888 Public : - Annual Results

21 March 2017

Another year of outstanding progress for 888

888, one of the world's most popular online gaming entertainment and solutions providers, announces its audited annual financial results for the year ended 31 December 2016.

* As defined in the business and financial review below

"2016 was another fantastic year for 888 during which we continued to deliver very strong organic revenue and profit growth. This was again underpinned by further outstanding progress in Casino, Sport and across regulated markets. 888's further expansion in the UK, Spain and Italy is a strong demonstration of the Group's ability to drive excellent growth and build leading market positions across regulated markets as the industry continues to head in this direction.

Despite currency headwinds, revenue reached an all-time high of 520.8 million dollars and, at constant currency, increased 18% year on year to US$546.4 million. At the same time, the Group's underlying margins remain healthy and profit before tax increased significantly to 59.2 million dollars. These strong results demonstrate the truly outstanding underlying momentum in the business. In addition, the Group's strong free cash flow and confidence in the outlook has enabled the Board to propose a 25% increase in total dividend for the year.

Current trading since the start of the year remains healthy with average daily revenue more than 11% above the previous year at constant currency.

888 is a fast-growing operator with the majority of its revenue now generated from regulated markets. The Group is truly diversified with successful operations under 10 licences, four established B2C product verticals and an outstanding B2B offer. Underpinning 888's success we have a leading-edge technology platform and an exceptionally skilled team. I would like to take this opportunity to thank everyone across the business for their commitment and hard work.

The Board continues to see a number of significant growth opportunities for 888 both in new and existing markets and we look forward to another exciting year of progress."

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).

7 Adjusted EBITDA is the main measure analyst community use to evaluate the company and compare it to its peers.

Itai Frieberger, Chief Executive Officer and Aviad Kobrine, Chief Financial Officer, will be hosting a presentation for analysts today at 10:00 (GMT) at the offices of Hudson Sandler, 29 Cloth Fair, London EC1A 7NN. To express interest in attending please contact 888@hudsonsandler.com or call +44 (0)207 796 4133.

An audio webcast of the presentation will be available from the investor relations section of 888's website (http://corporate.888.com/investor-relations) later today.

This announcement includes statements that are, or may be deemed to be, "forward-looking statements". By their nature, forward-looking statements involve risk and uncertainty since they relate to future events and circumstances. Forward-looking statements may and often do differ materially from actual results. Any forward-looking statements in this announcement reflect 888's view with respect to future events as at the date of this announcement. Save as required by law or by the Listing Rules of the UK Listing Authority, 888 undertakes no obligation publicly to release the results of any revisions to any forward-looking statements in this announcement that may occur due to any change in its expectations or to reflect events or circumstances after the date of this announcement.

I am delighted to update our stakeholders on what has been another outstanding year for 888. Our strong financial results for the year have been underpinned by significant progress against our strategic objectives. As you will read in more detail throughout this year's Annual Report, 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.

2016 was another very busy year at 888 and, testament to the skill and entrepreneurial spirit of our exceptional team, our operational performance was stronger than ever. This resulted in the Group delivering revenue growth of 13% to US$520.8 million (2015: US$462.1 million) despite significant adverse currency movements impacting our reported results. At constant currency revenue increased impressively by 18% to US$546.4 million.

Our core B2C business continued to grow, with a 5% increase in active customers, driven primarily by outstanding results in Casino and Sport, growth in regulated markets and by our offer on mobile devices, which expanded to represent 60% of B2C revenue in the UK (2015: 47%). As a result, total B2C revenue was US$460.2 million, representing a 15% uplift on the prior year (2015: US$399.4 million) or a 20% increase at constant currency to US$479.9 million.

Adjusted EBITDA increased by 12% to US$90.2 million (2015: US$80.6 million) which represented 24% growth at constant currency to US$100 million and profit before tax was 82% higher at US$59.2 million (2015: US$32.5 million). The Group remains highly cash generative with net cash generated from operating activities of US$68.1 million (2015: US$85.0 million).

Given the continuing strong financial performance of the Group and the Board's confidence in the outlook, the Board of Directors is recommending a final dividend of 5.1¢ per share in accordance with 888's dividend policy, plus an additional one-off 10.5¢ per share bringing the total for the year to 19.4¢ per share (2015: 15.5¢ per share).

The Board believes that 888's proprietary online gaming technology is second to none. This strength, coupled with the Group's business analytics, customer relationship management and marketing expertise, continues to provide the foundation for 888's competitive advantages. In such a dynamic and rapidly developing industry, continually investing in and developing our own world class technology means that we are able to be nimble in relation to opportunities, respond to regulatory developments and create new, engaging and - above all - safe and secure entertainment for our customers.

