- Sportech PLC

Transcription

- Sportech PLC

IFC
Sportech PLC Annual Report and Accounts 2010
www.sportechplc.com
is one of
30
£8.5 billion
Inside this report
Group overview
01 Highlights
02 Our heritage
04 Sportech in brief
Business review
06 Chairman’s statement
08 Business and
financial review
08 Group strategy
10 The Football Pools
14 e-Gaming
16 Sportech Racing
19 Emerging market
update – India
20 Group finance
24 Principal risks
www.sportechplc.com/
ar2010
Governance
26 Corporate social
responsibility
30 Board of Directors
32 Senior management
33 Directors’ report
36 Remuneration report
43 Corporate governance
46 Independent auditors’
report
Added functionality
Download financial data
as Excel spreadsheets
Interactive content
Find the information
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click of a button
Financial statements
48 Consolidated income
statement
48 Consolidated statement
of comprehensive
income
49 Statements of changes
in equity
51 Balance sheets
52 Statements of cash flows
53 Accounting policies
60 Notes to the financial
statements
IBC Shareholder and
corporate information
www.sportechplc.com
E Results for the period in line with market expectations
E Revenue increased by £6.6m to £71.2m (2009: £64.6m)
E Adjusted operating profit* of £17.4m (2009: £19.5m)
E Adjusted profit before tax of £11.9m (2009: £14.7m)
E EBITDA** of £19.7m reflecting the highly cash generative nature of the Group
E Net bank debt reduced by £7.7m (9.6%) to £72.2m (2009: £79.9m)
E Adjusted earnings per share (“EPS”) of 5.4p (2009: 10.5p)
E Loss after tax and loss per share (after significant acquisition costs and non-cash
amortisation charges) of £6.3m (2009: loss of £12.3m) and 3.9p (2009: loss of 12.2p)
E Revised banking facilities agreed and in place until 2013
E Successful equity fundraising raised gross proceeds of £29.2m
Strategic and operational highlights
E Completed acquisition of Scientific Games Racing (“SGR”, now renamed “Sportech Racing”),
the tote pools (“pari-mutuel”) technology provider and venue management division of
Scientific Games Corporation
E Successfully cleared rigorous regulatory approval process, delivering the benefits of licensing
in the USA
E The combined Group now processes over £8.5 billion of bets annually with customers in over
30 countries
E Focus has been on operational delivery across the business areas: The Football Pools,
e-Gaming, Sportech Racing and emerging markets
E Integration of the enlarged business on schedule with progress made in the following areas:
E Significant refurbishment programme on existing venues in Connecticut underway
E Two new horseracing wagering venues opened in sports bars in Connecticut
E Opened first horseracing wagering offering in a sports bar in California
E Joint venture with Playwin, the leading Indian lottery and gaming brand owned by Essel
Group and launch of www.SportsHero.com
E Agreement with Ladbrokes.com to distribute pools products online to its customer database
and with Jennings, Better and Chisholms bookmaking shops
E Two separate Football Pools jackpots won of £3m each: one in March 2010 shared by
14 customers, and one in October 2010, the single highest winner in Football Pools’ history
E Continuing development plans to migrate existing e-Gaming activities to single partner, Playtech
E Secured a new five year licence, with an 18 month break, to continue the use of the
Littlewoods brand name for e-Gaming purposes
Board and management changes
E Strengthened composition of the Board; Roger Withers appointed as Chairman, and three further
Non-executive Directors appointed: Lorne Weil, Peter Williams and Mor Weizer
E Operational management team strengthened with appointment of Ian Hogg as Chief
Operating Officer UK and Online and Brooks Pierce as President of Sportech Racing
*
Adjusted profit numbers are stated before amortisation of acquired intangibles, exceptional costs, share of loss
after tax of joint venture and other finance charges.
** EBITDA is stated pre exceptional costs and share option expense.
Group overview
Financial highlights
01
02
www.sportechplc.com
Our heritage
A unique journey
Through our unique heritage of operating pools games for
over 87 years, we have an unrivalled experience that sets
us apart from any other gaming company
From solid foundations
1923
1970 to date
The world’s
oldest football
gaming
company
One of the
biggest
charitable
contributors
to sport
The Football Pools was first sold to football
fans outside Manchester United’s Old Trafford
stadium in 1923 making it the world’s oldest
football gaming company
We are proud to have donated over £1.1 billion to
sports, the arts and other good causes throughout
our 87 year history
1986
2007
Football Pools
millionaires
Acquisition of
Vernons
Nurse Sister Margaret Francis and ten of her
colleagues from Devizes, Wiltshire, became the
first Football Pools millionaires sharing over £1m
Sportech acquired the Vernons Pools company,
which along with its existing Littlewoods and
Zetters operations, combined to form the enlarged
Football Pools business. This enabled The Football
Pools to offer customers bigger prizes and jackpots
www.sportechplc.com
03
To a world leader in sports gaming
2010
2010
Sportech
launches a
joint venture
in India
The biggest
ever Football
Pools prize
winners
Sportech’s joint venture with Playwin, India’s leading
lottery and gaming business, offers Indian sports fans
a range of sports prediction and fantasy games under
the SportsHero brand. Customers can visit SportsHero
online or via a mobile phone
2010 was an historic year for Football Pools
customers. In March the biggest ever Football Pools
payouts were won with £4m shared between 15 lucky
customers. In October the biggest ever single winning
prize of £3m was won
2010
2010
Acquisition
Games Racing
(“SGR”)
Enhanced
distribution
of the
Sportech acquired SGR, a market leading tote system
and service provider to the horseracing industry,
elevating the Group to become one of the world’s
leading pools and tote gaming companies
With continued investment in modernising our
technology and extending our product range, we are
now able to offer other operators a margin-enhancing
range of Football Pools products. New distribution
partners include Ladbrokes.com, Phumelela Gold
and Finsoft
Group overview
For additional detail, browse our interactive timeline
at www.sportechplc.com/our_history
04
www.sportechplc.com
Sportech in brief
Our group at a glance
For a more detailed review of our business structure see
pages 8 to 23 of our Business and Financial Review
Sacramento
We serve millions of
customers worldwide...
Our focus on football and horseracing, two of the
most popular betting sports in the world, gives
Sportech’s core products vast global appeal
through leading brands
across markets worldwide...
We own and operate a portfolio of iconic gaming
brands across football, horseracing, sports, casino,
poker, bingo and lotteries
just for winnerz
Sportech has a presence in over
Sportech processes over
30
£8.5bn
countries worldwide
of bets annually
www.sportechplc.com
Dublin
London
Essen
Connecticut
New Jersey
Atlanta
using unrivalled knowledge
and technology...
We have continued to modernise our
technology to ensure our product offering
is accessible, engaging and easy to play
for customers worldwide
...to consistently deliver
a winning experience.
We are committed to delivering a winning
experience to all of our customers and
business partners
Sportech products and services
In March 2010 the biggest ever
retail and online
£4m
platforms
were shared between 15 winning customers
Group overview
Liverpool
London (UK) with Operational Centres
in Liverpool (UK), Connecticut (USA), Atlanta (USA), New Jersey (USA),
Sacramento (USA), Essen !"
(Netherlands) and
Dublin#!$
05
06
www.sportechplc.com
Chairman’s statement
“Over the last five years Sportech
has been transformed into one of
the world’s leading pools and tote
betting organisations.”
Roger Withers, Non-executive Chairman
Sportech successfully completed
the acquisition of SGR for an initial
consideration of $65.0m
The Group’s financial performance
is in line with market expectations
Operational management
strengthened with Ian Hogg
appointed as Chief Operating
Officer UK and Online and
Brooks Pierce as President
of Sportech Racing
Board strengthened with the
appointment of Lorne Weil,
Peter Williams and Mor Weizer
as Non-executive Directors
Overview
Over the last five years Sportech
has been transformed into one of
the world’s leading pools and tote
betting organisations. The Group has
assembled a talented Executive team
and strengthened the composition
of the Board with the appointment
of Non-executive Directors who bring
valuable skills and experience to the
Group. The financial structure of the
Company has been improved from
a position of very high levels of debt
into one of strong cash generation.
I am delighted to have recently been
appointed to the Board as Chairman.
This is an exciting time for Sportech
as the Group embarks upon the next
stage in its development and looks
to capitalise on its market-leading
positions in regulated gaming
markets worldwide.
Acquisition of Scientific Games
Racing (“SGR”, now renamed
“Sportech Racing”)
On 27 January 2010, Sportech announced
the acquisition of Sportech Racing,
the pari-mutuel operator, technology
provider and venue management
business, for an initial consideration
of $65.0m, a deferred consideration
of $10.0m and further contingent
consideration of up to $8.0m, which
will become payable in the event
that Sportech Racing meets certain
performance targets over the next
three years. In February 2010, the Group
successfully concluded a £29.2m
fundraising by way of a firm placing
and open offer. The funds raised were
used to satisfy the cash consideration
payable to Scientific Games Corporation
(“SGC”). The balance of the consideration
was satisfied by issuing shares in
Sportech, resulting in SGC owning 19.99%
of the share capital of the Company.
Despite announcing the acquisition
in January 2010 and completing the
equity fundraising in February 2010,
Sportech was unable to complete the
transaction until regulatory approvals
were granted in various states in the
USA and in the Netherlands. This was
a very detailed and time consuming
investigative process, and highlights
both the challenges in, and benefits of,
obtaining licensing in the USA. Sportech
received all of its required regulatory
approvals at the end of September 2010,
and was able to finally conclude the
acquisition of Sportech Racing in
October 2010.
The acquisition transforms Sportech
and gives the Company market-leading
positions in the pools and tote betting
markets for football and horseracing
worldwide. Sportech now has operational
bases in the UK, mainland Europe
and the USA giving the Company
a strong platform to drive growth
from its international sport and
gaming business.
www.sportechplc.com
VAT claim
The Group’s financial performance has
been in line with market expectations,
notwithstanding the significant change
and challenges in the year in order
to deliver upon the Board’s strategic
objectives. 2010 has been a transitional
year. Sportech is now well positioned
for growth in 2011 and beyond as the
Group benefits from the cash flows
and profit contribution from Sportech
Racing which will be added to its
existing strong profit and cash
generative businesses.
The Group announced in April 2009 that
it had submitted a claim for in excess
of £40m to HM Revenue and Customs
(“HMRC”) for the repayment of VAT
overpaid in respect of the “Spot the Ball”
game from 1979 to 1996. Interest may
also be added to the principal sum
claimed which, if applicable, could more
than double the total amount claimed.
The claim has not been recognised
in the Group’s financial statements.
Following the anticipated rejection
by HMRC in December 2010, Sportech
appealed this decision in January 2011.
Accordingly, the Board now expects
the claim to be heard at the Independent
First Tier Tax Tribunal towards the end
of 2011.
Group revenue has increased by £6.6m
to £71.2m (2009: £64.6m). Operating
profit (before amortisation of acquired
intangibles and exceptional costs)
has reduced by £2.1m to £17.4m
(2009: £19.5m). There was an increase
in net finance costs attributable to our
revised banking arrangements to £5.5m
(2009: £4.8m). Adjusted profit before
tax was £11.9m (2009: £14.7m) with
adjusted earnings per share of 5.4p
(2009: 10.5p). This reduction principally
reflects the increased number of shares
in issue, following the equity fundraising
and the allocation of shares to SGC upon
the acquisition of Sportech Racing.
Following a number of charges principally
associated with significant acquisition
costs and annual non-cash amortisation
charges, which amount in aggregate
to £17.8m, the Group has reported a net
loss before tax of £5.9m, an improvement
of £11.1m on the loss in 2009. The loss
per share has been reduced to 3.9p
from 12.2p last year.
The reduction of net bank debt has
been one of the key objectives for
the Board. We are pleased to report
a further reduction of £7.7m (9.6%)
in net bank debt during the year to
£72.2m (2009: £79.9m). Over the past
five years, net bank debt has been
reduced by £35.9m (33%).
Dividend
As in previous years, no dividend
is proposed. The Board believes that
it must continue to focus on debt
reduction, as well as undertake selective
investments in growth opportunities.
Board and employees
Although I have only been Chairman for
a few weeks, I am aware of the enormous
efforts made by the Board and all of our
employees as we concluded the first part
of the turnaround strategy and moved
into the integration and operational
delivery phase. I would like to thank them
for their dedication and commitment
to the business and for their openness
in welcoming me to the Board.
As well as transforming the business
and financial structure of the Group,
the operational management has been
strengthened and the Board composition
addressed. Ian Hogg has been appointed
as Chief Operating Officer (“COO”)
UK and Online, and Brooks Pierce was
appointed as President of Sportech
Racing upon completion of the
acquisition. We have also welcomed
Lorne Weil, currently Chairman and
CEO of Scientific Games Corporation,
as a Non-executive Director and
Peter Williams, currently Non-executive
Director of ASOS Plc, Cineworld
and Silverstone Holdings as Senior
Independent Non-executive Director.
On 24 March 2011, we announced that
Mor Weizer, the CEO of Playtech Ltd, has
replaced Shmuel Weiss as the Playtech
appointed Non-executive Director.
Piers Pottinger, Kathryn Revitt and
Jon Holmes have stepped down from
their positions as Chairman and
Non-executive Directors respectively,
following the completion of the
Sportech Racing acquisition. I would
like to thank them personally for their
contribution to the Group during the
strategic turnaround process.
I would like to also place on record
my thanks to John Barnes, who
stepped up to the role of Acting
Chairman in November 2010, to steer
the Group through the three-month
period post acquisition. John continues
in his role as an Independent
Non-executive Director.
Outlook
Sportech has transformed its business
over recent years, establishing a unique
position in the regulated and emerging
gaming markets worldwide, being one
of only a few European operators
licensed to carry out gaming activities
in the USA. Current trading is in line with
market expectations, notwithstanding
some extreme weather conditions
in the USA during January 2011 and
early February 2011, and the generally
challenging economic environment.
The Board looks forward to the future
with confidence.
Business review
Financial performance
07
Roger Withers
Chairman
24 March 2011
Find out more
Browse our interactive report
www.sportechplc.com/ar2010
Visit us online
www.sportechplc.com
08
www.sportechplc.com
!"
#
“The Board’s strategy for growth
is to develop Sportech’s already
strong presence in the regulated
and emerging gaming markets
worldwide, capitalising upon
the enlarged Group’s knowledge,
experience and integrity within
the marketplace.”
Ian Penrose, Chief Executive
Successfully completed the
acquisition of SGR, licensed to
operate gaming activities in the USA
Sportech now processes over
£8.5 billion of bets annually with
customers in more than 30 countries
Group revenue increased by £6.6m
to £71.2m generating an EBITDA
of £19.7m. Operating profit (before
amortisation of acquired intangibles
and exceptional costs) amounts
to £17.4m
New distribution partners for The
Football Pools include Ladbrokes.com,
Phumelela Gold and Finsoft
Commencement of detailed work
for integrated online products
and services from Playtech
View our business
strategy in more detail at
www.sportechplc.com/about_us
The Board’s strategy for growth is
to develop Sportech’s already strong
presence in the regulated and emerging
gaming markets worldwide, capitalising
upon the enlarged Group’s knowledge,
experience and integrity within the
marketplace. During the past year
Sportech has been successfully
transformed into one of the world’s
leading pools and tote betting operators
and system providers, processing over
£8.5 billion of bets annually (17% of the
global horseracing tote market) and with
customers in more than 30 countries.
The Group operates in many regulated
gaming markets worldwide and has
a unique heritage and reputation
for integrity – operating the world’s
oldest football gaming business,
The Football Pools, since 1923 and
commencing tote activities in the USA
in 1932. Pools and tote betting is the
“friendly face” of gaming and in many
countries, is the only legal form of sports
betting. The Group holds a number of
licences issued by gaming regulators
internationally, including the UK,
Netherlands and several states in
the USA. This is an enviable position
to be in.
The Board intends to utilise its strong
strategic market position to develop
a stronger international presence, in order
to enhance shareholder value. From
a strong cash-generative base, the Group
will be able to continue to invest in
improving its range of products,
technological capabilities and distribution
routes. The Group will extend its pools
and tote product range by adding online
casino, poker and bingo products to
further enhance our direct customer
experience, and to bring a unified
online and offline product offering
to our business customers.
The opportunity for interactive online
gaming products in North America,
commencing with horseracing, which
is legally approved by many regulators,
and having representation in the rapidly
growing economies with emerging
gaming markets, initially focused on India,
presents a significant profit opportunity
for Sportech. The Board considers that
its strategic move into the “business
to business” pari-mutuel marketplace
will open up new territories with local
partners. In addition, through its exclusive
licences to operate gaming venues
in Connecticut and the Netherlands,
the Group will drive profits through
its focus on significantly enhancing
the customer experience.
www.sportechplc.com
In order to deliver on its growth strategy
the Group will partner with leading
organisations as evidenced with the
strategic shareholding taken by both SGC
and Playtech and the joint venture with
India’s leading lottery business, Playwin.
2010 business overview
Since the completion of the acquisition,
good progress has been made with the
integration of the enlarged Group. The
focus has been on operational delivery
with the following key highlights:
The Football Pools
Recruitment of Ian Hogg, as COO
UK and Online, and realignment of
management structure
Suite of pools products is now also
available at Ladbrokes.com and the
Jennings, Better and Chisholms
betting shop chains, via Finsoft
Reciprocal pools sharing agreement
with Phumelela Gold, South Africa’s
largest pools, tote and horseracing
company, to commence in August 2011
Upgrade of customer contact centre
Turn to page 10 for more
e-Gaming
Commenced the detailed work for
integrated online products and
services from Playtech
Ongoing planning for the transfer
of our customer offering on casino,
poker, bingo and games from 888,
St Minver and Orbis to Playtech
Sportech Racing
Moved the entire operation from an
integrated part of the previous parent
company’s business to a new facility
in Atlanta
Established an interactive products
and services business unit to focus
on profitable opportunities arising in
the emerging USA online marketplace
Commenced a £1.0m refurbishment
programme on the twelve existing
venues in Connecticut to be
completed by the Kentucky Derby
held on Saturday 7 May 2011
Opened two new horserace
wagering venues in sports bars
in Connecticut
Opened our first horserace wagering
venue in a sports bar in California
under Sportech’s licence (licence
allows up to 45 venues)
Renewed 18 tote contracts in
North America and secured new
contracts in Orlando and Chile
Recruited new staff to operate the
standalone business to fulfil roles
previously undertaken by SGC
Utilisation of key personnel from
the UK to project manage the
Connecticut refurbishment and
marketing rejuvenation
09
India — emerging markets
Sportech’s joint venture partner,
the Essel Group, one of India’s
largest conglomerates and the
owner of Playwin, India’s leading
lottery business, is one of only
three Indian operators to have
secured a provisional online
gaming licence in the North
East Indian state of Sikkim
Sportech will extend its existing
SportsHero activities to enable the
Essel Group to offer pools games,
initially on cricket and football,
in India by the end of June 2011
There has been significant progress
in the operational focus of the enlarged
business in a short period of time. This
will continue through 2011 and beyond.
Business review
2010 was a year of intense activity
with strategic, operational and financial
change. The Group has been transformed
with the acquisition of Sportech Racing.
The acquisition process was complex,
with operations in several countries and
international regulatory approvals
necessary. The period from February 2010,
when shareholders approved the
acquisition, to October 2010, when
the acquisition was finally concluded,
involved a very detailed investigation
being carried out by international
regulators into Sportech and its business
conduct and activities, the Board, senior
employees and certain shareholders.
This was more time consuming and
demanding than originally envisaged
but the Group was delighted to have
secured licences to carry out gaming
activities and processes in certain key
states in the USA and in the Netherlands
as a whole.
10
www.sportechplc.com
!
The Football Pools
The Group has continued to
focus on the modernisation and
revitalisation of The Football Pools
in order to appeal to a new and
younger audience as well as to
existing and former players. We now
have a platform in terms of scale and
product positioning, on which
to build a larger customer base.
Recruitment of Ian Hogg, as COO
UK and Online, and realignment
of management structure
Suite of pools products now
available at Ladbrokes.com and
the Jennings, Better and Chisholms
betting shop chains, via Finsoft
Reciprocal pools sharing
agreement with Phumelela Gold,
South Africa’s largest pools, tote
and horseracing company, to
commence in August 2011
Upgrade of customer contact centre
Strategy
As part of the revitalisation of the
Football Pools, Sportech has focused
its efforts on three key elements:
products, technology and distribution.
Products: increasing the number
and range of products to offer
our customers
Technology: to ensure ease of
integration for third-party distribution
and to operate efficiently
Distribution: expanding our
distribution channels to enable
more customers to play
Products
We have continued to improve
and expand our product base into
a suite of Football Pools games that
ranges from long-odds games with
multi-million pound top prizes through
to shorter-odds pool games.
We have aligned our product mix
to closely follow the expanding football
fixture list and to offer our customers
increasing opportunities to play and win.
As a result, the number of Classic Pools
games that our customers were able
to play in 2010 increased from 66 to 71
and we anticipate a further increase
in 2011 and into 2012 as we continue to
expand on the number of Classic Pools
games. We expect the financial benefit
of this further expansion of Classic Pools
games to be realised in the second half
of 2011, which we expect to result in
a further increase in average spend
per customer.
In addition, our online customers and
distribution partners now have access
to a significantly increased variety of
gaming opportunities with the launch
of a number of new games, including
Head to Head and Score 3. With these
new products complementing our
existing Classic Pools, Premier 10 and
Super 6 games, we anticipate offering
our customers many more pool gaming
opportunities in the 2010/11 football
season than in the 2009/10 season.
This significantly enhances the appeal
of our customer offering and will enable
us to recruit more customers and increase
their average spend per head.
One of the principles behind increasing
the level of gaming opportunities available
to our customers is to ensure that our
customers enjoy the winning experience
on a more frequent basis. We were
delighted that during the course of 2010
www.sportechplc.com
Technology
£18.7m
Investment in technology has been
vital to restoring growth and making
our product offering more engaging,
more accessible and easy to play.
This was a process that began in 2007
and has continued throughout 2010.
By modernising our technology we have
enabled new distribution channels
and delivered operational benefits.
The Group’s technology infrastructure
has been fundamentally overhauled.
The development of an “open
architecture” system facilitates the
processing of customer entries from
a variety of sources, including paper
coupons, postal entries, direct debit
customers, internet entries and white
label online partners, mobile, handheld,
machine entries, retail, EPOS and
international. As a consequence,
the ability for customers to play our
new, engaging games in a simple and
accessible manner has been greatly
enhanced. In addition, the operational
benefits have been significant, with
the ability to run additional pools
The Football Pools
is the world’s oldest
gaming company,
founded in 1923
To play our games:
visit www.footballpools.com
or call 0800 500 000
and settle those pools to our customers
in a cost effective and timely manner
being critical to our ability to gain
new distribution partners.
We are continuing to focus on
operational efficiency improvements
and 2011 has seen the launch of a new
self service website for our traditional
retail customers, www.pools.co.uk.
Customers can renew their Classic
Pools offering online without needing
to post documents and engage in
manual processes, in addition to easily
finding out information on winning
numbers and statistics. Whilst this
website is in its infancy, we are already
seeing encouraging signs of customer
renewal in a very cost efficient manner.
It is intended to expand the products
offered for renewal on this website
over a period of time.
We have also focused on enhancing
our online offering, with an upgraded
footballpools.com website launched
in August 2010, offering more gaming
opportunities, better navigation and
improved customer experience. Built
into this website is technology that
allows a simple, seamless integration
of our enlarged suite of Football Pools
games into third-party gaming
websites. This effectively offers
additional gaming products to our
partners at a guaranteed margin
with no risk to them. Ladbrokes.com
is the first partner to benefit from
these enhancements and we anticipate
further partnerships to emerge in
due course as discussed on page 12.
Business review
£52.1m
we managed to create some record
winners. In March 2010, 14 Football
Pools customers shared a £3m jackpot
and one lucky Zetters customer scooped
the £1m Zetters jackpot, the highest
this century. Then in October 2010,
one of our long standing customers
scooped the £3m jackpot on his own
to become the highest ever single winner
in the history of the Football Pools.
11
12
www.sportechplc.com
!
The Football Pools continued
Distribution
$
!"
UK and Online
One of the key elements of the
revitalisation of the core Football Pools
business has been to access improved
distribution routes in order to recruit
additional customers and increase pool
liquidity. During 2009 and into 2010,
economic conditions impacted on our
ability to make the progress we would
have liked in securing these distribution
routes, as potential distribution partners
have focused internally. Therefore
we continued to focus on the ongoing
modernisation of the core Football
Pools business by further enhancing
our technology, increasing our product
range and improving our customer
experience. These enhancements, both
offline and online, have accelerated
our ability to integrate our products
seamlessly into third-parties’ offerings.
We have started to see the benefit
of this work at the start of 2011 with
the launch of Football Pools on
Ladbrokes.com enabling customers
of Ladbrokes.com, to play our Football
Pools products on their website. We have
also signed a reciprocal agreement with
Phumelela Gold International Limited,
South Africa’s largest pools, tote
Left#
$%&&"&&&
Right #
'"
UK’s premier football pundits
and a brand ambassador for
(
and horseracing company, whereby
customers of both companies can
bet into each other’s Football Pools
products. We anticipate this partnership
going live at the start of the 2011/12
football season. We have also now
completed the integration of our
products into the Finsoft technology
platform, utilised by many of the smaller
independent bookmaker chains, and
we were pleased to announce on
24 March 2011 that Jennings, Better
and Chisholms are now able to offer
Football Pools products in their
127 betting shops. This number is
expected to increase to over 200
prior to the summer. We have an
active pipeline of potential distribution
partners and we anticipate being
able to announce a number of new
distribution arrangements throughout
the course of 2011.
Financial and customer numbers
Total operating profit before
exceptional costs and amortisation of
acquired intangibles for the Football
Pools division amounted to £18.7m
(2009: £20.5m) on revenue of £52.1m
(2009: £58.9m). This incorporates both
the traditional retail Football Pools
www.sportechplc.com
channels and online Football Pools
previously reported separately.
The traditional retail Football Pools
channel, for the year, reported an
operating profit contribution of
£20.4m (2009: £23.6m) on revenue
of £50.9m (2009: £57.8m). During
the period we successfully merged
the former Vernons and Littlewoods
customer databases, giving us further
clarity on our customer profile, and
overhauled our call centre to create
a sales and customer service centre.
Working practices continue to be
modernised and we expect to see
the benefits of these changes flowing
through into the beginning of next year.
As we highlighted in our interim results
in August 2010, we have focused on
increasing spend per head from our
existing core customer base rather than
target expensive low margin recruitment.
Whilst this has had an inevitable
impact on active customer numbers,
it ensures a more focused approach
to profitable customer recruitment
and retention. As at 31 December 2010,
we had a total of 532,000 active Football
Communicating with our customers
We use several methods of contact in order to
acquire new customers, reactivate lapsed customers and
keep existing customers loyal to our products. A key
communication channel for The Football Pools is direct
mail, and at key periods during the football season, we use
e
direct mail to communicate with our customers, giving
them targeted reasons to stay engaged with our products..
visit www.footballpools.com
or call 0800 500 000
13
Pools customers (2009: 622,000).
Our strategy to increase the average
spend per week from our customers,
principally on our core Classic Pools
product, is continuing to bear fruit with
an increase in revenue per customer
per week on the Classic Pools product to
£2.32 per week (2009: £2.25), offsetting
some of the revenue shortfall from loss
of customer numbers.
In respect of our online Football Pools
channel, operating losses have been
significantly reduced by £1.4m to £1.7m
(2009: loss of £3.1m), principally due
to a restructuring of the cost base now
that the online distribution channel
is fully operational. The focus in the year
was to improve the technological and
product offering so that it was easier
for customers to play additional games
(and therefore increase average spend
per player) and subsequently simplified
the third-party integration path.
This has led to the integration with
Ladbrokes.com, and a doubling in
the average stakes per player to £296.
We expect this process to continue.
Business review
Every week over
500,000 customers
play The Football Pools
making it one of the
UK’s favourite football
gaming brands
14
www.sportechplc.com
!
e-Gaming
Sportech operates a portfolio of
trusted e-Gaming brands including
Littlewoods, Vernons and Game On.
Our brands offer customers a suite
of products which include bingo,
casino, poker, lotteries and instant
win games. Our e-Gaming operations
are currently in transition to Playtech.
Commencement of the detailed
work for integrated online products
and services from Playtech
Ongoing planning for the transfer
of our customer offering on casino,
poker, bingo and games from 888
and St Minver to Playtech
Secured a new five year licence,
with an 18 month break, to continue
the use of the Littlewoods brand
name for e-Gaming purposes
The Group operates an e-Gaming
division offering online casino, poker,
bingo and instant win games to a large
registered and active customer base.
