Sportech PLC 29 March 2007 Sportech PLC ("Sportech", "the Group" or "the Company") Preliminary Results for the year ended 31 December 2006 Highlights • Profit after tax for the year of £14.1m (2005: loss of £5.8m) • Profit after tax from continuing operations increased to £7.6m (2005: loss of £1.7m) • Net debt at year end reduced by £18.2m (17%) to £89.9m (2005: £108.1m) • Appointment of new Finance Director and strengthening of management team • Business focused and cash generative with principal operations profitable and growth orientated and loss making operations eliminated •Loss making Bet Direct sold for £12.5m in cash, generating a £10.6m profit on disposal before tax •Termination of ITV contract • Total earnings per share of 2.38p (2005: loss per share of 0.97p). Continuing earnings per share of 1.28p (2005: loss per share of 0.29p) • Strategic technology and distribution partnership announced with Scientific Games • E-gaming technology supply partnership with Orbis • New brand for the football gaming business to be launched in late 2007 Ian Penrose, Chief Executive of Sportech, said today: "Sportech is a Company in transition. We believe we can realise the Company's potential to become a significantly larger broad-based sports, leisure and gaming business with international reach." "We have made good progress in transforming the business. We have begun modernisation of our technological infrastructure, our online and new media presence is being upgraded, new products and routes to market are being created. Distribution has been a key focus of our strategic review and we are now able to make real progress enhancing our distribution capabilities, following our announced partnerships with Scientific Games and Orbis." ends Enquiries: Sportech PLC Ian Penrose, Chief Executive 0151 288 3561 Bell Pottinger Corporate & Financial David Rydell/Emma Kent 020 7861 3232 Chairman's Statement Sportech remains a company in transition. The new Board and management team are committed to creating a growth business that will deliver returns for shareholders in the medium to long term. To achieve this and to realise the potential of the business, fundamental change was required to the previous Board's strategy. The Board's strategic review is in its closing stages and the Company has already implemented a number of major changes. The Company is now a far more focused and cash generative business with its principal operations now profitable and growth orientated and the difficult challenges which the Board faces are being addressed with vigour. Implementing Strategy by Transforming Activities We have achieved a number of key strategic objectives during 2006 and the business is seeing the benefit of these changes. We have changed our Board and management team, creating a team with the necessary experience and skill sets required for Sportech's future. The business and its organisation have been transformed with the consolidation of three operational sites into one. We have terminated our loss making contract to provide betting services to ITV and consequently closed our interactive television operations. In June 2006 we sold our loss making betting division, Bet Direct, for £12.5m in cash achieving a profit on disposal of £10.6m. These two activities alone incurred operating losses for Sportech of £8.9m in 2005. The Board is pleased to have eliminated these loss-making activities, to have eliminated further cash outflows and to have achieved good value for Bet Direct. As a result bank debt has been reduced significantly from £108.1m at 31 December 2005 to £89.9m at 31 December 2006. Debt reduction remains one of the primary objectives of the Company. We are determined to transform the culture of Sportech from a "small company with a big company structure" to a "big company with a small company entrepreneurial culture." Financials The changing nature of the Company's business activities are reflected in the results for the year. Operating profit amounted to £15.5m, an increase of £8.6m from that of 2005. Interest payable reduced to £6.4m from £7.5m last year as a consequence of focusing on reducing the overall level of debt. The profit after tax from continuing operations is £7.6m (2005: loss of £1.7m). The Company made a profit after tax from discontinued operations of £6.5m (2005: loss of £4.1m) which when added to the profit from continuing operations delivers an overall profit for the year of £14.1m (2005: loss of £5.8m). Net debt has been reduced by £18.2m (17%) to £89.9m (2005: £108.1m). No dividend is proposed as your Board looks to invest in growth opportunities as well as further reducing debt. Board and Employees One of the key objectives set by our strategic review was to appoint a Board and management team with the experience, energy and drive to transform the business. We now have that team in place following the appointment to the Board of Steve Cunliffe as Finance Director on 3 July 2006 and the appointments to the Executive Team in early Summer of Ted Taylor as Managing Director of Littlewoods Football Pools and Jon Sheehy as Marketing Director. 