The B2C business represented 96% of total Group revenue in 2020 (2019: 95%). B2C revenue increased by 53% to US$814.3 million (2019: US$530.5 million). This revenue growth, in part, reflects an increase in new customer acquisition that started at the end of 2019 and continued throughout 2020. The COVID-19 pandemic led to an acceleration in the migration of consumer behaviour toward online services, and our product leadership strategy, together with marketing and organisational flexibility, saw 888 significantly increase its customer base.

B2C - Product segmentation

888 continues to focus on developing its B2C business across four key product verticals: Casino, Sport, Poker and Bingo and expanding its brands across those global markets that have regulated frameworks for online gambling. 888 aims to achieve this by investing in developing safe, enjoyable product experiences, leveraging its analytics-driven marketing expertise to attract customers, and applying data-driven customer relationship management ("CRM") to support player retention.

During 2020, 888 acquired approximately 1.5 million first-time depositors ("FTDs") across its B2C brands globally, representing a 42% increase over 2019 and a new record for the Group. The positive trend also included an increase of 32% in funded active players⁵ and a 66% increase year-on-year in deposits.

⁵   Funded active players is defined as B2C players that wagered a positive amount during the period and have placed at least one deposit during their lifetime.

Casino

Casino continued to deliver strong growth across KPIs with a 63% increase in revenue to US$586.8 million (2019: US$359.3 million). Casino FTDs increased by 60%, Casino funded active players increased by 42% and Casino deposits increased by 93%.

888's Casino product was well positioned to achieve strong momentum in the first quarter of the year and capture the increase in demand for digital entertainment following the outbreak of COVID-19. This was as a result of the Group's investment in its Casino product over recent years which resulted in an enhanced suite of content, artificial intelligence ("AI") driven personalised features, improved customer experience and enhanced modelling to supervise players at risk of harm and interact with them. 

Sport

Sport revenue increased by 36% to US$122.1 million (2019: US$90.0 million). This encouraging growth was achieved despite the widespread cancellation of sporting events due to the COVID-19 pandemic in the first half of the year, during which Sport revenue was flat compared with 2019. However, with the return of sporting events in the second half of 2020, revenue increased by 72% year-on-year. Sport revenue benefitted from a combination of improved margins and a different mix of customer bets, as well as refinement and optimisation to customer promotions and product improvements.

During the year, 888's Sport business was gradually migrated to our proprietary platform, known internally as Spectate, with the majority of bet volumes worldwide being placed on this platform at the time of the publication of this Annual Report. Sport FTDs increased by 14% year-on-year and deposits increased by 40%. In-play betting remained key drivers for 888sport with more than half of bet volumes placed during events in 2020.

Poker

Poker experienced strong revenue growth of 48% to US$63.1 million (2019: $42.7 million). This reflects the success of the Group's new poker product (Poker8), which was launched during the year as well as online poker's increased appeal as an enjoyable and sociable entertainment option during periods of restrictions on social activities due to COVID-19. 

Poker remained an important customer acquisition channel, with a significant number of the Group's B2C FTDs acquired through the Poker vertical also playing Casino and Sport.

Bingo                                                               

B2C Bingo revenue increased 10% to US$42.3 million (2019: US$38.5 million). This performance benefited from the contribution of the enlarged portfolio of B2C brands integrated in March 2019. Deposits, funded active players, and acquisition of new customers increased during the year, building a solid base for 2021.

While the Bingo business continues to deliver growth, the increasingly strict regulatory atmosphere combined with limited growth opportunity in its main market, the UK, led the Group to increased its focus on other product and geographic opportunities. This change in focus led the Group to reassess the carrying value of the goodwill related to this business. This revaluation of the business resulted in an impairment of US$79.9 million in the value of the related goodwill and other intangible assets. The impairment was recorded as an exceptional item in the income statement.

B2B REVIEW

Revenue from 888's B2B division increased by 19% to US$35.4 million (2019: US$29.8 million), with both Bingo and US operational segments delivering growth.

The Group's predominantly UK-focused bingo network continued its progress, in part due to the success of its new customer interface inspired by 888's successful Orbit Casino platform. The new interface has enhanced the customer experience, integrated additional marketing functionality, and improved monitoring of safer gambling across the network.

Revenue from 888's B2B business in the US performed well, driven by increases across all states in which the Group's business partners operate.

Revenue by geographic market

Regulated markets

Revenue from regulated markets continued to represent the majority of Group revenue in 2020, with revenue from regulated and taxed markets⁶ increasing by 50% and accounting for 73% of revenue (2019: 74%). 888's strategic focus remains on achieving growth in sustainable regulated markets where the Group can leverage its marketing expertise to achieve long-term, profitable growth.

⁶ Regulated and taxed markets refer to jurisdictions where the Group operates under a local licence or where the Group is liable for gaming duties or VAT, GST or similar taxes.

The below table shows the Group's revenue by geographical market:

EMEA (excluding the UK, Italy, and Spain)

Revenue from EMEA excluding the UK, Italy and Spain increased by 41% to US$253.4 million (2019: US$180.1 million). Revenue increases were seen in most markets, with regulated markets such as Romania, Sweden, Ireland and Portugal seeing particularly strong growth trends. Outside these markets, revenue increased by 29% year-on-year primarily reflecting the Group's strong Casino activity during the period.

Germany increased 2% year-on-year for the full year, but following regulatory changes implemented in October 2020, revenues were significantly lower year-on-year. The Group is convinced that while it will face a short-term decline in revenue and profits, the new situation in Germany poses an opportunity for 888 to benefit from long-term growth in this newly regulated market. In the last few years, the Group has decreased its exposure to the German market, which amounts to under 4% of 2020 Group revenue. The impact of the new regulation and associated tax regime is expected to be approximately a US$15 million reduction to 2021 EBITDA.

UK

The Group delivered revenue growth in the UK of 63% to US$333.5 million (2019: US$204.1 million) reflecting 888's clear and unwavering focus on entertaining recreational customers and providing them value in a safe and secure environment. Increases were driven by strong growth in FTDs of 60%, a doubling of deposit levels and a 48% increase in funded active players.

During the year, the Group continued to implement enhancements to its operating processes in the UK, including increasing customer due diligence, tighter anti-money laundering processes, and developing customer protection tools and protocols. These changes are aimed at providing a safer gambling environment for players and to ensure the Group is aligned with the market's regulatory environment. 888 is committed to continue investing in and enhancing its safer gambling processes and tools across all markets and has enhanced its detection protocols and alerts since the outbreak of COVID-19 to make sure players engage with its products in a responsible manner, as well as developing the Control Centre, giving players increased transparency about their activity as well as quick and simple tools to limit their gameplay.

As part of the Group's commitment to ongoing progress in its safer gambling policy, the thresholds for intervening with players have been further tightened, which is expected to restrict 888's ability to grow its revenues in this market during 2021. Further details on the Group's safer gambling strategy and initiatives can be found in the 2020 Annual Report.

Italy

Italy delivered continued strong revenue growth of 69% to US$86.5 million (2019: US$51.1 million), for the first time comprising more than 10% of the Group's total revenue. This strong performance, including increases in FTDs of 43% and in deposits of 44%, reflects the strength of 888's established brands in the Italian market. Casino revenue in Italy increased by 71%, Poker revenue increased by 114% and Sport revenues increased by 38% despite the impact of COVID-19 in the first half of the year.