The Group operates in conjunction
with three different software suppliers
and it became apparent that the Group
should consolidate these activities in
order to create a coherent customer
and technology offering in order to
drive growth in this area.
As an initial step in this process,
in June 2008 the Group signed
a strategic distribution and marketing
agreement with 888 Holdings Plc (“888”),
which went live operationally in
October 2008. This partnership,
for which both organisations had high
operational and strategic expectations,
has been disappointing both operationally
and financially, as the Board has
previously stated.
As part of the acquisition of Sportech
Racing, the Board considered that there
was a material upside from producing
a seamless customer offering, that
operates both online and offline from
a single wallet and with customer loyalty
benefits. The Group wants to be in the
position of extending its pools and tote
product range by adding online casino,
poker, bingo and instant win games
to further enhance our direct customer
experience and to bring a unified online
and offline product offering to our
business customers. The Board intends
to make these products available
to the regulated markets in which
the combined Group has more than
140 business customers in over
30 territories. Depending on the
regulatory environment applicable
to an individual customer, the intention
is for each customer to be able to
choose from one or more of the above
product offerings.
We were therefore delighted that
Playtech, the world’s leading online
gaming software provider, shared this
vision and we are now working together
to create this product suite. In addition,
Playtech has taken a 10% shareholding
in the enlarged Sportech Group in order
to capitalise on these exciting new
opportunities and territories. It is the
intention that all our current e-Gaming
activities will be migrated to the Playtech
systems during 2011, commencing with
Vernons.co.uk and Littlewoods Bingo
www.sportechplc.com
e-Gaming revenue
)*
£1.5m
prior to the half year. Littlewoods Casino
and Poker and GameOn Bingo will
transfer following the contractual break
point we have with 888 towards the end
of 2011. Football Pools and horseracing
pools/tote will be added to this suite
of products by a “Pools Plug-in” in 2012,
to create this unified offering, also
enabling distribution of our pools
and tote products to the customers
of Playtech.
We were pleased to secure an extension
to our licensing agreement with Shop
Direct Group (“SDG”), one of the UK’s
largest home shopping companies
and owners of the Littlewoods brand,
for the continued use of the Littlewoods
brand for online e-Gaming activities.
The licensing agreement, which is for
five years with an annual break clause
after an initial 18 month period, allows
us to continue to operate and market
the established Littlewoods brand name
across our existing e-Gaming websites.
In addition, we have agreed to collaborate
with SDG, by making an online bingo
product available to the online and
offline customers of Littlewoods.
In anticipation of these product
improvements and the subsequent
migration of our customers to the
Playtech software, we have focused
our trading efforts during the year
on core customer retention and lapsed
customer reactivation, rather than new
Partnership with Playtech
As part of our planned migration to
Playtech during 2011, we are extending our
Vernons brand to offer customers casino
and poker products, as well as the existing
instant win games, bingo and lottery
products. Vernons casino and poker
will launch during the first half of 2011.
www.vernons.co.uk
15
customer recruitment. As a consequence,
we are pleased that we have held
operating profits broadly level with last
year at £1.5m (2009: £1.7m) on reduced
revenues due to this lack of new player
recruitment of £4.3m (2009: £5.7m).
The number of active customers during
2010 reduced as a consequence
to 29,200 (2009: 52,300), whilst
we witnessed the anticipated strong
increase in gross win per player
to £265 (2009: £183).
Our partnership with 888 for the
supply and management of many
of our e-Gaming products resulted
in operating profits of £1.0m (2009:
£1.1m). Littlewoods Bingo increased its
profitability to £0.6m (2009: £0.5m),
whilst Vernons.co.uk contributed a loss
of £0.1m (2009: profit of £0.1m).
Whilst the financial performance of
our e-Gaming division in 2010 has been
disappointing, this was expected due
to significant changes affecting the
software suppliers to Sportech.
We remain confident of our ability to
build a substantial, profitable e-Gaming
business from our established base,
in conjunction with our strategic
shareholder and commercial partner
Playtech Limited. The Board anticipates
that the benefits will be first seen in 2011,
with the resultant financial benefits
being delivered in 2012 and beyond.
Business review
£4.3m
16
www.sportechplc.com
!
Sportech Racing
We provide a wide range of wagering
technology solutions to racetracks,
off-track betting networks (“OTBs”),
internet wagering operators and
casinos across some of the biggest
racing organisations in North America,
Europe and Latin America. Sportech
Racing has an estimated 17% share of
the $80 billion global pools and tote
horseracing market and a 50% share
in North America.
Moved operations from the previous
parent company’s business to a
new facility in Atlanta
Established an interactive products
and services business unit to focus
on opportunities arising in the
emerging USA online marketplace
Commenced a £1.0m refurbishment
programme on twelve existing
venues to be completed by the
Kentucky Derby on 7 May 2011
Opened two new horserace wagering
venues in sports bars in Connecticut
Opened our first horserace wagering
venue in a sports bar in California
under Sportech’s licence
Renewed 18 tote contracts in
North America and secured new
contracts in Orlando and Chile
In January 2010, Sportech announced
the acquisition of SGR (now renamed
“Sportech Racing”) for $75.0m, rising
to $83.0m in the event of certain
growth conditions. The completion
of the acquisition was dependent upon
regulatory approvals being granted
in various states in the USA, and in the
Netherlands. This was a very detailed
and time consuming investigative process.
However, although it proved a challenging
undertaking, importantly it highlighted
the benefits of obtaining licensing in
the USA. Sportech received all its required
regulatory approvals at the end of
September 2010, and the acquisition
was concluded in October 2010.
As a consequence of the acquisition,
Sportech has become one of the leading
pools and tote betting organisations
in the world. Sportech Racing is one
of the world’s leading tote (pari-mutuel)
operators and system providers,
processing over 17% (£8.5 billion) of all
tote bets on horseracing internationally.
Sportech Racing has two principal
divisions:
(i) Sportech Racing provides tote
betting systems to customers in over
20 countries, including processing
approximately 50% of all bets
on horseracing in the USA through
terminals and world class operations
and data centres on the East and
West Coast of the USA and in
Essen, Germany.
(ii)Sportech Venues operates all
betting on horseracing under
exclusive licences in: (a) the state
of Connecticut in perpetuity; and
(b) in the Netherlands to 2013.
Business integration and restructuring
Since completing this strategically
important acquisition, focus has turned
to the operational performance.
In line with the business plan and as
budgeted at the time of the acquisition,
we have successfully moved the entire
operation from an integrated part of
the previous parent company’s business
to a new standalone office and warehouse
facility in Atlanta. In addition, we will
shortly be relocating into new offices
in New Haven, Connecticut, adjacent
to our flagship Sports Haven property,
to house Sportech’s North American
headquarters, interactive products
and services, the support function for
our Connecticut venues business and
ancillary activities. To complete the
www.sportechplc.com
just for winnerz
For the three months of ownership from
October – December 2010:
Sportech Racing revenue
+,
£1.0m
Initially focusing on the legal online
horseracing market, the Board considers
that there is significant potential in
the online gaming market in the USA
and elsewhere. As regulation permits,
this will then be extended to a full suite
of horseracing, football, casino, poker,
bingo and instant win games.
As a consequence an interactive
products and services business unit
has been established to provide
a focus on this rapidly evolving area.
Sportech Racing
Our USA Racing Tote services business
supplies tote technology and equipment
to racetracks and Off-Track Betting
shops (“OTB”) in the USA and Canada
that account for more than 50% of the
total wagering handle (betting turnover).
In addition, we supply and operate tote
technology solutions across Central and
South America. Many of our contracts
are fixed price contracts ensuring our
income is now less dependent on the
fluctuating handle seen across the
horseracing tote industry during the
last few years. Again, we have made
good progress in the short period of
our ownership with 18 existing tote
service and supply contracts renewed
or extended since acquisition.
We have also made good progress
in securing further distribution and
system sales, with a new agreement
signed in Chile for the provision of
pari-mutuel wagering systems, terminals,
interactive wagering platforms and
services at the Hipodromo Chile and
Club Hipico de Santiago. The agreement
spans racetracks, phone betting,
teletracks’ centres and 201 OTB locations.
Delivery of the systems and services
is expected in the latter part of 2011.
This follows a deal signed in 2010 to
supply pari-mutuel wagering systems
and terminals to the Jockey Club
Argentina that is also due to be
delivered in 2011. In addition, we have
also recently entered into a new contract
and installed new terminals and systems
for operating Jai-Alai pari-mutuel
wagering in Orlando.
Top One of Sportech’s three industry leading data centres
Bottom Sportech Racing’s BetJet betting terminal is distributed
to racetracks across the world
As a result of various restructuring
initiatives, we have increased
management responsibility for
the team in Europe generally and
shortened their reporting lines into
Sportech Racing.
The Group has successfully secured
a licence to provide wagering on
horseracing for 45 venues away from
the racecourses in California. The first
one was opened in December 2010
and we have a pipeline of additional
potential venues.
Sportech Venues
(i) Connecticut
As part of the acquisition of Sportech
Racing, the Group secured an exclusive
licence in perpetuity to operate all
betting on horseracing in the state
of Connecticut. This includes a licence
to operate up to 18 OTB facilities
and a telephone betting operation.
Prior to the acquisition, only 13 of these
venue licences were being utilised and
telephone betting was being carried
out in 11 states. The Board considers
that there is significant potential under
this licence and is actively investing in
these facilities, opening new facilities
and looking to expand the number of
states from which it takes telephone
betting in line with its competitors
across the USA.
Over recent months, we have expanded
the sports bar concept by introducing
betting facilities into two established
sports bars with an already established
customer base. We are encouraged
by the early results displayed and are
in discussions with other operators
to extend this further. This new concept
of combining elements of the customer
offer to include food, drink, sport,
horseracing and betting has received
a warm welcome. Whilst the local
licensing process is lengthy, we are
aiming to open another venue prior
to the end of 2011.
In line with the business planning process
during the time of the acquisition,
we have embarked upon a capital spend
of over £1.0m in the first half of 2011
to refurbish a number of existing OTB
locations in order to drive profitable
growth by raising the standards
Business review
£14.8m
separation of the business from SGC,
we have, as planned, also recruited
a number of employees to fulfil roles
previously undertaken by SGC.
17
18
www.sportechplc.com
!
Sportech Racing continued
visit www.sportechplc.com/our_business
to learn more about Sportech Racing
Sportech Venues continued
(i) Connecticut continued
of presentation and the levels of
customer service and experience.
This refurbishment programme will
be completed by the Kentucky Derby
which is on Saturday 7 May 2011.
In order to facilitate this refurbishment
and opening programme, senior
personnel from the UK have been
utilised to project manage this
process from a business and
marketing perspective.
Brooks Pierce
"+,
17%
+
horseracing market
Sportech venues
Sportech has exclusive licences
for operating horseracing wagering
in Connecticut and in the Netherlands.
Sportech operates a number of different
models including off-track betting
venues, point of sale, and sports
bar partnerships.
As part of our licences we also operate
telephone betting in Connecticut and
online betting in the Netherlands.
We also offer the ability for customers
to place wagers by phone and will
seek to expand the number of states
from which we take telephone betting
beyond the current eleven states, as
none of our existing competitors in
this area restrict this activity as severely
as we currently do.
(ii) Netherlands
In the Netherlands, we hold the exclusive
licence to operate pari-mutuel betting
on horseracing until June 2013.
We operate online, through an OTB
network and through point of sale
(“POS”) operations in smaller retail
outlets. The majority of our revenue
is derived from betting on non-Dutch
racing, in particular on UK, South
African, Swedish and French racing.
We have recently refurbished one OTB
with positive effects on revenue.
We are focused on growing the online
business and have reduced the POS
network to focus on the larger
profitable units. The Government
is reviewing the legislation around
gambling, both online and offline in
the Netherlands. We are monitoring
developments closely, and would
anticipate that our position as an
established, regulated operator, with
both physical and online activities,
will place us in a strong position
to take advantage of opportunities
that may arise.
Financial results
For the year ending 31 December 2010,
Sportech Racing was only part of the
Group for three months and in this
time contributed £14.8m of revenue,
£1.7m of EBITDA and £1.0m of operating
profit before exceptional costs. There
are no prior year comparatives. Our
American operations generated 80%
of revenue and 88% of EBITDA with
the remainder generated from our
European operations.
www.sportechplc.com
19
SPORTSHERO
T
GAMES PEOPLE PLAY
Emerging
market update - India
In summary
Sportech will extend its existing
SportsHero activities to enable the
Essel Group to offer pools games,
initially on cricket and football,
in India by the end of June 2011
The Board considers that the international
marketplace offers great potential
for our pari-mutuel games of skill,
particularly in regulated and emerging
gaming markets, where we can leverage
our heritage and track record of
operational integrity. On 15 January 2010,
Sportech announced its entry into a joint
venture with Playwin, the leading Indian
lottery and gaming business, owned
by one of the sub-continent’s largest
conglomerates, Essel Group. Both
Sportech and Playwin have agreed
to contribute a total of £2.0m each
over the next two years to the joint
venture. The Group had invested £0.5m
of cash in the first year of operations
and has accounted for its share
of losses in the income statement
amounting to £0.6m.
In May 2010, we launched
www.SportsHero.com, offering sports
prediction and fantasy games on
cricket, football, tennis and Formula 1.
At the end of December 2010, the site
had received nearly 1 million unique
visitors and 117,000 registrations online
and through mobile phones.
The Essel Group is one of only three
Indian operators to have secured
a provisional online gaming licence
in the North East Indian state of Sikkim.
As a consequence, through a newly
formed group company, the Essel
Group will be able to offer a number
of online gaming products. Sportech
will extend SportsHero’s activities to
enable the Essel Group to offer pool
games, initially on cricket and football,
in India which is expected to launch
by the end of June 2011.
Sportech has been closely monitoring
the marketplace in India for a number
of years and anticipates that through
its careful and structured approach,
including partnering with India’s largest
lottery business, the potential in the
emerging market may now start to
be realised.
Business review
Sportech’s joint venture partner,
the Essel Group, one of India’s
largest conglomerates and the
owner of Playwin, India’s leading
lottery business, is one of only
three Indian operators to have
secured a provisional online
gaming licence in the North East
Indian state of Sikkim
Indian joint venture
20
www.sportechplc.com
!"
%
Finance Director
“The Group’s financial performance
has been in line with market
expectations, notwithstanding the
significant change and challenges
in the year in order to deliver upon
the Board’s strategic objectives.
2010 has been a transitional year.”
%&'
(
Results for the period in line with
market expectations
Revenue increased by £6.6m
to £71.2m
Adjusted operating profit*
of £17.4m
Adjusted profit before tax
of £11.9m
EBITDA** of £19.7m reflecting the
highly cash generative nature of
the Group
Net bank debt reduced by £7.7m
(9.6%) to £72.2m
*
Adjusted profit numbers are stated before amortisation of acquired
intangibles, exceptional costs, share of loss after tax of joint venture
and other finance charges.
** EBITDA is stated pre exceptional costs and share option expense.
Financial overview
The Group’s financial performance has
been in line with market expectations,
notwithstanding the significant
change and challenges in the year
in order to deliver upon the Board’s
strategic objectives. 2010 has been
a transitional year.
Sportech is well positioned for growth
in 2011 and beyond as the Group
benefits from the cash flows and profit
contribution from Sportech Racing
which will be an important addition
to its existing strong profit and cash
generative businesses.
Group revenue has increased by £6.6m
to £71.2m (2009: £64.6m) generating
an EBITDA of £19.7m. Operating profit
(before amortisation of acquired
intangibles and exceptional costs)
amounts to £17.4m (2009: £19.5m).
With an increase in net finance costs
attributable to our revised banking
arrangements to £5.5m (2009: £4.8m),
adjusted profit before tax amounts to
£11.9m (2009: £14.7m). Adjusted
earnings per share is 5.4p (2009:
10.5p), the reduction principally
reflecting the increased number of
shares in issue following the equity
fundraising in the year and the issue
of Consideration Shares to SGC upon
the acquisition of Sportech Racing.
The Group incurs an annual non-cash
amortisation charge of £5.9m (2009:
£6.6m) on the intangible assets acquired
with Vernons in 2007. In addition,
following the adoption of IFRS 3
‘Business Combinations’ (revised),
all costs associated with the acquisition
of Sportech Racing have been expensed
through the income statement, which
along with other exceptional costs, has
led to a significant one-off exceptional
charge of £9.9m (2009: £24.9m). The
Group has also incurred other finance
costs of £1.4m (2009: £0.2m), principally
arrangement fees in respect of the new
bank facilities announced earlier in
the year. The Group has also accounted
for its share of the start up losses
of its Indian joint venture amounting
to £0.6m (2009: £nil).
Following these charges, the Group
has reported an £11.1m improvement
in the net loss before tax to £5.9m
(2009: loss of £17.0m), a loss after tax
of £6.3m (2009: loss of £12.3m) and
a loss per share of 3.9p (2009: loss
of 12.2p per share).
www.sportechplc.com
Group revenue
*.
£17.4m
21
Summary results
Revenue
Sportech Racing *
e-Gaming
Total
2010
£m
2009
£m
Change
£m
52.1
14.8
4.3
58.9
—
5.7
(6.8)
14.8
(1.4)
71.2
64.6
6.6
2010
£m
2009
£m
Change
£m
18.7
1.0
1.5
(3.8)
20.5
—
1.7
(2.7)
(1.8)
1.0
(0.2)
(1.1)
17.4
19.5
(2.1)
* For the three months of ownership from October – December 2010.
)
Sportech Racing
e-Gaming
Corporate costs
Total
* Operating profit before amortisation of acquired intangibles and exceptional costs.
Corporate costs
Whilst we continue to focus on cost
control, it has been necessary to
strengthen our central management
team to ensure that we were able to
integrate and manage the acquisition
of Sportech Racing appropriately.
Corporate costs have therefore increased
to £3.8m (2009: £2.7m) including
a non-cash share option expense under
IFRS 2 of £0.4m (2009: £0.2m).
Taxation and other matters
The Group has incurred a tax charge
of £0.4m (2009: tax credit of £4.7m)
despite the reported loss, principally due
to the disallowable nature of a number
of transaction related costs. The weighted
average applicable tax rate was 27.7%
(2009: 28.0%). The Group remains with
a net deferred tax asset of £3.5m, having
utilised £0.6m of losses brought forward
against taxable profits in 2010 but
having disclaimed capital allowances
with a tax value of £0.6m. During the
year, the Group received the expected
refund from HMRC of £1.7m discharging
the current tax debtor recognised
in the prior year financial statements.
The Board has previously announced
that the Group had submitted a claim
for in excess of £40m to HMRC for the
repayment of VAT overpaid in respect
of the “Spot the Ball” game from 1979
to 1996. Interest may also be added
to the principal sum claimed, which
if applicable, could more than double
the sum. On the 21 December 2010,
the Company received the anticipated
formal notice from HMRC advising that
the claim has been rejected. Under HMRC
guidelines, the Group had 30 days from
the notice to formally lodge an appeal
to the Independent First Tier Tax Tribunal
which it duly did on 11 January 2011.
We are currently waiting for a Tribunal
date to be set but would anticipate
that such a date would be towards
the end of 2011. The claim has not
been recognised in the Group’s
financial statements.
Business review
£71.2m
22
www.sportechplc.com
!"
The reduction
of net bank debt
has been one of
the key objectives
for the Board.
Over the past
five years, net
debt has reduced
by £35.9m (33%)
and the associated equity fundraising
undertaken at that time. The Group
The reduction of net bank debt has been
currently has drawn senior facility term
one of the key objectives for the Board.
loans of £73.0m (2009: £82.0m).
We are therefore pleased to report
A further £4.0m of senior facility term
a further reduction of £7.7m (9.6%) in net
loans remain undrawn and are available
bank debt during the year to £72.2m
to finance business development
(2009: £79.9m). Over the past five years,
opportunities. The maturity date
net bank debt has reduced by £35.9m
of the senior facility is June 2013.
(33%). Cash generated from continuing
In addition the Group has a £3.0m
operations amounted to £16.3m (2009:
working capital facility which is due
£19.0m). Following net interest payments
for renewal in June 2011. The key
of £5.5m (2009: £4.8m) and net tax
financial covenants of the revised
receipts of £1.7m (2009: tax payments
facilities have been adjusted to provide
of £0.8m), cash generated from operating
greater headroom until the end of
activities prior to exceptional costs was
the term. The margin over LIBOR
£12.5m (2009: £13.4m). After trading cash
in respect of the revised facilities
exceptional costs of £2.5m (2009: £3.1m)
is 3.0% per annum until expiry and,
and exceptional acquisition costs
as part of the amendment agreement,
of £7.4m, net cash generated from
the Company paid the bank’s
operating activities amounted to £2.6m
arrangement fees of £0.9m, being
(2009: £10.3m). We invested a further
equivalent to 1% of the gross facility
£2.5m (2009: £4.0m) into tangible
limits as at 31 December 2009.
and intangible assets, including £0.5m
into Sportech Racing in the three months The Group has a number of interest rate
swap agreements in place in respect
of ownership in 2010 and invested
of £60.0m of its term debt, with
an initial £0.5m (2009: £nil) into
maturity dates from March 2011
our new Indian joint venture.
to February 2016 at an average rate
To part fund the acquisition of
(before the lending margin of Lloyds
Sportech Racing, the Group completed
Banking Group) of 4.82%. £10.0m
an equity fundraising in February 2010
of these swaps unwind each year,
raising £28.2m net of expenses. £19.9m
commencing in March 2011. Under
of these funds were used to settle
international accounting rules, such
the cash consideration due to the
swap arrangements are fair valued
vendor SGC, £7.4m were used in settling
at each reporting date. These swaps
acquisition expenses (as noted above)
are valued at the end of the year as
and a further £0.9m in settling bank
a net liability, after deferred tax of £3.3m
refinancing costs.
(2009: £3.0m). These agreements, which
were entered into over two years ago,
The Group has also reduced its bank
leverage ratio (net bank debt/EBITDA) have reduced the Group’s exposure
to any volatility in the credit markets.
from 5.3 times at the end of 2005
The Group has also entered into a number
to 3.7 times at the end of 2010. With
a full year’s EBITDA contribution from of forward foreign exchange contracts
to hedge against currency fluctuations
Sportech Racing and the significant
free cash flow the Group now generates, in its two main trading currencies outside
of Sterling, being the US Dollar and
the Group’s net bank debt and bank
leverage are both anticipated to reduce the Euro, for the first six months of 2011.
At the year end, the Group has $6.0m
substantially in 2011.
and €3.0m outstanding forward exchange
At the end of December 2009 the Group
contracts at rates of approximately $1.61
entered into an amendment agreement
to £1.00 and €1.16 to £1.00. These foreign
with Lloyds Banking Group to revise
exchange contracts have been fair valued
its banking facilities on an ongoing
at the balance sheet date with the
basis. In February 2010 these facilities
resultant liability of £0.1m accounted
were amended to accommodate
for in other finance charges as an
the acquisition of Sportech Racing
unrealised loss on forward contracts.
Debt and banking facilities
www.sportechplc.com
Acquisition of Sportech Racing
Chief Executive summary
Sportech Racing was acquired on
5 October 2010. Under IFRS 3
‘Business Combinations’ (revised),
the consideration and the assets
acquired have been fair valued at the
date of acquisition. The consideration
paid consisted of cash, equity shares,
deferred consideration and contingent
consideration and in total amounted
to a fair value consideration of £44.1m.
At the time of announcing the acquisition,
the headline value was anticipated
at £51.4m, which included the contingent
consideration and equity shares being
issued at 50p, whereas due to the
time delays experienced, the fair value
of the shares had reduced to 42.5p,
the share price on the day of completion.
Industry activity
Initial cash and equity consideration
amounting to £38.8m was mostly
paid and issued on the date of
completion with a final working capital
adjustment settled in early 2011.
Deferred consideration of $10.0m
plus interest at the rate of 1% above
Bank of England base rate is payable
on 30 September 2013. This has been
fair valued as deferred consideration
payable of £5.3m. There is the potential
for performance related contingent
consideration of up to $8.0m to be
paid subject to certain performance
criteria being met. A fair value of £nil
has been attributed to this contingent
consideration. The fair value of the
assets acquired have been calculated
as £44.1m with no resultant goodwill
or negative goodwill arising.
Sportech is one of the world’s leading
pools and tote betting organisations,
processing over £8.5 billion of tote bets
annually across 30 countries. The UK
Government has announced that it
intends to sell the UK Tote, a business
whose principal activities include betting
shops and the exclusive licence to carry
out tote betting on horseracing in the UK.
Sportech retains a close interest in the
sale process, specifically in relation to
the Totepool division, as this is an activity
that the Group is a world leader in, with
its UK operational centre also based in
the North West of England close to the
UK Tote.
Summary
The completion of the acquisition
of Sportech Racing has established
Sportech as one of the world’s leading
pools and tote betting operators
and the Group now occupies a unique
position in the regulated and emerging
gaming markets worldwide.
The transformation and turnaround
of the Sportech business has been
lengthy and challenging and carried
out in difficult economic conditions.
As we focus on profitable growth
in 2011, the business is strongly cash
generative, enabling us to effect ongoing
improvements to our customer offering
and, as a result, have the capability
to take advantage of the rapidly
growing global gaming markets.
Share capital
The Company issued 58,415,520
new ordinary shares in February 2010
as a result of the firm placing and
placing and open offer in respect
of the acquisition of Sportech Racing
at 50p per share. On 5 October 2010,
the Company issued a further 39,742,179
ordinary shares to SGC as part of
the purchase consideration for
Sportech Racing. Current shares
in issue total 198,810,302.
Ian Penrose
Chief Executive
Steve Cunliffe
Finance Director
24 March 2011
23
Business review
The Group
now occupies
a unique position
in the regulated
and emerging
gaming markets
worldwide
24
www.sportechplc.com
!
/
The Board regularly reviews the risks associated with the Group’s activities and
strategy. In reviewing such risks, the Board ensures that appropriate systems and
controls are in place to firstly mitigate the occurrence of such risks and secondly
mitigate the impact of any such risks. The principal risks the Group faces are
noted below:
Regulatory risk
The Group operates under a number of licences across worldwide jurisdictions, including the UK and USA. The loss or
inadvertent breach of any such licence could have a significant impact on the Group’s ability to continue to trade within
that and other jurisdictions and therefore on the Group’s trading and results. In addition, such loss or inadvertent breach
would potentially lead to the imposition of fines on the Group and could lead to substantial legal costs.
Mitigation
The Group considers that its licences to operate around the world are a key asset to the business and as such looks
to mitigate the inherent risk within this area as follows:
the Group employs a Director of Corporate Affairs, one of whose primary roles is to ensure compliance with
licences worldwide;
the Group has recently appointed a Group General Counsel in the UK to aid compliance issues and has also appointed
a General Counsel within its key USA subsidiary, Sportech Inc.;
the Group employs third-party specialist legal counsel as appropriate to ensure relationships with regulatory bodies
are maintained at the highest level;
regular updates and training are provided to employees; and
all Directors (including Non-executive Directors) have clauses in their contracts requiring them to provide whatever
information is required by regulatory authorities to ensure Sportech PLC remains licensed in its key jurisdictions.
Operational risk
1. A significant proportion of the Group’s annual income is derived from consumer facing industries and is therefore
subject to the impact of economic downturns. Any significant downturn in the economy could lead to a negative
impact on the results of the Group and its cash flows.
Mitigation
1. Management has taken and continues to take mitigating actions to protect the Group from current and potential
operational and commercial risks in respect of economic downturn:
revenue channels have been expanded both by product and by country with the acquisition of Sportech Racing, providing a
broader base of revenue streams for the Group;
operating cost bases within the key operational divisions have been restructured to offset potential declines in revenue;
revenue channels within the UK are being expanded by the distribution of the Group’s key products through additional
channels to market; and
where possible, fixed income contracts have been entered into with our customers limiting our downside risk.
www.sportechplc.com
25
Operational risk
2. A significant proportion of the Group’s annual income is dependent on technology led solutions.
Mitigation
the Group has a number of world class data centres established in its key trading jurisdictions which host the Group’s
key technology solutions;
the Group continues to invest in upgrading its technology solutions to ensure compliance with best practice;
Group systems, principally in the USA and in the Netherlands, are subject to annual third-party audit to provide
assurances to our customers that our systems are robust and complete; and
where third-party software is utilised, leading technology providers are chosen as suppliers of choice, particularly in
respect of our e-Gaming operations.
Financing risk
The Group continues to be relatively highly leveraged and is dependent on the provision of debt financing to enable
it to continue its operations. The change in the credit markets that have occurred over the last three years has increased
the cost of bank debt and reduced the availability of alternate sources of finance.
Mitigation
the Group maintains a close relationship with its existing bankers, Lloyds Banking Group. In addition, the Group has
established a number of relationships with other lenders to ensure that if required, alternate sources of finance may be
made available;
the Group is also very focused on cash generation and debt reduction to ensure the financing risk is mitigated by the
reduction in the Group’s leverage; and
the Group has entered into a number of long term contractual interest fixes to de-risk the interest element of the cash
flows of the Group.
