basis, based on the average on an incremental calculated was the amount payable Award, of the Phantom Under the terms in an entitlement of £3.3 million (US$4.8 million). resulting (£1.56), date the vesting prior to a period of 20 dealing days over price Valuation information – shares granted – shares information Valuation the year: during granted Shares 21 SHARE BENEFIT CHARGES CHARGES BENEFIT SHARE 21 Valuation information – shares granted under TSR condition under TSR granted – shares information Valuation

date grant at price share average Weighted 106 888 HOLDINGS PLC ANNUAL REPORT & ACCOUNTS 2016

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS continued

22 RELATED PARTY TRANSACTIONS The aggregate amounts payable to key management personnel, considered to be the Directors of the Company, as well as their share benefit charges, are set out below: 2016 2015 US$ million US$ million Short-term benefits 4.1 4.3 Post-employment benefits 0.2 0.1 Share benefit charges – equity-settled 4.2 1.8 Share benefit charges – cash-settled — 1.7 8.5 7.9

Further details on Directors’ remuneration are given in the Directors’ Remuneration Report on pages 54 to 66.

US joint ventures During 2016 the Group charged the US joint ventures for reimbursement of costs of US$1.7 million (2015: US$1.8 million), of which the outstanding balance at 31 December 2016 is US$0.3 million (2015: US$0.2 million).

Investment in associates During 2016 the Group charged its associate for the Group share of the net revenue of US$1.6 million (2015: US$1.5 million), of which the outstanding balance at 31 December 2016 is US$0.1 million (2015: US$1.0 million).

23 COMMITMENTS Lease commitments Future minimum lease commitments under operating leases on properties occupied by the Group at the year-end are as follows:

2016 20151 US$ million US$ million Within one year 4.1 4.4 Between two and five years 13.1 1.3 More than five years 14.4 — 31.6 5.7

1 The 2015 financial statements disclosed lease commitments due within one year as US$3.7 million. This amount now includes lease commitments in respect of car parking (US$0.7 million).

The increase in lease commitments during the year mainly relates to the renewal of the lease agreement in Israel, for ten years (until January 2027) and in the UK until June 2020.

The expense relating to operating leases recorded in the consolidated income statement in the year was US$4.6 million (2015: US$4.5 million). STRATEGIC REPORT GOVERNANCE FINANCIAL STATEMENTS 107 US$ million US$ million 31 December 0.2 82.4 0.2 31.4 29.8 90.092.5 2015 2016 2015 2016 178.6 172.6 168.2 172.4 204.2 208.6 US$ million US$ million 31 December

75.7

ANNUAL REPORT & ACCOUNTS 2016 ACCOUNTS & REPORT ANNUAL

888 HOLDINGS PLC HOLDINGS 888

(note 16) (note 1 (note 18) (note 1 Excludes taxes payable and deferred income. and deferred payable taxes Excludes Excludes prepayments. Excludes Cash and cash equivalents; cash; Restricted and other receivables; Trade and other payables; Trade customers; Liabilities to sale financial investments. for Available ♦ ♦ ♦ ♦ ♦ ♦

Available for sale investment (note 13) (note sale investment for Available

Cash and cash equivalents (note 15) (note Cash and cash equivalents Customer deposits (note 19) deposits (note Customer In accordance with IAS 39, all financial liabilities are held at amortised cost except for the derivative financial instruments, financial instruments, for the derivative except cost at amortised held all financial liabilities are 39, with IAS In accordance and loss. profit through value fair at recognised which are 1 1 investments, available-for-sale for except receivables as loans and classified are financial assets all 39, with IAS In accordance for sale assets. available as classified which are

♦ ♦ ♦ ♦ ♦ ♦ follows: is as instruments of these financial Detailed analysis The Group is exposed through its operations to risks that arise from use of its financial instruments. Policies and procedures for and procedures Policies use of its financial instruments. arise from risks that to its operations through is exposed Group The the reviews The Board Officer. the Chief Financial from recommendations following the Board set by are managing these risks these risks. to mitigate in order policies and procedures specific approves and, if required, of these procedures effectiveness follows: are as on which financial risk arises, Group, by the used instruments main financial The 24 FINANCIAL RISK MANAGEMENT MANAGEMENT RISK FINANCIAL 24 Financial assets and other receivables Trade Financial liabilities and other payables Trade 108 888 HOLDINGS PLC ANNUAL REPORT & ACCOUNTS 2016

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS continued

24 FINANCIAL RISK MANAGEMENT continued Capital The capital employed by the Group is composed of equity attributable to shareholders. The primary objective of the Group is maximising shareholders’ value, which, from the capital perspective, is achieved by maintaining the capital structure most suited to the Group’s size, strategy, and underlying business risk. Other than disclosed elsewhere in note 25, there are no demands or restrictions on the Group’s capital.