2006 has been a very challenging year as the Company changed its Board, management team, commercial focus, office locations and corporate aspirations. This has put many pressures on the employees at Sportech and I should like to express my thanks to those who have remained steadfast in their commitment to the business Acquisition Opportunity On 7 March 2007 the Company was pleased to announce that it had entered into exclusive negotiations with Ladbrokes Plc regarding the potential acquisition of the Vernons Pools business. The Company has now commenced due diligence and will make a further announcement in due course. Outlook There remains much to do but the Board is committed to growth and implementing the necessary changes to the business. The significant changes already made in eliminating loss making activities, reducing debt and focusing on our core profitable businesses have created a foundation upon which the Company can continue its growth and improve returns to its shareholders. Sportech is now in a position to capitalise on the significant opportunities ahead and I look forward to the future with confidence. Piers Pottinger Chairman 29 March 2007 Chief Executive's Review Corporate Strategy Statement The strategic direction of the Company is to create a market leading sport, leisure and gaming business. We will take the strengths and qualities of our heritage and build upon these to re-establish Sportech's position in the market. We are reinvigorating our football pools business putting it at the heart of the Company. We operate the world's largest football pools focused on the world's most popular sport: British football. We have a customer database with over 500,000 active customers playing every week for a jackpot of up to £2m. We operate in a global and growing market place. Football and particularly British football is experiencing an unprecedented boom in global popularity. Pool (pari-mutuel) gaming and games of skill enjoy popularity around the world and we will look to build upon this with our market leading position in pool betting on British football. Investing in Products, Technology and Distribution The strategic review highlighted three key operational areas: products, technology and distribution. Our commitment is to get the products and distribution basics right and if we do get them right we are confident of our ability to build an enlarged football gaming business. Investing in new technology is a vital component to make our games accessible and easy to play for all, thereby broadening our range of potential customers. Products Growth is being pursued through a dual strategy: enhancing and refining existing products to make them more engaging and accessible; and creating new products that will be attractive to a wider audience. We are in the process of developing and assembling a suite of products which will be launched over the next 18 months focusing initially on predictor games, fantasy football, league tables, quizzes, Spot the Ball and other football (and subsequently other sports) related content. Technology And Distribution Modernising our distribution channels will enable the Company to offer its products to the mass market via the internet, mobile phones, retail outlets, sports and social clubs and internationally, in addition to our existing primary sources of distribution: door to door collections and direct mail. Making our games easy to access and play is fundamental to restoring growth to the business and this morning we are pleased to announce two significant technology partnerships. We have signed a strategic technology and distribution partnership with Scientific Games, the New York based operator of pari-mutuel systems (pool), lotteries and betting terminals. Alongside this partnership we have also signed a contract with a second technology partner Orbis, a leading provider of interactive betting and gaming solutions. These two partnerships will enable the Company to develop enhanced distribution of its games through new and existing channels, including the potential within the global customer network of Scientific Games. The programmed delivery dates for our new technical offering commences with the new football season in August 2007 with subsequent phased implementations through to next spring. Other Products We will broaden the range of products that we offer to our customer base. In addition to Casino and Poker, we launched online Bingo in 2006 and consider the ability to sell our suite of products to our extensive customer base to be a unique asset of the Company. Brand The "Littlewoods" name is used under a licence agreement which expires in 2010. Therefore the