Health and safety risk
The Group runs a number of venues running pari-mutuel wagering, principally in the state of Connecticut, USA and the
Netherlands. These operations involve the handling of significant sums of cash. In addition, the venues are used by a
significant number of customers on a daily basis. The Group therefore has a significant health and safety risk in respect
of both its employees and its customers.
Mitigation
The Group takes the following actions to ensure the health and safety of its employees and customers:
suitably qualified Health and Safety Managers are employed by the Group to ensure compliance with Group policies;
security processes and procedures are in place to ensure excess cash is removed from venues as soon as possible; and
continued investment in the venues to ensure health and safety issues are addressed within each venue.
Business review
2. Management ensures that the risk posed by technology is mitigated where possible as follows:
26
www.sportechplc.com
Corporate social responsibility
Corporate social responsibility
is about behaving responsibly
towards employees, customers
and society in general. The Group
takes its responsibilities extremely
seriously and is justifiably proud
of its record in maintaining the
highest ethical standards of corporate
social responsibility in respect of all
those who come into contact with
our business.
Total amount donated to
%=>&
£1.1bn
Sportech and
the Football Pools
are committed
to leaving a
lasting legacy
by supporting
communities
through sport,
the arts and other
good causes
Responsibility to our customers
In the UK, the Group operates nine
licence activities under the Gambling Act
2005 (the “Act”). These encompass our
pool and pari-mutuel betting, gaming
and lottery businesses. One of the
primary obligations under our licences
is to treat customers fairly. To ensure
that the obligations placed on the Group
by the Act are adhered to, and in
furtherance of our policy of maintaining
the highest standards of compliance and
integrity, the Group has a Director of
Corporate Affairs who is responsible for
ensuring compliance with the terms of
the Act. In addition, the Group employs
a Security and Compliance Manager
whose primary role is to ensure that our
customers are treated fairly, that our
advertising is compliant with advertising
standards and codes, that the young
and vulnerable are prevented from
accessing our products and that abuse
and illegal behaviour are identified and
stopped. All gaming products are
subject to age restrictions and age
verification software is used by
the Group.
Our e-Gaming activities are
outsourced to third-party providers
and operate under the licences of
those software providers.
The Group also actively promotes
GamCare, the charity providing
support to those suffering through
a gambling problem, to its customers
and nearly £300,000 has been
contributed to The Great Foundation,
GamCare’s major funder, and its
predecessor body over recent years.
Both the Football Pools and Vernons
web sites are certified by GamCare.
With its recent acquisition of
Sportech Racing, the Group has
assumed licences for pari-mutuel
activities in over 30 jurisdictions
in North and South America, Europe
and Asia. A programme to ensure a
consistently high standard of customer
care and regulatory compliance across
the expanded Group is underway.
Responsibility to society
The Group’s support for communities
across the UK is virtually unparalleled;
since the mid-1970s the Football Pools
has contributed over £1.1bn at today’s
value to football, sport, the arts and
charitable causes. Today the Group
generates nearly £1m per annum for
charitable use through its management
and operation of society lottery
products within its Football Pools
business activities.
www.sportechplc.com
27
18
The Group has been, for many years,
the sole funder of the Foundation for
Sport and the Arts (www.thefsa.net) which
awards grants amounting to several
million pounds each year. Many
communities, organisations and
individuals have benefited from
modest but critical training bursaries
through to major capital projects. The
Foundation ceases its activities in 2012,
after 21 years of supporting communities
across the UK.
In addition, a scheme to use the power
of football to assist unemployed
people back into work, training or
education has been supported with a
donation of £206,000 used to trial
this scheme with four Premier League
clubs – Chelsea, Everton, Portsmouth
and Sunderland;
In 2007, the Group changed the focus
of its charitable donations specifically
towards football charities and signed
a deed with the four English and
Scottish professional Football Leagues
to direct donations of £5.9m towards
football-related charities in the period
up to June 2011.
Of the committed monies:
£1.1 billion donated
to good causes
Sportech’s continued support
for communities across the UK
is virtually unparalleled; since
the mid 1970s, The Football Pools
has contributed over £1.1 billion
at today’s value to football, sport,
the arts and charitable causes.
just under £1.2m has been donated
to the Scottish Football League in
a multi-channelled scheme that will
tackle serious issues within the
game, such as young people’s heart
screening, alcohol awareness training
for U16s and U19s, as well as the
donation of a defibrillator to every
football club across the Leagues.
All 30 clubs are involved; and
finally, with an award of £294,000,
the Scottish Premier League has
recently launched the Football Fans
in Training scheme across all twelve
clubs. This emulates the current
Premier League Health scheme using
the power of football and club
brands to encourage men to get
fit and healthy.
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Governance
£1.6m has been allocated to Premier
League Health, a joint initiative
between the Group and the Premier
League, launched in February 2009.
This initiative sees 17 Premier League
clubs working with local health
agencies such as Primary Care Trusts
to engage with over 4,000 men.
The project aims to tackle issues
as diverse as depression linked to
unemployment, obesity and general
poor physical health, as well as
alcohol and drug addiction.
£2.6m has been donated to the
Football League Trust for a scheme
that will grow disability football
provision across England and Wales.
The three year, pan-disability scheme
will develop football opportunities at
39 Football League clubs this season;
28
www.sportechplc.com
Corporate responsibility continued
“We are most grateful to
The Football Pools for
their support and their
donation of £2.6m, which
has made both the Every
Player Counts Scheme
and the generation of
£2m matched funding
possible since the
scheme began in 2009.”
David Edmonson
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Counts Scheme
The Group also encourages employees
to raise funds for local charities and
supports those efforts where appropriate.
Responsibility towards the environment
The Group recognises its responsibility
to achieve good environmental practice
and continues to strive for improvement
in its environmental impact.
The nature of its business results in the
principal impact arising from energy
and paper consumption.
Wherever possible, waste consumable
materials are recycled or disposed of
in a manner most suitable to reduce
any impact on the natural environment.
The Group’s business practices also
encourage environmental good
practice and, through the increasing
use of technology to facilitate
information and data collection and
dissemination, have led to reduced
demand for paper resources.
Responsibility towards employees
The Board is acutely aware of the vital
contribution of employees to the future
success of the business and recognises
the importance of providing employees
with information on matters of concern
to them, enabling employees to improve
their performance and make an active
contribution to the achievement of
the Group’s business objectives. This
is accomplished through formal and
informal briefings, meetings and will
shortly be extended to online
communication via a Group intranet.
Employee representatives are consulted
regularly on a wide range of matters
affecting their current and future
interests. The Group’s Investor in People
accreditation reflects the progressive
training and development programmes
that are in place within the business.
The Group is committed to equality of
opportunity and dignity at work for all,
irrespective of race, colour, creed,
All employees are encouraged to
ethnic or national origins, gender,
participate in the implementation of
marital status, sexuality, disability, class
this policy and suppliers of consumable
or age. It ensures that recruitment and
products are encouraged to be
promotion decisions are made solely
environmentally friendly,
on the basis of suitability for the job.
wherever practical.
www.sportechplc.com
It is the policy of the Group to comply
with the requirements of the Disability
and Equality Act 2010 in offering
equality of opportunity to disabled
persons applying for employment,
selection being made on the basis
of the most suitable person for the
job in respect of experience and
qualifications. Training, career
development and promotion are
offered to all employees on the basis
of their merit and ability.
Spencer Radley-Martin, an Every Player Counts
participant from ‘Albion in the Community’,
receives the Every Player Counts Player of
The Year Award 2010, introduced to recognise
inspirational individuals in the scheme
Every effort is made to continue to
employ, in the same or alternative
employment, and where necessary
to retrain, employees who become
disabled during their employment with
the Group. The Group is an accredited
Disability and Two Ticks employer.
The 2010 Blind World
Championship
The Football Pools was a proud supporter of the
2010 Blind World Championship held in Hereford
between 14-22 August 2010. This was the fifth
World Championship showcasing the very best
blind footballers from across the globe. Brazil won
the IBSA World Blind Championship for the third
time with a stunning 2-0 win over a resilient
Spanish team. The England team had a fantastic
tournament finishing in fourth place.
www.blind2010.com
FTSE4Good
In 2008 the Board received confirmation
that it had been independently
assessed according to the FTSE4Good
criteria and had satisfied the
requirements to become a constituent
of the FTSE4Good Index Series.
Created by the global index company
FTSE Group, FTSE4Good is an equity
index series that is designed to
facilitate investment in companies that
meet globally recognised corporate
responsibility standards. Companies
in the FTSE4Good Index Series have
met stringent social and environmental
criteria and are positioned to capitalise
on the benefits of responsible
business practice.
Governance
The Group proactively addresses
health and safety management
and we have a programme of risk
identification, management and
improvement in place. The Board
receives a report in respect of health
and safety at each Board meeting
and is pleased to report that there
were no reportable incidents in 2010.
29
30
www.sportechplc.com
Board of Directors
Roger Withers
Chairman, age 69
Date of appointment February 2011
Board Committees N/A
Roger was appointed Chairman in February 2011. Roger has over 30 years’ experience in the
leisure and gaming industries across senior management and board positions in market leading
companies including Ladbrokes (Hilton), Bass, BMLS and Coral Racing. Roger held the position
of Executive Chairman of Bass Leisure South Africa before retiring from Bass in 1998. Since then
Roger has held a number of other Non-executive Directorships, including Chairman of Arena
Leisure PLC, Senior Non-executive Director of Sportech PLC, as well as Directorships with a number
of substantial privately held companies in the property, technology, publishing and exhibitions
sectors. Roger is also currently Chairman of leading gaming software provider, Playtech Limited.
Ian Penrose
Chief Executive, age 45
Date of appointment October 2005
Ian was appointed Chief Executive in October 2005 and has led the five-year turnaround of
Sportech from a declining and UK centric business with very high levels of debt, into one of
the world’s leading pools and tote gaming companies. He was previously Chief Executive of
Arena Leisure PLC, whom he joined in 1998, shortly after the formation of the company and
left in September 2005 having built the UK’s largest horseracing and media group. Ian is
also a Trustee of the National Football Museum.
Steve Cunliffe
Finance Director, age 42
Date of appointment May 2006
Steve was appointed Finance Director and Company Secretary in May 2006. Steve has over
20 years’ experience across the finance, leisure and manufacturing sectors. Steve joined the
Company from his position as Finance Executive of Hemway Limited. Prior to this he was
Finance Director of Herald Inns and Bars. Steve spent three years at the textile and
wallcoverings group CWV Group, latterly as Group Finance Director, following a two-year
period as Financial Controller for the Manchester Division of Barratt Homes. Steve qualified
as a Chartered Accountant with Coopers & Lybrand in 1992.
Ian Hogg
Chief Operating Officer UK and Online, age 47
Ian was appointed to the Board in October 2010. From 2005 to 2009, Ian was a founding
shareholder and Managing Director of Better, the UK betting shop business, which he built up
to an estate of 44 shops and then merged with the Jennings betting shop chain. From 1998
to 2004, he was the Director of Online and Gaming at Arena Leisure PLC and was seconded
for 18 months as Managing Director of At The Races. Ian is also the Chairman of Fox Poker
Club. Previously Ian has been a consultant to BSkyB and Tote Tasmania.
Brooks Pierce
President, Sportech Racing, age 49
Brooks was appointed to the Board in October 2010. Brooks has been the President of Scientific
Games Racing (“SGR”, and now “Sportech Racing”) from 1997 to date, apart from a two-year
period when Brooks was Senior Vice President of Marketing for Scientific Games Corporation,
the then parent company. Prior to becoming President, Brooks was Vice President of Sales,
where he was responsible for directing sales across North America.
www.sportechplc.com
31
Peter Williams
Senior Independent Non-executive Director, age 57
Date of appointment February 2011
Board Committees Remuneration Committee, Audit Committee
Peter was appointed Senior Independent Non-Executive Director in February 2011.
Peter has over 20 years’ experience in a variety of Executive positions in the retail industry
and is currently the Senior Independent Director at ASOS PLC. For 13 years up to 2004,
Peter worked for Selfridges, initially as Chief Financial Officer and then as Chief Executive.
In the last two years Peter was an Executive Director at both JJB Sports plc and the
EMI Group, responsible for the turnaround strategy. Peter is a Non-executive Director at
Cineworld Group PLC, Silverstone Holdings and is a member of the Design Council.
Michael John Barnes (familiar name John)
Independent Non-executive Director, age 61
Date of appointment November 2005
Board Committees Audit Committee (Chairman), Remuneration Committee (Chairman)
John was appointed Non-executive Director in November 2005 and chairs the Audit and
Remuneration Committees. John has over 39 years of consumer brand and leisure industry
experience across senior marketing and general management positions in the USA and Europe
with large international corporations such as Procter & Gamble and PepsiCo. John was named
AIM Non-executive Director of the Year in the Sunday Times/KBC Peel Hunt Non-executive
Director Awards 2006 and is currently a Non-executive Director of Interior Services Group PLC
and Chairman of Novus Leisure Ltd.
Lorne Weil
Non-executive Director, age 64
Lorne was appointed Non-executive Director in October 2010 and brings more than 20 years of
wide-ranging gaming industry experience to the Board. Lorne is Chairman and Chief Executive
Officer (“CEO”) of Scientific Games Corporation, roles he has performed since 1991, apart from
January 2009 to November 2010 when he had originally stepped down as CEO, prior to being
asked to resume this role again. During his tenure, Lorne built a global leader in providing
customised, end to end gaming solutions to lottery and gaming organisations worldwide.
He is also a member of the Board of Overseers of Columbia Business School, where he is also
Chairman of the Advisory Board of the Entrepreneurship Center.
Mor Weizer
Non-executive Director, age 36
Date of appointment March 2011
Mor was appointed to the Board as Non-executive Director as a representative of Playtech
Limited in March 2011. Mor is Group CEO of Playtech Limited, a role he has performed since
May 2007. Prior to this he was the CEO of one of the Group’s subsidiaries, Techplay Marketing Ltd.
Prior to joining the Playtech Group, Mor worked for Oracle for over four years, initially as a
Development Consultant and then as a Product Manager. Before this, he worked in a variety
of roles, including as an auditor and financial consultant for PricewaterhouseCoopers and a
system analyst for Tadiran Electronic Systems Limited, an Israeli Company that designs
electronic warfare systems.
Governance
32
www.sportechplc.com
Senior management
Sportech PLC
The Football Pools
and e-Gaming
Sportech Racing
Richard Boardley
Jon Sheehy
Director of Corporate Affairs
Director – The Football Pools
Andrew Gaughan
Managing Director Interactive
Products and Services
Mickey Kalifa
Steve Lerner
Corporate Development Director
Director – Online
David Haslett
Managing Director
Sportech Racing
Ted Taylor
James Grigg
Louis Skelton
Head of Business Development
Distribution Director
Vice President of Technical Services
Phil Balderamos
Head of Corporate Marketing
and Communications
Carl Lynn
James D Birney
Finance Director – UK and Online
Vice President of Finance
Luisa Hoffman
Group General Counsel
visit www.sportechplc.com/
senior_management
www.sportechplc.com
33
Directors’ report
for the year ended 31 December 2010
The Directors present their report and the audited consolidated financial statements for the year ended 31 December 2010.
Business review and principal activities
Following the acquisition of Scientific Games Racing (renamed “Sportech Racing”) on 5 October 2010, the Group’s principal activities
are as follows:
E
Football Pools – the operation of football pools and associated games through various distribution channels including direct mail,
telephone, agent-based collection, retail and the internet;
E
Sportech Racing – the provision of pari-mutuel wagering services and systems worldwide principally to the horseracing industry and
the management of off-track betting venues (venues management) within certain territories; and
E
e-Gaming – the operation of a portfolio of online casino, poker, bingo and fixed-odds games supplied via third-party software providers.
The principal activities of the Company are those of a holding company.
The loss from continuing activities for the year ended 31 December 2010 after taxation amounted to £6.3m (2009: £12.3m loss). There is
no dividend for the year (2009: £nil).
A review of the business including key performance indicators is set out on pages 8 to 25 and is incorporated into this report by reference.
Directors and their interests in the shares of the Company
The Directors who held office during the year, and up to the date of signing these financial statements, had the following beneficial
interests in the share capital of the Company:
Personal holding
31 December
2010
Number
31 December
2009
Number
12,079
435,000
65,000
47,140
500,000
—
110,000
2,000,000
—
—
—
—
—
—
435,000
65,000
47,140
500,000
—
110,000
2,000,000
—
—
—
—
—
—
335,000
15,000
—
—
—
110,000
—
—
—
—
—
25,000
Details of share options and performance share plan awards granted during the year ended 31 December 2010 are set out in the
Remuneration Report on pages 36 to 42.
Substantial shareholdings
On 24 March 2011, the following interests representing 3% or more of the issued share capital of the Company had been notified to
the Company:
Holder
Scientific Games Corporation
Newby Manor Limited
Playtech Limited
Gartmore Investment Limited
AXA S.A.
Total of substantial shareholdings
Ordinary shares
of 50p
% of issued
share capital
39,742,179
37,118,010
19,881,020
15,391,687
7,835,939
119,968,835
19.99
18.67
10.00
7.74
3.94
60.34
The Company and Scientific Games Corporation (“SGC”) have entered into a Lock-Up Agreement pursuant to which SGC agrees not to
dispose of any of the shares it acquired as part of the Sportech Racing acquisition (“Consideration Shares”) for a period commencing on
completion of the acquisition of Sportech Racing up to and including the third anniversary of completion. The Lock-Up Agreement does
not prohibit SGC from transferring the Consideration Shares, inter alia, to its connected persons or from accepting a takeover offer in
respect of the Consideration Shares made under the City Code. The Lock-Up Agreement may be terminated if, inter alia, the Company
or its connected persons enters into certain types of lottery business, Sportech or certain of its affiliated persons are in violation of the
law or the Company breaches certain obligations to provide information pursuant to the Purchase Agreement.
Other than as noted above, there are no restrictions on the transfer of securities in the Company or on voting rights.
Governance
Roger Withers (appointed 8 February 2011)
Ian Penrose
Steve Cunliffe
Ian Hogg (appointed 5 October 2010)
Brooks Pierce (appointed 5 October 2010)
Peter Williams (appointed 8 February 2011)
John Barnes
Lorne Weil (appointed 5 October 2010)
Mor Weizer (appointed 23 March 2011)
Shmuel Weiss (appointed 5 October 2010, resigned 23 March 2011)
Piers Pottinger (resigned 23 November 2010)
Kathryn Revitt (resigned 5 October 2010)
Jon Holmes (resigned 5 October 2010)
24 March
2011
Number
34
www.sportechplc.com
Directors’ report continued
Donations
Through its business activities, £0.9m (2009: £1.0m) was generated for good causes and charities in the year. The Corporate Social
Responsibility Report on pages 26 to 29 provides information as to the use of such funds. The Group made no political donations during
the year.
Land and buildings
The Directors are of the opinion that there is no significant difference between the book and market value of the land and buildings of
the Group. The Company does not own any land and buildings.
Environmental matters
The Corporate Social Responsibility Report provides information with respect to the Group’s impact on the environment and can be
found on pages 26 to 29.
Employees
Details of the Company’s policy on equal opportunities for disabled employees and on employee involvement are set out in the
“Responsibilities towards employees” section of the Corporate Social Responsibility Report on pages 28 and 29.
Principal risks and uncertainties
Details of the Group’s principal risks and the mitigating actions taken by the Board are detailed on pages 24 and 25 of the
Business and Financial Review. Details relating to financial risks can be found in note 24.
Share capital
Details of the movement in share capital are included within note 25 of the financial statements.
Policy on payment of creditors
The Group and Company do not follow any code or standard on payment practices and there is no fixed policy for payment for goods and
services. Payment is made promptly once authorisation of the invoice is obtained. For the Group, creditor payment days outstanding
at 31 December 2010 were 33 days (2009: 38 days). For the Company, creditor payment days outstanding at 31 December 2010 were
51 days (2009: 26 days).
Significant agreements
There are a number of agreements that take effect, alter or potentially terminate upon a change of control of the Company following a
takeover bid, such as commercial contracts and employees’ share plans. None of these are deemed to be individually significant in terms
of their potential impact on the day-to-day running of the business of the Group as a whole other than as noted below:
E
the main banking facilities between Lloyds Banking Group and the Group have termination provisions in respect of a change of
control or trade sale with the facilities cancelled and all outstanding debt becoming immediately due and payable; and
E
the Group operates under a number of licences in various territories awarded to it by regulatory bodies. In the event of a change of
control, certain regulatory bodies retain the right to pre-approve the acquirer in order for a change of control to be permitted.
There are no clauses in any of the Directors’ contracts that are triggered by a change of control of the Company.
Going concern
The Group has long term committed banking facilities in place with Lloyds Banking Group. The Group meets its day-to-day
working capital requirements through a working capital facility, which is due for renewal in June 2011. The Directors have no reason
to believe that the current working capital facility will not be renewed at a similar level to that currently in place. The Group’s
forecasts and projections, which have been prepared for the period to 31 March 2012 and taking into account reasonably possible
changes in performance, show that the Group will be able to operate within the level of its current facilities, meet term loan
repayments as they fall due and comply with its banking covenants.
After making reasonable enquiries, the Directors have a reasonable expectation that the Company and the Group have adequate
resources to continue in operational existence for the foreseeable future. Accordingly they continue to adopt the going concern
basis in preparing the Annual Report and Accounts.
Directors’ third-party indemnity provisions
During the year, qualifying indemnity insurance was provided to the Directors. No claim was made under this provision.
Disclosure of information to auditors
So far as each Director is aware, at the date of the approval of the financial statements there is no relevant audit information of which
the Company’s auditors are unaware. Each Director has taken all the steps that they ought to have taken as a Director in order to make
themselves aware of any relevant audit information and to establish that the Company’s auditors are aware of that information.
www.sportechplc.com
35
Statement of Directors’ responsibilities
The Directors are responsible for preparing the Annual Report, the Remuneration Report and the financial statements in accordance
with applicable law and regulations.
Company law requires the Directors to prepare financial statements for each financial year. Under that law the Directors have prepared
the Group and Company financial statements in accordance with International Financial Reporting Standards (“IFRSs”) as adopted by
the European Union. Under company law the Directors must not approve the financial statements unless they are satisfied that they 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
these financial statements, the Directors are required to:
E
select suitable accounting policies and then apply them consistently;
E
make judgements and accounting estimates that are reasonable and prudent;
E
state whether IFRSs as adopted by the European Union have been followed, subject to any material departures disclosed and
explained in the financial statements; and
E
prepare the financial statements on the going concern basis unless it is inappropriate to presume that the Company will continue in business.
The Directors are responsible for keeping adequate accounting records that are sufficient to show and explain the Company’s
transactions and disclose with reasonable accuracy at any time the financial position of the Company and the Group and enable them
to ensure that the financial statements and the Remuneration Report comply with the Companies Act 2006 and, as regards the Group
financial statements, Article 4 of the IAS Regulation. They are also responsible for safeguarding the assets of the Company and the
Group and hence for taking reasonable steps for the prevention and detection of fraud and other irregularities.
The Directors are responsible for the maintenance and integrity of the Company’s website. Legislation in the United Kingdom governing
the preparation and dissemination of financial statements may differ from legislation in other jurisdictions.
Directors’ statement pursuant to the disclosure and transparency rules
Each of the Directors, whose names and functions are listed in the Board of Directors section on pages 30 and 31 confirm that, to the
best of their knowledge:
the Group financial statements, which have been prepared in accordance with IFRSs as adopted by the EU, give a true and fair view
of the assets, liabilities, financial position and loss of the Group; and
E
the Directors’ Report includes a fair review of the development and performance of the business and the position of the Group,
together with a description of the principal risks and uncertainties that it faces.
Corporate governance
The Group’s statement on corporate governance is included in the Corporate Governance Statement on pages 43 to 45.
Annual General Meeting (“AGM”)
The Notice convening the AGM of the Company on 12 May 2011 is being sent to shareholders with this report.
In accordance with the Articles of Association of the Company, John Barnes retires by rotation and offers himself for re-appointment at
the AGM. In addition, Roger Withers, Ian Hogg, Brooks Pierce, Lorne Weil, Peter Williams and Mor Weizer who were all appointed to the
Board since the last AGM are seeking re-appointment. Profiles of these Directors appear on pages 30 and 31.
Resolutions will also be proposed at the AGM to receive the Accounts and the Directors’ and Independent Auditors’ Reports, to approve
the Remuneration Report set out on pages 36 to 42, to re-appoint the auditors and to authorise the Directors to fix their remuneration.
Independent auditors
A resolution to re-appoint PricewaterhouseCoopers LLP as auditors to the Company will be proposed at the AGM.
By order of the Board
STEVE CUNLIFFE
COMPANY SECRETARY
24 March 2011
Governance
E
36
www.sportechplc.com
Remuneration report
Compliance with best practice
Sportech PLC seeks to apply best practice in remuneration policy.
Composition of the Remuneration Committee
The Remuneration Committee (the “Committee”) currently consists of John Barnes (the Chairman) and Peter Williams who was
appointed to the Board in February 2011 following the resignations as Directors of Jon Holmes, Kathryn Revitt and Piers Pottinger
towards the end of the year. Peter Williams will become the Chairman of the Committee following a short hand over period with
John Barnes who has been Chairman of the Committee for five years. John Barnes will remain on the Committee.
None of the Committee has any personal financial interest (other than as a shareholder), conflicts of interest from cross-Directorships or
day-to-day involvement in the running of the business. The Committee’s role is to set the remuneration policy for the Executive Directors
and to be advised of the remuneration packages of Senior Executives. The Committee makes its proposals following consultation with
the Chief Executive (on remuneration other than his own) and is entitled to seek professional advice from outside the Group from
remuneration consultants.
John Barnes has been Chairman of the Committee throughout the year under review. The other members of the Committee during the
year were Jon Holmes, Kathryn Revitt and Piers Pottinger. The Chief Executive is invited to attend meetings when appropriate, although
he is not present when matters affecting his own remuneration are discussed.
The Committee retains independent remuneration consultants, Hewitt New Bridge Street (“HNBS”), to advise on all aspects of Executive
remuneration. HNBS has no connection with Sportech other than in the provision of advice on Executive remuneration.
The fees of the Non-executive Directors are set by the Committee following review against fee levels operated in companies of a comparable
size and after taking into account the anticipated time commitment of each role. The Non-executive Directors do not participate in any incentive,
pension or benefit schemes of the Company other than in the case of Lorne Weil who has been issued incentive awards as noted below.
Remuneration policy for Executive Directors and Senior Executives
The Committee aims to ensure that the remuneration packages offered to Executive Directors and Senior Executives are designed to:
E
be competitive and to attract, retain and motivate Executives of the right calibre;
E
reflect their responsibility and experience within the business;
E
incorporate a significant element of performance-related pay linked to the achievement of key business objectives and increased
shareholder value;
E
provide a total remuneration offering at ‘target’ levels of performance that are competitive in the relevant market;
E
incentivise performance beyond ‘target’ levels, to achieve this a significant proportion of remuneration should be delivered through
incentive related pay;
E
take due account/full consideration of the principles set out in the Combined Code; and
E
provide the foundation for overall reward and remuneration beyond the specific roles governed by the Committee.
The Committee aims to ensure that there is an appropriate balance between non-performance related and performance-related pay.
In designing an appropriate performance-related pay structure for the Executive Directors and Senior Executive management team, the
Committee seeks to set challenging performance criteria that are aligned with the Group’s strategy.
The Remuneration Committee ensures that performance-related pay structures will not raise environmental, social or governance (“ESG”)
risks by inadvertently motivating irresponsible behaviour. More generally, with regard to the overall remuneration structure, there is no
restriction on the Committee which prevents it from taking into account corporate governance on ESG matters and it takes due account
of issues of general operational risk when structuring performance-related pay schemes.
The policy in relation to subsequent years will be kept under review to ensure that it reflects any changing circumstances.
The main component parts of the remuneration packages for Executive Directors and Senior Executives are as follows:
Basic annual salary
An individual’s basic salary is reviewed and determined by the Committee annually, taking into account external research and his or her
performance and experience. The Committee also makes use of benchmark data provided by external remuneration consultants and is
aware of the level of salary increases other employees within the Group receive.
E
Ian Penrose, Chief Executive, is paid a salary of £300,000 per annum, unchanged from the previous year.
E
Steve Cunliffe, Finance Director, was awarded a salary increase with effect from 1 October 2010 to £200,000 per annum. Prior to this,
his salary was £175,000.
E
Ian Hogg, Chief Operating Officer UK and Online, is paid a salary of £240,000 per annum with effect from his appointment date.