In 2016 we delivered further successful expansion across regulated markets where we are able to leverage the Group's full marketing expertise to develop the 888 brands. We continued to make outstanding progress in the UK; Spain, which is now our second largest market; Italy, where we are benefitting from the introduction of Sport in the first quarter of the year; and Denmark, where we successfully launched in the second half of 2015 with a full suite of products and brands. Revenue from regulated markets increased to represent 61% of Group revenue (2015: 59%), significantly outpacing growth from unregulated "dot.com" markets.

The Board had previously identified sports betting as a major opportunity for the Group. In 2016, a major focus was on driving growth in Sport, which we are for the first time in our Annual Results reporting as a standalone product vertical. During the year we significantly increased investment behind marketing the 888Sport brand and enjoyed a very successful European Football Championships in the summer, which demonstrated our ability to effectively compete during major sporting events. As a result, Sport customers increased by 49% and revenue increased by 49% to US$51.9 million (2015: US$34.8 million). In 2017, the Group will continue to invest behind delivering the exciting further opportunities for Sport both in terms of revenue growth and efficient customer acquisition.

888's success in Sport is just one example of the Group's ability to identify new growth opportunities and successfully deliver them. In addition to our organic growth plans, M&A remains a part of the Group's strategic agenda and, with 888 in great health, it is an area that we are able to evaluate from a position of strength. 888 has significant organic growth potential and - where M&A might complement this - we will continue to evaluate and explore appropriate opportunities.

On behalf of the Board, I would like to take this opportunity to thank each and every one of my colleagues at 888 for their commitment during the year. 2016 was a very busy year for the Group and the success we have been able to deliver under 10 licences across regulated markets, four major product verticals and both B2C and B2B divisions speaks volumes for the strength in depth of our people throughout 888. I am confident that their skill and dedication will ensure 888 remains at the forefront of the online gaming industry for years to come.

I would also like to thank Amos Pickel, who has served on the 888 Board as a Non-executive Director and as a Chairman and member of Board committees since 2006, and who does not intend to offer himself for re-election at the 2017 Annual General Meeting. Amos has brought a wealth of experience and knowledge to the Board, and we wish him well in his future endeavours.

The Board is fully committed to complying with the principles of the UK Corporate Governance Code. You can find the required regulatory and governance disclosures throughout this report and in the compliance statement in the 2016 Annual Report.

The global online gaming market is dynamic and will continue to grow driven by technology developments, the opening up of new marketing channels and further regulation.

888 operates in a highly regulated industry across multiple geographies and the Group's investment will remain focused on driving growth in markets where there are sustainable regulatory frameworks for online gaming. Regulated markets are the future of our industry and 888 has an enviable track record in adapting to and capitalising on new regulatory developments.

In the UK, in August 2017 changes in remote gaming duty will expand the tax base to include customer bonuses and this will have an impact on the competitive dynamics and profitability of operators. However, with our own gaming platforms and significant experience of adapting to new regulatory environments, 888 remains well positioned to mitigate in part the impact of and capitalise on opportunities presented by these changes.

The Group continues to monitor and plan for potential implications from the UK's decision to leave the European Union. However, we do not anticipate significant impact on our operations. Since the "Brexit" vote Sterling has devalued compared to the US$ and, as the Group has adopted the US$ as its reporting currency, our reported financials have consequently been impacted.

Trading during the financial year to date has been in line with the Board's expectations with average daily revenue more than 11% above the previous year at constant currency.

888 is an increasingly diversified operator with the majority of its income now generated from regulated markets. The Group has significant further growth opportunities across its existing geographies, platforms and product verticals and will continue to evaluate and explore new avenues for growth. Into 2017 and beyond 888's focus will remain as resolute as ever on delivering a truly satisfying experience for our customers, thereby delivering strong, sustainable long term earnings growth for our shareholders.

During 2016, 888 again made strong progress against its stated strategy. We have continued to deliver outstanding organic growth and expand our brands across the regulated markets we operate in. 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. With these qualities we continue to see a number of clear growth opportunities for the Group both in existing and new markets.

888's mission is to supply its customers with innovative and market-leading online gaming entertainment, above all in a safe and secure environment. The Group's competitive advantages to achieve this are built on world class proprietary gaming technology; leading-edge Customer Relationship Management ("CRM") based on business analytics expertise; strong brands and innovative marketing.

Technology leadership and continuous innovation are central to 888's progress, and the Group is constantly evolving and developing its proprietary platforms and industry-leading back office systems to maintain its competitive 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.