The main financial risk areas are as follows:

Credit risk Trade receivables The Group’s credit risk is primarily attributable to trade receivables, most of which are due from the Group’s payment service providers (PSP). These are third party companies that facilitate deposits and withdrawals of funds to and from customers’ virtual wallets with the Group. These are mainly intermediaries that transact on behalf of credit card companies.

The risk is that a PSP would fail to discharge its obligation with regard to the balance owed to the Group. The Group reduces this credit risk by:

♦♦ Monitoring balances with PSPs on a regular basis.

♦♦ Arranging for the shortest possible cash settlement intervals.

♦♦ Replacing rolling reserve requirements, where they exist, with a Letter of Credit by a reputable financial institution.

♦♦ Ensuring a new PSP is only contracted following various due diligence and “Know Your Customer” procedures.

♦♦ Ensuring policies are in place to reduce dependency on any specific PSP and as a limit any concentration of risk.

The Group considers that based on the factors above and on extensive past experience, the PSP receivables are of good credit quality and there is a low level of potential bad debt amounting to US$0.5 million arising from a PSP failing to discharge its obligation (2015: US$0.5 million). This has been charged to the consolidated income statement.

An additional credit risk the Group faces relates to customers disputing charges made to their credit cards (“chargebacks”) or any other funding method they have used in respect of the services provided by the Group. Customers may fail to fulfil their obligation to pay, which will result in funds not being collected. These chargebacks and uncollected deposits, when occurring, will be deducted at source by the PSPs from any amount due to the Group. As such the Group provides for these eventualities by way of an impairment provision based on analysis of past transactions. This provision is set off against trade receivables and at 31 December 2016 was US$1.4 million (2015: US$1.3 million).

The Group’s in-house Fraud and Risk Management department carefully monitors deposits and withdrawals by following prevention and verification procedures using internally-developed bespoke systems integrated with commercially-available third party measures.

Cash and cash equivalents The Group controls its cash position from its Gibraltar headquarters. Subsidiaries in its other main locations maintain minimal cash balances as required for their operations. Cash settlement proceeds from PSPs, as described above, are paid into bank accounts controlled by the Treasury function in Gibraltar.

The Group holds its funds with highly reputable financial institutions and will not hold funds with financial institutions with a low credit rating. The Group maintains its cash reserves in highly liquid deposits and regularly monitors interest rates in order to maximise yield.

Customer funds Customer funds are matched by customer liabilities and progressive prize pools of an equal value.

Restricted short-term deposits Restricted short-term deposits are short-term deposits held by banks primarily to support guarantees in respect of regulated markets licence requirements.

The Group’s maximum exposure to credit risk is the amount of financial assets presented above, totalling US$204.2 million (2015: US$208.5 million). STRATEGIC REPORT GOVERNANCE FINANCIAL STATEMENTS 109 75.7 Total Total US$ million US$ million — 172.4 — 168.2 — 90.0 — 82.4 — 92.5 1 year 1 year More than More More than More US$ million US$ million — — — ANNUAL REPORT & ACCOUNTS 2016 ACCOUNTS & REPORT ANNUAL 9.7 9.7

10.7 10.7 Between Between 2015 2016 3 months 3 months and 1 year and 1 year US$ million US$ million

— 72.7 72.7 72.8 72.8 888 HOLDINGS PLC HOLDINGS 888 US$ million US$ million In 3 months In 3 months

6.6 — 75.7 10.0 85.7 89.0 US$ million US$ million On demand On demand

82.4

continued

1 1 Excludes taxes payable and deferred income. income. and deferred payable taxes Excludes Excludes taxes payable and deferred income. and deferred payable taxes Excludes Mismatches between customer deposits, which are predominantly denominated in US$, and the net receipts from customers, customers, from in US$, and the net receipts denominated predominantly deposits, which are customer between Mismatches the (EUR) are and Euros (GBP) Sterling and of which Pounds choice of the customer’s settled in the currency which are significant. most the functional and currency reporting in US$ (the Group’s which is mainly generated revenue, reported between Mismatches and a significant portion of deposits settled in local currencies. of the majority of its subsidiaries), currency (EUR) Euros (GBP), Sterling including Pounds currencies in foreign denominated Expenses, the majority of which are (ILS). Shekels Israeli and New ♦ ♦ ♦ Trade and other payables Trade Trade and other payables Trade