Spain

In Spain, revenue increased by 11% to US$67.5 million (2019: US$60.9 million), with FTDs increasing by 7%. This performance was delivered against the backdrop of cancelled sporting events during the first half of the year as well as new restrictions on marketing and retention activities, all of which created a more challenging operating environment. Casino revenue increased by 18% and Casino FTDs increased by 28%. Poker revenues increased by 92%, with a strong customer reaction to the launch of Poker8 during the second half of the year.

US and Americas

Revenue from US and Americas increased by 81% to US$93.7 million (2019: US$51.7 million). US revenue increased by 65% to US$20.8 million (2019: US$12.6 million). This was primarily due to New Jersey B2C revenue which increased by 71%, with a 61% increase in FTDs in the state, driven by the enhancements made to 888's product in the US market over recent periods. Non-US revenue increased by 86% year-on-year primarily reflecting the Group's strong B2C Casino activity during the period.

888 remains focused on investing further in the US market in order to deliver significant medium-to-long-term growth opportunities. In December, the Group announced three multi-year market access agreements to launch in the US states of Colorado, Indiana and Iowa, and it is currently assessing additional market access deals and opportunities in the US, with the aim to be active in additional states during 2021.

In January 2021, the Group announced a multi-year extension of its exclusive B2B poker partnership with Caesars Interactive Entertainment. The new agreement will see 888 continue to power the World Series of Poker ("WSOP") brand's online poker rooms as the Company plans its entry into new regulated markets including Michigan and Pennsylvania. 

In 2020, the Group signed a multi-year extension of the contract with the Delaware Lottery, and during January 2021, the Group introduced its Orbit platform for the three Delaware online Casino brands.

Results overview

Gaming taxes and duties

Gaming duties levied in regulated and taxed markets substantially increased by 59.0% to US$151.8 million (2019: US$95.5 million). This is a result of the Group's strong revenue growth in regulated and taxed markets including the UK. The proportion of Gaming taxes and duties to revenue increased to 17.9% (2019: 17.0%) affected by the UK's Remote Gaming Duty rate increase from 15% to 21% in April 2019, the Portugal gaming tax rate increase from 15% to 25% in April 2020, and a different mix of revenue across regulated markets.

Other cost of sales

Cost of sales, which mainly comprise commissions and royalties payable to third parties, chargebacks, payment service provider ("PSP") commissions and costs related to operational risk management and customer due diligence services, increased by 53.4% to US$135.1 million (2019: US$88.1 million). The proportion of cost of sales to revenue increased to 15.9% (2019: 15.7%).

The strong growth in the Group's Casino and Sport offerings resulted in higher commissions and royalty charges payable to third party providers of games and data feeds, mainly in respect of the Live Casino activity and the Sport third-party platform. It also meant higher commissions payable to PSPs and costs related to stricter regulatory requirements to enhance the scope of customer-related screening.

Gross profit

Gross profit increased by 49.4% to US$562.8 million (2019: US$376.7 million). Gross profit was mainly impacted by the strong increase in activity. Gross margin decreased from 67.2% to 66.2%, mostly as a result of the increased gaming taxes and costs related to operational risk management.

Marketing expenses

One of the key drivers of 888's business is effective and innovative marketing spend. Overall marketing expenses increased by 55.1% to US$237.1 million (2019: US$152.9 million). The marketing ratio increased to 27.9% (2019: 27.3%) and this increase in investment was a major driver behind the strong 42% increase in FTDs in the Group's B2C business.

During the year, the Group also tripled its marketing investment in the US, which resulted in both an increased number of FTDs and increased awareness of the 888 brands in this critical market.

Increased marketing investment is in line with the Group's strategy to build momentum in the business, albeit under restrained marketing messaging, regulatory limitations in certain markets and tighter responsible gaming measures.

Contribution

Contribution, which represents Gross profit less Marketing expenses, increased by 45.5% to US$325.7 million (2019: US$223.9 million), while Contribution margin decreased to 38.3% (2019: 40%), mainly due to the slightly lower gross margin and increased marketing investment during the year to support future growth plans.

Operating expenses

Operating expenses¹ (which mainly comprise employment costs, legal costs, regulatory and tax advice, development costs, IT services and infrastructure maintenance) amounted to US$170.1 million (2019: US$131.7 million). The increase during the year is explained by the following factors: (i) the uplift in trading which resulted in the need to adjust and retain personnel to handle and support this business growth; (ii) increased cost of legal, regulatory and tax advice are directly linked to the growing complexity of the Group's regulatory footprint; (iii) more R&D investment in the new proprietary Sport platform, as well as investment across our regulated markets and the development of new products, games and features that further enhance customer experience. This year also saw a specific emphasis on increased investment in safer gambling and customer protection.

¹        Excluding depreciation of US$14.8 million (2019: US$12.6 million), amortisation of US$18.8 million (2019: US$19.6 million) and share benefit charges of US$11.0 million (2019: US$5.4 million).

Adjusted EBITDA

Adjusted EBITDA increased 69.0% to US$155.6 million (2019: US$92.1 million), representing an Adjusted EBITDA margin of 18.3% (2019: 16.4%). Adjusted EBITDA was primarily impacted by the strong increase in Contribution, and partly offset by the increased level of Operating expenses, as explained above.

Exceptional items

(1)  The Group carried out an impairment test for the Goodwill and intangible assets of the Bingo business which resulted in impairment charges of US$79.9 million. The projected cash flows used to evaluate the recoverable amount of Bingo Goodwill have been updated to reflect enhanced regulation in the UK market coupled with Group's strategic decision to reduce focus on Bingo business and increase focus on other product and geographic opportunities.

(2)  During 2020, while assessing the provision in respect of past and current regulatory matters, management concluded that it could be reduced. The net decrease in this provision was accounted for as exceptional income, in line with the treatment when the provision was created.

(3)  Capital gain related to the sale of investment in Come2Play Limited.

(4)  Legal and professional costs associated with the acquisitions of the Costa Bingo brands and the BetBright sport platform in 2019.

(5)  Restructuring costs related to employee redundancies as part of the Group's headcount cost optimisation project during 2019.

Finance income and expenses

Finance income of US$0.1 million (2019: US$0.5 million) less finance expenses of US$6.1 million (2019: US$7.2 million) resulted in a net expense of US$6.0 million (2019: US$6.7 million). Finance expense mainly comprised US$1.3 million non-cash interest expenses resulting from the implementation of IFRS 16, US$3.3 million non-cash charge relating to currency exchange differences and US$1.4 million interest charge in respect of the revolving credit facility ("RCF") which was fully repaid during 2020.

888 continually monitors foreign currency risk and takes steps, where practical, to ensure that net exposure is kept to an acceptable level.

Profit before tax

Profit before tax was US$26.7 million (2019: US$45.3 million), reflecting the significant overall improvement in 888's financial performance offset by the impact of one-off goodwill Impairment charges.

Adjusted profit before tax was US$116.0 million (2019: US$53.2 million), mainly as a result of higher EBITDA as described above.