888 employs an extensive team of highly trained and experienced business analytics and data-mining professionals who have analysed and learned from customer behaviour since 888's foundation nearly two decades ago. Teams across 888 from product development to marketing to customer support leverage this extensive and constantly evolving data and, by applying robust statistical models, are able to successfully influence the following three key drivers of 888's success:

1. increasing the number of new players (first time depositors or "FTDs") across 888's brands;

2. reducing the cost per acquisition ("CPA") of those new players to 888; and

3. maximising the life time value ("LTV") (measured as average forecasted revenue over a customer's entire life cycle) to 888 of each customer.

This is supported by 888's strong, trusted and award-winning brands that remain crucial in the competitive global online gaming market. The Group's consistent and engaging customer offer, focused customer support and heritage in online gaming have meant that 888's brands are amongst the most trusted and recognised in the online industry. The Group's resolute focus on product development, customer service and marketing continue to support the sustained strength and appeal of 888's brands.

As a business we never lose sight of our duty as a responsible operator and 888 acknowledges there is a potential danger that its games may pose for a small minority of people. We take comprehensive steps to minimise fraud, problem gaming and eliminate minors from using our services. Through rigorous and timely customer checks as well as ongoing real-time tracking of customer activity, 888 continually monitors for irregular activity that may be an indication of compulsive gaming or fraud. 888's fraud and prevention and customer service teams are highly trained and have developed efficient and proactive methods to identify issues and notify and protect our

customers. Further details on 888's robust Information Technology systems are given in the Risk Management Strategy report in the 2016 Annual Report. We pride ourselves on the strength of our customer relationships and first class customer support is offered through telephone, email and online chat functions to customers around the world in nine different languages.

888 Holdings is structured into two lines of business: B2C, under the 888 brands, and B2B, conducted through Dragonfish.

1. Marketing

   At the core of 888's business philosophy is an unwavering focus on return to cost driven marketing. The business continually develops innovative marketing techniques and channels, both online (including online advertising, affiliate programmes, search engine optimisation) and offline (including TV and print media advertising, sponsorships) to support its brands and increase customer loyalty. The returns to cost of all marketing campaigns are rigorously tested against 888's strict criteria before being extended to their target markets. This ensures that 888's marketing spend is both cost efficient and highly effective.

2. Acquisition

   Effective marketing helps to attract customers to 888's brands in the most cost effective manner. Strong levels of customer acquisition, measured by increases in first time depositors ("FTDs"), is the fuel for 888's ongoing growth.

3. Deposits

   Customers need to be able to enjoy a seamless, enjoyable journey from the moment they visit our websites through to depositing into their accounts and enjoying our games.

   888's leading proprietary payment processing capabilities support a wide variety of languages and currencies with more than 35 payment methods. It is vital that we are able to offer fast, efficient and easy to use payment processing, both to ensure a positive customer experience but also to maximise revenue and convert browsers into players. 888's payment options include a cashier interface available in 18 languages, both for desktop and on mobile/tablet devices, with the most relevant payment methods identified and emphasised for different customers according to their market.

4. Customer relationship management

   Once we have acquired a customer, we want to keep them enjoying their experience with 888 for the longest time possible.

   Underpinned by sophisticated statistical models, the Group is able to effectively predict the life-time value of a new customer within a short period of time of them joining 888. This helps enable 888 to deliver to customers personalised communications across relevant channels that increase loyalty and activity. Underpinned by 888's analytical approach, the Group offers a broad range of appealing bonuses that are localised from country to country, from product to product, and according to a customer's individual profile. Furthermore, 888 is able to

   apply these skills to accurately identify potential "churning" players according to certain characteristics, interact with those players accordingly, and retain them for longer.

5. Activity

Ensuring that we continually offer a high quality product across our brands helps to increase customer activity and, consequently, life-time value with 888.

888's ability to successfully develop new proprietary games and functionality on mobile and desktop platforms helps to differentiate the 888 experience in the eyes of the customer. 888 combines exclusive and high-quality "in house" created content with third party games and branded content to ensure that we always offer the freshest and most enjoyable customer proposition. 888's products are seamlessly available and responsive across mobile and desktop platforms and the flexibility and consistent experience across devices means that customers are able to enjoy unrivalled gaming entertainment however and wherever they choose.

With 888's strengths in four major online gaming verticals - Casino, Poker, Sport and Bingo - through the use of analytics and proven predictive modelling, 888 is able to enhance customer activity and life-time value by promoting each relevant product to existing customers in a targeted and attractive way.

6. Gaming revenue

By generating upward trends in customer LTV, our marketing teams are able to increase investment in campaigns to acquire more new customers and still ensure that the business meets its strict return to cost criteria.

Our B2C brands:

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.