Board, as part of its strategic review, recognised the need to develop new branding by way of a full marketing makeover. The creation of this new brand for the football gaming business is underway and is expected to be launched in late 2007. Outlook We have made good progress in transforming the Sportech business. We operate in a growing global marketplace, with many exciting opportunities available to the Company. We have begun modernising our technology and IT infrastructure, our online and new media presence is being upgraded and new products and routes to market are being created. Distribution has been a key focus of our strategic review and our partnerships with Scientific Games and Orbis should enable us to make real progress enhancing our distribution capabilities. Sportech has taken the first steps in its transition towards being a profitable sports, leisure and gaming business with international reach and growth potential. Ian Penrose Chief Executive 29 March 2007 Business Review Overview 2006 has been a year of great change which has laid the foundations on which to grow the business and established a strategic direction for the Company. We have had a major change in personnel, closed down certain operations and sold our bookmaking operation in order to eliminate loss making activities and enable efforts to be focused on our core profitable business activities. We are investing heavily in our technology, distribution and products addressing many years of under-investment. Operations have been consolidated from three sites into one which has improved communication and operational efficiency. Significant strides have been made in reducing bank debt, and in improving operational cash flow. This improvement in the strategic, operational and financial position of the Company has enabled it to be in a position to enter into exclusive discussions to acquire Vernons, the UK's number two football pools operator, from Ladbrokes Plc. Financial Overview The profit after tax from continuing operations of £7.6m (2005: loss of £1.7m), together with the profit after tax from discontinued operations of £6.5m (2005: loss of £4.1m) has resulted in an overall profit after tax for the year of £14.1m (2005: loss of £5.8m), an improvement of £19.9m. Net debt at the end of the period was £89.9m (2005: £108.1m), a reduction of £18.2m, some 17%. Operating profit from continuing operations amounted to £15.5m (2005: £6.9m). Interest payable reduced by 15% to £6.4m (2005: £7.5m) following significant progress in reducing the overall level of debt, resulting in an increase in profit before tax from continuing operations to £9.1m (2005: loss of £0.6m). The tax charge on continuing operations is £1.5m (2005: £1.1m). The profit of £10.6m on the sale of Bet Direct for £12.5m exceeded initial expectations. The associated tax charge and trading losses incurred prior to disposal amounting to £4.1m reduced the profit from discontinued operations to £6.5m (2005: loss of £4.1m). Total earnings per share have increased to 2.38p (2005: loss per share of 0.97p). On a continuing operations basis, earnings per share have increased to 1.28p (2005: loss per share of 0.29p). No dividend is proposed as the Board continues to focus on investing in continuing activities and reducing debt. Following the disposal of Bet Direct in June 2006 and in accordance with IFRS 5: "Non-current Assets Held for Sale and Discontinued Operations", the profit and loss statement discloses separately the results from continuing operations from those of discontinued. The Group now reports under two distinct segments, the first segment being the football gaming division, comprising the traditional football pools products run under the Littlewoods and Zetters brand names and associated games such as Spot the Ball, Premier 10 and Lotto with the second segment being the e-gaming division comprising the online activities of Littlewoods Poker, Littlewoods Casino, Littlewoods Bingo and Game On. 2006 2005 Football E- Total Football E- Total Gaming Gaming Gaming Gaming £m £m £m £m £m £m Gross win revenue 49.6 11.2 60.8 57.4 9.7 67.1 ------- ------ ----- ------- ------- ------ Operating profit/(loss) pre restructuring costs 17.4 1.0 18.4 24.4 (2.2) 22.2 Exceptional restructuring costs (2.9) - (2.9) (0.5) (14.8) (15.3) ------- ------ ----- ------- ------- ------ Operating profit/(loss) 14.5 1.0 15.5 23.9 (17.0) 6.9 ------- ------ ----- ------- ------- ------ Football Gaming This remains the driving force of the financial performance of the Group. Following many years of underinvestment and lack of focus, we are reinvigorating our football gaming business. The technology partnerships announced today with Orbis and Scientific Games will enable us to become more operationally efficient on a modern technology infrastructure and, importantly, will facilitate future integration onto gaming machines and EPOS