Customer deposits Customer

deposits Customer ♦ ♦ ♦ the net exposure that ensure to practical, where steps, and takes risk currency the foreign monitors continually Group The impact fix the economic to designed contracts forward exchange includes the use of foreign This level. an acceptable to is kept appropriate. liabilities when considered of known contracts. forward exchange open foreign any does not have the Group 2016 31 December At Market risk Market risk Currency to: attributed is mainly fluctuations rate exchange arising from financial risk Group’s The 1 1

Liquidity risk exists where the Group might encounter difficulties in meeting its financial obligations as they become due. due. become as they obligations difficulties in meeting its financial encounter might the Group where Liquidity risk exists meet its obligations. to it to allow available are resources sufficient liquid that ensure to order its liquidity in monitors Group The financial liabilities: of the Group’s analysis maturity table details the contractual following The 24 FINANCIAL RISK MANAGEMENT MANAGEMENT RISK FINANCIAL 24 Liquidity risk Liquidity

110 888 HOLDINGS PLC ANNUAL REPORT & ACCOUNTS 2016

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS continued

24 FINANCIAL RISK MANAGEMENT continued The tables below detail the monetary assets and liabilities by currency:

2016 GBP EUR ILS USD Other Total US$ million US$ million US$ million US$ million US$ million US$ million Cash and cash equivalents 39.0 26.1 18.4 81.1 8.0 172.6 Trade and other receivables 13.0 9.5 0.5 3.3 5.1 31.4 Available for sale investments — — — 0.2 — 0.2 Monetary assets 52.0 35.6 18.9 84.6 13.1 204.2 Trade and other payables (26.4) (11.7) (27.9) (24.3) (2.2) (92.5) Customer deposits (18.2) (11.7) — (43.8) (2.0) (75.7) Monetary liabilities (44.6) (23.4) (27.9) (68.1) (4.2) (168.2) Net financial position 7.4 12.2 (9.0) 16.5 8.9 36.0

2015 GBP EUR ILS USD Other Total US$ million US$ million US$ million US$ million US$ million US$ million Cash and cash equivalents 56.1 33.8 20.6 61.5 6.6 178.6 Trade and other receivables 13.6 8.4 0.3 4.2 3.3 29.8 Available for sale investments — — — 0.2 — 0.2 Monetary assets 69.7 42.2 20.9 65.9 9.9 208.6 Trade and other payables (25.6) (18.7) (23.2) (21.1) (1.4) (90.0) Customer deposits (23.0) (9.5) — (49.1) (0.8) (82.4) Monetary liabilities (48.6) (28.2) (23.2) (70.2) (2.2) (172.4) Net financial position 21.1 14.0 (2.3) (4.3) 7.7 36.2

Sensitivity analysis The table below details the effect on profit before tax of a 10% strengthening (and weakening) in the US$ exchange rate at the balance sheet date for balance sheet items denominated in Pounds Sterling, Euros and New Israeli Shekels:

Year ended 31 December 2016 GBP EUR ILS US$ million US$ million US$ million 10% strengthening (0.7) (1.2) 0.9 10% weakening 0.7 1.2 (0.9)

Year ended 31 December 2015 GBP EUR ILS US$ million US$ million US$ million 10% strengthening (2.1) (1.4) 0.2 10% weakening 2.1 1.4 (0.2)

Interest rate risk The Group’s exposure to interest rate risk is limited to the interest bearing deposits in which the Group invests surplus funds.

The Group’s policy is to invest surplus funds in low risk money market funds and in interest bearing bank accounts. The Group arranges for excess funds to be placed in these interest bearing accounts with its principal bankers in order to maximise availability of funds for investments.