E
Brooks Pierce, President of Sportech Racing, is paid a salary of $400,000 per annum (approximately £250,000 per annum) with
effect from his appointment date.
While the Committee does not target a specific market positioning when setting base salary, it takes due account of market median data in
separate comparator groups based on sector, size and complexity. The current salary levels, based on the benchmark data provided by
the Committee’s advisers during the year, are below median for Ian Penrose and Steve Cunliffe and median for Ian Hogg and Brooks Pierce.
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37
Remuneration policy for Executive Directors and Senior Executives continued
Performance related bonus
For 2010, the Chief Executive’s and the Finance Director’s performance related bonus was based on a two-part bonus structure to
reflect achievement of profit targets and key business objectives with a normal maximum bonus potential of 100% of basic salary for
the Chief Executive and 75% for the Finance Director. As reported in last year’s Remuneration Report, the Remuneration Committee
considered it appropriate to extend the potential bonus award, for 2010 only, to an exceptional maximum bonus of up to 150% of salary
(inclusive of the normal bonus of up to 100% of salary). The bonus payments for 2010 were 50% (2009: 33%) of the entitlement for the
Chief Executive and 50% (2009: 33%) of the entitlement for the Finance Director.
For the two Directors who joined the Board following the acquisition of Sportech Racing in October 2010, the Committee has not
awarded a bonus for 2010. Maximum bonus potential for both individuals in a normal year amounts to 75% of basic salary.
For 2011, the Committee has set performance-related bonus targets for all Executive Directors wholly based on the EBITDA performance
of the operating divisions and of the Group to ensure management is focused on the delivery of the enlarged Group’s profit and cash
objectives following the strategic initiatives in 2010.
Pension arrangements
The Company contributes at a rate of 8% into defined contribution schemes for the UK-based Executive Directors. Only basic annual
salary is pensionable.
In respect of Brooks Pierce, the Company makes contributions into 401(k) pension plans (similar to a defined contribution scheme)
on behalf of the employee at a rate of 2.25% of salary up to a combined limit of employee and employer contributions of currently
$16,000 per annum.
Other benefits
Executive Directors are entitled to the following other main benefits:
Chief Executive – 29 working days’ holiday per annum in addition to normal bank and public holidays. Other Executive Directors
– 25 working days’ holiday per annum in addition to normal bank and public holidays;
E
for UK-based Executives, a car allowance;
E
private health insurance (and for US Executives, dental health insurance) for themselves, their spouse and children; and
E
for UK-based Executives, life insurance of four times salary. For US Executives, short and long term disability insurance, basic life
insurance and basic accidental death and dismemberment insurance.
Long term incentive plans
The Committee believes that share ownership and the granting of share-based incentives strengthens the link between Executives’
personal interests and those of the shareholders. The Company has two long term share plans in place, being a share option scheme
and a performance share plan (“PSP”) (see below). The Company’s policy has been to only grant awards under the PSP since its
adoption in 2007.
Share option scheme
A share option scheme is in place, the rules of which are designed to comply with the best practice provisions annexed to the Listing
Rules of the UK Listing Authority and current guidelines of institutional shareholders. The details of the scheme are described in note 25.
Performance Share Plan (“PSP”)
The PSP was introduced in 2007 and may provide annual awards subject to the achievement of challenging performance targets.
Quantum
Awards may normally be granted up to 100% of salary, other than in exceptional circumstances, when they may be granted up to
200% of salary. The initial awards granted in 2007 were at 150% as was set out at the time the PSP was introduced. No awards were
made in 2008 or 2009. Awards have been granted under the PSP during 2010 as noted below.
Performance targets
2007 awards
The performance targets that applied to the original 2007 awards granted under the PSP were an equal blend of absolute share price
growth and relative Total Shareholder Return (“TSR”) as detailed below:
Share price targets (50% of an award):
E
25% of this part of an award was to vest for share price growth of 18.75% over a three-year performance period;
E
100% of this part of an award was to vest for share price growth of 66% over the same period; and
E
pro rata vesting was to occur between 18.75% and 66% share price growth on a straight-line basis.
Governance
E
38
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Remuneration report continued
Long term incentive plans continued
Performance Share Plan (“PSP”) continued
Performance targets continued
2007 awards continued
Relative TSR (50% of an award):
E
25% of this part of an award was to vest for equalling a total return index comprising the other major UK betting and gaming
companies (888 Holdings, Ladbrokes, Partygaming and William Hill) over a three-year performance period;
E
100% of this part of an award was to vest for out-performing the index by 11% p.a. over the same period; and
E
pro rata vesting was to occur between equal and 11% p.a. total return versus the index on a straight-line basis.
Neither the share price target nor the relative TSR targets were achieved during the three-year performance period and as such none
of the 2007 PSP awards vested.
2010 awards
Reflecting the fact that no share-based incentive awards had been granted since 2007, and to ensure that the Executive Directors are
fully incentivised to drive maximum long term value from the acquisition of Sportech Racing, the Committee considered it appropriate
to grant awards of 200% of salary to Ian Penrose, Steve Cunliffe and Brooks Pierce and 150% of salary to Ian Hogg following the
completion of the Sportech Racing acquisition in October 2010.
As well as providing a keen incentive to drive long term value from the acquisition of Sportech Racing, the Committee was mindful to
lock-in and retain the highly regarded current management team.
In determining the quantum that was granted, the Committee was also mindful of the lack of outstanding equity awards over the last
two years.
The targets set in relation to the awards for 2010 are set out below and take full account of the acquisition of Sportech Racing:
Awards for Ian Penrose, Steve Cunliffe and Ian Hogg
In connection with the awards for Ian Penrose, Steve Cunliffe and Ian Hogg, three distinct performance conditions will apply, each in
relation to one-third of each award.
For ease of reference such thirds are referred to below as Part A, Part B and Part C respectively.
The vesting of Part A of each such award will be dependent on Sportech’s TSR over a fixed three-year period relative to the TSR of the
constituents of the FTSE Small Cap Index (excluding investment trusts) over the same period (the comparator group set as at the date
of grant).
No portion of Part A will vest unless Sportech’s TSR performance at least matches the median of the TSR performance within the
comparator group; thereafter the following vesting schedule will apply:
The Company’s TSR rank against the TSR of the comparator companies
Extent of vesting of Part A
Median
Between median and upper quartile
Upper quartile (or better)
25%
Pro rata between 25% and 100%
100%
A six-week averaging period will apply at the start and end of the performance period when calculating the base and end TSR.
The vesting of Part B of each award will be dependent on Sportech’s absolute TSR performance over a fixed three-year period. No
portion of Part B will vest unless Sportech’s TSR over the performance period is at least equal to 6%. p.a., thereafter the following
vesting schedule will apply:
The Company’s absolute annual TSR growth
Extent of vesting of Part B
At least 6% p.a.
Between a minimum of 6% p.a. and 15% p.a.
At least 15% p.a.
25%
100%
Sportech’s base TSR for the purposes of testing the above condition will be calculated by reference to the six-week average share price
immediately preceding the commencement of the performance period.
The extent to which the condition has been met will ordinarily be determined based on a comparison of the highest six-week average
TSR achieved within the last year of the performance period.
www.sportechplc.com
39
Long term incentive plans continued
Performance Share Plan (“PSP”) continued
Performance targets continued
2010 awards continued
Awards for Ian Penrose, Steve Cunliffe and Ian Hogg continued
The vesting of Part C of each such award will be dependent on Sportech’s Earnings per Share (“EPS”) performance over a fixed
three-year period. No portion of Part C will vest unless Sportech’s EPS growth is at least equal to the Retail Prices Index (“RPI”)
plus 4% p.a., thereafter the following vesting schedule will apply:
The Company’s EPS growth
Extent of vesting of Part C
At least RPI + 4% p.a.
Between a minimum of RPI + 4% p.a. and 10% p.a.
At least RPI + 10% p.a.
25%
100%
EPS performance will be tested from a base year of 31 December 2009 with EPS being calculated on such adjusted basis as the
Remuneration Committee determines appropriate. Adjusted EPS for such purposes will be disclosed in due course at the time of
vesting in the Remuneration Report.
Award for Brooks Pierce
In relation to the award under the Sportech PSP to Brooks Pierce, the performance targets are split between Sportech’s targets detailed
above and targets that are specific to the ongoing performance of Sportech Racing.
This approach is considered by the Committee to be the most appropriate approach to balancing the need to deliver value from
Sportech Racing with ensuring that individuals are focused on creating value for the shareholders of Sportech in its entirety.
In relation to two-thirds of each such award, the performance conditions are as described above in relation to the awards to Ian Penrose,
Steve Cunliffe and Ian Hogg, save that each element shall apply to two-ninths of each award rather than one-third.
In relation to the remainder of each award (i.e. the remaining one-third), referred to below as Part D of each such award, vesting will be
dependent on the EBITDA performance of Sportech Racing. Specifically, no portion of Part D of such awards will vest unless EBITDA
growth of Sportech Racing is at least equal to 10%. p.a. thereafter a vesting schedule no less demanding than the following will apply:
Extent of vesting of Part D
At least 10% p.a.
Between a minimum of 10% p.a. and 20% p.a.
At least 20% p.a.
25%
100%
EBITDA performance will be tested from a base year of 31 December 2009 with EBITDA calculated on such adjusted basis that the
Committee determines appropriate. Adjusted EBITDA for such purposes will be disclosed in due course at the time of vesting in the
Remuneration Report.
Award for Lorne Weil
At the Extraordinary General Meeting to approve the acquisition of Sportech Racing held on 12 February 2010, a resolution was put
to the shareholders, and passed unanimously, to award Lorne Weil an incentive award with a value at the time of award of £0.5m.
The Committee considered that given the unique experience and skills that he has accumulated in relation to the betting, technology,
and specifically, the pari-mutuel business, an incentive award was appropriate to enhance the enlarged Group’s ability to successfully
establish operations in new and existing markets and grow the existing business. The award was conditional on Lorne Weil acquiring
£1m of ordinary shares in the Company under the firm placing of shares undertaken in early 2010 and retaining such shares until the
award vests. The award of shares was made under a one-off share award agreement that provided for substantially the same terms
and targets as the awards made to the UK-based Executives noted above.
Policy on Executive share ownership
Whilst the Board does not have a formal policy in place in respect of Executive share ownership, all Executives are expected to invest
in the Company at an appropriate level compared to their compensation levels.
Governance
Sportech Racing’s annual EBITDA growth
40
www.sportechplc.com
Policy on contracts of service
All Directors have contracts with notice periods of no more than twelve months.
Contract
date
Roger Withers
Ian Penrose
Steve Cunliffe
Ian Hogg
Brooks Pierce
Peter Williams
John Barnes
Lorne Weil
Mor Weizer
7 February 2011
1 October 2005
1 October 2010*
5 October 2010
5 October 2010
7 February 2011
11 November 2005
5 October 2010
23 March 2011
Notice
period
3 months
12 months
12 months
12 months
12 months
3 months
3 months
3 months
3 months
* An updated contract was signed by Steve Cunliffe on 1 October 2010 updating contractual terms to be in line with those of the new Executive Directors
appointed in the year. His previous contract was dated 3 July 2006.
None of the employment contracts of the above Directors contain special contractual termination provisions other than for Mor Weizer
who sits on the Board as a representative of Playtech Limited. The right to sit on the Board ceases if Playtech Limited ceases to hold at
least 10% of the share capital of the Company. In addition, Mor Weizer would be required to step down from the Board if he ceases
to be employed by Playtech Limited or one of its subsidiary companies.
Policy on external appointments
Sportech PLC recognises that its Directors are likely to be invited to become Non-executive Directors of other companies and that
such exposure can broaden experience and knowledge, which will benefit the Company. Executive Directors are therefore allowed
to accept Non-executive appointments with the Board’s prior permission, as long as these are not likely to lead to conflicts of interest.
Ian Penrose is a Trustee of the National Football Museum, a registered charity and he receives no remuneration in respect of this
appointment. Ian Hogg is Non-executive Chairman of Fox Poker Club.
Performance graph
The following graph demonstrates how £100 invested in Sportech PLC as at 1 January 2006 has changed compared with the same
investment in a fund mirroring the make-up of the FTSE Small Cap index:
The FTSE Small Cap index has been chosen as it is the index most closely aligned to Sportech PLC.
www.sportechplc.com
41
Audited information
The remainder of the Remuneration Report is audited information.
Directors’ remuneration
Details of each Director’s remuneration for the year ended 31 December 2010 are given below:
Executive Directors
Ian Penrose
Steve Cunliffe
Ian Hogg
Brooks Pierce
Non-executive Directors
Roger Withers1
Peter Williams2
John Barnes3
Lorne Weil4
Mor Weizer5
Shmuel Weiss6
Piers Pottinger7
Kathryn Revitt8
Jon Holmes
Aggregate emoluments
Fees paid to third parties
Taxable
benefits8
£000
Compensation
for loss
Bonuses
of office
£000
£000
Year of
appointment
Fees/salary
£000
2005
2006
2010
2010
300
180
58
59
17
13
3
3
225
131
—
—
2011
2011
2005
2010
2011
2010
2005
2000
2007
—
—
42
8
—
—
65
—
27
739
—
—
—
—
—
—
—
—
—
36
—
—
—
—
—
—
—
—
—
356
2010
Total
£000
2009
Total
£000
—
—
—
—
542
324
61
62
416
200
—
—
—
—
—
—
—
—
25
—
—
25
—
—
42
8
—
—
90
—
27
1,156
26
—
—
40
—
—
—
65
—
35
756
35
From the date of his appointment Roger Withers will be paid £65,000 per annum in his role as Non-executive Director and Chairman. He will also receive
a further £5,000 per annum for each Committee of the Board he sits on.
2
From the date of his appointment Peter Williams will be paid £35,000 per annum in his role as Non-executive Director, plus a further £5,000 per annum
for each Committee of the Board he sits on.
3
John Barnes received remuneration of £35,000 per annum in 2010 as a Non-executive Director and a further £5,000 per annum for his roles as
Senior Non-executive Director and Chairman of the Remuneration and Audit Committees. For the period when John Barnes was acting Chairman,
his remuneration increased in total to £65,000 per annum. Following the appointment of Roger Withers, John Barnes’ remuneration has reverted
to £35,000 per annum in his role as Non-executive Director plus a further £5,000 per annum for each Committee of the Board he sits on.
4
Lorne Weil receives remuneration of £35,000 per annum as a Non-executive Director.
Governance
1
5
Mor Weizer will not receive any remuneration in his role as Non-executive Director as he sits on the Board as a representative of Playtech Limited.
6
Shmuel Weiss did not receive any remuneration in his role as Non-executive Director as he sat on the Board as a representative of Playtech Limited.
7
Piers Pottinger received remuneration of £65,000 (£100,000 from 1 October 2010) per annum in his role as Non-executive Director and Chairman.
A payment of £25,000 representing three months’ notice was paid on his resignation on 23 November 2010.
8
The services of Kathryn Revitt were provided through a consultancy agreement between the Company and Hemway Limited. Payments to Hemway Limited
amounted to £26,000 in the year (2009: £35,000).
9
Taxable benefits comprise various medical insurance policies and car allowances.
Three UK-based Directors (2009: two Directors) were members of defined contribution schemes. Contributions paid by the Company
in respect of these Directors were as follows:
Ian Penrose
Steve Cunliffe
Ian Hogg
2010
£000
2009
£000
24
15
5
44
24
13
—
37
In addition, arrangements exist for contributions to be made by the Company into a 401(k) pension plan on behalf of Brooks Pierce.
No contributions were made in 2010 as, by the time of his appointment, the maximum contributions permitted had already been made
into the 401(k) scheme for 2010.
42
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Audited information continued
Directors’ share options
Aggregate emoluments disclosed on page 41 do not include any amounts for the value of share-based incentives to acquire ordinary
shares in the Company granted to or held by the Directors. The share-based incentives held by the Directors are as follows:
Sportech share option scheme
As at
1 January and
31 December
2010
Number
505,050
Ian Penrose
Details of the options are as follows:
Ian Penrose
505,050
Exercise
price
Date
from which
exercisable
Expiry date
Granted on
£0.817
27 September 2008
26 September 2015
27 September 2005
Exercise of the options is subject to the share price reaching the following closing prices:
Shares
Closing price
151,515
151,515
101,010
101,010
505,050
£1.237
£1.732
£2.227
£2.722
The market price of the ordinary shares at 31 December 2010 was £0.383 and the range during the year was £0.338 to £0.603.
The options were granted at no cost to the Director. The performance criteria for all of the above share options were consistent with the
remuneration policy. Once awarded, the exercise of the share options is unconditional.
PSP
As at
1 January
2010
Number
Ian Penrose
Steve Cunliffe
Ian Hogg
Brooks Pierce
Lorne Weil
428,676
162,601
—
—
—
591,277
Lapsed
during
the year
Number
Awarded
during
the year
Number
As at
31 December
2010
Number
(428,676)
(162,601)
—
—
—
(591,277)
1,411,765
941,176
847,059
1,176,470
1,176,470
5,552,940
1,411,765
941,176
847,059
1,176,470
1,176,470
5,552,940
Details of the performance conditions for the PSP awards are noted above. In respect of the awards made during 2010 and in respect of
the share price growth targets attaching to these awards, grants have been set from an adjusted base share price of £0.425.
JOHN BARNES
CHAIRMAN OF THE REMUNERATION COMMITTEE
24 March 2011
www.sportechplc.com
43
Corporate governance
Corporate governance compliance statement
The Company has complied throughout the financial year with the provisions set out in Section 1 of The Combined Code (2008)
issued by the Financial Reporting Council in June 2008 (the “Combined Code”), except in relation to the current balance of Independent
Non-executive Directors, the combined role of the Finance Director and the Company Secretary and the review of the effectiveness of
the Board and Committees, as explained below.
Corporate governance policy statement
The Board supports best practice in corporate governance and the policy of the Board is to manage the affairs of the Company in
accordance with the principles of the Combined Code so far as the Board believes it is practical. This statement describes how the
Company applies the principles of the Combined Code.
Board of Directors and Committee structure
The composition of the Board has changed significantly during the course of the year and subsequent to the year end following
the acquisition of Sportech Racing in October 2010.
The Board currently comprises the following:
Roger Withers
Non-executive Chairman
Peter Williams
Senior Independent Non-executive Director
Ian Penrose
Chief Executive
John Barnes
Independent Non-executive Director
Steve Cunliffe
Finance Director
Lorne Weil
Non-executive Director
Ian Hogg
Chief Operating Officer UK and Online
Mor Weizer
Non-executive Director
Brooks Pierce
President, Sportech Racing
With effect from 8 February 2011, the Senior Independent Non-executive Director is Peter Williams. Prior to Peter Williams’ appointment,
John Barnes was the Senior Independent Non-executive Director.
Biographies of the Board members appear on pages 30 and 31. These illustrate the wide ranging business experience which the Board
has and which is essential to effectively manage a business of the size and complexity of the Group.
The Company’s Articles of Association (the “Articles”) give power to the Board to appoint Directors but also require Directors to
retire and submit themselves for appointment at the first AGM following their appointment. In addition, one-third of the Directors,
or if their number is not three or a multiple of three, the nearest number to one-third, shall retire from office but shall be eligible for
re-appointment; those longest in service since their last appointment being those to retire.
The Board of Directors is responsible for the management of the business of the Company and may exercise all the powers of the
Company subject to the provisions of relevant statutes and the Company’s Articles. The Articles, for instance, contain specific provisions
and restrictions regarding the Company’s power to borrow money. A copy of the Articles is available to view by request from the
Company Secretary or from the Company’s website, www.sportechplc.com.
The Board is also responsible for setting the Company’s strategic objectives and managing the Company’s resources to enable those
objectives to be met.
The division of responsibility between the Chairman and the Chief Executive is clearly defined and has been agreed by the Board.
The Chairman is primarily responsible for the workings of the Board. The Chief Executive is responsible for running the Group’s business,
for implementing Board strategy and policy and for shareholder communication. The Chairman also ensures that Directors maintain the
appropriate skills and knowledge to fulfil their responsibilities and that the Company provides the necessary resources to Directors to enable
this to be achieved. The Company Secretary advises the Chairman and the Board on all governance matters. The Company maintains
insurance cover in respect of legal action against its Directors. Independent professional advice may be taken by the Directors as required
at the Company’s cost.
The Board has in place a number of key processes designed to ensure that management responsibilities are clear. Executive Directors
distribute relevant information and key financial reports to Board members in advance of each meeting, together with other materials
required to facilitate proper consideration of business issues. A schedule of reserved matters for the Board has been established and
communicated to the Senior Management teams.
The role of Company Secretary is joined with that of Finance Director. Whilst the Company recognises that the combining of such roles
is not considered best practice, the Company considered it appropriate in this instance, due to the size of the Company. The Board indicated
in its Corporate Governance Statement last year that following the acquisition of Sportech Racing they would seek to split the role of
Company Secretary and Finance Director. However, due to the delay in completing the Sportech Racing acquisition, this split has not
Governance
The Board considers John Barnes and Peter Williams to be independent. Applying the principles of the Combined Code, in respect of
Roger Withers, the Board considers that due to his Chairmanship of Playtech Limited, a 10% shareholder in Sportech PLC, Roger Withers
cannot be deemed to be independent. However, the Board considers his wealth of experience and breadth of relationships within the
leisure and gaming sector as vital to the Group’s ability to continue to deliver on its strategy. In respect of Lorne Weil, the Board considers
that, whilst Lorne Weil sits on the Board in his own personal capacity and not as a representative of Scientific Games Corporation (“SGC”),
the fact that Lorne Weil is Chairman and Chief Executive, of SGC, coupled with SGC’s 19.99% shareholding in Sportech PLC deems Lorne Weil
not to be independent. Again the Board considers that Lorne Weil’s vast experience and relationships within the gaming sector is of
tremendous value to the Group going forward. Mor Weizer sits on the Board of Sportech PLC as a representative of Playtech Limited, and as
such is not deemed to be independent. The Board confirms that it is currently looking to make one further appointment to the Board of an
Independent Non–executive Director to ensure the appropriate balance between independent and non-independent Non-executive Directors.
44
www.sportechplc.com
Corporate governance continued
Board of Directors and Committee structure continued
yet been completed. The Group has recently appointed a Group General Counsel and it is the intention that the General Counsel will
undertake the Company Secretary role in due course. The Company takes legal advice where appropriate to ensure compliance with
best practice.
An Executive Board, chaired by the Chief Executive, oversees the detailed operations of the business. The Executive Board meets
formally on a regular basis to review the performance of each business segment and progress against key operational targets.
The Committees of the Board are the Audit Committee, Remuneration Committee and the Nomination Committee. The terms of
reference of these Committees are available on request from the Company Secretary and are available on the corporate website,
www.sportechplc.com.
The Audit Committee
The Audit Committee of the Board comprises the Independent Non-executive Directors and is currently chaired by John Barnes who
is considered to have recent, relevant, financial experience. The Committee is scheduled to meet at least three times a year to consider
aspects of internal control, accounting policies, audit planning and areas of critical judgement such as the carrying value of goodwill
and acquired intangible assets and both the interim and annual financial results. The Finance Director and other Senior Management
are invited to attend the Committee as appropriate.
The Committee is responsible for the relationship with the external auditors. The Committee considers the nature and extent of
non-audit services provided by the auditors in order to seek to balance the maintenance of objectivity, access to applicable technical
expertise and value for money. Non-audit engagements are only awarded to the auditors with the agreement of the Committee.
The auditors are also subject to professional standards that safeguard the integrity of their auditing role. The Committee remains
confident that the objectivity and independence of the external auditors are not in any way impaired by reason of the non-audit services
which they provide to the Group. Moreover, the Committee is satisfied that such work is best handled by them, either because of their
knowledge of the Group or because they have been awarded it through a competitive tendering process. In addition, the independence
of the auditors is safeguarded by the use of separate teams for individual assignments such as acquisition due diligence and the audit
being subject to internal PricewaterhouseCoopers LLP quality control procedures. A breakdown of non-audit fees charged by the
auditors is disclosed in note 5 in the Notes to the Financial Statements. A significant proportion of the non-audit fees charged by
the auditors in 2010 relates to work undertaken in respect of the acquisition of Sportech Racing. The fees relate to a one-off transaction
and as such are not expected, absent another similar transaction, to re-occur.
The Committee meets at least annually with the external auditors without the presence of the Executive Directors.
The Committee has reviewed its relationship with its auditors, PricewaterhouseCoopers LLP, and concluded that there are sufficient
controls and processes in place to ensure the required level of independence and has no other reason to seek to re-tender the external
audit role. Accordingly, the Committee has recommended the re-appointment of the auditors to the Company.
The Remuneration Committee
The Remuneration Committee of the Board comprises the two Independent Non-executive Directors and is chaired by John Barnes.
The purpose of the Committee is to ensure that the remuneration of Executive Directors and Senior Executives, together with their
terms and conditions of employment, is sufficient to recruit and retain individuals of the calibre required to ensure profitable growth
of the business. The Committee gives full consideration to the principles of the Combined Code. The Remuneration Report is set out
on pages 36 to 42.
The Nomination Committee
The Board has determined that it is appropriate for matters that would normally be delegated to a Nomination Committee to be
referred to the full Board. The Board, acting as a Nomination Committee, meets as appropriate to carry out the selection process
for new Board members and to propose any new appointments to the Board, whether Executive or Non-executive.
Board and Committee members
Main
Board
Number of meetings held in year
Executive Directors
Ian Penrose
Steve Cunliffe
Ian Hogg (appointed 5 October 2010)
Brooks Pierce (appointed 5 October 2010)
Non-executive Directors
Roger Withers (appointed 8 February 2011)
Peter Williams (appointed 8 February 2011)
John Barnes
Lorne Weil (appointed 5 October 2010)
Mor Weizer (appointed 23 March 2011)
Shmuel Weiss (appointed 5 October 2010, resigned 23 March 2011)
Piers Pottinger (resigned 23 November 2010)
Kathryn Revitt (resigned 5 October 2010)
Jon Holmes (resigned 5 October 2010)
Audit Remuneration
Committee
Committee
9
3
2
9
9
1(1)
1(1)
—
—
—
—
—
—
—
—
—
—
9
1(1)
—
1(1)
8(8)
8(8)
7(8)
—
—
3
—
—
—
—
3(3)
3(3)
—
—
2
—
—
—
1(2)
1(1)
1(1)
Figures in brackets indicate the number of meetings held in the period in which the individual was a Board member.
www.sportechplc.com
45
Board of Directors and Committee structure continued
Board and Committee members continued
Of the nine Board meetings held in the period, seven were scheduled and two were Board meetings called at short notice in relation to
the acquisition of Sportech Racing. One scheduled Board meeting was cancelled due to the timing of the Sportech Racing acquisition.
The additional Board meetings were held with the quorum necessary for the transaction of the business of the Board.
Board performance evaluation
The Board does not currently undertake formal annual evaluation processes to evaluate its own performance, the performance of the
Board Committees or the performance of individual Directors. Given the size of the Group and the composition of the Board, the Board
considers that such formal evaluation is not necessary.
Investor relations
There is regular dialogue with shareholders through a planned programme of investor relations which includes formal presentations of
the Group’s results by the Chief Executive and Finance Director. Meetings also take place with institutional investors and analysts on a
regular basis and there is regular communication with shareholders through the Annual and Interim Reports and a corporate website
(www.sportechplc.com). They are also available at other times, outside close periods, to enter into dialogue with these shareholders.
All shareholders have the opportunity to question the Board at the AGM both formally and informally. The Non-executive Directors have
taken steps to develop an understanding of the views of the major shareholders about the Company through face-to-face contact and
analyst and broker briefings.
Internal control
The Board is responsible for the Group’s system of internal control and for reviewing its effectiveness. Such a system is designed to
manage rather than eliminate the risk of failure to achieve business objectives and can only provide reasonable and not absolute assurance
against material misstatement or loss. Controls are monitored by management review. Data consolidated into the Group’s financial statements
is reconciled to the underlying financial systems. A review of the consolidated data is undertaken by management to ensure that the true
position and results of the Group are reflected through compliance with approved accounting policies and the appropriate accounting for
non-routine transactions.
The Board meets regularly and its agenda includes an item on governance, which includes consideration of points regarding risk and
control. The emphasis is on obtaining the relevant degree of assurance and not merely reporting by exception.
The Group performs an annual strategy and budgeting process and the Board approves the annual Group budget as part of its normal
responsibilities. The Group results are reported monthly to the Board. Revised forecasts are produced for the Board whenever significant
financial trends are identified.
The Group does not have an internal audit function. The Audit Committee has considered the use of an internal audit function during
the year but initially considered that due to the size and nature of the Group there was not a requirement for such a function. However,
following the acquisition of Sportech Racing in the latter part of the year, the Audit Committee intends to review the requirements for
the use of an internal audit function during 2011, although the newly established central Group Finance function will undertake certain
work of an internal audit nature as a matter of course.