systems in the retail environment. Our enhanced range of products will then be available to the retailer and customer in a simple, modern and user-friendly form. We are in discussions with a number of retail-led third parties to significantly increase our distribution. The Board considers that the growth in popularity of British football, allied with the Company's 84-year reputation for integrity and the popularity of pool betting overseas, will present significant opportunities for international expansion. Consequently the Company is in discussions with a number of partners for distribution into a selection of overseas territories. The strategic technology and distribution partnership with Scientific Games brings additional potential within their global customer network. During the year we have endeavoured to establish a more robust football gaming business. Whilst the strategic review was ongoing, we focused our early efforts on slowing the rate of customer decline. We are pleased that the weekly customer attrition has slowed significantly to 9.3% (2005: 13.7%), the lowest rate of decline since 1994. Encouragingly the direct channel football pools business has seen an absolute halt in customer number decline for the first time since launch in the 1990s. Weekly customer numbers remain in excess of 500,000. We are carrying out a review into the structure and performance of our collector division, which continues to suffer levels of customer attrition which are too high. 250,000 customers choose to play via the collector network, where a pyramid structure of 26 regional depots, support 500 main collectors who in turn support 12,000 collectors. The focus to rebuild our football pools business has meant establishing an operating and cost structure focused on growth rather than managing decline. We have established a marketing department ready to support the initiatives that will be started later this year to address margin that was lost as a result of pricing decisions taken earlier in the year to retain selected lapsing customers. The decision to delay the relaunch of the business for 12 months, originally scheduled for August 2006, so that we could ensure we had the products, technology and distribution to support the relaunch, has had further operational and financial effects, although it has been in the medium term interests of the Company. Operating profit before exceptional restructuring costs from football gaming amounted to £17.4m (2005: £24.4m). E-Gaming We have made significant strides in refocusing our e-gaming operations, as we endeavour to establish an organisational structure in order to deliver on the opportunities available, including the launch of an online football gaming business later this year. Our e-gaming business is now refocused and generating profits. We have grown both our registered and active customer base. Performance by channel is illustrated in the table below: 2006 2006 2005 2005 Gross win Operating Gross win Operating revenue profit/(loss) revenue profit/(loss) pre restructuring pre restructuring costs costs £m £m £m £m Casino and Poker 10.7 1.8 9.3 1.7 Bingo 0.3 (0.3) - - Game On 0.2 (0.5) 0.4 (3.9) ------- ----------- --------- ----------- Total 11.2 1.0 9.7 (2.2) ------- ----------- --------- ----------- Casino and poker Following on from three consecutive six month periods of decline we set about rebuilding our casino and poker business. We restructured the management team, shortened internal reporting lines and carried out a thorough marketing audit to review and evaluate the efficiency and effectiveness of our marketing investment. In addition we have made progress on developing our relationship with Cryptologic, our software provider for both our online casino and poker products. During the year the industry suffered as a consequence of the US Government's decision to implement the Unlawful Internet Gambling Enforcement Act. However, following the decision taken by your Board earlier in the year not to accept transactions from US citizens, we did not suffer any financial loss. As a consequence of the above actions and in the face of a very competitive market, we are pleased that we have now successfully reversed the trend of declining six monthly profits to growth. Gross win for the first eleven weeks of 2007 is 25% ahead of that for the comparable period last year. Our casino and poker business has generated a 15% improvement in gross win to £10.7m (2005: £9.3m). Following three successive periods of falling operating profit we reported in the first half of 2006 a halting of this decline and are now pleased to report that an operating profit of £1.0m has been achieved in the second half of 2006. This evidences clearly the more focused approach to our activities, delivering a total operating profit for the year of a growing £1.8m rather than the declining £1.7m in 2005. Bingo Littlewoodsbingo.com