Taxation

Taxation for the period increased to US$15.4 million (2019: US$3.7 million), mainly as a result of the higher adjusted profit generated in 2020.

In prior years, the Group took steps to mitigate Brexit-related risks, including the redomiciliation of certain of its licensed entities to Malta and establishment of a data centre in Ireland. As a result, we have not seen any disruption to our ability to continue to serve European markets.

Net Profit and adjusted net profit

Net profit was US$11.3 million (2019: US$41.6 million). Adjusted net profit¹ increased by 103% to US$100.6 million (2019: US$49.5 million).

¹ As defined in Earnings per share note of the financial statements.

Earnings per share

Basic earnings per share was 3.1¢ (2019: 11.3¢).  Adjusted basic earnings per share increased to 27.3¢ (2019: 13.5¢). The increase is a result of higher Adjusted net profit in 2020 compared to the previous year, as outlined above.

Further information on the reconciliation of Adjusted basic earnings per share is given in Earnings per share note to 2020 financial statements.

Dividend

The Board of Directors is recommending a final dividend of 10.4¢ per share in accordance with 888's dividend policy, plus an additional one-off 1.6¢ per share to acknowledge the record-breaking performance of the Group in 2020, bringing the total for the year to 18.0¢ per share (2019: 6.0¢ per share).

Cash flow

Net cash generated from operating activities increased to US$179.2 million (2019: US$80.5 million), primarily related to US$66.0 million higher Adjusted Profit before tax. Changes in working capital contributed US$33.5 million (2019: US$1.7 million) mainly comprising an US$18.0 million increase in customer deposits and a US$44.1 million increase in trade and other payables, offset by a US$34.5 million increase in trade receivables.

Net cash used in investing activities was US$30.9 million, mainly comprising acquisition of property, plant and equipment of US$10.6 million and internally generated intangible assets of US$17.9 million (2019: US$82.9 million, including the acquisition of the BetBright sport platform, Costa Bingo brands and 53% of AAPN Holdings LLC, or US$22.3 million excluding acquisitions).

Net cash used in financing activities was US$58.9 million (2019: US$31.7 million), comprising US$18.0 million repayment of the RCF (2019: proceeds from RCF of US$17.5 million) and dividend payments of US$33.2 million (2019: US$40.4 million). As at 31 December 2020, the RCF remained entirely undrawn.

Balance sheet  

Total assets as at 31 December 2020 amounted to US$486.7 million (2019: US$433.1 million).

Current assets as at 31 December 2020 amounted to US$274.6 million (2019: US$142.1 million) and current liabilities were US$298.9 million (2019: US$229.6 million).

888's net cash position as at 31 December 2020 was US$190.0 million (2019: US$96.9 million). Cash and cash equivalents increased by US$93.1 million, primarily a result of the strong cash flow generated from operating activities.

The balance of cash owed to customers as at 31 December 2020 was US$74.0 million (2019: US$54.7 million).

Going concern

Following consideration of the updated base case forecasts and the updated downside scenarios, the Directors have a reasonable expectation that the Company has adequate resources to continue in operational existence for the foreseeable future. Therefore, the Directors continue to adopt the going concern basis of accounting in preparing the consolidated financial statements. Further details are provided on note 2 to this financial statement.

Yariv Dafna

Chief Financial Officer 

Risk management strategy

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

The Board acts in accordance with a Risk Management Policy, which aims to explicitly identify and evaluate key risks underlying the Group's core business strategy and standardise the approach to risk prioritisation and management across 888's operations. This in turn means that effective controls can be put in place to ensure 888 is able to manage its operations effectively now and into the future. 888's risk register is updated periodically and regular discussions are held at Board and management level of the role of risk in 888's business.

888's culture emphasises the need for employees to take responsibility for managing the risks in their own areas and to transparently and timely report "bad news" and "near miss" incidents, with a willingness to constantly learn and improve. Where failures are identified, 888's management is committed to appropriately investigating what happened and why, in order to learn from mistakes. The Board has also adopted a Reporting and Escalation Procedure to ensure timely reporting of internal reportable events including bugs, technical failures, information security malfunctions and marketing and other operational incidents which may affect customers.

The Board considers that 888 complies with the requirements of the Financial Reporting Council's Guidance on Risk Management, Internal Control and Related Financial and Business Reporting dated September 2014, and specifically confirms that:

-     it is responsible for 888's risk management systems and for reviewing their effectiveness;

-     there is an on-going process for identifying, evaluating and managing the principal risks faced by 888;

-     the systems have been in place during 2020 and up to the date of approval of the annual report and accounts; and

-     they are regularly reviewed by the Board (please see the 2020 Annual Report for further details of the review conducted in 2020).

As part of its regular risk assessment procedures, the Board takes account of the significance of environmental, social and governance matters to the business of the Company, and has identified and assessed the significant risks of that nature to the Company's short and long-term value, as well as the opportunities to enhance value that may arise from an appropriate response. The Board confirms it has received adequate information to make this assessment and that these matters are considered in the training of directors. The Board has specifically verified environmental, social and governance disclosures - part of which, where mentioned herein, are verified by external advisory firms and internal audits - with Group senior management in order to ensure their accuracy.

Risk appetite

Addressing risk is a high priority for the Board and effective risk management is an integral part of the way we conduct our business on a daily basis. The Board factors into the risk assessment impact, likelihood and appetite considerations. Risk is managed across the Group in the context of overall risk appetite and during 2020 the Board considered risk appetite to ensure adequate resources are allocated to identified risks. The Board reviewed and approved the following risk appetite statement:

888 faces the following significant risks:

Regulatory risk è increased during 2020

The risk: The regulatory framework of online gaming is dynamic and complex. Change in the regulatory regime in a specific jurisdiction can, depending on the nature of the change and its impact on the group's offering and modalities, have a material adverse effect on business volume and financial performance in that jurisdiction. In addition, a number of jurisdictions have regulated online gaming, and in several of those jurisdictions 888 either holds a licence or applied to obtain one. However, in some cases, lack of clarity in the regulations, or conflicting legislative and regulatory developments, mean that 888 may risk failing to obtain an appropriate licence, having existing licences adversely affected, or being subject to other regulatory sanctions, including internet service provider blocking, payments blocking, black-listing and fines. Furthermore, legal and other action may be taken by incumbent gaming providers in jurisdictions which are seeking to regulate online gaming, in an attempt to frustrate the grant of online gaming licences to 888. Newly enacted or modified licensing regimes may impose operational conditions on the group that are onerous or commercially unviable. Finally, changes to either the regulatory framework or enforcement policy relating to online gaming in certain markets may effectively force the Group out of certain markets where it currently operates or compel it to change its business practices or technology in a way that would materially impact results.

Relevance to strategy: Compliance with regulatory requirements and the maintenance of regulatory relationships in multiple jurisdictions is key to maintaining 888's online gaming licences which are critical to the operation and growth of its online gaming business. With the majority of revenue generated from jurisdictions where the group is locally licensed, the importance of such licenses and their centrality to the business constantly increase. A growing number of jurisdictions worldwide now either locally license or otherwise regulate online gambling, and therefore 888 may be exposed to an increasing number of licensing requirements or conversely to attempts to block access to 888's offering to players in certain jurisdictions or to penalize 888 for its offering. A robust understanding of the legal and regulatory position in key locations worldwide is crucial to mitigating this risk.