The Audit Committee reviews the effectiveness of the internal control environment of the Group, excluding that of the Group’s joint
venture. It receives reports from the external auditors, which include recommendations for improvement. The Audit Committee’s role
in this area is confined to a high-level review of the arrangements for internal control. Significant risk issues are referred to the Board
for consideration. A Schedule of Strategic Risks is produced, maintained and presented to the Audit Committee and Board. The principal
risks facing the Group and the mitigating actions taken by the Board and management are included on pages 24 and 25 of the
Business and Financial Review. The Group separately employs an Indian based accountant as a consultant who is responsible for
ensuring the integrity of results and robustness of internal controls and procedures in the Group’s joint venture.
To manage lower level risks, a risk management programme is in place, supported by a business control and risk self-assessment process
and a business continuity plan. The risk management programme places responsibility on managers to identify risks facing each
business unit and for implementing procedures to mitigate these risks. The risk appraisal process has been reviewed by the Board and
accords with the Turnbull Guidance. The Audit Committee and Board have reviewed the effectiveness of the internal controls of the
Group for the year ended 31 December 2010 and up to the date of approval of the Annual Report and Accounts and this review covered
financial, operational, risk management and compliance controls.
Whistleblowing policy
The Combined Code states that the Audit Committee should review arrangements by which staff of the Group may, in confidence, raise
concerns about possible improprieties in matters of financial reporting or other matters. An appropriate policy in respect of this has
been in place throughout the year.
By order of the Board
STEVE CUNLIFFE
COMPANY SECRETARY
24 March 2011
Governance
The Board has put in place an organisational structure with clearly defined lines of responsibility and delegation of authority.
Authorisation procedures in respect of matters such as treasury transactions, investments and capital expenditure are clearly defined.
46
www.sportechplc.com
Independent auditors’ report
to the members of Sportech PLC
We have audited the financial statements of Sportech PLC for the year ended 31 December 2010 which comprise the Consolidated Income
Statement, the Consolidated Statement of Comprehensive Income, the Group and Parent Company Statements of Changes in Equity, the
Group and Parent Company Balance Sheets, the Group and Parent Company Statements of Cash Flows, the Accounting Policies and the
related notes. The financial reporting framework that has been applied in their preparation is applicable law and International Financial
Reporting Standards (“IFRSs”) as adopted by the European Union and, as regards the Parent Company financial statements, as applied
in accordance with the provisions of the Companies Act 2006.
Respective responsibilities of Directors and auditors
As explained more fully in the Directors’ Responsibilities Statement set out on page 35, the Directors are responsible for the preparation
of the financial statements and for being satisfied that they give a true and fair view. Our responsibility is to audit the financial statements
in accordance with applicable law and International Standards on Auditing (United Kingdom and Ireland). Those standards require us to
comply with the Auditing Practices Board’s Ethical Standards for Auditors.
This report, including the opinions, has been prepared for and only for the Company’s members as a body in accordance with Chapter 3
of Part 16 of the Companies Act 2006 and for no other purpose. We do not, in giving these opinions, accept or assume responsibility for
any other purpose or to any other person to whom this report is shown or into whose hands it may come save where expressly agreed
by our prior consent in writing.
Scope of the audit of the financial statements
An audit involves obtaining evidence about the amounts and disclosures in the financial statements sufficient to give reasonable assurance that
the financial statements are free from material misstatement, whether caused by fraud or error. This includes an assessment of: whether the
accounting policies are appropriate to the Group’s and the Parent Company’s circumstances and have been consistently applied and adequately
disclosed; the reasonableness of significant accounting estimates made by the Directors; and the overall presentation of the financial statements.
Opinion on financial statements
In our opinion:
E
the financial statements give a true and fair view of the state of the Group’s and of the Parent Company’s affairs as at 31 December 2010
and of the Group’s loss and Group’s and Parent Company’s cash flows for the year then ended;
E
the Group financial statements have been properly prepared in accordance with IFRSs as adopted by the European Union;
E
the Parent Company financial statements have been properly prepared in accordance with IFRSs as adopted by the European Union
and as applied in accordance with the provisions of the Companies Act 2006; and
E
the financial statements have been prepared in accordance with the requirements of the Companies Act 2006 and, as regards the
Group financial statements, Article 4 of the lAS Regulation.
Opinion on other matters prescribed by the Companies Act 2006
In our opinion:
E
the part of the Directors’ Remuneration Report to be audited has been properly prepared in accordance with the Companies Act 2006;
E
the information given in the Directors’ Report for the financial year for which the financial statements are prepared is consistent with the
financial statements; and
E
the information given in the Corporate Governance Statement set out on pages 43 to 45 with respect to internal control and risk
management systems and about share capital structures is consistent with the financial statements.
www.sportechplc.com
47
Matters on which we are required to report by exception
We have nothing to report in respect of the following:
Under the Companies Act 2006 we are required to report to you if, in our opinion:
E
adequate accounting records have not been kept by the Parent Company, or returns adequate for our audit have not been received
from branches not visited by us; or
E
the Parent Company financial statements and the part of the Directors’ Remuneration Report to be audited are not in agreement
with the accounting records and returns; or
E
certain disclosures of Directors’ remuneration specified by law are not made; or
E
we have not received all the information and explanations we require for our audit; or
E
a Corporate Governance Statement has not been prepared by the Parent Company.
Under the Listing Rules we are required to review:
E
the Directors’ statement, set out on page 34, in relation to going concern;
E
the parts of the Corporate Governance Statement relating to the Company’s compliance with the nine provisions of the June 2008
Combined Code specified for our review; and
E
certain elements of the report to shareholders by the Board on Directors’ remuneration.
Governance
RANDAL CASSON (SENIOR STATUTORY AUDITOR)
FOR AND ON BEHALF OF PRICEWATERHOUSECOOPERS LLP
CHARTERED ACCOUNTANTS AND STATUTORY AUDITORS
LIVERPOOL
24 March 2011
48
www.sportechplc.com
Consolidated income statement
Group
Note
Revenue
Cost of sales
Gross profit
Distribution costs
Administrative expenses
Operating profit before amortisation of acquired intangibles and exceptional costs
Amortisation of acquired intangibles
Exceptional costs
Operating profit/(loss)
Finance costs
Finance income
Other finance charges
Net finance costs
Share of loss after tax of joint venture
Loss before taxation
Adjusted profit before taxation*
Taxation
2
4
4
4
4
16
5
8
Loss for the year from continuing operations attributable to equity shareholders
2010
£m
2009
£m
71.2
(25.1)
64.6
(14.6)
46.1
(1.0)
(43.5)
17.4
(5.9)
(9.9)
1.6
(5.6)
0.1
(1.4)
50.0
(0.8)
(61.2)
19.5
(6.6)
(24.9)
(12.0)
(4.8)
—
(0.2)
(6.9)
(0.6)
(5.0)
—
(5.9)
11.9
(0.4)
(17.0)
14.7
4.7
(6.3)
(12.3)
Loss per share from continuing operations
Basic and diluted
10
(3.9p)
(12.2p)
Adjusted earnings per share from continuing operations
Basic
Diluted
10
10
5.4p
5.2p
10.5p
10.5p
* Adjusted profit before taxation is profit before taxation, amortisation of acquired intangibles, exceptional costs, share of loss after tax of joint venture and other
finance charges.
Consolidated statement of comprehensive income
Group
Note
Loss for the year
Other comprehensive income:
Actuarial gain/(loss) on retirement benefit obligations
Deferred tax on actuarial gain on retirement benefit obligations
Movement on derivative financial instruments
Deferred tax on derivative financial instruments
Currency translation differences
Other comprehensive income for the year net of tax
Total comprehensive income for the year attributable to equity shareholders
The notes on pages 60 to 84 are an integral part of these consolidated financial statements.
31
19
24
19
2010
£m
2009
£m
(6.3)
(12.3)
0.2
(0.1)
(0.3)
—
0.2
(0.1)
—
0.5
(0.1)
—
—
0.3
(6.3)
(12.0)
www.sportechplc.com
49
Statements of changes in equity
Other reserves
Share
capital
£m
Share
premium
£m
Share
option
reserve
£m
Pension
reserve
£m
Currency
translation
reserve
£m
50.3
20.7
0.7
0.1
—
—
—
—
—
—
—
—
—
—
Total other comprehensive income
—
Total comprehensive income
Transactions with owners
Share option credit (note 25)
Financial
instrument
reserve
£m
Retained
earnings
£m
Total
£m
(3.4)
28.9
97.3
—
—
(12.3)
(12.3)
—
—
0.4
—
0.4
—
(0.1)
—
—
—
(0.1)
—
—
(0.1)
—
0.4
—
0.3
—
—
—
(0.1)
—
0.4
—
—
0.2
—
—
—
50.3
20.7
0.9
—
—
—
—
—
—
—
—
—
—
—
—
—
(0.3)
—
(0.3)
—
—
—
—
—
—
0.1
—
—
0.2
—
—
—
—
0.1
0.2
—
—
—
0.1
0.2
(0.3)
—
—
—
—
—
0.1
0.2
(0.3)
(6.3)
(6.3)
—
—
0.4
—
—
—
—
0.4
49.1
—
—
—
—
—
(4.0)
45.1
99.4
20.7
1.3
0.1
0.2
(3.3)
6.3
124.7
Group
At 1 January 2009
Comprehensive income
Loss for the year
Other comprehensive income
Financial instrument reserve
movement* (note 24)
Actuarial loss on retirement
benefit obligations* (note 31)
At 31 December 2009
Comprehensive income
Loss for the year
movement* (note 24)
Actuarial gain on retirement
benefit obligations* (note 31)
Currency translation differences
Proceeds from shares
issued (note 25)
At 31 December 2010
(3.0)
(12.3)
(12.0)
—
0.2
16.6
85.5
(6.3)
(6.3)
* Net of deferred tax.
50
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Statements of changes in equity continued
Other reserves
Share
capital
£m
Share
premium
£m
Share
option
reserve
£m
Pension
reserve
£m
50.3
—
20.7
—
0.7
—
—
—
(3.4)
—
19.1
(7.9)
87.4
(7.9)
—
—
—
—
0.4
—
0.4
—
—
—
—
0.4
—
0.4
—
—
—
—
0.4
(7.9)
(7.5)
Company
At 1 January 2009
Loss for the year
movement* (note 24)
Financial
instrument
reserve
£m
—
—
0.2
—
20.7
—
0.9
—
—
—
(3.0)
—
—
—
—
—
(0.3)
—
(0.3)
—
—
—
—
(0.3)
—
(0.3)
—
—
—
—
(0.3)
—
49.1
—
—
0.4
—
—
—
99.4
20.7
1.3
—
Proceeds from shares issued (note 25)
At 31 December 2010
* Net of deferred tax.
—
Total
£m
50.3
—
At 31 December 2009
Loss for the year
movement* (note 24)
—
Retained
earnings
£m
11.2
(11.3)
0.2
80.1
(11.3)
(11.3)
(11.6)
—
—
—
(4.0)
0.4
45.1
(3.3)
(4.1)
114.0
www.sportechplc.com
51
Balance sheets
as at 31 December 2010
Group
ASSETS
Non-current assets
Goodwill
Intangible fixed assets
Property, plant and equipment
Investments in subsidiaries
Trade and other receivables
Retirement benefit assets
Deferred tax assets
Current assets
Inventories
Current tax receivable
Cash and cash equivalents
Note
2009
£m
2010
£m
2009
£m
11
12
13
14
17
31
19
147.6
57.1
12.4
—
0.1
0.1
4.1
147.6
30.3
1.5
—
—
—
3.6
—
16.0
—
195.5
—
—
1.9
—
0.5
0.1
167.1
—
—
1.3
221.4
183.0
213.4
169.0
12.2
1.0
—
1.8
8.5
—
1.9
2.1
9.0
—
—
0.2
12.3
—
—
0.9
15.0
12.5
9.2
13.2
236.4
195.5
222.6
182.2
(1.0)
(4.6)
(12.0)
(24.6)
(0.7)
(0.2)
—
(4.2)
(8.0)
(23.4)
—
(0.2)
—
(4.6)
(12.0)
(25.5)
—
—
—
(4.2)
(8.0)
(15.9)
—
—
(43.1)
(35.8)
(42.1)
(28.1)
(28.1)
(23.3)
(32.9)
(14.9)
(66.5)
(0.1)
(0.8)
(0.6)
(0.6)
(74.0)
—
—
—
(0.2)
(66.5)
—
—
—
—
(74.0)
—
—
—
—
17
18
20
TOTAL ASSETS
LIABILITIES
Current liabilities
Overdraft
Derivative financial instruments
Financial liabilities
Trade and other payables
Provisions
Current tax liabilities
20
24
23
21
22
Net current liabilities
Non-current liabilities
Financial liabilities
Share of net liabilities of joint venture
Retirement benefit liability
Provisions
Deferred tax liabilities
Company
2010
£m
23
16
31
22
19
(74.2)
(66.5)
(74.0)
(111.7)
(110.0)
(108.6)
(102.1)
NET ASSETS
124.7
85.5
114.0
80.1
99.4
20.7
1.6
(3.3)
6.3
50.3
20.7
0.9
(3.0)
16.6
99.4
20.7
1.3
(3.3)
(4.1)
50.3
20.7
0.9
(3.0)
11.2
124.7
85.5
114.0
80.1
EQUITY
Ordinary shares
Share premium
Other reserves
Retained earnings/(deficit) in funds
TOTAL EQUITY
25
The financial statements on pages 48 to 84 were approved by the Board of Directors on 24 March 2011 and were signed on its behalf by:
IAN PENROSE
DIRECTOR
STEVE CUNLIFFE
DIRECTOR
Company Registration Number: SC69140
(68.6)
TOTAL LIABILITIES
52
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69
;!
Group
Note
Cash flows from operating activities
Cash generated from continuing operations
Interest received
Interest paid
Tax received/(paid)
26
2010
£m
Company
2009
£m
2010
£m
2009
£m
16.3
0.1
(5.6)
1.7
19.0
—
(4.8)
(0.8)
16.6
—
(5.5)
—
8.7
—
(4.1)
(0.6)
12.5
(7.4)
(2.5)
13.4
—
(3.1)
11.1
(7.4)
(0.8)
4.0
—
(0.7)
2.6
10.3
2.9
3.3
—
(0.5)
(19.2)
(1.7)
(0.8)
(3.0)
—
—
(3.8)
(0.2)
—
—
(21.9)
—
—
—
—
—
(0.5)
—
(22.2)
(7.0)
(21.9)
(0.5)
28.2
(0.9)
—
(9.0)
—
—
3.0
(7.0)
28.2
(0.9)
—
(9.0)
—
—
3.0
(7.0)
Net cash generated from/(used in) financing activities
18.3
(4.0)
18.3
(4.0)
Net decrease in cash and cash equivalents
Cash and cash equivalents at the beginning of the year
(1.3)
2.1
(0.7)
2.8
(0.7)
0.9
(1.2)
2.1
20
0.8
2.1
0.2
0.9
23
(1.3)
9.0
—
(0.7)
7.0
(3.0)
Movement in net bank debt for the year
At 1 January
7.7
(79.9)
3.3
(83.2)
At 31 December
(72.2)
(79.9)
0.8
(12.0)
(61.0)
2.1
(8.0)
(74.0)
(72.2)
(79.9)
Net cash generated from operating activities before cash exceptional costs
Cash exceptional costs – acquisition costs in relation to Sportech Racing
Cash exceptional costs – other
Net cash generated from operating activities
Cash flows from investing activities
Vernons deferred consideration
Investment in joint venture
Acquisition of Sportech Racing, net of cash acquired
Purchase of intangible fixed assets
Purchase of property, plant and equipment
16
15
12
13
Net cash used in investing activities
Cash flows from financing activities
Proceeds from issuance of ordinary shares, net of issuance costs
Bank arrangement fee paid – exceptional cost
Proceeds from borrowings
Repayment of borrowings
Cash and cash equivalents at the end of the year
Reconciliation of net bank debt
Decrease in cash in the year
Cash outflow from repayment of loans
Cash inflow from loans taken
Net bank debt comprises:
Loans repayable within one year
Loans repayable after one year
At 31 December
25
4
23
23
20
23
23
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53
Accounting policies
General information
Sportech PLC (the “Company”), its subsidiaries and joint venture (together the “Group”) operate football pools and associated games
through various distribution channels including direct mail and telephone, agent-based collection and via the internet. The Group also
operates a portfolio of online casino, poker, bingo and fixed-odds games businesses through its e-Gaming division. Following the acquisition
of Sportech Racing during the financial year, the Group now also sells pari-mutuel wagering services and systems worldwide and
operates venue management businesses in the United States of America and the Netherlands.
The Company is a public limited company which is listed on the London Stock Exchange and is incorporated and domiciled within
the UK. The address of its registered office is 249 West George Street, Glasgow G2 4RB, Scotland.
Going concern
The Group has long term committed banking facilities in place with Lloyds Banking Group. The Group meets its day-to-day
working capital requirements through a working capital facility, which is due for renewal in June 2011. The Directors have no reason
to believe that the current working capital facility will not be renewed at a similar level to that currently in place. The Group’s
forecasts and projections, which have been prepared for the period to 31 March 2012 and taking into account reasonably possible
changes in performance, show that the Group will be able to operate within the level of its current facilities, meet term loan
repayments as they fall due and comply with its banking covenants.
After making reasonable enquiries, the Directors have a reasonable expectation that the Company and the Group have adequate
resources to continue in operational existence for the foreseeable future. Accordingly they continue to adopt the going concern
basis in preparing the Annual Report and Accounts.
Basis of accounting
These financial statements have been prepared in accordance with International Financial Reporting Standards (“IFRSs”) and International
Financial Reporting Interpretation Committee (“IFRIC”) interpretations as adopted by the European Union (“IFRSs as adopted by the
European Union”) and with those parts of the Companies Act 2006 applicable to companies reporting under IFRSs. The financial
statements have been prepared under the historical cost convention, as modified by the revaluation of financial assets and financial
liabilities (including derivative instruments) at fair value through profit or loss.
The Group’s accounting policies have been set by management and approved by the Audit Committee. The preparation of financial
statements in conformity with IFRSs requires the use of estimates and assumptions that affect the reported amounts of assets and
liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period.
Although these estimates are based on management’s best knowledge of the amount, event or actions, actual results ultimately may
differ from those estimates.
Critical judgements
Critical judgements have been made in the following areas:
Carrying value of goodwill and acquired intangible fixed assets
For the purposes of determining whether impairment of goodwill and intangibles from the Littlewoods and Vernons acquisitions has
occurred, and the extent of any impairment or its reversal, the key assumptions the Group uses in estimating future cash flows for value-in-use
measures are spend per player, impact of the introduction of new distribution routes and extra pool games and cost reductions from
ongoing cost reviews. These assumptions and the judgements of management that are based on them are subject to change as new
information becomes available. Changes in economic conditions and Government policy can also affect the rate used to discount future
cash flow estimates. The discount rate applied is reviewed annually. Changes in assumptions could affect the carrying amounts of assets
and impairment charges and reversal will affect income.
Fair value of assets acquired and liabilities assumed on acquisition of subsidiaries
The Group is required to recognise assets acquired and liabilities assumed at fair value at the date of acquisition under
IFRS 3 ‘Business Combinations’ (revised). Management takes into account where required independent valuation of assets
or where market valuations are not available the future discounted cash flows expected to be generated by the assets acquired.
Where further information arises in the twelve months post acquisition, relevant to the fair value of assets acquired and liabilities
assumed, those valuations are revised and restated in the prior year comparative amounts.
A summary of the more important Group accounting policies is set out on pages 54 to 59. These policies have been applied
consistently to all the years presented.
Value of other intangible fixed assets
Intangible assets recognised on the Group’s balance sheet include software assets and licences. Management is required to assess
the carrying value of assets with an indefinite life at least annually and other assets when an indication of impairment arises. The key
assumptions used in estimating the future cash flows for value-in-use measures include estimating capital expenditure and projected
revenue levels. For fair value measures, external market information of re-sale valuations is used to estimate recoverable amount.
Management uses its judgement and industry knowledge as well as external indicators in the assessments of carrying value of
intangible fixed assets. Changes in assumptions could affect the carrying amounts of assets.
54
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Accounting policies continued
Basis of accounting continued
(a) Basis of consolidation
The consolidated financial statements include the accounts of the Company and its subsidiaries, together with a share of the results,
assets and liabilities of its joint venture using the equity method of accounting, all of which have consistent reporting dates with the
Company. The Company’s accounting reference date is 31 December. Consistent with the normal monthly reporting process, the actual
date to which the balance sheet has been drawn up is to 2 January 2011 (2009: 3 January 2010). For ease of reference in these financial
statements, all references to the results for the year are for the year ended 31 December 2010 (31 December 2009) and the financial
position at 31 December 2010 (31 December 2009).
(b) Subsidiaries
Subsidiaries are all entities over which the Group has the power to govern the financial and operating policies generally accompanying
a shareholding of more than one-half of the voting rights. The existence and effect of potential voting rights that are currently exercisable
or convertible are considered when assessing whether the Group controls another entity. Subsidiaries are fully consolidated from the
date on which control is transferred to the Group. They are de-consolidated from the date that control ceases.
The purchase method of accounting is used to account for the acquisition of subsidiaries by the Group. The consideration transferred
for the acquisition of a subsidiary is the fair value of the assets given, equity instruments issued and liabilities incurred or assumed at the
date of exchange. The consideration transferred includes the fair value of any asset or liability resulting from a contingent consideration
arrangement. Contingent consideration is recognised at fair value at the acquisition date and re-measured at each balance sheet date
until settlement. The revaluation amount is debited/credited to the income statement in the period in which the estimated fair value is
increased/decreased. Acquisition-related costs are expensed as incurred. Identifiable assets acquired and liabilities and contingent
liabilities assumed in a business combination are measured initially at their fair values at the acquisition date. The excess of the cost of
acquisition over the fair value of the Group’s share of the identifiable net assets acquired is recorded as goodwill. If the cost of acquisition
is less than the fair value of the net assets of the subsidiary acquired, the difference is recognised directly in the income statement.
Inter-company transactions, balances and unrealised gains on transactions between Group companies are eliminated. Unrealised losses
are also eliminated but considered an impairment indicator of the asset transferred. Accounting policies of subsidiaries have been
changed where necessary to ensure consistency with the policies adopted by the Group.
(c) Joint ventures
A joint venture is an entity in which the Group holds an interest on a long term basis and which is jointly controlled by the Group and one
or more venturers under a contractual agreement. The Group’s share of its joint venture’s post acquisition profits and losses is recognised
in the income statement, and its share of post-acquisition movements in other comprehensive income is recognised in other comprehensive
income. The cumulative post-acquisition movements are adjusted against the carrying amount of the investment. When the Group’s
share of losses in a joint venture equals or exceeds its interest in the joint venture, including any other unsecured receivables, the Group
does not recognise further losses, unless it has incurred obligations or made payments on behalf of the joint venture.
Unrealised gains on transactions between the Group and its joint venture are eliminated to the extent of the Group’s interest in the
joint venture. Unrealised losses are also eliminated unless the transaction provides evidence of an impairment of the asset transferred.
The accounting policies of the joint venture have been changed where necessary to ensure consistency with the policies adopted by
the Group.
(d) Parent Company income statement
The Group has taken advantage of the exemption provided under Section 408 of the Companies Act 2006 not to present Sportech PLC’s
Company income statement. The loss for the financial year is dealt with in the Statement of Changes in Equity.
(e) Revenue
Revenue from external customers, net of VAT, excise duties, returns, rebates and discounts and after eliminating sales within the Group, represents:
E
the value of entry fees, net of winnings paid, receivable in respect of Football Pools recognised on the date of the event;
E
e-Gaming revenues, being the net amount receivable from various contracted third parties after certain deductions for outsourced
e-Gaming activities;
E
the value of bets, net of winnings paid, received in relation to fixed-odds betting activities recognised on the date of the event;
E
the value of goods and services sold to external customers, including management fees to registered charities for the management
of charity lotteries, when recognised;
E
sale of terminals and systems, recognised when significant risks and rewards of ownership have been transferred, which is when title
passes to the customer, generally being at the point of customer acceptance; and
E
the value of services delivered under service contracts generally based on either a percentage of amounts wagered or on a
predetermined fixed amount depending on contract terms.
Although the value of entry fees net of winnings paid and the value of bets net of winnings paid is reported as revenue, both meet the
definition of a gain under IAS 39. Under multiple element arrangements, revenue is allocated to the various elements based on fair value
determined by the price charged when the same element is sold separately.
(f) Accruals and deferred income
Accruals and deferred income includes the value of stakes placed prior to the end of the financial period in respect of competitions
and sporting events held subsequent to the end of the financial period and income received in advance of a service being delivered.
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55
(g) Segmental reporting
Operating segments are reported in a manner consistent with the internal reporting provided to the chief operating decision-maker.
The chief operating decision-maker, who is responsible for allocating resources and assessing performance of the operating segments,
has been identified as the Executive Committee that makes strategic and operational decisions.
The Group has identified its business segments as outlined below:
E
Football Pools – football pools and associated games through traditional channels such as mail, telephone, agent-based collection,
retail outlets, third-party licensed betting offices, and through online and digital channels;
E
Sportech Racing – provision of pari-mutuel wagering services and systems worldwide and venue management;
E
e-Gaming – a portfolio of online casino, poker, bingo and fixed-odds games operated through a variety of third-parties; and
E
corporate costs – central costs relating to the Company in its capacity as the PLC holding company of the Group.
(h) Taxation
The current income tax charge is calculated on the basis of the tax laws enacted or substantively enacted at the balance sheet date
in the countries where the Company and its subsidiaries operate and generate taxable income. Management periodically evaluates
positions taken in tax returns with respect to situations in which applicable tax regulation is subject to interpretation and establishes
provisions where appropriate on the basis of amounts expected to be paid to the tax authorities.
Tax is recognised in the income statement, except to the extent that it relates to items recognised in other comprehensive income or
directly in equity. In this case, the tax is also recognised in other comprehensive income or directly in equity, respectively.
Deferred income tax is provided in full, using the liability method, on temporary differences arising between the tax bases of assets and
liabilities and their carrying amounts in the consolidated financial statements. However, the deferred income tax is not accounted for if
it arises from initial recognition of an asset or liability in a transaction other than a business combination that, at the time of the transaction,
affects neither accounting nor taxable profit or loss. Deferred income tax is determined using tax rates (and laws) that have been enacted
or substantially enacted by the balance sheet date and are expected to apply when the related deferred income tax asset is realised
or the deferred income tax liability is settled.
Deferred income tax assets are recognised to the extent that it is probable that future taxable profit will be available against which
the temporary differences can be utilised.
Deferred income tax is provided on temporary differences arising on investments in subsidiaries, except where the timing of the reversal
of the temporary difference is controlled by the Group and it is probable that the temporary difference will not reverse in the
foreseeable future.
Deferred income tax assets and liabilities are offset when there is a legally enforceable right to offset current tax assets against current
tax liabilities and when the deferred income tax assets and liabilities relate to income taxes levied by the same taxation authority, on
either the same or different taxable entities, where there is an intention to settle the balances on a net basis.
(i) Foreign currencies
Functional and presentational currency
Items included in the financial statements of each of the Group’s entities are measured using the currency of the primary economic
environment in which the entity operates (the “functional currency”). The consolidated financial statements are presented in Sterling (£),
which is the Company’s functional currency and the Group’s presentational currency.
Foreign exchange gains and losses that relate to borrowings and cash and cash equivalents are presented in the income statement within
finance income or costs. All other foreign exchange gains and losses are presented in the income statement within operating profit.
Group companies
The results and financial position of all the Group entities (none of which has the currency of a hyper-inflationary economy) that have
a functional currency different from the presentation currency are translated into the presentation currency as follows:
E
assets and liabilities for each balance sheet presented are translated at the closing rate at the date of that balance sheet;
E
income and expenses for each income statement are translated at average exchange rates (unless this average is not a reasonable
approximation of the cumulative effect of the rates prevailing on the transaction dates, in which case income and expenses are
translated at the rate on the dates of the transactions); and
E
all resulting exchange differences are recognised in other comprehensive income.
Goodwill and fair value adjustments arising on the acquisition of a foreign entity are treated as assets and liabilities of the foreign entity
and translated at the closing rate.
Transactions and balances
Transactions in foreign currencies are translated into the functional currency at the rate of exchange ruling at the date of the transaction.
Monetary assets and liabilities in foreign currencies are translated at the rates of exchange ruling at the balance sheet date. Foreign
exchange gains and losses, resulting from the settlement of such transactions and from the translation at year end exchange rates of
monetary assets and liabilities denominated in foreign currencies, are recognised in the income statement, except where deferred in
other comprehensive income as qualifying cash flow hedges.