Downside interest rate risk is minimal as the Group has no floating rates borrowings. Given current low interest rates a 0.5% downward movement in bank interest rates would not have a significant impact on finance income for the year. However, a 0.5% increase in interest rates would, based on the year end deposits, increase annual profits by US$0.8 million. STRATEGIC REPORT GOVERNANCE FINANCIAL STATEMENTS 111 ANNUAL REPORT & ACCOUNTS 2016 ACCOUNTS & REPORT ANNUAL

888 HOLDINGS PLC HOLDINGS 888 As part of the Board’s ongoing regulatory compliance and operational risk assessment process, it continues to monitor monitor to it continues process, risk assessment and operational compliance ongoing regulatory As part of the Board’s advice appropriate take to and continues impact on the business, and their potential developments, legal and regulatory developments. of these in respect notices, has received time the Group time to from landscape of the industry, of the legal and regulatory the nature Given of its activities. other parties in respect authorities and a small number of regulatory from and legal actions communications of such actions. of success and the likelihood the manner in which it should respond as to legal advice has taken Group The quantify is unable to the Board the majority of these matters of the actions, for and the nature Based on this advice an where For matters provisions. has not made any and result, if any, may of funds that outflow material any reliably statements. in the financial been accrued amounts have reliably, and can be measured is probable resources of outflow 2016. 31 December at not material amounts are These is filing obtained, the Group and on the basis of tax advice jurisdictions. Accordingly, in numerous operates Group The pricing and transfer due based on local tax laws are and duties it believes all taxes and paying for providing tax returns, local taxing authorities. by audits and assessments subject to is also periodically Group The agreements. in to customers by the Group provided certain services respect of is due in VAT to whether as is significant uncertainty There of of the place of the determination in respect are uncertainties These 2015. prior to Member States Union European certain to of supply is determined place as the and, insofar 2015 to prior the Group by provided supply of some or all of the services certain by services on relevant imposition of VAT whether a possible is located, in which the customer be the Member State be applied in to the tax base surrounding Member States in certain is also uncertainty There be lawful. would Member States the legal assessment, Based on a thorough services. relevant is due on any VAT that determined it is ultimately that the event financial liability in the Group any not recorded liability will arise and has, therefore, any that it is unlikely that considers Group the Board be payable, which may VAT of any the quantification surrounding the uncertainties given Furthermore, statements. would be in dispute reasonably of the amounts which may or quantify the range either estimate to attempt any that believes VAT. past for claims any position in defending the Group’s to be prejudicial be misleading and may potentially unlikely considers it the Board statements, financial in the Group and duties, other than as provided taxes of other In respect the final settlement of such assessments. arise from further liability will any that 26 CONTINGENT LIABILITIES AND REGULATORY MATTERS REGULATORY AND LIABILITIES CONTINGENT 26 (a) (b) (c) At 31 December 2016 and 2015, the Group’s available for sale investment is measured at fair value. For the remaining financial the remaining For value. fair at is measured investment sale for available the Group’s and 2015, 2016 31 December At value. fair to approximates the book value that considers and liabilities, the Group assets techniques valuation no changes in were There material. considered not value are fair at carried Other financial instruments in the period. categories between or transfers 25 FAIR VALUE MEASUREMENTS VALUE FAIR 25 112 888 HOLDINGS PLC ANNUAL REPORT & ACCOUNTS 2016

COMPANY BALANCE SHEET At 31 December 2016

2016 2015 Note US$ million US$ million Assets Non-current assets Investments in subsidiaries 2 37.9 29.6 37.9 29.6

Current assets Trade and other receivables 3 86.0 91.6 Income tax receivable 1.1 2.7 87.1 94.3 Total assets 125.0 123.9

Equity and liabilities Equity Share capital 4 3.2 3.2 Share premium 4 3.3 2.2 Retained earnings 85.4 69.6 Total equity 91.9 75.0

Liabilities Current liabilities Trade and other payables 5 31.2 47.2 31.2 47.2

Non-current liabilities Deferred tax liabilities 10 1.9 1.7 Total liabilities 33.1 48.9 Total equity and liabilities 125.0 123.9

The financial statements on pages 112 to 116 were approved and authorised for issue by the Board of Directors on 21 March 2017 and were signed on its behalf by:

Itai Frieberger Aviad Kobrine Chief Executive Officer Chief Financial Officer

The notes on pages 115 and 116 form part of these financial statements.