How the risk is managed: 888 manages its regulatory risk by routinely consulting with legal advisers in various jurisdictions where its services are marketed or which generate significant revenue for the Group. Furthermore, 888 obtains frequent and routine updates regarding changes in the law in jurisdictions of interest that may be applicable to its operations, working with local counsel to assess the impact of any changes on its operations. 888 constantly adapts and moderates its services to comply with legal and regulatory requirements. 888 has continued to review possible organizational changes in order to strengthen regulatory compliance oversight, as well as to improve co-operation between the different departments and streamline processes of settling any conflicts between them, ensuring that 888's regulatory requirements and duty to uphold the licensing objectives always take priority over commercial interests. Finally, 888 blocks players from certain "blocked jurisdictions" using multiple technological methods as appropriate, and in addition is able to moderate budgeted spend and focus in markets where uncertainty is high, along with adjusting its marketing strategy to online channels thus allowing faster cost adjustment when needed. 888 also believes its investment in product developments, such as better communication tools, improved player experience and games adjustments, serves to mitigate this risk.

What happened in 2020: In part as a response to the COVID-19 pandemic, various jurisdictions adopted a more stringent approach to player protection, primarily to avoid emergence of problem gambling patterns amongst those sheltering at home, and to curtail excessive spending on gambling during a period of economic downturn. In various jurisdictions, this took the form of advertising restrictions, or the imposition of stricter player protection and responsible gambling measures, either temporarily or on a permanent basis.

The UK Gambling Commission ("UKGC") continued to take a strict approach towards compliance, tightening requirements, adopting more stringent policies and regulations, increasing the level of oversight over licensees and penalizing operators for failing to meet regulatory requirements and standards. The primary areas of focus for the UKGC were responsible gambling and prevention of underage gambling, consumer protection, and anti-money laundering. The UKGC adopted additional restrictions, e.g. a ban commencing in April 2020 on credit card transactions for gambling and stricter age verification obligations. In November 2020, the UKGC opened a consultation on remote customer interaction, which covered the issues of potential customer affordability checks, vulnerable person identification mechanisms and increased time management control for customers. In December 2020, the UK Government launched a review of the Gambling Act 2005, with the aim to ensure it is "fit for the digital age". The review is to cover the regulator's powers as well as regulation of marketing and restrictions to online offerings. The Group continued to work closely with the UKGC on compliance matters, and also to update its policies and procedures and to strengthen internal reporting lines to ensure compliance within the business, investing significant resources in regulatory compliance measures. In 2020, the UKGC commenced a compliance assessment of the Group, which looked in detail at a number of specific cases. The Group is engaged in dialogue and is working cooperatively with the UKGC to address all concerns raised with regard to the Group's operations under its UK license.

In Germany, the regulatory landscape is undergoing the most drastic change in a decade with the introduction of federal sports betting licenses (for which 888 has applied) and the adoption of a temporary toleration regime for online casino gambling (with which 888 is compliant). Compliance with the conditions of the new licensing and toleration regimes required various modifications and alignments of the group's German offering, which will impact the profitability of its operations in that jurisdiction. 888 has been successful in having certain prohibition orders previously issued against it withdrawn, and having certain others suspended, as it continues to litigate against outstanding prohibition orders in various German states. The emergence of a licensing regime for sports betting and online casino may, in the foreseeable future, render these prohibition orders obsolete. In early 2020, it was announced that the German states had reached a consensus that would result in regulatory reform in mid-2021, under which operators would be able to apply for a license to offer online slots and poker, subject to certain restrictions (e.g. deposit limits, maximum wagers, advertising restrictions, etc.). Some details of this regime have not yet been developed, but this development could significantly impact the Group's casino offering in the German market.

In the Netherlands, where a law was approved in February 2019 to liberalize the market, the local regulator continues to take a proactive and strict approach towards enforcement of existing laws against operators whose operations are conducted in violation of the "prioritization criteria" for enforcement issued by the authorities, and which were updated with additional criteria during 2019. Several operators received significant fines due to the conduct of operations in a manner violating these criteria. Operators fined or overtly targeting the market may also be barred from participating in the liberalized market or have their eligibility for licensing delayed. The Group has been studying these developments closely to ensure its offering is in line with the criteria as updated.

In Sweden, the Group has been operating under a local license since 2019. The Swedish regulator initially showed itself to be strict and proactive in enforcing regulatory standards, and on occasion informed the industry of its position on compliance by penalizing operators it perceived as non-compliant. 888 continues to take measures to ensure that its operations are in line with local requirements.

2020 also saw a rising trend of civil litigation claims in Austria against foreign-licensed operators, claiming refunds due to lack of local licensing. This trend is backed by case law amongst the higher Austrian courts. In addition, claim-financing bodies started gathering claims against operators. The Group is dealing with these civil claims with help from its local advisors. A similar uptick in civil claims also recently started in Germany, but to a lesser extent.

In January 2021, the federal Court of Appeals for the First Circuit denied an appeal by the US Department of Justice seeking to uphold a 2019 memo on the scope of the federal Wire Act. By denying the appeal, the Court confirmed the previous opinion from 2011, which concluded that the Act applies only to sports betting. The case may eventually reach the US Supreme Court, however this may depend on the position of the new Biden administration on the issue. If left unchallenged, this development would help serve 888 and the online industry in providing a more legally sound basis for internet gaming activity in the US. More generally, the US continued to move towards increased regulation of various forms of online gambling. The group was licensed in the Pennsylvania in September 2020, and continues to seek licensure in other US jurisdictions.

Information Technology and Cyber risks è increased during 2020

The risk: IT systems may be impacted by unauthorised access, cyber-attacks, DDoS (Distributed Denial of Service) attacks, theft or misuse of data by internal or external parties, or disrupted by increases in usage, human error, natural hazards or disasters or other events. Cyber-attack and data theft incidents may expose 888 to "ransom" demands and costs of repairing physical and reputational damage. Failure of IT systems, infrastructure or telecommunications / third party infrastructure may cause significant cost and disruption to the business and harm revenues. Lengthy down-time of the site (including in transitioning to activated disaster recovery servers) could also cause 888 to breach regulatory obligations.

Relevance to strategy: As an online B2C and B2B business, the integrity of 888's IT infrastructure is crucial to the supply of its offerings and compliance with its regulatory obligations and to the maintenance of customer loyalty.