56
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(j) Property, plant and equipment
Property, plant and equipment are carried at historical cost less accumulated depreciation and any impairment. Cost includes the original
purchase price of the asset and the costs attributable in bringing the asset to its working condition for its intended use and any associated
borrowing costs. Assets in the course of construction are not depreciated until the asset is completed. Subsequent costs are included
in the asset’s carrying amount or recognised as a separate asset, as appropriate, only when it is probable that future economic benefits
associated with the item will flow to the Group and the cost of the item can be measured reliably. The carrying amount of the replaced
part is derecognised. All other repairs and maintenance are charged to the income statement during the financial period in which they
are incurred.
Gains and losses on disposals are determined by comparing the proceeds with the carrying amount and are recognised within
administrative expenses in the income statement.
Assets in the course of construction are capitalised when first bought into use and depreciated from this date.
(k) Depreciation
Depreciation is provided on a straight-line basis to write off the cost of property, plant and equipment down to residual value over their
anticipated useful lives at the following annual rates:
Long leasehold and owned land
Long leasehold and owned buildings
Short leasehold land and buildings
Plant, equipment and other fixtures and fittings
Not depreciated
Over remaining estimated useful life
Over the period of the lease
10.0% – 33.3%
The assets’ residual values and useful lives are reviewed, and adjusted if appropriate, at each balance sheet date.
(l) Goodwill
Goodwill arising on consolidation represents the excess of the fair value of consideration given over the fair value of the separately
identifiable net assets acquired. Goodwill arising on acquisitions before the date of transition to IFRSs (4 January 2005) has been frozen
at the previous UK GAAP net book value at the date of transition, subject to being tested for impairment annually at the year end date.
Goodwill is allocated to cash-generating units for the purpose of impairment testing. The allocation is made to the cash-generating unit
that is expected to benefit from the business combination in which the goodwill arose.
Goodwill is carried at cost less accumulated impairment losses.
(m) Intangible fixed assets
Intangible fixed assets are held at cost less accumulated amortisation and impairment. Amortisation is charged on a straight-line basis
over the estimated useful life of the intangible fixed asset.
Customer relationships
Intangible customer relationship assets relate to the acquisition of Vernons. Customer relationships are capitalised in accordance with
IFRS 3 ‘Business Combinations’ (revised) and on the basis of a value in use calculation using an income-based approach. Amortisation
is calculated using the straight-line method over their estimated useful lives (five years from 1 July 2009).
Software
Externally acquired computer software licences are capitalised on the basis of the costs incurred to acquire and bring to use the specific
software. These costs are amortised over their estimated useful lives or contractual period if shorter (six to ten years).
Development costs that are directly attributable to the design and testing of identifiable and unique software products controlled by the
Group are recognised as intangible assets when the following criteria are met:
E
it is technically feasible to complete the software product so that it will be available for use;
E
management intends to complete the software product;
E
it can be demonstrated how the software product will generate probable future economic benefits;
E
adequate technical, financial and other resources to complete the development and to use or sell the software product are available; and
E
the expenditure attributable to the software product during its development can be reliably measured.
Directly attributable costs that are capitalised as part of the software product include the software development employee costs and
an appropriate proportion of relevant overhead. Other development expenditure that do not meet these criteria are recognised as an
expense as incurred. Development costs previously recognised as an expense are not recognised as an asset in a subsequent period.
Software development costs are amortised over their estimated useful lives, which do not exceed 15 years.
Other intangibles
Other intangible assets include intangible assets acquired as part of the Vernons acquisition which include distribution agreement
assets. These assets are amortised over their contractual period (five years). Also included within other intangibles are separately
acquired licences recognised at historical cost. Licences acquired in a business combination are recognised at fair value at the acquisition
date. Licences that have a finite useful life are carried at cost less accumulated amortisation. Amortisation is calculated using the
straight-line method to allocate cost of licences over their estimated useful lives of 15 to 20 years. Licences with an infinite life
(licences granted in perpetuity) are held at cost or fair value at acquisition date and tested annually for impairment.
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57
(n) Investments in subsidiaries
Investments in subsidiaries are carried at historic cost less any impairment. Cost is adjusted to reflect changes in consideration arising from
contingent consideration amendments. Annual impairment reviews are performed.
(o) Impairment reviews
Assets that are subject to amortisation are reviewed for impairment whenever events or changes in circumstances indicate that the carrying
amount may not be recoverable. Goodwill and intangible assets with indefinite lives are subject to an annual review for impairment in
accordance with IAS 36 ‘Impairment of Assets’. The recoverable amount is the higher of an asset’s fair value less costs to sell and value
in use. For the purpose of assessing impairments, assets are grouped at the lowest levels at which there are separately identifiable cash
flows (cash-generating units). Any impairment losses are recognised in the income statement in the year in which they occur. Any
impairment loss recognised on goodwill is not reversed.
(p) Pension obligation
The Group operates various pension schemes. The schemes are generally funded through payments to insurance companies or
Trustee-administered funds, determined by periodic actuarial calculations. The Group has both defined benefit and defined contribution
plans. A defined contribution plan is a pension plan under which the Group pays fixed contributions into a separate entity. The Group
has no legal or constructive obligations to pay further contributions if the fund does not hold sufficient assets to pay all employees
the benefits relating to employee service in the current and prior periods. A defined benefit plan is a pension plan that is not a defined
contribution plan. Typically defined benefit plans define an amount of pension benefit that an employee will receive on retirement,
usually dependent on one or more factors such as age, years of service and compensation.
The asset or liability recognised in the balance sheet in respect of the defined benefit pension plan is the fair value of plan assets
less the present value of the defined benefit obligation at the balance sheet date. The defined benefit obligation is calculated annually
by independent actuaries using the projected unit credit method. The present value of the defined benefit obligation is determined
by discounting the estimated future cash outflows using interest rates of high-quality corporate bonds that are denominated in the
currency in which the benefits will be paid, and that have terms to maturity approximating to the terms of the related pension liability.
Actuarial gains and losses arising from experience adjustments and changes in actuarial assumptions are charged or credited to equity
in the Statement of Comprehensive Income (“SOCI”) in the period in which they arise.
Past-service costs are recognised immediately in income, unless the changes to the pension plan are conditional on the employees
remaining in service for a specified period of time (“the vesting period”). In this case, the past-service costs are amortised on a
straight-line basis over the vesting period.
For defined contribution plans, the Group pays contributions to privately administered pension insurance plans on a mandatory,
contractual or voluntary basis. The Group has no further payment obligations once the contributions have been paid. The contributions
are recognised as an employee benefit expense when they are due. Prepaid contributions are recognised as an asset to the extent
that a cash refund or a reduction in future payments is available.
(q) Financial instruments
The Group uses derivative financial instruments to reduce exposure to interest rate and exchange rate movements. The Group does
not hold or issue derivative financial instruments for speculative purposes. Financial assets and liabilities are recognised on the Group’s
Balance Sheet initially at fair value when the Group becomes party to the contractual provisions of the instrument. Subsequent
measurement depends on the designation of the instrument in accordance with IAS 39 ‘Financial Instruments: Recognition and
Measurement’. All derivatives are designated as financial assets or liabilities at fair value through profit or loss.
The Group documents, at the inception of the transaction, the relationship between hedging instruments and hedged items as well
as its risk management objective and strategy for undertaking various hedge transactions. The Group also documents its assessment,
both at hedge inception and on an ongoing basis, of whether the derivatives that are used in hedging transactions are highly effective
in offsetting changes in the cash flows of the hedged items.
Cash flow hedges
The effective portion of changes in the fair value of derivatives that are designated and qualify as cash flow hedges is recognised in
other comprehensive income. The gain or loss relating to the ineffective portion is recognised immediately in the income statement.
Amounts accumulated in equity are recycled in the income statement in the periods when the hedged item will affect profit or loss
(for example, when the forecast transaction that is hedged takes place). However, when the forecast transaction that is hedged results
in the recognition of a non-financial asset or a liability, the gains and losses previously deferred in equity are transferred from equity
and included in the initial measurement of the cost of the asset or liability.
When a hedging instrument expires or is sold, or when a hedge no longer meets the criteria for hedge accounting, any cumulative gain
or loss existing in equity at that time remains in equity and is recognised when the forecast transaction is ultimately recognised in the
income statement. When a forecast transaction is no longer expected to occur, the cumulative gain or loss that was reported in equity
is immediately transferred to the income statement.
Derivative financial instruments and hedging activities
Derivatives are initially recognised at fair value on the date a derivative contract is entered into and are subsequently re-measured
at their fair value. The method of recognising the resulting gain or loss depends on whether the derivative is designated as a hedging
instrument and, if so, the nature of the item being hedged. The Group designates certain derivatives as hedges of the variability of cash
flows (cash flow hedge).
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(r) Share-based payments
The fair value of employee options awarded under the Sportech Share Option Scheme is calculated using the Black-Scholes model.
The fair value of employee PSP awards is valued using a stochastic (Monte Carlo) valuation model. In accordance with IFRS 2,
the resulting cost is charged to the income statement over the vesting period of the options/awards. The total amount to be expensed
is determined by reference to the fair value of the options/awards granted including any market performance conditions, which are
those which are based on Sportech PLC’s share price and excluding the impact of any service and non-market performance vesting
conditions being, profitability and remaining an employee over a specified time period. At each balance sheet date, the Company
revises its estimates of the number of options that are expected to vest. It recognises the impact of the revision to original estimates,
if any, in the income statement, with a corresponding adjustment to equity.
The charge in relation to employees who provide services to subsidiary companies is recharged to those subsidiaries. Where the
charge is not required to be settled in cash, the Company’s investment in that subsidiary is increased by the value of the charge and
a corresponding increase in equity is recognised in the subsidiary.
(s) Cash and cash equivalents
For the purposes of the cash flow statement, cash and cash equivalents represent cash in hand, operational cash held at trading venues
and cash held in current accounts with banks, including overdrafts. Cash and cash equivalents shown on the balance sheet represent
cash in hand, cash in vaults and cash held in current accounts; bank overdrafts are shown within current liabilities.
(t) Borrowings
Borrowings are recognised initially at fair value, net of transaction costs incurred. Borrowings are subsequently stated at amortised cost;
any difference between the proceeds (net of transaction costs) and the redemption value is recognised in the income statement over
the period of the borrowings using the effective interest method. Borrowings are classified as current liabilities unless the Group has
an unconditional right to defer settlement of the liability for at least twelve months after the balance sheet date.
(u) Exceptional items
The Group defines exceptional items as those items which, by their nature or size, would distort the comparability of the Group’s results
from year to year.
(v) Trade receivables
Trade receivables are recognised initially at fair value and subsequently measured at amortised cost using the effective interest
method, less provision for impairment being the difference between the assets’ carrying amounts and the present value of the
estimated future cash flows, discounted at the original effective interest rate. Any subsequent recovery of amounts written off
is credited to the income statement.
(w) Trade payables
Trade payables are recognised initially at fair value and subsequently measured at amortised cost using the effective interest method.
(x) Inventories
Inventories are stated at the lower of cost and net realisable value. Cost is determined using the first-in, first-out method.
Net realisable value is the estimated selling price in the ordinary course of business.
(y) Provisions
Provisions for onerous contracts, onerous leases, restructuring costs, legal claims and dilapidations are recognised when: the Group has
a present legal or constructive obligation as a result of past events; it is probable that an outflow of resources will be required to settle
the obligation; and the amount has been reliably estimated. Provisions are not recognised for future operating losses where the Group
has no contractual obligation to deliver the service or product.
(z) Leases
Leases in which a significant portion of the risks and rewards of ownership are retained by the lessor are classified as operating leases.
Payments made under operating leases (net of any incentives received from the lessor) are charged to the income statement on a
straight-line basis over the period of the lease.
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(aa) Share capital
Ordinary shares are classed as equity. Incremental costs directly attributable to the value of new shares or options are shown in equity
as a deduction from the proceeds in the share premium account where the shares were issued at a premium or where issued at par or
where the issue costs exceed the premium on the issue, to retained earnings.
(ab) New standards, amendments and interpretations adopted by the Group
The Group has adopted the following as of 1 January 2010:
E
IAS 39 (Amendment) ‘Eligible Hedged Items’. The amendment prohibits the time value component of derivative options being
designated as an effective hedge;
E
IFRS 2 (Amendment) ‘Share-based Payments’. This amendment clarifies the scope and accounting for Group settled share-based payments;
E
IAS 32 (Amendment) ‘Classification of Rights’. The amendment clarifies the treatment of rights, options or warrants issued to acquire
a fixed number of an entity’s own equity instruments for a fixed amount of consideration;
E
IFRS 3 (Revised) ‘Business Combinations’. The amendment changes the way in which step acquisitions are to be accounted for and
requires acquisition costs to be expensed in the income statement and adjustments to contingent consideration to be recognised
in the income statement after a specified period. The impact on the current year from adopting the amendment principally relates
to the expensing of acquisition costs related to acquisitions concluded in the current year. This standard has been applied to the
acquisition of Sportech Racing on 5 October 2010, all acquisition related costs have been expensed to the income statement; these
would previously have been included in consideration. All payments to purchase the business have been recorded at fair value at
the acquisition date, with contingent payments classified as debt and subsequently re-measured through the income statement;
E
IAS 27 (Revised) ‘Consolidated and Separate Financial Statements’; and
E
IFRIC 17 ‘Distribution of Non-cash Assets to Owners’. This interpretation provides guidance on accounting for arrangements whereby
an entity distributes non-cash assets to shareholders.
(ac) New standards, amendments and interpretations not yet effective and not adopted by the Group
The Group is currently assessing the impact of the following revised standards and interpretations or amendments that are not yet effective:
E
IAS 24 (Amendment) ‘Related Parties’ is effective for annual reporting periods commencing on or after 1 January 2011. The amendment
clarifies the definition of related parties;
E
IFRS 9 ‘Financial Instruments’ is effective for annual reporting periods commencing on or after 1 January 2013. This standard will
eventually replace IAS 39 but currently only details the requirements for recognition and measurement of financial assets; and
E
IFRIC 14 (Amendment) ‘Prepayments of a Minimum Funding Requirement’ is effective for annual reporting periods commencing on
or after 1 January 2011. The amendment remedies one of the consequences of IFRIC 14, whereby an entity under certain circumstances
is not allowed to recognise an asset for the prepayment of a minimum funding agreement.
The Directors anticipate that the Group and the Company will adopt these standards and interpretations on their effective dates.
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1. Segmental reporting
2010
Football
Pools
£m
Total revenue
Less inter-segment revenue
Group revenue
EBITDA before exceptional costs and share option expense
Share option expense
Depreciation and amortisation
(excluding amortisation of acquired intangibles)
Segment result before amortisation of acquired intangibles
and exceptional costs
Exceptional costs
Operating profit/(loss)
Net finance costs
Taxation
Loss for the year from continuing operations
Segment assets
Segment liabilities
Other segment items
Capital expenditure (intangible and tangible assets)
Depreciation
Amortisation of intangible assets
(including acquired intangibles)
Sportech
Racing
£m
e-Gaming
£m
Corporate
costs
£m
Group
£m
52.1
—
52.1
19.7
—
15.0
(0.2)
14.8
1.7
—
4.3
—
4.3
1.6
—
—
—
—
(3.3)
(0.4)
71.4
(0.2)
71.2
19.7
(0.4)
(1.0)
(0.7)
(0.1)
(0.1)
(1.9)
18.7
(5.9)
(1.0)
11.8
1.0
—
(0.7)
0.3
1.5
—
—
1.5
(3.8)
—
(8.2)
(12.0)
182.0
(19.8)
43.4
(15.3)
0.6
(0.4)
10.4
(76.2)
17.4
(5.9)
(9.9)
1.6
(6.9)
(0.6)
(5.9)
(0.4)
(6.3)
236.4
(111.7)
2.0
0.3
0.5
0.4
—
—
—
0.1
2.5
0.8
6.6
0.3
0.1
—
7.0
Corporate
costs
£m
Group
£m
2009
Group revenue
EBITDA before exceptional costs and share option expense
Depreciation and amortisation
(excluding amortisation of acquired intangibles)
Segment result before amortisation of acquired intangibles
and exceptional costs
Exceptional costs
Operating (loss)/profit
Net finance costs
Taxation
Loss for the year from continuing operations
Segment assets
Segment liabilities
Other segment items
Capital expenditure (intangible and tangible assets)
Depreciation
Amortisation of intangible assets (including acquired intangibles)
Football
Pools
£m
Sportech
Racing
£m
e-Gaming
£m
58.9
21.5
—
—
—
—
5.7
1.8
—
—
(2.5)
(0.2)
(1.0)
—
(0.1)
—
20.5
(6.6)
(24.2)
(10.3)
—
—
—
—
1.7
—
—
1.7
(2.7)
—
(0.7)
(3.4)
194.2
(109.0)
—
—
1.0
(0.3)
0.3
(0.7)
—
—
—
—
—
0.1
0.5
—
—
3.5
0.7
6.9
64.6
20.8
(0.2)
(1.1)
19.5
(6.6)
(24.9)
(12.0)
(5.0)
(17.0)
4.7
(12.3)
195.5
(110.0)
4.0
0.7
7.0
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1. Segmental reporting continued
Information by geographical area
Revenues from
external customers
Non-current assets
Capital expenditure
Continuing operations
2010
£m
2009
£m
2010
£m
2009
£m
2010
£m
2009
£m
United Kingdom
North America
Europe
Total
56.4
11.0
3.8
71.2
64.6
—
—
64.6
192.7
26.9
1.8
221.4
183.0
—
—
183.0
2.0
0.4
0.1
2.5
4.0
—
—
4.0
Revenue is allocated to the country in which the service is performed or product is delivered.
There were no disposals or discontinuing of activities during 2010 or 2009.
2. Exceptional costs
Exceptional costs of £9.9m (2009: £24.9m) are included within administrative expenses and exceptional costs of £0.9m (2009: £nil)
are included within net finance costs in the income statement. Exceptional costs by type are as follows:
Included in administrative expenses:
Redundancy costs in respect of the continuing rationalisation and modernisation of the business
Seeding costs in respect of new games
Integration costs in respect of the acquisition of Sportech Racing
Impairment of goodwill (see note 11)
Impairment of intangible assets (see note 12)
Transaction costs – acquisition of Sportech Racing
Other exceptional costs
Included in net finance costs:
Bank arrangement fee
Total exceptional costs
2010
£m
2009
£m
0.7
0.4
0.6
—
—
7.4
0.8
9.9
1.2
0.3
—
17.9
3.9
—
1.6
24.9
0.9
10.8
—
24.9
2010
£m
2009
£m
4.8
8.6
1.3
11.9
14.0
7.8
1.0
2.8
1.1
7.4
0.6
0.4
7.9
69.6
5.1
8.5
—
15.8
9.7
29.5
0.8
2.1
—
—
—
0.2
4.9
76.6
3. Expenses by nature
Included in the above table are exceptional costs of £9.9m (2009: £24.9m).
Selling commissions
Betting and gaming duties
Track and Tote fees
Marketing, printing and postage costs
Employment costs (see note 6)
Depreciation, amortisation and impairment charges
Distribution costs
IT and telecommunications costs
Cost of inventories recognised as an expense
Transaction costs – acquisition of Sportech Racing
Integration costs in respect of the acquisition of Sportech Racing
Other costs
Total costs
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4. Net finance costs
2009
£m
2010
£m
Interest payable on bank loans, derivative financial instruments and overdrafts
Interest receivable on cash balances
Bank arrangement fees
Non-cash finance charges*
Loss on foreign exchange contracts
Net finance costs
(4.8)
—
—
(0.2)
—
(5.0)
(5.6)
0.1
(0.9)
(0.2)
(0.3)
(6.9)
* Non-cash finance charges are in respect of the deferred consideration payable on the acquisition of Sportech Racing in October 2010. In the prior year,
non-cash finance charges were in respect of the deferred consideration payable on the acquisition of Vernons in 2007 which was settled in full in 2009.
Bank arrangement fees, non-cash finance charges and loss on foreign exchange contracts are together shown as other finance charges
in the income statement. Included in the above table are exceptional costs of £0.9m (2009: £nil).
5. Loss before taxation
Loss before taxation is stated after charging:
Staff costs
Impairment of goodwill
Impairment of intangible fixed assets
Depreciation of property, plant and equipment
Amortisation of intangibles acquired with Vernons
Amortisation of other intangibles
Note
2010
£m
2009
£m
6
11
12
13
12
12
14.4
—
—
0.8
5.9
1.1
9.9
17.9
3.9
0.7
6.6
0.4
The fees of the auditors in relation to their audit of the Company and consolidated accounts are £45,000 (2009: £25,000).
Fees paid to auditors for other services comprise:
Audit of the Group’s subsidiaries
Taxation advisory services
Corporate advisory costs
Total
2010
£m
2009
£m
0.2
0.2
1.0
1.4
0.1
0.1
0.1
0.3
Corporate advisory costs include costs in relation to the work carried out by PricewaterhouseCoopers LLP on the acquisition
of Sportech Racing and the associated firm placing and placing and open offer.
6. Staff costs
Average number of monthly employees including Executive Directors comprised:
Sales and marketing
Operations and distribution
Administration
2010
Number
2009
Number
95
201
79
375
116
109
77
302
2010
£m
2009
£m
11.9
1.6
0.4
0.1
0.4
14.4
8.6
0.7
0.3
0.1
0.2
9.9
Their aggregate remuneration comprised:
Wages and salaries
Social security costs
Pension costs – defined contribution scheme (see note 31)
Pension costs – defined benefit scheme (see note 31)
Share option expense (see note 25)
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2010
£000
2009
£000
1,131
25
44
270
1,470
756
—
37
125
918
7. Directors and key management remuneration
Directors
Salaries and other short term employee benefits
Termination benefits
Defined contribution scheme payments
Details of individual Director’s remuneration and share-based incentives granted are given in the Remuneration Report on pages 36 to 42.
This information forms part of the financial statements.
Key management compensation
Salaries and other short term employee benefits
Termination benefits
Defined contribution scheme payments
2010
£000
2009
£000
1,162
25
46
293
1,526
1,379
—
70
190
1,639
Key management for 2010 includes Directors (Executive and Non-executive) and members of the Executive Committee. For 2009 key
management included the UK management team.
8. Tax on loss on ordinary activities
2010
£m
Current tax:
Current tax on losses for the year
Adjustments in respect of prior years
Total current tax
Deferred tax:
Origination and reversal of temporary differences
Impact of changes in tax rates
Total deferred tax
Total taxation charge/(credit)
2009
£m
0.1
—
0.1
(1.5)
(0.4)
(1.9)
0.2
0.1
0.3
0.4
(2.8)
—
(2.8)
(4.7)
The tax on the Group’s loss before tax differs from the theoretical amount that would arise using the weighted average tax rate
applicable to profits and losses of the consolidated entities as follows:
2009
£m
(5.9)
0.6
(5.3)
(1.5)
(17.0)
—
(17.0)
(4.8)
1.8
0.1
—
0.4
0.5
—
(0.4)
(4.7)
The weighted average applicable tax rate was 27.7% (2009: 28.0%). The decrease is as a result of the acquisition of Sportech Racing and
the overseas operations incorporated in the business.
During the year, as a result of the change in the UK corporation tax rate from 28% to 27% that was substantially enacted on 20 July 2010
and that will be effective from 1 April 2011, the relevant deferred tax balances have been re-measured. Deferred tax expected to reverse
in the year ended 31 December 2011 has been measured using the effective rate that will apply in the UK for the period (27.25%).
Further reductions to the UK tax rate have been announced. The changes, which are expected to be enacted separately each year,
propose to reduce the rate by 1% per annum to 24% by 1 April 2014. The changes had not been substantially enacted at the balance
sheet date and, therefore, are not recognised in these financial statements.
Loss before tax
Add share of loss after tax of joint venture
Loss before tax and share of loss of joint venture
Tax calculated at domestic tax rates applicable to profits/(losses) in the respective countries
Tax effects of:
– permanent differences
– effect of changes in tax rates
– adjustments to tax in respect of prior years
Total taxation charge/(credit)
2010
£m
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9. Loss of holding company
Of the loss for the financial year, £11.3m (2009: £7.9m loss) is dealt with in the accounts of Sportech PLC and the Statement of Changes
in Equity. The Directors have taken advantage of the exemption available under Section 408 of the Companies Act 2006 and have not
presented an income statement for the Company alone.
The individual income statement of Sportech PLC was approved by the Board on 24 March 2011.
10. Earnings per share
The calculations of Earnings per Share (“EPS”) are based on the following loss attributable to ordinary shareholders and the weighted
average number of shares in issue:
2009
2010
Loss
£m
Basic and diluted EPS
(6.3)
Weighted
average
number
of shares
‘000
161,179
Per
share
amount
Pence
(3.9)
Loss
£m
Weighted
average
number
of shares
‘000
(12.3)
100,653
Per
share
amount
Pence
(12.2)
The calculations of adjusted EPS are based on the following profits attributable to ordinary shareholders, the weighted average number
of shares and an estimated tax charge of 27.7% (2009: 28.0%).
2009
2010
Operating profit before amortisation
of acquired intangibles and exceptional costs
Net finance costs (excluding exceptional costs
and other finance charges)
Adjusted profit before tax
Tax at 27.7% (2009: 28.0%)
Adjusted basic EPS
Profit
£m
Weighted
average
number
of shares
‘000
Per
share
amount
Pence
10.8
19.5
100,653
19.4
(3.4)
7.4
(2.0)
5.4
(4.8)
14.7
(4.1)
10.6
100,653
100,653
100,653
100,653
(4.8)
14.6
(4.1)
10.5
Profit
£m
Weighted
average
number
of shares
‘000
Per
share
amount
Pence
17.4
161,179
(5.5)
11.9
(3.3)
8.6
161,179
161,179
161,179
161,179
Certain employee options have been excluded from the calculated EPS as their exercise price is greater than the weighted average share
price during the year and therefore would not be dilutive. The number of shares which have a dilutive effect on adjusted EPS is 2,973,000
(2009: nil). Diluted adjusted EPS is 5.2p (2009: 10.5p); there is no effect on basic loss per share.
11. Goodwill
Group
Cost
At 1 January and 31 December
Impairment
At 1 January
Impairment
At 31 December
Net book amount at 31 December
2010
£m
2009
£m
165.5
165.5
(17.9)
—
(17.9)
147.6
—
(17.9)
(17.9)
147.6
The goodwill brought forward in the accounts relates to the acquisition of Littlewoods Leisure, including the Littlewoods Football Pools
business, in September 2000 amounting to £145.2m, plus the goodwill arising on the acquisition of Vernons Football Pools in December 2007
amounting to £20.3m. During the year the Group carried out its annual impairment review of the carrying value of its goodwill. The goodwill
is attributed to the Football Pools segment. The Group has prepared forecasts for the business based on the view that the traditional
business will continue to experience decline, albeit at a much lower rate than in previous years.
For the purpose of the annual impairment review, the recoverable amounts are measured based on value in use, calculated using
discounted future cash flows. The key assumptions in the value in use calculations were:
E
the cash flow forecasts utilised are based upon the budget approved by the Board for 2011 and on cash flow projections for 2012
to 2015 also approved by the Board, with a terminal value at 2015 calculated in accordance with IAS 36;
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65
11. Goodwill continued
E revenue forecasts for the core Football Pools business reflect the improvement in spend per player from core customer numbers
within the last two years, the introduction of new customers via additional distribution routes, the change in product mix following
the acquisition of Vernons, the improvement in technology following the continued investment through 2010, the increase to 90 pool
games starting from August 2011, and the introduction of new pari-mutuel (pool) games, the impact all of which the Board believes
will lead to a stabilisation of revenues within the core Football Pools business;
E
the terminal value is based on a nil growth rate given the expected stabilisation of profit streams;
E
cash flows have been discounted at 7.7% (2009: 8.1%), reflecting the weighted average cost of capital for the Group; and
E
there are no material adverse changes in legislation.
Following the impairment review an impairment of £nil was charged to the income statement (2009: £17.9m charge was included within
exceptional costs).
12. Intangible fixed assets
Group
Cost
At 1 January 2010
Additions
Additions separately acquired
Acquisition of subsidiaries
At 31 December 2010
Accumulated amortisation and impairment
At 1 January 2010
Provided during the year
At 31 December 2010
Exchange differences
Net book amount at 31 December 2010
Customer
relationships
£m
Software
£m
Other
£m
Total
£m
32.7
—
—
—
32.7
12.4
1.7
15.7
0.4
30.2
3.4
—
—
15.8
19.2
48.5
1.7
15.7
16.2
82.1
6.5
5.9
12.4
—
20.3
9.4
0.9
10.3
—
19.9
2.3
0.2
2.5
0.2
16.9
18.2
7.0
25.2
0.2
57.1
During the prior year the Group reviewed the useful life of the intangible assets acquired with Vernons in December 2007. The principal
impact of this was to revise the useful life of the customer relationships to five years from 1 July 2009 (previously 15 years from
December 2007), and also to fully provide at the end of 2009 for the software, brand and trademarks acquired, which generated
an increased amortisation charge of £3.4m during the year. The charge in 2010 of £5.9m represents an annual charge based on
the expected life of the assets as revised in 2009.