STRATEGIC REPORT GOVERNANCE FINANCIAL STATEMENTS 113 1.1 6.7 2.4 0.9 65.7 55.3 Total (53.5) (56.6) US$ million — — 6.7 2.4 65.7 55.3 75.0 69.6 65.4 69.9 85.4 91.9 (53.5) (56.6)

US$ million ANNUAL REPORT & ACCOUNTS 2016 ACCOUNTS & REPORT ANNUAL

Retained earnings Retained 1.1 — — — — — — 1.3 2.2 3.3 0.9

US$ million 888 HOLDINGS PLC HOLDINGS 888 premium Share 3.2 3.2 3.2 — — — — — — — — US$ million Share capital Share COMPANY STATEMENT OF CHANGES IN EQUITY IN CHANGES OF STATEMENT COMPANY Issue of shares (note 4) (note of shares Issue 8) (note benefit charges Equity settled share 2016 31 December at Balance within equity. and purpose of each reserve describes the nature following The called-up and fully paid for. allotted, of shares the nominal value capital – represents Share of nominal value. capital in excess share the amount subscribed for – represents premium Share statement company in the parent recognised gains and losses net the cumulative – represents earnings Retained with equity holders. transactions and other income of comprehensive statements. financial part of these on pages 115 and 116 form notes The Profit and total comprehensive income for the year for the income comprehensive total and Profit 9) Dividend paid (note 2015 31 December at Balance Equity settled share benefit charges (note 8) (note benefit charges Equity settled share Issue of shares (note 4) (note of shares Issue Dividend paid (note 9) Dividend paid (note Profit and total comprehensive income for the year for the income comprehensive total and Profit 1 January 2015 at Balance

For the year ended 31 December 2016 ended 31 December the year For 114 888 HOLDINGS PLC ANNUAL REPORT & ACCOUNTS 2016

COMPANY STATEMENT OF CASH FLOWS For the year ended 31 December 2016

2016 2015 Note US$ million US$ million Cash flows from operating activities: Profit before tax 67.1 52.0 Adjustments for: Share benefit charges 8 0.5 2.0 Decrease (increase) in net amounts owed by subsidiaries 3, 5 (9.6) 5.1 Decrease (increase) in other receivables 3 (0.1) 0.1 Decrease in trade and other payables 5 (2.4) (5.4) Cash generated from operations 55.5 53.8 Income tax paid — (1.2) Net cash generated from operating activities 55.5 52.6 Cash flows from financing activities: Issue of shares 4 1.1 0.9 Dividends paid 9 (56.6) (53.5) Net cash used in financing activities (55.5) (52.6) Net decrease in cash and cash equivalents — — Cash and cash equivalents at the beginning of the year — — Cash and cash equivalents at the end of the year — —

The notes on pages 115 and 116 form part of these financial statements. STRATEGIC REPORT GOVERNANCE FINANCIAL STATEMENTS 115 US$ million US$ million 31 December 31 December 0.2 0.3 5.8 8.5 0.2 0.3 31.2 47.2 91.4 85.7 25.2 38.4 91.6 86.0 2015 2016 2015 2016 US$ million US$ million 31 December 31 December

ANNUAL REPORT & ACCOUNTS 2016 ACCOUNTS & REPORT ANNUAL

888 HOLDINGS PLC HOLDINGS 888

payables

NOTES TO THE COMPANY THE TO NOTES FINANCIAL STATEMENTS FINANCIAL

The carrying value of trade and other payables approximates to their fair value. All balances included within trade and other included within trade All balances value. their fair to approximates other payables and of trade carrying value The on demand. repayable are payables