How the risk is managed: Cutting-edge technologies and procedures are implemented throughout 888's technology operations and designed to protect its networks from malicious attacks and other such risks. These measures include traffic filtering, anti-DDoS devices and obtaining anti-virus protection from leading vendors. Physical and logical network segmentation is also used to isolate and protect 888's networks and restrict malicious activities. The IT environment is audited by independent auditors, such as PCI DSS security audit and eCOGRA audit. These audits form part of 888's approach to ensuring proper IT procedures and a high level of security. In order to ensure systems are protected properly and effectively, external security scans and assessments are carried out on a regular basis.  888 has a disaster recovery site to ensure full recovery in the event of disaster. All critical data is replicated to the disaster recovery site and stored on a Glacier AWS service. In the event of loss of functionality of 888's critical services, the business can be fully recovered through the resources available at the disaster recovery site. In order to minimise dependence on telecommunication service providers, 888 invests in network infrastructure redundancies whilst regularly reviewing its service providers. As a part of its monitoring system, 888 deploys set user experience tests which measure performance from different locations around the world. Network-related performance issues are addressed by rerouting traffic using different routes or providers. 888 operates a 24/7 Network Operations Centre ("NOC"). The NOC's role is to conduct real time monitoring of production activities using state-of-the-art systems. These systems are designed to identify and provide alerts regarding problems related to systems, key business indicators and issues surrounding customer usability experience. The IT environment tracks changes, incidents and service level agreement key performance indicators in order to ensure that client experience is consistent and well managed. As part of these procedures, capacity planning takes place and infrastructure is built accordingly. System-wide availability and business-level availability is measured and logged in the IT information systems.

What happened in 2020: COVID-19 was a catalyst for upgrading the Group's work from home capabilities across all sites, with security and audit measures adjusted accordingly. The Group also started the process of migrating its front tier websites to a cloud based solution, together with implementation of leading cloud protection and audit tools; this process will be completed in 2021. The Group further improved its DDoS architecture, including mitigation of device upgrades and moving to an always-on architecture. Automation of security processes has also been further progressed, together with implementation of Advanced Persistent Threat (APT) protections, and additional "write once read many" (WORM) backup of the Group's data centre to mitigate ransomware risk.

Data Protection risk è remained stable during 2020

The risk: 888 processes a large quantity of personal customer data, including sensitive data such as name, address, age, bank details and gaming / betting history. Such data could be wrongfully accessed or used by employees, customers, suppliers or third parties, or lost, disclosed or improperly processed in breach of data protection regulations. In particular, the European General Data Protection Regulation ("GDPR") entered into force in May 2018, having a significant effect on the Company's privacy and data protection practices, as it introduced various changes to how personal information should be collected, maintained, processed and secured. Non-compliance with the GDPR may result in fines of the higher of €20 million or 4% of the Company's annual global turnover, and the Company will be particularly exposed to enforcement action in light of the amount of customer data it holds and processes. In addition, various countries in the EU have introduced domestic data protection laws incorporating the GDPR requirements. Moreover, 888 makes use of various tracking technologies (such as cookies, SDKs, JavaScript and other forms of local storage), which are subject to stricter standards of consent and transparency, both under the GDPR and the e-Privacy Directive. The Company could also be subject to private litigation and loss of customer goodwill and confidence.

Relevance to strategy: The holding and processing of personal and sensitive data in a lawful and robust manner is central to 888's analytics-based business strategy. As an online B2C and B2B business, the integrity of 888's data protection framework is crucial to the supply of its offerings, compliance with its regulatory obligations and maintenance of the impressive customer loyalty with which 888 is entrusted.

How the risk is managed: 888 has undergone a robust and risk-oriented GDPR-preparation project, pursuant to a designated GDPR Gap Analysis that was prepared for that purpose in coordination with its legal advisers. 888 has further mapped the personal data life-cycle within the organization, including how personal data of its customers and EU employees is collected, stored, secured and shared with third parties. 888 has further appointed a designated internal Data Protection Officer ("DPO") and put in place policies and procedures on relevant matters including exercising user rights and data retention, data sharing with third parties, security policies, as well as reviewing necessary product and IT implementation. Such policies and procedures are reviewed and updated on an ongoing basis to align with the most up to date regulatory guidelines. 888 has further put in place adequate contractual measures with respect to sharing data with third parties, reviewing its privacy notices and other customer notifications and reviewing the current data security framework on an ongoing basis.

What happened in 2020: 888 reviewed and updated its internal data protection policies and procedures, as well as notices provided to the users (such as privacy notices, cookie notices and consent forms), so as to ensure alignment with regulatory developments and guidelines; reviewed a dedicated notice and choice mechanism (to be implemented on 888's online properties) so as to meet the regulatory requirements relating to the use of tracking technologies; ensured that data subjects requests to exercise rights are handled in an appropriate manner, in accordance with the internal procedures and within the regulatory timeframe; the DPO of 888 acted to ensure a privacy-aware culture within 888 by way of conducting training and privacy awareness exercises to relevant employees and departments (e.g. customer support and marketing teams); the DPO of 888 produced an annual report with the objectives of providing an overview of the key events, regulatory investigations and inquiries, and data subjects' complaints since the GDPR entered into force, enabling 888's senior management to ascertain the data protection risks and challenges in the environment in which the Company operates and the regulatory exposure, support 888's senior management with the effort to take appropriate risk mitigation steps and allocate appropriate resources for handling data protection issues, and increase the awareness to data protection obligations and the 888's responsibilities; reviewed and responded to data subjects' complaints and regulatory inquiries relating to compliance with applicable data protection requirements; and monitored for and investigated data breach attempts/incidents and took the appropriate steps to enhance its cybersecurity posture and mitigate the residual risks.

Taxation risk è increased during 2020

The risk: Heightened attention continues to be given to matters of cross-border taxation in line with the G20/OECD Base Erosion and Profit Shifting recommendations. During 2020, the OECD/G20 Inclusive Framework on BEPS carried out public consultations regarding Reports on the Pillar One and Pillar Two Blueprints in response to the Tax Challenges arising from Digitalisation. Pillar One addresses the allocation of taxing rights between jurisdictions and considers various proposals for new profit allocation and nexus rules, in particular to market jurisdictions; and Pillar Two (also referred to as the "GloBE" proposal) focuses on the remaining BEPS issues and aspires to a minimum effective rate of taxation for multinational enterprises, by way of a set of rules that provide jurisdictions with a right to "tax back" where other jurisdictions have not exercised their primary taxing rights or the payment is otherwise subject to low levels of effective taxation. The Pillar One and Pillar Two rules, once implemented, are expected to apply to 888, along with detailed transfer pricing reporting and exchange of tax information rules known as "Country by Country Reporting", insofar as 888's annual revenues exceed EUR 750 million. Some countries, such as the UK, Italy and Spain, have implemented unilateral digital service taxes. The UK also implemented the Offshore Receipts in respect of Intangible Property rules imposing UK tax on the receipt of royalties by offshore companies deriving from business activity in the UK. Gibraltar and Malta transposed the EU Anti Tax Avoidance Directive into domestic law, including changes with respect to exit tax, General Anti-Abuse Rules and Controlled Foreign Corporation rules. Due to pressure from the European Union, many offshore jurisdictions have introduced "substance" requirements including with regard to IP companies. The likelihood of scrutiny of tax practices by tax authorities in relevant jurisdictions and the aggressiveness of tax authorities remains high. A finding of taxable presence of the Group in one or more jurisdictions (including pursuant to revised interpretations of the permanent establishment concept as mentioned above), a transfer pricing adjustment with respect to attribution of profit to such jurisdiction(s), or imposition of another form of tax as mentioned above, may have a substantial impact on the amount of tax and VAT paid by 888 or require significant payments by 888 in respect of historical tax liabilities. 888's effective tax burden also increases due to the imposition or increase of gaming duty in markets in which the Group has customers. The Company believes, based amongst other matters on its Assessment Agreement with the Israeli Tax Authority for years 2013-2015, that the remuneration attributed for tax purposes to its Israeli subsidiary complies with the arm's length standard, and therefore continues to rely on the transfer pricing agreement with regard to tax years following 2015, however, in light of the developments in taxation rules internationally, including in the field of transfer pricing pursuant to which new methodologies are gaining prominence, in the context of the tax audit detailed below, the Israeli Tax Authority may seek to increase the level of remuneration attributed to the Israeli subsidiary for tax purposes commencing from the 2016 tax year, which could have material financial consequences to the Company.