In 2009, the Group also reviewed the carrying value of the software which was operated by the Football Pools segment, which resulted
in an impairment charge of £3.9m. The impairment test carried out by the Group in 2010 resulted in an impairment of £nil being charged
to the income statement.
Company
Other
£m
Total
£m
—
15.7
15.7
0.5
—
0.5
0.5
15.7
16.2
—
0.2
0.2
15.5
—
—
—
0.5
—
0.2
0.2
16.0
During the year, the Company acquired software which provides pari-mutuel services to customers in North America, as part of the
acquisition of Sportech Racing. Management has estimated the useful economic life of the asset to be 15 years. The carrying amount
of the asset at 31 December 2010 was £15.5m and the remaining life was 14 years and 9 months.
Cost
At 1 January 2010
Additions separately acquired
At 31 December 2010
At 1 January 2010
At 31 December 2010
Software
£m
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12. Intangible fixed assets continued
Group
Cost
At 1 January 2009
Additions
At 31 December 2009
At 1 January 2009
Impairment
At 31 December 2009
Customer
relationships
£m
Software
£m
Other
£m
Total
£m
32.7
—
32.7
9.1
3.3
12.4
2.9
0.5
3.4
44.7
3.8
48.5
2.3
4.2
—
6.5
4.5
1.0
3.9
9.4
0.5
1.8
—
2.3
7.3
7.0
3.9
18.2
26.2
3.0
1.1
30.3
Other
£m
Total
£m
—
0.5
0.5
—
0.5
0.5
Assets
in the
course of
construction
£m
Total
£m
Company
Cost and net book amount
At 1 January 2009
Additions
At 31 December 2009
13. Property, plant and equipment
Group
Cost
At 1 January 2010
Additions
Acquisition of subsidiary
Transfer
At 31 December 2010
Accumulated depreciation
At 1 January 2010
At 31 December 2010
Exchange differences
Short
leasehold
land and
buildings
£m
Long
leasehold
and owned
land and
buildings
£m
Plant and
machinery
£m
Fixtures
and
fittings
£m
0.1
—
—
—
0.1
2.6
—
5.8
—
8.4
3.8
0.3
2.0
0.4
6.5
—
—
0.3
—
0.3
0.1
0.5
2.8
(0.4)
3.0
6.6
0.8
10.9
—
18.3
—
0.1
0.1
—
—
1.7
0.2
1.9
0.1
6.6
3.5
0.5
4.0
—
2.5
—
—
—
—
0.3
—
—
—
—
3.0
5.2
0.8
6.0
0.1
12.4
Lloyds Banking Group held charges over land and buildings with a net book value of £5.5m.
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67
13. Property, plant and equipment continued
Company
Cost
At 1 January and 31 December 2010
At 1 January 2010
Provided during year
At 31 December 2010
Group
Cost
At 1 January 2009
Additions
Disposals
Transfer
At 31 December 2009
At 1 January 2009
Disposals
At 31 December 2009
Company
Cost
At 1 January and 31 December 2009
At 1 January 2009
Provided during year
At 31 December 2009
Short
leasehold
land and
buildings
£m
Long
leasehold
land and
buildings
£m
0.1
—
—
—
0.1
2.6
—
—
—
2.6
Short
leasehold
land and
buildings
£m
Plant and
machinery
£m
Total
£m
0.1
0.1
0.2
0.1
—
0.1
—
—
0.1
0.1
—
0.1
0.1
0.2
—
Plant and
machinery
£m
Assets
in the
course of
construction
£m
Total
£m
3.8
—
(0.1)
0.2
3.9
0.1
0.2
—
(0.2)
0.1
6.6
0.2
(0.1)
—
6.7
4.6
—
1.5
3.1
—
—
0.2
0.5
—
0.7
—
—
0.1
—
1.7
0.9
(0.1)
3.5
0.4
—
—
0.1
(0.1)
5.2
1.5
Short
leasehold
land and
buildings
£m
Plant and
machinery
£m
Total
£m
0.1
0.1
0.2
—
0.1
0.1
—
—
—
—
0.1
0.1
—
0.1
0.1
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14. Investments in subsidiaries
Group
Investments in Group companies
At 1 January
Additions (see note 15)
At 31 December
Company
2010
£m
2009
£m
2010
£m
2009
£m
—
—
—
—
—
167.1
28.4
195.5
167.1
—
—
167.1
Investments in Group companies are stated at cost which is the fair value of the consideration paid. Of the total consideration of £44.1m
paid to acquire Sportech Racing during the year, £15.7m was treated as acquiring the software used to provide pari-mutuel services and
£28.4m is included as an addition to investments above.
The Company is the holding company of the Group. The following table shows details of the Company’s principal subsidiaries and joint
venture investments:
Name of company
The Football Pools Limited
(formerly Littlewoods Promotions Ltd)
UK Lottery Management Limited
(formerly Littlewoods Lotteries Limited)
Football Pools 1923 Limited
(formerly Littlewoods of Liverpool Limited)
Sportech Trustees Limited*
Vernons Games Limited
Vernons Financial Services Limited
GameOn Promotions Limited
(formerly Littlewoods Game On Limited)
Sports Hub Private Limited
Sportech Racing GmbH**
Sportech Racing GmbH**
Sportech Racing SAS**
Sportech Racing BV**
Racing Technology Ireland Limited**
Sportech Racing Limited**
Sportech Racing Limited**
Sportech Racing Panama Inc.**
Sportech Racing LLC**
Trackplay LLC**
Sportech Racing Canada Inc.**
Sportech Venues Inc.**
Holding
Proportion of
voting rights Country of incorporation
Nature of business
Ordinary shares
100%
England and Wales
Pools betting and gaming
Ordinary shares
100%
England and Wales
Management of charity lotteries
Ordinary shares
Ordinary shares
Ordinary shares
Ordinary shares
100%
100%
100%
100%
England and Wales
England and Wales
England and Wales
England and Wales
Asset hiring
Pension fund trustee
Gaming
Database income
Ordinary shares
Ordinary shares
Ordinary shares
Ordinary shares
Ordinary shares
Ordinary shares
100%
50%
100%
100%
100%
100%
England and Wales
India
Germany
Austria
France
Netherlands
Ordinary shares
Ordinary shares
Ordinary shares
Ordinary shares
Ordinary shares
Ordinary shares
Ordinary shares
Ordinary shares
100%
100%
100%
100%
100%
100%
100%
100%
Ireland
Turkey
USA
Panama
USA
USA
Canada
USA
Gaming
Sport entertainment
Pari-mutuel systems provision
Off-track betting and
venues management
Off-track betting and
venues management
* Ownership is directly held by the Company, Sportech PLC.
** Acquired as part of the acquisition of Sportech Racing from Scientific Games Corporation on 5 October 2010.
All of these companies have been included in the consolidated financial statements. A full list of Group subsidiaries can be found in the
Company’s annual return available from Companies House.
The Directors believe that the carrying value of investments is supported by their underlying net assets.
15. Acquisition of Sportech Racing
On 5 October 2010, the Group acquired 100% of the issued share capital of the racing businesses and venues management business
of Scientific Games Corporation, which comprised subsidiaries identified in note 14. Sportech Racing provides a wide range of wagering
technology solutions to racetracks, off-track betting networks (“OTBs”), internet wagering operators and casinos. The business also
owns and operates direct to consumer brands including Winners, a network of off-track betting venues and phone wagering service,
and Runnerz, the exclusive home of pools/tote wagering on horseracing in the Netherlands.
Ownership of Sportech Racing is expected to enable the combined Group to become one of the leading pari-mutuel systems providers
in Europe, North America and South America and to pursue rapidly growing markets in the rest of the world.
There was no goodwill arising on the acquisition.
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69
15. Acquisition of Sportech Racing continued
The following table summarises the consideration paid for Sportech Racing and the amounts of the assets acquired and liabilities
assumed recognised at acquisition date.
Fair value of consideration at 5 October 2010
£m
Cash
Equity instruments (39,742,179 ordinary shares)
Deferred consideration
Total fair value of consideration transferred
Recognised amounts of identifiable assets acquired and liabilities assumed
Intangible assets – software (separately acquired)
Intangible assets – software
Intangible assets – other
Property, plant and equipment
Inventories
Trade and other payables
Retirement benefit obligation
Deferred tax asset
Provisions
Total identifiable net assets
Goodwill
21.9
16.9
5.3
44.1
2.7
15.7
0.4
15.8
10.9
0.9
8.9
(9.5)
(0.8)
0.5
(1.4)
44.1
—
44.1
The fair value of the 39.7m ordinary shares issued as part of the consideration paid for Sportech Racing was based on the published
share price on 5 October 2010.
Deferred consideration of $10.0m is payable on 30 September 2013, plus interest at a rate of the average daily Bank of England base
rate plus 1% for the period 5 October 2010 (inclusive) to 30 September 2013 (inclusive). The amount payable has been discounted to
its present value as required by IFRS 3 ‘Business Combinations’ (revised).
There is the potential for contingent consideration of up to $8.0m to be payable if, during the three-year period commencing at the
date of the end of the first quarter after completion (the Contingent Consideration Period), certain EBITDA targets are met, as follows:
(a) in the event that no relevant US business acquisition is consummated during the Contingent Consideration Period, $5.0m shall
be payable if the average annual EBITDA of the Sportech Racing business equals or exceeds $20.0m but is less than $21.0m; or
(b) in the event that no relevant US business acquisition is consummated during the Contingent Consideration Period, $8.0m shall
be payable if the average annual EBITDA of the Sportech Racing business equals or exceeds $21.0m; or
(c) in the event that any relevant US business acquisition is consummated during the Contingent Consideration Period, $8.0m shall
be payable if the annual EBITDA of the enlarged Sportech Racing business, less 15% of the purchase price paid for the relevant
US business acquisition, equals or exceeds $25.0m.
The fair value of trade and other receivables is £8.9m. The gross contractual amount for trade receivables due is £9.7m, of which £0.8m
is expected to be uncollectable.
No contingent liabilities have been recognised as at the acquisition date.
The revenue included in the Consolidated Income Statement since 5 October 2010, contributed by Sportech Racing, was £14.8m and the
profit after tax for the same period was £0.3m. Had Sportech Racing been acquired on 1 January 2010, the Consolidated Income Statement
would show revenue of £125.4m and loss after tax of £2.3m.
Acquisition related costs of £7.4m have been charged to the income statement and included in administrative expenses.
The undiscounted future payment that the Group could potentially be required to pay under this arrangement is either $nil, $5.0m
or $8.0m. Based on both management’s and the stock market’s current expectations for the performance of Sportech Racing over the
three-year measurement period, the Directors believe that the probability of achieving the organic performance requirements is low.
Management also has no current expectations of acquiring further businesses in the US that fall within the above measurement criteria.
Accordingly, the fair value of the contingent arrangement is currently considered to be £nil and is therefore included in the financial
statements at that value. There has been no change in this expectation between acquisition date and 31 December 2010.
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16. Investment in joint venture
The Group has a 50% interest in Sports Hub Private Limited, a company incorporated in India which provides a suite of prediction and
fantasy games centred around India’s most popular sports, namely cricket, football and Formula 1.
£m
At 1 January 2010
Additions
Share of loss after tax
At 31 December 2010
—
0.5
(0.6)
(0.1)
The Group’s share of the results in its joint venture, which is unlisted, and its aggregated assets and liabilities are as follows:
£m
Non-current assets
Current assets
Total assets
Current liabilities
Net liabilities
—
—
—
(0.1)
(0.1)
Total revenue
—
The Group is committed to invest a further £1.5m into Sports Hub Private Limited.
17. Trade and other receivables
Group
2010
£m
Trade receivables
Less provision for impairment of receivables
Trade receivables – net
Amounts owed by Group companies
Other debtors
Prepayments
8.5
—
8.5
—
0.9
2.8
12.2
Company
2009
£m
1.3
(0.1)
1.2
—
5.2
2.1
8.5
2010
£m
2009
£m
1.2
—
1.2
7.4
—
0.4
9.0
0.1
—
0.1
6.9
4.8
0.5
12.3
The fair value of trade and other receivables is not considered to be different from the carrying value recorded above for either the
Group or the Company.
Trade receivables that are less than three months past due are not considered impaired. As at 31 December 2010, £0.3m (2009: £nil)
trade receivables were past due and not impaired.
As at 31 December 2010, trade receivables of £nil (2009: £0.1m) were impaired and fully provided for. The impaired receivables in the
prior year relate to historic trading balances from sold or closed businesses which were not expected to be recovered. The impaired
receivables were all greater than twelve months.
Other classes of trade and other receivables are not impaired. Non-current trade receivables of £0.1m (2009: £nil) relate to prepaid
expenses for periods in excess of twelve months.
Movements on the Group provision for impairment of trade receivables are as follows:
Group
2010
£m
At 1 January
Utilised
At 31 December
0.1
(0.1)
—
2009
£m
0.2
(0.1)
0.1
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71
17. Trade and other receivables continued
The carrying amounts of trade and other receivables are denominated in the following currencies:
Group
Sterling
US Dollar
Euro
Company
2010
£m
2009
£m
2010
£m
2009
£m
4.9
4.5
2.8
12.2
8.5
—
—
6.3
2.7
—
9.0
12.3
—
—
8.5
12.3
18. Inventories
Group
Finished goods
Ticket paper
2010
£m
2009
£m
0.1
0.9
1.0
—
—
—
The cost of inventories recognised as an expense and included in cost of sales amounted to £1.1m (2009: £nil). Provisions for obsolescence
held against inventories at 31 December 2010 amounted to £nil (2009: £nil).
19. Deferred tax
The movement on the deferred tax account is as follows:
Group
2010
£m
At 1 January
Income statement (charge)/credit
Tax charged directly to equity
Net deferred tax asset at 31 December
3.4
(0.3)
(0.1)
0.5
3.5
Company
2009
£m
0.6
2.9
(0.1)
—
3.4
2010
£m
1.3
0.6
—
—
1.9
2009
£m
1.3
0.1
(0.1)
—
1.3
The tax charged directly to equity is the deferred tax on the derivative financial instrument and retirement benefit obligation.
Deferred tax assets have been recognised in respect of capital allowances, trading losses and all other temporary differences giving rise
to deferred tax assets, where it is probable that these assets will be recovered. Deferred tax assets and liabilities are only offset where
there is a legally enforceable right of offset and there is an intention to settle the liabilities net. The movements in deferred tax assets
and liabilities during the year are shown below:
Deferred tax assets
Group
—
—
—
—
—
(0.1)
0.4
0.3
Capital
allowances
£m
0.2
0.8
—
1.0
0.6
—
—
1.6
Losses
£m
—
1.4
—
1.4
(0.6)
—
0.2
1.0
Temporary
differences
£m
1.3
—
(0.1)
1.2
—
—
—
1.2
Total
£m
1.5
2.2
(0.1)
3.6
—
(0.1)
0.6
4.1
£0.8m is expected to be recovered within twelve months (2009: £1.3m) and £3.3m is expected to be recovered after more than
twelve months (2009: £2.3m).
The losses in the Company have been surrendered as Group relief, however, £2.8m of non-trading deficits have been carried forward into
2011. In addition to the deferred tax asset which has been recognised, the Group has not recognised further deferred tax assets of £3.7m
(2009: £2.0m) arising from unutilised trading losses. The Directors do not consider there will be sufficient future profits against which
these losses can be offset due to the low level of trading in these particular business units.
The deferred tax asset in the Company consists of depreciation in excess of capital allowances; £0.1m (2009: £0.1m), excess
management expenses carried forward; £0.8m (2009: £nil) and temporary differences; £1.0m (2009: £1.2m).
At 1 January 2009
Income statement credit
At 31 December 2009
Income statement credit/(charge)
At 31 December 2010
Pension
£m
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19. Deferred tax continued
Deferred tax assets continued
Expiry of these losses is as follows:
2009
2010
Gross losses
Within one year
Between one and four years
In more than four years
Provided
£m
Unprovided
£m
Provided
£m
Unprovided
£m
0.4
0.4
3.1
3.9
3.1
0.6
10.6
14.3
—
—
4.8
4.8
—
—
7.4
7.4
Deferred tax assets are recognised on losses carried forward when it is probable that future taxable profits will be generated against
which the losses can be utilised.
Deferred tax liabilities
Group
At 1 January 2009
Income statement credit
At 31 December 2009
Income statement credit/(charge)
At 31 December 2010
Capital
gains
£m
(0.4)
0.4
—
—
—
—
Capital
allowances
£m
—
—
—
—
(0.1)
(0.1)
Pension
provision
£m
(0.1)
—
(0.1)
0.1
—
—
Temporary
differences
£m
(0.4)
0.3
(0.1)
(0.4)
—
(0.5)
Total
£m
(0.9)
0.7
(0.2)
(0.3)
(0.1)
(0.6)
20. Cash and cash equivalents
Group
2010
£m
Cash balances
Overdrafts
1.8
(1.0)
0.8
Company
2009
£m
2010
£m
2009
£m
2.1
—
0.2
—
0.2
0.9
—
2.1
0.9
The fair value of cash and cash equivalents is not considered to be different from the carrying value recorded above for either the Group
or the Company.
Cash balances of £0.4m (2009: £0.2m) are held in Trust on behalf of customers in respect of certain e-Gaming activities and on behalf
of registered charities relating to the sale of charity scratchcards and lotto products. These balances are excluded from Group cash and
are netted against a corresponding creditor within other liabilities (note 21).
21. Trade and other payables
Group
Trade payables
Amounts owed to Group companies
Other taxes and social security costs
Accruals and deferred income
Other liabilities
Company
2010
£m
2009
£m
2010
£m
2009
£m
6.8
—
1.5
14.7
1.6
24.6
4.9
—
1.1
17.4
—
1.2
22.7
—
1.6
—
25.5
0.4
9.1
0.1
6.3
—
23.4
There is no difference between book values and fair values of trade and other payables. All amounts are due within one year.
15.9
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73
22. Provisions
Group
At 1 January 2009 and 2010
Utilised during the year
Onerous
contracts
£m
—
0.9
(0.1)
0.8
Onerous
leases
£m
Other
provisions
£m
—
0.1
—
0.1
—
0.4
—
0.4
Total
£m
—
1.4
(0.1)
1.3
Provisions have been recognised where the Group has contractual obligations to provide services where the estimated unavoidable
costs to carry out the obligation exceed the expected future economic benefits to be received. Provisions against the future rental costs
of operating sites which are loss making have been recognised on the acquisition of Sportech Racing. Other provisions include provisions
for obligations to re-instate property to its original condition at the start of the lease term. Of the provisions included in the above table,
£0.7m are expected to be utilised within twelve months and £0.6m are expected to be utilised after twelve months.
23. Financial liabilities
Group
Company
2010
£m
2009
£m
2010
£m
2009
£m
12.0
8.0
12.0
8.0
Current
Bank loans due within one year
Group
Non-current
Bank loans due after one year
Deferred consideration due after one year
Company
2010
£m
2009
£m
2010
£m
2009
£m
61.0
5.5
66.5
74.0
—
61.0
5.5
66.5
74.0
—
74.0
74.0
Bank loans bear interest based on LIBOR plus bank margins of 3.0%. All the Group’s borrowings are denominated in Sterling. Bank
borrowings are secured by a composite debenture incorporating fixed and floating charges over all assets and undertakings of Sportech PLC
and all trading UK companies, but excluding monies standing to the credit of trust accounts and by share pledges over the shares in
Sportech Holdco 1 Limited, Sportech Holdco 2 Limited, Sportech Venues Inc., Sportech Racing Inc., Trackplay LLC and Racing Technology
Ireland Limited. The carrying amounts of current borrowings equal their fair value as the impact of discounting is not significant.
Covenants on the Group’s borrowings include a leverage covenant (being the ratio of EBITDA to net bank debt), a cash flow covenant
(being the ratio of cash flow to debt service) and an interest cover covenant (being the ratio of EBITDA to senior finance charges).
None of the covenants were breached during the twelve months to 31 December 2010.
Deferred consideration is in relation to the acquisition of Sportech Racing in October 2010 and is payable on 30 September 2013. Interest
is charged at the average daily Bank of England base rate plus 1% for the period 5 October 2010 (inclusive) to 30 September 2013 (inclusive).
24. Financial instruments
Financial risk management policies and objectives
The Group’s activities expose it to a variety of financial risks: fair value and cash flow interest rate risk; liquidity risk; credit risk; and
foreign exchange risk. Where appropriate the Group uses derivative financial instruments to hedge certain risk exposures.
Fair value and cash flow interest rate risk
As the Group has no significant interest-bearing assets, the Group’s income and operating cash flows are substantially independent
of changes in market interest rates.
The Group’s interest rate risk arises from its long term bank borrowings. Borrowings issued at variable interest rates expose the Group
to cash flow interest rate risk. Borrowings issued at fixed rates expose the Group to fair value interest rate risk. The Group’s bank borrowings
are entirely in Sterling and at variable interest rates. The Group’s policy is to hedge interest rate risk where appropriate using interest rate
swaps at contract lengths consistent with the repayment schedule of the long term bank borrowings. This policy is a cash flow hedge
and is approved by the Board and the Board receives updates on a regular basis in respect of the hedging position.
The Group has entered into a number of swap agreements with terms remaining of between three months to five years, on a total of
£60.0m, at an average swap rate before any lending margin of 4.82%.
The policy for each of the above risks is described in more detail below.
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24. Financial instruments continued
Financial risk management policies and objectives continued
Fair value and cash flow interest rate risk continued
As at 31 December 2010 the fair value of these interest rate swaps was a liability of £4.5m (2009: £4.2m). This has been accounted for
in accordance with IAS 39 as a reserve movement, as it is considered that the interest rate swap instruments are a fully effective hedge.
The hedges comprise of six £10.0m hedges with expiry dates ranging from 2011 to 2016.
At 31 December 2010, if interest rates on borrowings had been 50 basis points higher/lower with all variables held constant, post-tax
loss for the year would have been £0.1m (2009: £0.1m) higher/lower as a result of higher/lower interest expense on unhedged variable
rate borrowings.
Liquidity risk
Cash flow forecasting is performed on a regular basis in the operating entities of the Group and is aggregated by Group Finance.
Group Finance monitors rolling forecasts of the Group’s liquidity requirements to ensure each operating entity has sufficient cash to meet
operational needs while maintaining sufficient headroom on its undrawn committed borrowing facilities at all times so that the Group
does not breach borrowing limits or covenants on any of its borrowing facilities. The Group’s borrowing facilities are all with the Group’s
main bank in the UK, Lloyds Banking Group. Group Finance monitors the level of excess cash over and above that required for working
capital management and ensures the excess is loaned to the UK to offset any overdrawn balances. Bank facilities have been agreed
at appropriate levels having regard to the Group’s operating cash flows and future development plans.
Credit risk
The Group’s UK operation has limited exposure to credit risk. Transactions within the Football Pools segment are predominantly either
weekly cash receipts in advance or multiple weeks in advance by credit card, debit card or direct debit. Credit exposure is limited to
overseas collection agencies on short credit terms, managed centrally by the UK finance function. Within the e-Gaming segment,
transactions are paid for in advance by debit or credit card. The Group’s main exposure to credit risk is in accounts receivable in the
Sportech Racing segment. Credit risk in these entities is managed locally by assessing the credit worthiness of each new customer
before agreeing payment and delivery terms. The Group does not hold significant amounts of deposits with banks and financial
institutions. Amounts held in cash for the Sportech Racing venue management business are held in highly secure environments.
Foreign exchange risk
Since the acquisition of Sportech Racing in October 2010, the Group has operated internationally and is exposed to foreign exchange risk
arising from various currency exposures, primarily with respect to the Euro and US Dollar. Foreign exchange risk arises from transactions
undertaken in foreign currencies, the translation of foreign currency monetary assets and liabilities and from the translation into Sterling
of the results and net assets of overseas operations.
The Group continually monitors the foreign currency risk and takes steps, where practical, to ensure that the net exposure is kept to an
acceptable level, inter alia by using foreign exchange forward contracts designed to fix the economic impact of forecasted profitability.
At 31 December 2010, the notional principal amounts of foreign exchange forward contracts outstanding were $6.0m and €3.0m.
The contracts are not designated effective hedges and, as a result, gains and losses are recognised in the income statement within
finance costs. The charge recognised in profit and loss arising from fair value movement and actual close out losses was £0.3m.
Group
Current liabilities
Interest rate swaps – cash flows hedges
Forward foreign exchange contracts – cash flow hedges
Company
2010
£m
2009
£m
2010
£m
2009
£m
4.5
0.1
4.6
4.2
—
4.5
0.1
4.6
4.2
—
4.2
The above financial instruments are carried at fair value. The level 2 valuation method is used; the valuation methods are summarised
as follows:
E
Level 1 – quoted prices (adjusted) in active markets for identical assets or liabilities;
E
Level 2 – inputs other than quoted prices included within level 1 that are observable for the asset or liability, either directly
(that is, as prices) or indirectly (that is, derived from prices); and
E
Level 3 – inputs for the assets or liabilities that are not based on observable market data (that is, unobservable inputs).
4.2
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75
Financial risk management policies and objectives continued
Capital risk management
The Group’s objectives when managing capital are to safeguard the Group’s ability to continue as a going concern in order to provide
returns for shareholders, benefits for other stakeholders and to achieve an efficient capital structure to minimise the cost of capital.
In order to maintain or adjust the capital structure, the Group may adjust the amount of dividends paid to shareholders, return capital
to shareholders, issue new shares or sell assets to reduce debt.
The Group monitors capital on the basis of the gearing ratio. This ratio is calculated as net debt divided by total capital. Net debt is
calculated as total financial liabilities (including current and non-current), as shown in the Consolidated Balance Sheet, less cash and
cash equivalents. Total capital is calculated as equity, as shown in the Consolidated Balance Sheet, plus net debt.
The Group’s strategy has been to target a continued reduction in both net debt levels and gearing levels. During 2010, net debt
(including deferred consideration) was reduced by £2.2m (2.8%). Gearing decreased, principally due to the increase in capital following
the issue of new shares during the year. The total net debt and gearing ratios at 31 December 2010 and 2009 were as follows:
Note
Total financial liabilities
Less cash and cash equivalents
Net debt
Total equity
Total capital
23
20
Gearing ratio
2010
£m
2009
£m
78.5
(0.8)
77.7
124.7
202.4
38%
82.0
(2.1)
79.9
85.5
165.4
48%
Fair value of non-current borrowings
Group
As at 31 December 2010
Company
Book
value
£m
Fair
value
£m
Book
value
£m
Fair
value
£m
61.0
57.7
61.0
57.7
Book
value
£m
Fair
value
£m
Book
value
£m
Fair
value
£m
74.0
70.4
74.0
70.4
Group
As at 31 December 2009
Company
The fair values are based on cash flows discounted at a rate of 7.7% (2009: 8.1%). Future interest payments are £2.7m payable within
one year, £2.2m payable between one and two years and £0.9m payable between two and five years.
Maturity of bank loans
Bank loans are repayable as follows:
Group
Contractual undiscounted amounted
2009
£m
2010
£m
2009
£m
12.0
14.0
47.0
73.0
8.0
10.0
64.0
8.0
10.0
64.0
82.0
12.0
14.0
47.0
73.0
2010
£m
2009
£m
2010
£m
2009
£m
10.3
3.1
4.6
18.0
5.4
3.9
7.8
10.3
3.1
4.6
18.0
5.4
3.9
7.8
17.1
82.0
The maturity analysis of derivative financial liabilities is as follows:
Group
Contractual undiscounted amounted
Within one year
Between one and two years
Between two and five years
Company
17.1
Within one year
Between one and two years
Between two and five years
Company
2010
£m
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Borrowing facilities
The Group had the following undrawn committed borrowing facilities available at 31 December 2010:
Floating rate:
– expiring within one year
– expiring beyond one year
2010
£m
2009
£m
3.0
4.0
7.0
3.0
4.0
7.0
The facility expiring within one year is an annual working capital facility subject to review in June 2011.
25. Ordinary shares
Allotted, called up and fully paid
2009
2010
Ordinary shares of 50p each (2009: 50p)
At 1 January
Issue of shares during the year
At 31 December
‘000
£m
‘000
£m
100,653
98,157
198,810
50.3
49.1
99.4
100,653
—
50.3
—
100,653
50.3
The Company issued 58,415,520 ordinary shares on 15 February 2010 (36.7% of the total ordinary share capital issued) as a result of a
firm placing and placing and open offer. The fair value of the shares issued amounted to £29.2m (50p per share). The Company issued
39,742,179 ordinary shares on 5 October 2010 (19.99% of the total ordinary share capital issued) to Scientific Games Corporation as part
of the purchase consideration for Sportech Racing. The ordinary shares issued have the same rights as the shares in issue. The fair value
of the shares issued amounted to £16.9m (42.5p per share). The difference between fair value of shares issued and nominal value (£3.0m)
has been debited to retained earnings. The related transaction costs which amounted to £1.0m have been debited to retained earnings
as there was no premium on either issue during the year.