The carrying value of trade and other receivables approximates to their fair value. None of the balances included within trade within trade included None of the balances value. their fair to approximates other receivables and of trade carrying value The on demand. payable subsidiaries are Amounts due from due or impaired. past are and other receivables expenses and accrued Other payables and prepayments Other receivables 5 TRADE AND OTHER PAYABLES OTHER AND TRADE 5 4 SHARE CAPITAL SHARE 4 capital including Company, for the with those consistent are statements financial the consolidated 17 to in note disclosures The statements. financial the consolidated 21 to management in note Trade subsidiaries Amounts due to 3 TRADE AND OTHER RECEIVABLES OTHER AND TRADE 3 2 INVESTMENTS IN SUBSIDIARIES IN INVESTMENTS 2 Company’s In the statements. financial the consolidated 20 to in note listed subsidiaries are principal Company’s The applies The Group impairment. for any provision less cost at held in subsidiaries are investments statements, financial shares of its own the value of investment as a cost recognises the Company Consequently, Payment. IFRS 2 – Share-based movement of its subsidiaries. The or contractors employees options to share of granting the purpose for available it makes that share-based US$2.2 million) included within this were (2015: US$8.3 million was during the year in subsidiaries in investment in respect million of US$2.1 and a capital contribution million) US$2.1 (2015: of US$6.2 million in 2016 charges payment subsidiary. of a new of incorporation Critical accounting estimates and judgements – impairment testing of investments in and amounts investments of and judgements – impairment testing estimates accounting Critical subsidiaries due from against comparison impairment by for been tested have subsidiaries in and amounts due from investments Company’s The of the subsidiaries’ assets. the underlying value its own present to the requirement from is exempt the Company 2014, Act Companies Under Section 288 of the Gibraltar statement. income Share-based payments Share-based of subsidiary undertakings to employees shares its equity over of options Company by the awards of financial effect The in subsidiaries with to its investment as an adjustment statements in its individual financial the Company by is recognised with statement in its income IFRS 2 adjustment the in turn, will recognise subsidiary, The equity. to adjustment an opposite Company. the to) (dividend contribution from the deemed capital reflect equity to to (debit) a credit Investment in subsidiaries Investment impairment. from resulting provisions less cost carried at in subsidiaries are investments Company’s The A description of the Company, its activities and definitions are included in note 1 to the consolidated financial statements. statements. financial consolidated to the 1 included in note and definitions are its activities Company, A description of the (“IFRS”) Standards Reporting Financial International with in accordance been prepared have statements financial Company’s The basis. Union and on an historical the European by as adopted policy an accounting that extent the To Group. the applied by policies, as accounting applies consistent Company The of the for disclosure statements financial to the Group refer statements, financial and Company both Group to is relevant only Company to the apply policies that Material statements). financial the consolidated 2 to note (see policy accounting included as appropriate. are 1 GENERAL INFORMATION AND ACCOUNTING POLICIES POLICIES ACCOUNTING AND INFORMATION GENERAL 1 subsidiaries Amounts due from 116 888 HOLDINGS PLC ANNUAL REPORT & ACCOUNTS 2016

NOTES TO THE COMPANY FINANCIAL STATEMENTS continued

6 FINANCIAL RISK MANAGEMENT To the extent relevant to Company’s financial assets and liabilities (see notes 2 and 3), the Company’s financial risk management objectives and policies are consistent with those of the Group as disclosed in note 24 to the consolidated financial statements.

7 CONTINGENT LIABILITIES The disclosures in note 26 to the consolidated financial statements are consistent with those for the Company.

8 SHARE BENEFIT CHARGES The disclosures in note 21 to the consolidated financial statements are consistent with those for the Company except that the charge for the year is partly taken to investment in subsidiaries, as set out in note 2.

9 RELATED PARTY TRANSACTIONS The aggregate amounts payable to key management personnel, considered to be the Directors of the Company, as well as their share benefit charges is detailed in note 22 to the consolidated financial statements.

During the year the Company received dividends from its subsidiaries through intercompany accounts (to be paid subsequently in cash), totalling US$70.1 million (2015: US$60.5 million) and paid to its shareholders dividends totalling US$56.6 million (2015: US$53.5 million).

Share benefit charges in respect of options and shares of the Company awarded to employees of subsidiaries totalled US$6.2 million (2015: US$2.1 million).

During the year subsidiaries of the Company supported it in funding US$9.9 million of the Company’s costs (2015: US$7.5 million). At 31 December 2016, the net amounts owed by subsidiaries to the Company were US$60.6 million (2015: US$53.0 million).