Relevance to strategy: In addition to the financial consequences of a challenge to 888's tax structure, tax compliance - and being seen to be paying the "right amount" of tax - has become a serious reputational issue as well as being a regulatory compliance issue. As such, it is crucial that 888 has a solid basis for its tax positions taken in relevant jurisdictions.

How the risk is managed: 888 aims to ensure that each legal entity within its Group is a tax resident of the jurisdiction in which it is incorporated and has no taxable presence in any other jurisdiction. In addition, 888 consults with tax advisers not only in jurisdictions in which its Group companies are incorporated and in which it has personnel, but also in major markets in which it has customers, in order to comply with its legal obligations whilst taking such action as is necessary to prevent the improper imposition of unlawful or double taxation.

What happened in 2020: 888 continues to engage with tax authorities and obtain legal advice in order to regularise its tax position and mitigate exposures. In Israel, the local subsidiary is undergoing a tax audit with respect to years 2016-2018, which primarily focuses on transfer pricing matters. No assessment has yet been issued, and the Company expects these tax assessments to be concluded during 2021.

Retention of Key Personnel and Succession risk à decreased during 2020

The risk: The success of the Company is in part dependent on its ability to retain its key personnel, including at Board and senior management level and throughout the business, and to successfully manage succession planning in the case of key personnel leaving the Company.

Relevance to strategy: Human capital is important to online gaming businesses, and online businesses generally, and competition for highly-qualified personnel is intense in locations in which the Group is based. Ensuring orderly succession planning is important to delivering on the Company's strategy and avoiding undue disruption to the business.

How the risk is managed: Executive directors and senior management are compensated competitively, including an equity component and bonus partially deferred into shares. The Board has an active Nominations Committee, which is responsible for succession planning at the Board and senior management levels, and is supported as necessary by external executive recruitment agencies.

What happened in 2020: During 2020, Yariv Dafna successfully transitioned into his new role as CFO, replacing Aviad Kobrine, who stepped down on 1 November 2020 after a seamless transition of responsibilities. Lord Jon Mendelsohn joined the Board as a Non-executive Director, designated chairman and member of the Audit and Remuneration Committees, and will replace Brian Mattingley as Chairman of the Board on 31 March 2021.

Business Disruption due to Pandemics such as COVID-19 è remained stable during 2020

The risk: As a multinational company based in a number of locations worldwide, the Company is dependent on the ability of its personnel to maintain their physical health and wellbeing, successfully carry out their roles from the Group's offices or remote locations, and at times to travel between sites. Business disruptions may occur when personnel are unable to work or communicate with one another, including due to pandemics such as COVID-19. Such outbreaks and the response thereto also affect the global economy, which can impact consumer confidence and spending more generally. In particular, cancellation of sporting events adversely affected our Sport business in the first half of 2020. There is currently evidence of an increase in customer activity in the Group's products, reflecting a general move in the broader economy from retail to online services. However, in the event of a prolonged global macro-economic downturn, consumer spending across the Group's online gaming product verticals may also become impacted.

Relevance to strategy: Online gaming businesses are dependent on their highly qualified personnel in order to operate effectively. Ensuring that personnel can work and communicate is key to delivering on the Company's strategy and avoiding undue disruption to the business. Our Sport business is also dependent on sporting events continuing to be held on which customers are interested in betting.

How the risk is managed: The Company monitors developments which may affect its sites and customers, and where necessary and practicable takes steps to mitigate disruption to the business.

What happened in 2020: In light of the COVID-19 outbreak and limitations imposed in various Group locations, including with respect to self-isolation as well as restrictions on travel and conferences, the Company has taken a number of mitigation steps including enabling remote working and rebalancing of responsibilities between sites. These actions enabled the Group to deliver its product development plan and to launch new products despite the restrictions.

Reputational riskè remained stable during 2020

The risk: The reputation of 888 is affected by the profile of both other online gaming and betting operators, as well as the gaming and betting industry as a whole. Various regulators, most notably the UKGC and the Swedish regulator, have adopted stricter compliance and enforcement policies, conducting more in-depth reviews of operational practices and sanctioning operators found to be non-compliant. There appears to be growing sentiment in various jurisdictions that existing regulations do not sufficiently protect minors and vulnerable players or do enough to prevent the use of illicitly obtained funds for gambling purposes. More specifically - due to the COVID-19 pandemic, which resulted in a growth in gambling spending and a potential increase in problem gambling prevalence, the industry as a whole has been the subject of increased criticism and the calls for stricter regulation, specifically around responsible gambling and advertising, have intensified. This could result in reputational damage to the Group, as well as in the adoption of stricter regulations and enhanced enforcement measures.

Relevance to strategy: Underage and gambling-related harm, as well as the use of illicit funds for gambling, are risks associated with any gaming business, and ensuring compliance with regulatory requirements for the protection of vulnerable people and the prevention of money laundering is critical to maintaining 888's online gaming licences. 888 also recognises that, in light of the COVID-19 outbreak, people are spending more time at home with potentially increased stress from economic uncertainty, meaning that 888's vigilance on safe gambling and preventing gambling-related harm is even more important than ever.

How the risk is managed: Staff are trained to provide a safer gaming experience to customers and to recognise and take appropriate actions if they identify compulsive or underage activity. 888 also complies with eCOGRA guidelines to protect customers. Web links to professional help agencies are provided on 888's real money gaming sites, and 888 has a dedicated website which provides information regarding responsible gaming. Players can also limit their play pattern or request to be self-excluded. 888 furthermore - directly or via industry bodies - seeks to ensure that legislators and regulators are provided with accurate and useful information regarding protections against problem and underage gaming. Special customer protections were added during the COVID-19 pandemic, in order to mitigate the increased risks arising from customers remaining at home for long periods under conditions of stress. These included compliance with regulations and guidance issued by various regulators, including the UKGC as well as the Spanish and Swedish regulators, as well as adopting social responsibility guidelines and increasing proactive responsible gaming communications and measures for our customers.

