Directors' Report

The Directors submit their Annual Report and audited financial statements of the Group for the year ended 31 July 2006.

Principal activities
The principal activities of the Group are the operation of interactive licensed betting and gaming operations over the internet and telephone.

Results and dividends
The results of the Group for the year are set out in the Group Profit and Loss Account section and show a profit after taxation for the year of £69.5m (2005: £39.9m). The Directors do not recommend payment of a final dividend.

Review of the business and future developments
The Group operates worldwide internet and telephone betting facilities in respect of a wide variety of sporting events and casino and poker gaming.

A more detailed review of the business and future developments is given in the Group Chief Executive’s Statement and the extended Business Review.

Directors and their interests
The following Directors have held office during the year and subsequently:

Peter Dicks resigned as Non-Executive Chairman and Director of the Company on 14 September 2006. Brian Benjamin Harris, and Mark Robert Blandford will retire by rotation at this year’s Annual General Meeting and, being eligible, will each seek re-election. David Arthur Hobday was appointed a Director of the Company on 8 November 2005 and, being eligible, will therefore seek re-appointment at this year’s Annual General Meeting. The interests of the Directors and their wives in the shares of the Company and options for such shares were as shown in the Remuneration Report section both reflecting the year end figures and any subsequent changes. No Director has any interest in any other Group company. Details of the Directors’ remuneration and service contracts appear in the Remuneration Report section. As previously announced, Andrew Mclver, former Group Finance Director, has now succeeded Nigel Payne as Group Chief Executive. Nigel Payne will remain an Executive Director.

Related party transactions
Details of transactions with related parties undertaken by the Group during the year are disclosed in note 26 to the Financial Statements.

Corporate Governance
The Board’s statement on Corporate Governance appears in the Corporate Governance Statement section and policies in relation to Employees appears in the Corporate Social Responsibility section.

Charitable donations
During the year, the Group donated £58,500 to charities. This figure includes £30,000 to the Duke of Edinburgh Jubilee Trust, £7,300 to Scope and £6,200 to gambling charities, including Gamcare, GamAid and the California Council on Problem Gambling.

Payment of suppliers
It is the policy of the Group that each company within the Group should agree appropriate terms and conditions for its transactions with suppliers by means ranging from standard written terms to individually negotiated contracts. Payments are normally made in accordance with these terms and conditions. At 31 July 2006 the Company had a trade creditor balance of £Nil (2005: £Nil). Group trade creditors represented 14 days of purchases (2005: 22 days).

Substantial shareholdings
As at 19 October 2006 the following interests in 3% or more of the Company’s existing ordinary share capital had been reported:

Treasury management
The Board has laid out its policy on treasury management in the Financial Review section.

Going concern
The Directors have considered the implications of the change in US legislation on 13 October 2006 for the Group and the Company. As explained in note 28 to the Financial Statements this will have a material adverse impact on the trading and carrying value of assets relating to the Group’s US-facing operations. The Directors have reviewed the cash flow projections for the Group in light of these events and have considered the financial resources available to the Group. Accordingly, the Directors have a reasonable expectation that the Group and the Company have adequate resources to continue operations for the foreseeable future. For this reason, they continue to adopt the going concern basis in preparing the Financial Statements.

Post balance sheet events
On 7 September 2006 the Company announced that it was in preliminary discussions with the view to making an all share offer for World Gaming Plc. As a result of the passing of the Unlawful Internet Gambling Enforcement Act of 2006 by the United States Congress on 29 September 2006, the Company discontinued these discussions.

Having considered the legal advice received and the options available, the Board concluded that a disposal of the Group’s US-facing sports betting and casino operations together with the closure of its US poker operations was in the best interest of all its stakeholders. As a result, on 12 October 2006, Sportingbet sold its US-facing sports betting and casino business to Jazette Enterprises Limited for a cash consideration of US$1 and has discharged excess liabilities amounting to approximately $13.2m.

Sportingbet will retain the Paradise Poker business, but has ceased taking deposits from US resident customers. To allow for an orderly wind down of the US-facing Paradise business, Paradise Poker will remain open for US customers for real money poker play utilising their existing account balances for one month. In addition, the Board has taken immediate steps to prevent customers from 10 US States, where there are laws prohibiting internet gambling, from playing real money poker at Paradise Poker.

The continuing operations of Sportingbet will consist of the Group’s existing European sports, casino and poker business, the Australian sports business and the non US-facing business of Paradise Poker.

Further information on the changes to the US regulatory environment that took place after the financial year end, which have a material effect on the Company’s business, are described in the Regulatory Developments section.

On 14 September 2006, Peter Dicks resigned as Non-Executive Chairman and Director of the Company.

Annual General Meeting
The Annual General Meeting will be held on 15 December 2006. The Notice of the Meeting can be found here. The Notice contains special business, including the renewal of authority to the Board to allot shares and the dis-application of statutory pre-emption rights on equity issues for cash – both in accordance with ABI and NAPF Guidelines. Shareholders should complete the Proxy form accompanying this Report in accordance with the Notes contained in the Notice of Annual General Meeting.

Directors’ responsibilities inrelation to the accounts
The Directors are responsible for preparing the Annual Report and the Financial Statements in accordance with applicable law and United Kingdom Generally Accepted Accounting Practice. Company law requires the Directors to prepare financial statements for each financial period which give a true and fair view of the state of affairs of the Group and the Company and of the profit or loss of the Group for that period. In preparing those financial statements, the Directors are required to: select suitable accounting policies and then apply them consistently; make judgements and estimates that are reasonable and prudent; state whether applicable accounting standards have been followed, subject to any material departures disclosed and explained in the Financial Statements; and prepare the Financial Statements on the going concern basis unless it is inappropriate to presume that the Group will continue in business.

The Directors are responsible for keeping proper accounting records which disclose with reasonable accuracy at any time the financial position of the Group and the Company and to enable them to ensure that the Financial Statements comply with the requirements of the Companies Act 1985. They are also responsible for safeguarding the assets of the Group and hence for taking reasonable steps for the prevention and detection of fraud and other irregularities.

The Financial Statements are published on the Company’s website in accordance with legislation in the United Kingdom governing the preparation and dissemination of financial statements, which may vary from legislation in other jurisdictions. The maintenance and integrity of the Company’s website is the responsibility of the Directors. The Directors’ responsibility also extends to the ongoing integrity of the Financial Statements contained therein.

Disclosure of information to the auditors
So far as each of the Directors is aware, there is no relevant audit information of which the Company’s auditors are unaware. Each of the Directors has taken all the steps that he ought to have taken as a Director in order to make himself aware of any relevant audit information and to establish that the Company’s auditors are aware of that information.

By Order of the Board

D Talisman LLB ACIS
Company Secretary
19 October 2006