Potential issue of ordinary shares
Sportech share option schemes
Certain Directors and Senior Executives hold options to subscribe for shares in the Company at prices ranging from £0.817 to £1.460
under Sportech share option schemes approved by the shareholders. During the year there has been no movement on the number
of options outstanding. Share options at the start and end of the period had a weighted average exercise price of £0.903. The number
of shares subject to options, the periods in which they were granted and the periods in which they may be exercised, are given below:
Year of grant
2001
2005 (September)
2006 (March)
Exercise
price
Exercise
period
2010
Number
2009
Number
£1.460
£0.817
£1.064
2004–2011
2008–2015
2009–2016
20,202
505,050
202,020
727,272
20,202
505,050
202,020
727,272
The options are exercisable at any time during the seven-year period commencing three years from the date of the grant. The Company
has no legal or constructive obligation to settle the options in cash. The weighted average remaining contractual life of outstanding
share options under the Sportech Share Option Scheme at 31 December 2010 was four years and nine months.
Exercise of the 2001 option is subject to the market value of the shares being not less than £3.465 for a period of five consecutive
dealing days at any time in the six months prior to the date the option is first exercised.
Exercise of the 2005 options is subject to the share price reaching the following closing prices at any time during the exercise period:
Shares
151,515
151,515
101,010
101,010
505,050
Closing price
£1.237
£1.732
£2.227
£2.722
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77
25. Ordinary shares continued
Potential issue of ordinary shares continued
Sportech share option schemes continued
Exercise of the 2006 options is subject to the share price reaching the following closing prices at any time during the exercise period:
Shares
50,505
75,757
75,758
Closing price
£1.732
£2.227
£2.722
202,020
The market price of the ordinary shares at 31 December 2010 was £0.383 and the range during the year was £0.358 to £0.603.
Options are granted with a fixed exercise price equal to the market price of the shares under option at the date of the grant. Options
were valued using the Black-Scholes option pricing model. No performance conditions are included in the fair value calculation. The fair
value per option granted and the assumptions used in the calculations are as follows:
Risk-free interest rate
Vesting period
Option life
Expected life of options
Expected share price volatility
Dividend growth
Fair value of option
2005
2006
4.18%
3 years
10 years
5 years
66.29%
—
4.40%
3 years
10 years
5 years
48.61%
—
£0.556
£0.601
The expected volatility is based on historical volatility over the last three years. The expected life is the average expected period to
exercise. The risk-free rate is based on Bank of England bonds of a term consistent with the assumed option life. Dividend growth is
based on historical dividends over the last three years.
The Performance Share Plan (“PSP”)
Certain Executive Directors and Senior Executives have been awarded grants to acquire shares in the Company under the PSP, subject
to performance conditions. During the year ended 31 December 2010, 9,080,882 awards of shares have been made (2009: nil), 901,695 awards
lapsed due to failure to meet the performance conditions (2009: nil) and no awards were cancelled during the year (2009: 193,905).
9,080,882 (2009: 901,695) share awards remain outstanding at 31 December 2010.
Performance conditions
The Remuneration Committee can set different performance conditions from those described below for future awards provided that,
in the reasonable opinion of the Remuneration Committee, the new targets are not materially less challenging in the circumstances than
those described below. The Remuneration Committee determines the comparator group for each award.
The Remuneration Committee may also vary the performance conditions applying to existing awards if an event has occurred which
causes the Remuneration Committee to consider that it would be appropriate to amend the performance conditions, provided that the
Remuneration Committee considers the varied conditions are fair and reasonable and not materially less challenging than the original
conditions would have been but for the event in question.
The awards are at nil cost to the employee. Awards will normally vest on the third anniversary of the date of grant subject to the
participants’ continued employment within the Group and the satisfaction of the performance conditions noted below.
No portion of Part A will vest unless the Company’s TSR performance at least matches that of the index. Thereafter, a vesting schedule
no less demanding than the following will apply:
The Company’s TSR performance over the performance period relative to comparator index
Equal to the index
Between equal to the index and upper quartile
Upper quartile or better
Extent of
vesting of Part A
25%
100%
i) 2010 grant
The vesting of one-third of the award (“Part A”) will be dependent on the Company’s TSR over a fixed three-year period beginning
on the date of grant relative to that of the FTSE Small Cap (excluding investment trusts). For the purpose of calculating TSR, the base
figure is averaged over six weeks preceding the start of the performance period and the end figure is averaged over the last six weeks
of the performance period.
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The Performance Share Plan (“PSP”) continued
Performance conditions continued
i) 2010 grant continued
The vesting of the second one-third of the award (“Part B”) will be dependent on the Company’s absolute TSR over the same performance
period as for Part A, the TSR calculation is the same as that for Part A with the exception that the final figure for the purpose of calculating
TSR is the highest six-week average over the final year of the performance period. Vesting is determined by the following schedule:
The Company’s compound annual TSR during the performance period
At least 6%
Between 6% and 15%
15% or better
Extent of
vesting of Part B
25%
100%
The vesting of the final third of the award is dependent on an EPS performance criterion (“Part C”), the average annual percentage growth
in the Company’s EPS in excess of the UK Retail Prices Index (“RPI”) over the EPS performance period must at least equal 4%. Vesting is
determined by the following schedule:
The Company’s average annual growth in EPS in excess of RPI during the performance period
Less than 4% per annum
4% per annum
Between 4% and 10% per annum
10% or better
Extent of
vesting of Part C
0%
25%
100%
For employees who are responsible for the management of Sportech Racing the above performance criteria are applicable in the
following percentages:
Part A – two ninths
Part B – two ninths
Part C – two ninths
A further performance criteria is applicable for the final third of the award (“Part D”), being the average annual percentage growth
in Sportech Racing’s EBITDA over the performance period must at least equal 10%. Vesting is determined by the following schedule:
Sportech Racing’s average annual growth in EBITDA during the performance period
Less than 10% per annum
10% per annum
Between 10% and 20% per annum
20% or better
Extent of
vesting of Part D
0%
25%
100%
ii) 2007 grant
The vesting of one half of the award (“Part A”) was dependent on the Company’s TSR over a fixed three-year period relative to that
of an index comprising the unweighted TSR performance of a comparator group including other leading UK betting and gaming
companies being 888 Holdings, Ladbrokes, Partygaming and William Hill.
No portion of Part A would vest unless the Company’s TSR performance at least matched that of the index. Thereafter, a vesting
schedule no less demanding than the following would apply:
The Company’s TSR performance over the performance period relative to comparator index
Equal to the index
Between equal to the index and 11% per annum outperformance of the index
11% per annum outperformance of the index or better
Extent of
vesting of Part A
25%
100%
The TSR of the Company and those within the index was measured over a fixed period being the three-year period commencing at the
start of the month in which the grant of the award fell. The relevant TSR figures were averaged over the three-month period before the
start and end of the performance period.
The vesting of the other half of the award (“Part B”) was dependent on the achievement of absolute share price targets over the same
three-year performance period.
No portion of Part B would vest unless the Company’s share price over the period grew during the performance period by at least 18.75%.
Thereafter, a vesting schedule no less demanding than the following would apply:
The Company’s share price growth during the performance period
18.75%
Between 18.75% and 66.00%
66.00% or better
Extent of
vesting of Part B
25%
100%
For the purposes of determining the satisfaction of the share price growth targets, the Company’s base share price was compared
to the highest three-month average share price achieved within the last year of the performance period.
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79
The Performance Share Plan (“PSP”) continued
Performance conditions continued
ii) 2007 grant continued
The 2007 awards lapsed during the year as both Part A and Part B minimum performance conditions were not met.
Awards are valued using a stochastic (Monte Carlo) valuation model. The fair value per award granted and the assumptions used in the
calculations are as follows:
October
2010
£nil
51
£0.425
—
3 years
39.5%
0%
£0.346
Grant date
Exercise price
Number of employees issued awards
Share price at award date
Adjusted share price*
Expected term (fixed)
Expected volatility
Dividend yield
Fair value of award
December
2007
£nil
7
£0.1025
£1.015
3 years
50.8%
0%
£0.632
* The share price of the awards issued in December 2007 was adjusted to reflect the share consolidation undertaken by the Company in December 2007.
The weighted average remaining contractual life of outstanding awards under the PSP at 31 December 2010 was two years and nine months.
The weighted average exercise price of awards granted during the period was £nil.
PSP awards are not affected by the risk-free rate input since no payment is required by the recipient and therefore no interest could be
earned elsewhere.
The expected volatility is based on movements in the historical return index (share price with dividends re-invested) for the three years
prior to the award date. The dividend yield does not affect the fair value of the award as the rules of the PSP entitle a participant to
receive cash equal in value to the dividends that would have been paid on the vested shares in respect of dividends paid during the
vesting period and is therefore assumed to be 0%.
See note 6 for the total expense recognised in the income statement for share options granted and PSP awards made to Directors
and employees.
26. Cash flow from operating activities
Reconciliation of loss after tax to net cash flow from operating activities
Group
Continuing operations
8
2
16
13
12
12
12
11
4
4
6
18
2009
£m
2010
£m
2009
£m
(6.3)
(12.3)
(11.3)
(7.9)
0.4
9.9
0.6
0.8
5.9
1.1
—
—
5.5
1.4
0.4
(4.7)
3.1
—
0.7
6.6
0.4
4.4
17.9
4.8
0.2
0.2
(2.7)
8.2
—
0.1
—
0.2
—
—
5.4
1.4
0.4
(2.3)
0.7
—
0.1
—
—
—
4.9
3.5
—
0.2
5.7
(0.1)
(9.0)
16.3
(6.0)
—
3.7
19.0
5.3
—
9.6
16.6
(2.4)
—
11.9
8.7
Non-cash transactions
The principal non-cash transaction is the issue of shares as consideration for the acquisition discussed in notes 15 and 25.
27. Contingent liabilities
The Group has contingent liabilities in respect of legal claims in the ordinary course of business; it is not considered that any material
liabilities will arise from these.
In respect of the acquisition of Sportech Racing on 5 October 2010, additional contingent consideration is payable under certain
circumstances which are described in note 15.
Loss after taxation
Adjustments for:
Taxation
Cash exceptional costs
Depreciation
Amortisation of intangibles acquired with Vernons
Amortisation of other intangibles
Impairment of intangibles
Goodwill impairment
Net finance costs
Other finance charges
Share options expense
Changes in working capital:
Decrease/(increase) in trade and other receivables
Increase in inventory
(Decrease)/increase in trade and other payables
Cash generated from continuing operations
Note
Company
2010
£m
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28. Commitments
Capital commitments
Group
Contracts placed for future intangible capital expenditure not provided
for in the financial statements
Company
2010
£m
2009
£m
2010
£m
2009
£m
—
0.1
—
—
Operating lease commitments
The Group leases various OTB venues and other operating sites under non-cancellable operating lease arrangements. The lease terms
are between three and five years and are renewable at the end of the lease period at market rates. The expenditure charged to the
income statement was £1.2m.
The future aggregate minimum lease payments under non-cancellable operating leases are as follows:
Group
No later than one year
Later than one year and no later than five years
Later than five years
Total
Company
2010
£m
2009
£m
2010
£m
2009
£m
1.8
4.0
0.6
6.4
—
—
—
—
0.1
0.3
—
0.4
—
—
—
—
29. Other financial commitments
In December 1996, an incentive scheme to reward Football Pools collectors was established by a subsidiary company.
Under the terms of the scheme, the collectors earn points on the basis of their sales. These points can be converted into vouchers
to purchase items from high street shops. On the basis of similar schemes, a redemption rate attributable to these points has been
established and an appropriate charge made in these accounts. The potential liability in respect of these points not provided for in
these financial statements is £0.3m (2009: £0.2m). This liability has not been provided for as it is the judgement of management that
it will never crystallise.
The Group was required to enter into a performance guarantee bond to the value of $160,000 in relation to a contract to provide and
maintain pari-mutuel betting terminals to a customer in Turkey.
30. Related party transactions
The extent of transactions with related parties of Sportech PLC and the nature of the relationship with them are summarised below:
a. The Lloyds Banking Group (“LBG”), via its subsidiary the Bank of Scotland, provided loan finance for the initial acquisition
of Littlewoods Gaming (formerly Littlewoods Leisure) and the acquisition of Vernons and is a significant shareholder, as set
out in the Directors’ Report.
The details of the balances on the loans as at 31 December 2010 and 2009 are set out in notes 23 and 24. Interest on these loans
amounting to £3.2m (2009: £3.0m) has been charged in these financial statements and £0.8m was outstanding at the balance
sheet date (2009: £0.7m). Following the acquisition of Sportech Racing, the Group’s banking facilities with LBG were revised and
an arrangement fee of £0.9m has been charged in these financial statements.
The Group has entered into various interest rate swaps with LBG, as set out within note 24. Interest payable in relation to these
swaps amounted to £2.5m in the year (2009: interest payable of £1.8m) and this has been included within finance costs
(2009: included within finance costs). The valuations of these swap arrangements at the balance sheet date was a liability
of £4.5m (2009: £4.2m), see note 24.
The Group has also entered into forward foreign exchange contracts with LBG to exchange US Dollars and Euros for Sterling
at fixed exchange rates as described in note 24. Losses on these contracts in the period amounted to £0.2m and the valuation
of these contracts as at the balance sheet date was a liability of £0.1m.
b. During the year the Group has engaged Chime Communications PLC (“Chime”) to provide public relations services, media buying,
digital advertising and brand and marketing consultancy services via a number of its subsidiaries. The Group’s previous
Non-executive Chairman, Piers Pottinger, is a Director of Chime. In total £0.3m (2009: £0.8m) has been invoiced from subsidiaries
of Chime during the year. Of this, £0.3m (2009: £0.3m) related purely to the recharge of media purchases from third parties and
has been charged to administrative expenses within the Consolidated Income Statement. The remaining £nil (2009: £0.5m) has
also been charged to administrative expenses within the Consolidated Income Statement. The amount outstanding at the balance
sheet date was £nil (2009: £0.1m).
c. Key management compensation is disclosed in note 7.
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81
30. Related party transactions continued
d. The Company had the following transactions with subsidiaries during the year:
Management charges received
Interest received on inter-company loan balances
2010
£m
2009
£m
2.4
0.2
1.9
1.3
The amount outstanding in relation to management charges at the balance sheet date was £0.3m (2009: £0.1m) and the amount
outstanding for interest receivable on inter-company loan balances was £1.5m (2009: £1.3m).
e. Neither the Group or the Company had transactions with the joint venture during the year.
f.
On 5 October 2010, the Company acquired Scientific Games Racing (now renamed “Sportech Racing”) from Scientific Games
Corporation (“SGC”) for a total consideration of £44.1m. Part of the consideration was the issue of 39,742,179 ordinary shares in the
Company making SGC a 19.99% shareholder in Sportech PLC. SGC is therefore considered to be a related party from this date.
Lorne Weil, Non-executive Director and shareholder (see Directors’ Report on pages 33 to 35) is Chairman and Chief Executive Officer
of SGC.
A number of transactions and outstanding balances between the Company and SGC arise under the terms of the various agreements
entered into by the Company in respect of the acquisition of Sportech Racing. These include the following:
E
£0.4m was due to the Company in respect of a purchase price adjustment as a result of the final agreed working capital and cash as
at 5 October 2010 and capital expenditure between 27 January 2010 and 5 October 2010 versus agreed capital expenditure for that
period. This was settled in February 2011;
E
deferred consideration of $10.0m (£5.3m discounted) is due to SGC, payable in September 2013;
E
£0.5m is due to the Company from SGC for the settlement of an under-funded pension liability as at 5 October 2010, payable
in five equal annual instalments commencing September 2011;
E
£0.2m was due to the Company from SGC relating to cash collateral provided against outstanding performance guarantee bonds
in respect of racing contracts in Maine and Turkey. This amount was refunded to the Company in February 2011 when alternate
guarantee bonds were entered into by the Company releasing SGC from their obligations;
E
the Company is required to pay further consideration for the acquisition of Sportech Racing in 2013 if certain performance targets
are reached by the acquired business (see note 15);
E
SGC is obligated to settle all tax liabilities in relation to Sportech Racing up to 5 October 2010; liabilities are currently estimated to be £0.1m;
E
fixed and contingent consideration is payable on the acquisition of Shoreline by Sportech Venues Inc. (previously Autotote Enterprises Inc.)
to Shoreline Star Greyhound Park and Entertainment Complex LLC (“SSGP”). SGC is obligated to refund to Sportech Venues the fixed
consideration payments to be made to SSGP under the terms of the SSGP acquisition agreement. This is currently estimated to be £0.1m; and
E
£0.1m was payable to SGC for services provided in connection with the Transition Services Agreement for payroll, accounting and
benefit administration and expense reporting services.
31. Pension schemes
The Group operates two pension schemes in the UK, one is a defined contribution scheme and the other is a funded defined benefit
scheme. The Group operates a further funded defined benefit scheme in the US and two defined contribution schemes in the US,
a defined contribution scheme in the Netherlands and a defined contribution scheme in Ireland.
Summary of pension contributions paid
2009
£m
0.4
0.1
0.5
0.3
0.1
0.4
Defined contribution schemes
Those employees who joined the Group consequent upon the acquisition of Littlewoods Gaming (formerly Littlewoods Leisure) and who
were aged under 50 on 4 September 2000 and all other UK employees of Sportech can join either a stakeholder pension scheme established
on 6 April 2001 or alternate defined contribution arrangements. The contributions are made at a maximum rate of 8% of pensionable salaries.
A defined contribution scheme for non-unionised employees is operated in the US, into which the Group contributes 37.5% of the first
6% of participant contributions. A further defined contribution scheme is available for unionised employees; the Group does not make
contributions into this scheme. The pension scheme in the Netherlands provides benefits to employees on a percentage of salary basis.
The Group contributes 7.5% of salary less State Pension Allowance, which is currently €12,000 per annum, into a defined contribution
scheme for employees in Ireland.
Defined contribution scheme contributions
Defined benefit scheme contributions
Total pension contributions
2010
£m
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31. Pension schemes continued
Defined benefit schemes
Pursuant to the sale agreement between Littlewoods plc and Sportech PLC, a defined benefit scheme has been set up for those
employees who joined the Group consequent upon the acquisition of Littlewoods Gaming (formerly Littlewoods Leisure) and who were
aged 50 or over on 4 September 2000, the date of the acquisition. The scheme was formed on 6 April 2001 and is governed by a
Definitive Trust Deed and Rules.
It is a Registered Pension Scheme under Chapter 2 of Part 4 of the Finance Act 2004. The scheme is contracted out of the State Second
Pension Scheme. The scheme is currently not open to new members.
The US defined benefit scheme is administered by an insurance company in the US and provides retirement benefits to employees who
are members of a collective bargaining unit represented by the International Brotherhood of Electrical Workers. Benefits are based on
value times credited service.
The amounts recognised in the balance sheet were as follows:
At
31 December
2010
£m
Total fair value of assets
Present value of the schemes’ liabilities
(Deficit)/surplus in the schemes
Included in:
– non-current assets
– non-current liabilities
At
31 December
2009
£m
At
31 December
2008
£m
At
31 December
2007
£m
At
31 December
2006
£m
4.1
(4.8)
(0.7)
1.7
(1.7)
—
1.5
(1.3)
0.2
1.8
(1.5)
0.3
1.7
(1.4)
0.3
0.1
(0.8)
(0.7)
—
—
—
0.2
—
0.2
0.3
—
0.3
0.3
—
0.3
The figures below have been determined by qualified actuaries at the balance sheet date using the following assumptions:
Discount rate
Rate of increase in salaries
Rate of increase in pensions in payment:
– 5% LPI
– rate of inflation
– mortality table
US
At 31 December
2010
UK
At 31 December
2010
UK
At 31 December
2009
5.00%
n/a
5.50%
5.00%
5.75%
5.25%
n/a
n/a
RP-2000
projected to 2010
3.50%
3.50%
S1NxA CMI 2009
projections 1.5% long term
rate of improvement
3.75%
3.75%
PNxA00 (year of birth)
with medium
cohort projection
For the UK, under the adopted mortality tables, the future life expectancy at age 65 of males currently aged 45 is 24.5 years (2009: 23.0 years),
females currently aged 45 is 27.0 years (2009: 25.6 years), males currently aged 65 is 22.2 years (2009: 22.3 years) and females currently
aged 65 is 24.5 years (2009: 24.7 years).
For the US scheme, under the adopted morality tables, the future life expectancy at age 65 of males currently aged 45 is 19.9 years,
females currently aged 45 is 21.5 years, males currently aged 65 is 18.4 years and females currently aged 65 is 20.6 years.
The assets of the schemes and the weighted average expected annual rates of return were:
Expected
long term
return p.a.
Equities
Bonds
Cash
Other
Total market value of assets
7.0%
5.5%
0.5%
6.2%
Value at
31 December
2010
£m
Expected
long term
return p.a.
1.0
0.6
0.1
2.4
4.1
7.0%
5.7%
0.5%
—
Value at
31 December
2009
£m
1.0
0.4
0.3
—
1.7
Expected
long term
return p.a.
8.0%
6.3%
2.0%
—
Value at
31 December
2008
£m
0.8
0.3
0.4
—
1.5
Expected
long term
return p.a.
Value at
31 December
2007
£m
7.0%
5.0%
5.5%
—
The expected return on plan assets is determined by considering the expected returns available on the assets underlying the current
investment policy. Expected yields on bonds and equities are based on long term, real rates of returns, experienced in the respective
markets. Expected yield on cash is based on prevailing interest rates at the time of the valuation.
The actual return on plan assets was £0.2m (2009: £0.2m).
1.0
0.1
0.7
—
1.8
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83
Defined benefit schemes continued
Scheme assets are comprised as follows:
2009
2010
Equities
Bonds
Cash
Other
Total market value of assets
2008
2007
£m
%
£m
%
£m
%
£m
%
1.0
0.6
0.1
2.4
4.1
24.4
14.6
2.4
58.6
100.0
1.0
0.4
0.3
—
58.8
23.5
17.7
—
0.8
0.3
0.4
—
54.0
20.0
26.0
—
1.0
0.1
0.7
—
55.5
5.5
39.0
—
1.7
100.0
1.5
100.0
1.8
100.0
Year ended
31 December
2010
£m
Year ended
31 December
2009
£m
Year ended
31 December
2008
£m
0.2
0.2
0.1
0.1
0.1
0.1
0.1
(0.1)
—
0.1
(0.1)
—
0.1
(0.1)
—
0.1
—
0.1
0.2
0.2
0.1
—
(0.2)
(0.1)
—
(0.3)
(0.1)
0.3
(0.1)
0.1
Analysis of changes in (deficit)/surplus over the year
Amount charged to operating loss
Current service cost (excluding employee contributions):
Administrative expenses
Total operating charge
Amount charged to other finance income:
Expected return on assets
Interest on scheme liabilities
Net return
Amount recognised in SOCI
Actual less expected return on assets
Experience losses on liabilities
Effect of change in assumptions on liabilities
Actuarial gain/(loss) recognised in SOCI
Cumulative gain recognised in SOCI
Year ended
31 December
2010
£m
Movement in (deficit)/surplus during year:
Surplus in scheme at start of year
Current service cost (excluding employee contributions)
Cash contributions (excluding employee contributions)
Actuarial gain/(loss)
(Deficit)/surplus in schemes at year end
—
(0.8)
(0.2)
0.1
0.2
(0.7)
Year ended
31 December
2009
£m
0.2
—
(0.1)
—
(0.1)
—
Year ended
31 December
2008
£m
0.3
—
(0.1)
0.1
(0.1)
0.2
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Analysis of changes in (deficit)/surplus over the year continued
The movement in the defined benefit obligation over the year is as follows:
Year ended
31 December
2010
£m
At 1 January
Current service cost
Interest cost
Actuarial (gain)/loss
Benefits paid
At 31 December
Year ended
31 December
2009
£m
1.3
0.1
0.1
—
0.3
(0.1)
1.7
1.7
0.2
0.1
3.2
(0.1)
(0.3)
4.8
The movement in the fair value of plan assets over the year is as follows:
Year ended
31 December
2010
£m
At 1 January
Expected return on plan assets
Actuarial gain
Employer contributions
Benefits paid
At 31 December
Year ended
31 December
2009
£m
1.5
0.1
—
0.2
—
(0.1)
1.7
1.7
0.1
2.4
0.1
0.1
(0.3)
4.1
History of experience gains and losses
Difference between expected and actual returns on scheme assets:
– amount
– percentage of assets at year end
Experience adjustments on scheme liabilities:
– amount
– percentage of liabilities at year end
Total (loss)/gain recognised in SOCI:
– amount
– percentage of liabilities at year end
Year ended
31 December
2010
£m
Year ended
31 December
2009
£m
0.1
2.4%
0.2
9.3%
—
0.8%
—
—
Year ended
31 December
2008
£m
Year ended
31 December
2007
£m
(0.4)
28.6%
—
2.9%
—
(1.8%)
(0.1)
6.3%
0.1
9.6%
(0.2)
9.3%
(0.1)
11.9%
—
5.7%
Effect of change of assumptions on liability values
Changes in the financial assumptions used would have the following approximate effect on the schemes’ liabilities and hence the deficit
at the end of the year:
Change
Increases/
(decreases)
liability
by £m
Reduce discount rate by 0.5%
Increase inflation and salary growth assumption by 0.5%
Increase salary growth assumption by 0.1%
Use same mortality assumptions as prior year
0.3
0.1
—
—
The assets of the UK scheme are held in an independent Trustee-administered fund. The Trustee of the scheme is Sportech Trustees
Limited. The Directors of Sportech Trustees Limited include Steve Cunliffe, who also acts as Chair of the Trustee company. The assets
of the US scheme are held by an insurance company.
The actuarial method for calculating the liabilities of the scheme is the projected unit method.
The Group has recognised an asset in relation to the UK scheme as the Group considers that the surplus can be recovered via reduced
future employer contributions.
The expected employer annual contributions to the schemes for the financial year ended 31 December 2011 amount to £0.3m (2009: £0.1m).
96
Registered office
Sportech PLC
249 West George Street
Glasgow
Scotland G2 4RB
Company registration number
SC69140
Company Secretary
Steve Cunliffe
Head Office
Sportech PLC
101 Wigmore Street
London W1U 1QU
UK Operational Centre
Sportech PLC
Walton House
Charnock Road
Liverpool L67 1AA
USA Operational Centres
Sportech Inc.
600 Long Wharf Drive
New Haven, CT 06511
Sportech Racing
1095 Windward Ridge Parkway
Building 300 Suite 170
Alpharetta, GA 30005
Financial advisers
Investec Bank (UK) Ltd
2 Gresham Street
London EC2V 7QP
Joint stockbroker
Investec Bank (UK) Ltd
2 Gresham Street
London EC2V 7QP
Joint stockbroker
Panmure Gordon & Co.
Moorgate Hall
155 Moorgate
London EC2M 6XB
Principal bankers
Lloyds Banking Group plc
155 Bishopsgate
London EC2M 3YB
Solicitors
Freshfields Bruckhaus Deringer LLP
65 Fleet Street
London EC4Y 1HS
Olswang LLP
90 High Holborn
London WC1V 6XX
Statutory auditors
PricewaterhouseCoopers LLP
Chartered Accountants and Statutory Auditors
8 Princes Parade
St Nicholas Place
Liverpool L3 1QJ
Registrars
Capita Registrars Ltd
The Registry
34 Beckenham Road
Beckenham
Kent BR3 4TU
Internet
The Group operates a website which can be found at
www.sportechplc.com. This site is regularly updated to provide
information about the Group. In particular all of the Group’s
press releases and announcements can be found on the site.
Registrar
Any enquiries concerning your shareholding should be
addressed to the Company’s Registrar. The Registrar should
be notified promptly of any change in a shareholder’s address
or other details.
Tel: 0871 664 0300
E-mail: ssd@capitaregistrars.com
Investor relations
Requests for further copies of the Annual Report and
Accounts, or other investor relations enquiries, should
be addressed to the UK Head Office.
Tel: 0207 268 2400
E-mail: ir@sportechplc.com
100%
The paper used in this document is Cocoon Silk which is Forest Stewardship Council certified.
The paper is sourced from sustainable and well-managed forests and manufactured to conform
to ISO 14001 environmental management systems. Vegetable based inks have been used.
Royle Print is a CarbonNeutral® company.
Our Iconic Brands:
101 Wigmore Street, London W1U 1QU

- Sportech PLC

Transcription

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