What happened in 2020: There have been growing calls for the adoption of stricter responsible gambling and player protection measures, as well as stricter advertising restrictions, in response to the COVID-19 pandemic. There has also been some public and press criticism against the industry due to some operators perceived to be taking advantage of the pandemic to drive business. 888 continued to devote significant resources to putting in place prevention measures coupled with strict internal procedures to protect customers, and monitor and update procedures to ensure that minors are unable to access their gaming sites. 888 continues to improve on efforts to detect and prevent instances of problem gambling, and continues to review and update its anti-money laundering and safer gambling policies to better detect players suspected of using illicit funds for gambling, and to better identify players showing indicators of harm or patterns of problem gambling. 888 has continued its review of all its websites and those of its B2B partners with a view to ensuring that content is responsible and compliant with the applicable advertising standards. 888 has also continued enhancing its integration with the National Online Self-Exclusion Scheme (also known as "GAMSTOP") to enable its customers to self-exclude on national level from all UK online gambling operators. The launch of our Control Centre, a single safer gaming dashboard allowing customers to monitor their gaming activity, was also a major achievement during 2020.

Partnership risk è remained stable during 2020

The risk: B2B partnerships expose 888 to business risks as well as compliance and reputational risks, with increased pressure on 888 as the licence holder, particularly from the UKGC, to monitor activities of its B2B partners. 888 furthermore uses services provided by third parties, including in its Sport vertical during the transition to 888's new proprietary platform, game providers including live casino, payment service providers, KYC and age verification providers, which if disrupted due to general economic conditions or otherwise, may impact 888's operations.

Relevance to strategy: B2B remains a material part of 888's business, particularly for Bingo in the UK; in addition, its US B2B contracts have strategic importance for the longer term. Third party providers are an important part of maintaining 888's attractive product offering.

How the risk is managed: 888 has reduced its dependency on B2B relationships, following the acquisition of Costa Bingo and other formerly B2B bingo brands. Remaining B2B contracts are maintained commercially in terms of the functionality and technology of the B2B platform offered, competitive pricing, maintaining an ongoing relationship with B2B partners, and ensuring that 888 has a good understanding of the needs of its B2B partners and their owners.

What happened in 2020: In 2019, 888 acquired Costa Bingo and other formerly B2B bingo brands from its former B2B partner Jet Management. In 2020, 888's US B2B partner Caesars announced that it will acquire William Hill plc, a move that could impact on the relationship with 888. As recently announced, the agreement with Caesars was extended until 2026, removing the risk for the short and mid-term. Certain of 888's service providers have been impacted by the COVID-19 outbreak and its economic consequences, and 888 is in the process of identifying these risks and mitigating where possible.

Acquisition risks è decreased during 2020

The risk: 888 has made a number of acquisitions in the online gaming and betting space. Acquisitions of gaming companies carry business risks, such as overpaying for what are mainly intangible assets, as well as legal and regulatory risks, including the receipt of necessary regulatory approvals to the transaction and exposure to legacy non-compliance of the seller. Furthermore, integration of acquired entities gives rise to a financial burden and the requirement of management attention and operational resources.

Relevance to strategy: Ongoing consolidation of the online gaming market has increased the importance of 888 being ready to acquire smaller operators.

How the risk is managed: 888's legal, financial and tax advisers ensure that a comprehensive due diligence is carried out on potential acquisition targets. Generally, 888 prefers to acquire assets rather than shares of companies, in order to mitigate exposure to any past non-compliance issues on the part of the seller. 888 seeks to take into account the resources required to integrate acquired entities in its annual budgeting and planning.

What happened in 2020: In 2019, 888 acquired Costa Bingo and other formerly B2B Bingo brands from its former partner Jet Management, as well as acquiring the BetBright Sports betting technology. Both transactions were structured as asset acquisitions, and during 2020 888 completed integration of these businesses into the Group.

Liquidity risk è decreased during 2020

The RCF taken by 888 from Barclays Bank plc was repaid in full during 2020, and 888 has no third party debt. In addition, the Company's net cash position improved and business liquidity increased during 2020.

Regulation and general regulatory developments

The most dominant factor influencing the regulation of online gambling in 2020 was, unsurprisingly, the COVID-19 pandemic. With billions of people worldwide sheltering at home for prolonged periods of time, and with the widespread eradication of in-person gambling and other forms of entertainment, the appeal and popularity of online gambling increased significantly. This development presented commercial opportunities for operators but also posed an increased risk to those potentially prone to problem gambling resulting in a call for enhanced restrictions designed to protect those more vulnerable. With many jurisdictions suffering from economic downturn, attempts intensified to prevent excess spending on gambling. These developments dovetailed into already growing concerns related to responsible gambling and an increased focus on marketing and advertising practices.

During 2020, various jurisdictions adopted a more stringent approach to player protection, primarily to avoid emergence of problem gambling patterns amongst those sheltering at home, and to curtail excessive spending on gambling during a period of economic downturn. In various jurisdictions, this took the form of advertising restrictions, or the imposition of stricter player protection and responsible gambling measures, either temporarily or on a permanent basis. The UKGC imposed various temporary responsible gambling measures in response to the COVID-19 pandemic, to curb the potential for increased spending and gambling addiction during lockdowns or by those sheltering at home. The Spanish Government imposed a prohibition on the offering of incentives or email and social media advertising during the COVID-19 lockdown. In Sweden, operators were subject to temporary deposit limits for betting and online casino gambling, as well as an additional restriction on the maximum amount of bonuses.

The UKGC continued to take a strict approach towards compliance, pursuing intensive oversight over licensees and penalizing operators for failing to meet regulatory requirements and standards. The primary areas of focus for the UKGC continue to be responsible gambling and prevention of underage gambling, consumer protection, anti-money laundering, the use of proceeds of crime for gambling and the provision of full disclosure to the UKGC regarding ownership interests and holding structures.  The UKGC adopted additional restrictions, e.g. a ban commencing in April 2020 on credit card transactions for gambling, stricter age verification obligations, restrictions related to the treatment of VIP players and the offering of inducements to high-rollers. The Commission also proposed additional restrictions on online slots, as well as standards applicable to player withdrawal requests. The Group continued to work closely with the UKGC on compliance matters, to update its policies and procedures and to strengthen internal reporting lines to ensure compliance within the business, investing significant resources in regulatory compliance measures. There continued to be calls, particularly within Parliament, for the imposition of stricter limitations on the advertising of gambling services, as well as ongoing criticism of the Gambling Commission's treatment of the industry. The Gambling Related Harm All Party Parliamentary Group continued to call for imposition of a GBP 2 staking limit for online gambling games (in line with the limit imposed on FOBTs) and advocated a ban on credit card gambling, a measure adopted by the UKGC in early 2020. In July 2020, the House of Lords Select Committee on the Social and Economic Impact of the Gambling Industry published a report containing various recommendations to reduce potential harm from gambling. These included testing of new games for the potential of addiction, imposition of restrictions on the speed of online games, imposition of affordability testing for players and the restriction of sports sponsorships. The House of Commons Public Accounts Committee also published a report criticizing the Gambling Commission and DCMS for its oversight of the gambling industry and measures adopt for protection of players and prevention of problem gambling. In November 2020, the UKGC opened a consultation on remote customer interaction, which covered the issues of potential customer affordability checks, vulnerable person identification mechanisms and increased time management control for customers. In December 2020, the UK Government has launched a review of the Gambling Act 2005, with the aim to ensure it is "fit for the digital age". The review is to cover the regulator's powers as well as regulation of marketing and restrictions to online offerings.