10 DEFERRED TAXES Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. The Company’s deferred tax assets and liabilities resulting from temporary differences, some of which are expected to be settled on a net basis, are as follows:

2016 2015 US$ million US$ million Deferred tax liabilities Property, plant and equipment 1.0 1.0 Intangible assets (2.9) (2.7) (1.9) (1.7) STRATEGIC REPORT GOVERNANCE FINANCIAL STATEMENTS 117 ANNUAL REPORT & ACCOUNTS 2016 ACCOUNTS & REPORT ANNUAL

www.888sport.ro www.888sport.dk www.888casino.ro www.888sport.it www.888casino.dk www.888poker.ro www.bingoisland.com www.888casino.it www.888casino.it www.888poker.dk www.888.ro www.888games.com www.mytopia.com www.888responsible.com www.888.it www.888.it www.888.dk ♦ ♦ ♦ ♦ ♦ ♦ ♦ ♦ ♦ ♦ ♦ ♦ ♦ ♦ ♦ ♦ ♦ ♦ ♦ ♦ ♦ ♦ ♦ ♦ Romania games and Casino Poker, Romania 888’s its Romania through offered Sport are website regulated ♦ Games is through Games offering 888’s 888games ♦ Social Games Mytopia through offered social games are 888’s social games websites: Mytopia ♦ gaming: Responsible focusing site dedicated Group’s The gaming on responsible ♦ Italy Italy Casino games and 888’s its Italian through offered Sport are website regulated ♦ Denmark Casino games and Poker, Denmark 888’s its Denmark through offered Sport are website regulated ♦ 888 HOLDINGS PLC HOLDINGS 888 US.888poker.com US.888poker.com US.888casino.com US.888.com www.888.es www.888poker.es www.888casino.es www.888sport.es www.888sport.com www.888sport.com www.888ladies.com www.888ladies.com www.winkbingo.com www.poshbingo.co.uk www.tastybingo.com www.redbusbingo.com www.bingostreet.com www.winkslots.com www.bingoloft.com www.daisybingo.com www.888bingo.com www.bingofabulous.com ♦ ♦ ♦ ♦ ♦ ♦ ♦ ♦ ♦ ♦ ♦ ♦ ♦ ♦ ♦ ♦ ♦ ♦ ♦ USA and Casino Poker Jersey New 888’s its through offered games are website US regulated ♦ ♦ ♦ Spain Casino games and Spain Poker, 888’s its Spanish through offered Sport are website regulated ♦ ♦ ♦ ♦ Sportsbook is offering Sportsbook 888’s 888sport through ♦ Bingo is through Bingo offering 888’s 888ladies and Wink ♦ ♦ ♦ ♦ ♦ ♦ ♦ ♦ ♦ ♦ ♦

www.888poker.com www.PacificPoker.com www.888casino.com www.777.com www.888games.com live-casino.888casino.com www.Casino-on-Net.com www.ReefClubCasino.com www.eucitycasino.com www.888vipcasinoclub.com Latest information on the Group’s Group’s on the information Latest price share financial on the Group’s Information performance and events News ♦ ♦ ♦ ♦ ♦ ♦ ♦ ♦ ♦ ♦ ♦ ♦ ♦

INFORMATION SHAREHOLDER ♦ ♦ Poker Poker 888poker is through offering Poker 888’s ♦ ♦ ♦ ♦ ♦ ♦ ♦ ♦ Casino through offered games are Casino 888’s casino its 888casino and live ♦ ♦ ♦ can also websites following The the Group’s through be accessed or are www.888.com main website directly. available A range of shareholder information information of shareholder A range Relations in the Investor is available website, of the Group’s area including: corporate.888.com, Group websites websites Group 118 888 HOLDINGS PLC ANNUAL REPORT & ACCOUNTS 2016

NOTES COMPANY INFORMATION

Shareholder services Company secretary All enquiries relating to Ordinary Shares, Strait Secretaries Limited Depository Interests, dividends and 57/63 Line Wall Road changes of address should be directed Gibraltar to the Group’s Transfer Agent: Auditors Capita Asset Services Ernst & Young LLP The Registry 1 More London Place 34 Beckenham Road Beckenham London Kent SE1 2AF BR3 4TU United Kingdom UK EY Limited Tel: 0871 664 0300 PO Box 191 www.capitashareportal.com Regal House Queensway Further information Gibraltar For further information please contact: [email protected]

Principal bankers Barclays Bank Plc 1 Churchill Place London E14 5HP UK

Solicitors Allen & Overy LLP One Bishops Square London E1 6AD UK

Hassans 57/63 Line Wall Road Gibraltar

Herzog Fox Neeman Asia House 4 Weizman Street Tel Aviv Israel 64239

Incorporated in Gibraltar with registered number 90099 Stock Code: 888

Design & production www.carrkamasa.co.uk 888 Holdings plc Suite 601/701 Europort Europort Road Gibraltar

T +350 20049800 F +350 20048280 E [email protected] corporate.888.com