Germany experienced the most dramatic changes in its regulatory landscape in a decade. In early 2020, the country adopted a federal licensing regime for online sports betting. Though the rollout of the licensing process was delayed due to court order, licenses were eventually issued and the group has been awarded a license and is operating under this regime. Furthermore, the German states reached a consensus that would result in regulatory reform in mid-2021, under which operators would be able to apply for a license to offer online slots and poker, subject to certain restrictions (e.g. deposit limits, maximum wagers, advertising restrictions, etc.). This reform is conditional on its ratification by 13 of the 16 German states, and would represent a departure from the historical ban on online casino. As presently worded, the amended Treaty would allow operators to offer "arcade-style" online slot machines, which would be subject to 1 euro stake limits and restricted play options. Other types of casino games (e.g. table games) would be regulated on a state by state basis and remain within the state lottery's monopoly or subject to a restrictive concession model. The new Treaty would also impose a EUR 1,000 monthly deposit limit that would apply across all operators, though it is not clear yet how this would be implemented in practice. Some details of this regime have not yet been developed, but this development will significantly impact the Group's casino offering in the German market. As an interim measure, the German states adopted a temporary toleration regime for online casino gambling (with which 888 is compliant). Compliance with the conditions of the new licensing and toleration regimes required various modifications and alignments of the group's German offering, which will impact the profitability of its operations in that jurisdiction. Notwithstanding, these developments constitute a significant departure from many years of prohibition orders and enforcement attempts. As a result of these developments, 888 has been successful in having certain prohibition orders previously issued against it withdrawn, and in having the effect of others suspended, as it continues to litigate against outstanding prohibition orders in various German states. The emergence of a licensing regime for sports betting and online casino may, in the foreseeable future, render these prohibition orders obsolete. More pressingly, the group hopes that the introduction of the new and more accommodating regimes will encourage payment processors to renew processing of payments in this market.

In the Netherlands, where a law was approved in February 2019 to liberalize the market, the local regulator continues to take a proactive and strict approach towards enforcement of existing laws against operators whose operations are conducted in violation of the "prioritization criteria" for enforcement issued by the authorities, and which were updated with additional criteria during 2019. Several operators received significant fines due to the conduct of operations in a manner violating these criteria. Ambiguity lingers regarding the application of "bad actor" language in the new law, both in terms of timeline and in terms of scope. Operators who offered their services in the market prior to the licensing regime may be barred from participating in the liberalized market or have their eligibility for licensing delayed under a so-called "cool off" regime. Due to various delays in the legislative process, the actual launch of the licensing regime continues to be postponed. 888 continues to adhere to the regulator's criteria, as updated from time to time, and to follow developments on the regulatory front.

In Sweden, the Group began operating under a local license in 2019. The Swedish regulator has shown itself to be strict and proactive in enforcing regulatory standards and has on occasion informed the industry of its position on compliance by penalizing operators it perceived as non-compliant. 888 has studied the regulator's position and enforcement action closely to ensure that its operations are in-line with local requirements.

In January 2021, the federal Court of Appeals for the First Circuit denied an appeal by the US Department of Justice seeking to uphold a 2019 memo on the scope of the federal Wire Act. By denying the appeal, the Court confirmed the previous opinion from 2011, which concluded that the Act applies only to sports betting. The case may eventually reach the US Supreme Court, however this may depend on the position of the new Biden administration on the issue. More generally, the US continued to move towards increased regulation of various forms of online gambling. The group was licensed in the Pennsylvania in September 2020, and continues to seek licences and market access agreements in other US jurisdictions. Reports in early 2021 suggest that the state of New York may be on the verge of adopting a sports betting regime, and the group is following these reports closely. Other large states (California, Florida and Illinois) made no substantive progress on online gambling regulation, as attention was focussed on combating the pandemic and on the 2020 election cycle. It is unclear what position the new Biden administration will take towards gambling and whether the newly appointed Attorney General will reverse his predecessors' positions on this matter. However, with the new administration focussed on issues such as the pandemic, the economy, etc. it would appear unlikely that gambling will be a central focus in the coming year. We believe that the US is developing into a significant regulated online gambling market, and we continue to follow these developments with a view to capitalising on our capabilities in this market.

In contrast, in November 2020, Spain implemented sweeping restrictions on advertising and promotion of gambling, which are now the subject of a challenge by various media groups who have attacked the measures before the Spanish Supreme Court.

In Greece, progress appeared to be made with respect to adoption of the necessary regulations for implementation of the regulatory regime adopted in 2019. However, an actual licensing process has not yet commenced.

Brazil adopted framework legislation late in 2018 which would bring commercial online gambling to this significant jurisdiction. However, by the beginning of 2021, it had not yet adopted the necessary regulatory instruments to implement the regime. With the country ravaged by COVID-19, it is unclear when this matter will progress.

From time to time, the Group is the target of claims or litigation from customers in various jurisdictions where it operators under its Gibraltar or Malta licenses, seeking to recover losses based on arguments pertaining to the legality of the Group's offering in their jurisdiction. The Group is currently seeing a growing trend of such claims, particularly in Austria.

888 continues to follow these and other developments to assess their impact on our business and to identify potential opportunities for growth. We are conscious that as local regulation of our business is becoming increasingly more common, and as the regimes governing our business continue to undergo rapid change, we must continue to adapt to shifting regulatory environments, while striving constantly to maintain the highest compliance standards and to support the move towards clearer regulation in the online gaming industry. We also look to build 888 on agile and adaptive foundations, capable of accommodating rapid and regular changes to the landscape within which we operate. We see the increasing regulation of our industry as a welcome trend, as evidenced by the constantly growing proportion of our revenue derived from locally regulated markets.

Directors' statement of responsibilities

We confirm, to the best of our knowledge:

•             that the consolidated financial statements, prepared in accordance with international accounting standards in conformity with the requirements of the Gibraltar Companies Act 2014 and IFRSs adopted pursuant to Regulation (EC) No 1606/2002 as it applies in the European Union), give a true and fair view of the assets, liabilities, financial position and profit of the parent company and undertakings included in the consolidation taken as a whole;

•             the strategic report, includes a fair review of the development and performance of the business and the position of the company and undertakings included in the consolidation taken as a whole, together with a description of the principal risks and uncertainties that they face; and

•             that they consider the annual report, taken as a whole, is fair, balanced and understandable and provides the information necessary for shareholders to assess the company's position, performance, business model and strategy.

We have taken all the steps that we ought to have taken as Directors to make ourselves aware of any information needed by the Company's auditors for the purposes of their audit, and to establish that the auditors are aware of that information.  We are not aware of any relevant audit information of which the auditors are unaware.

On behalf of the Board:

Itai Pazner

Chief Executive Officer

17 March 2021

Consolidated Income Statement

For the year ended 31 December 2020

¹   The presentation of the consolidated income statements was changed, as described in further detail in note 2.

²   Adjusted EBITDA is an Alternative Performance Measures ("APMs") which does not have an IFRS standardised meaning. The Group present Adjusted EBITDA since it is the main measure the analyst community uses to evaluate the Company and compare it to its peers. The Group presents adjusted measures because it allows for a further understanding of the underlying financial performance of the Group.

Consolidated Statement of Comprehensive Income

For the year ended 31 December 2020

The notes below form part of these consolidated financial statements.