was launched in 2006, to develop an online gaming business that would sit comfortably alongside the 500,000 households who play the football pools every week. Initially soft launched in February 2006, the product was relaunched in September 2006 following management changes and a repositioning of the commercial relationship with our technology and network partner St Minver. We have experienced an encouraging start to this product offering. Start up operating losses of £0.3m were incurred in 2006 and we are continuing to experience strong growth in customer numbers and gross win and have moved into overall profitability on a monthly basis. Game On Game On, our fixed odds games business, is being totally refreshed in the second half of 2007. Operating losses before exceptional restructuring costs of £0.5m were incurred in 2006, a £3.4m improvement year on year (2005: loss of £3.9m) predominantly due to the termination of the ITV contract at the end of 2005. Customer numbers Registered Active ('000) ('000) 2006 2005 2006 2005 Casino and Poker 106.8 75.3 23.0 22.7 Bingo 44.7 - 5.6 - Game On 11.7 9.6 8.0 6.3 -------- -------- --------- ---------- Total 163.2 84.9 36.6 29.0 -------- -------- --------- ---------- Exceptional Items Other Other exceptional restructuring costs of £2.9m have been incurred in the year (2005: £1.7m) relating primarily to asset impairments and building costs resulting from the strategic review of the business currently underway and relate to the rationalisation of building infrastructure and asset impairment together with associated staff redundancy costs. ITV Exit Costs The contract with ITV was signed in March 2002 by Sportech to capitalise on the projected growth market of betting via interactive television. Sportech, through Littlewoods Gaming, agreed to supply interactive betting and gaming services linked to ITV programming. The contract had been loss making for Sportech since its inception and, with no prospect of a commercial return, the Board decided to terminate the contract. The decision to terminate the ITV contract resulted in Sportech eliminating an expected operating loss in 2006 and avoiding further potential losses of up to £30m over the remaining three years of the contract. As a consequence of the termination, the 2005 results were impacted by an additional exceptional charge of £13.6m, reflecting the write off of payments already made to ITV, related assets and redundancies. The cash cost of the termination amounted to £0.7m. There are no further costs or payments to be made with regards to the ITV contract. Discontinued Activities We have completed the withdrawal from sportsbook betting activities following the sale of Bet Direct for £12.5m in June 2006. Whilst we were pleased with the 35% improvement in trading achieved by Bet Direct through to June 2006 and additional increases forecast for the second half of 2006, the Board decided that the weekly trading loss of over £50,000, even with the incremental improvements anticipated, was too high to tolerate as the business had lost over £30m since its formation. Retained profit for Bet Direct (shown as discontinued activities) of £6.5m (2005: loss of £4.1m) was due to the sale of the business for a cash consideration of £12.5m generating a profit of £10.6 offset by the operating loss up to disposal of £1.3m (2005: loss of £5.8m) and taxation of £2.8m (2005: credit of £1.7m). The Board were very pleased in the circumstances with the level of sale proceeds received for the business. Debt Debt reduction remains a priority for the Group and we are pleased to report that net debt has reduced by £18.2m to £89.9m at the year end (2005: £108.1m). Operating cash flow before movement in charity cash has increased by 26% to £7.8m (2005: £6.2m). In addition a further £10.8m cash was generated from the sale of Bet Direct being the cash consideration of £12.5m offset by £1.7m of disposal and associated restructuring costs. Cash generated from operations has remained constant at £15.0m (2005: £14.9m) but with a reduction in net interest payments to £6.4m (2005: £7.3m), tax payments remaining constant at £2.0m (2005: £1.9m) and charity cash balances reducing by £1.2m (2005: £0.5m) has resulted in operating cash flow increasing by 26% to £7.8m. At the year end the Group's current bank facilities included scheduled repayments of long-term bank debt of £20.0m. Subsequent to the year end, new facilities have been agreed with the bank to facilitate both the potential acquisition of Vernons and the refinancing of the current debt incorporating repayment levels more appropriate to the Group's cash generation. Outlook A lot has been achieved in the last year but there is still much to do. We have established a clear strategy and have made significant strides towards its implementation. We have established foundations from where we are able to grow the business. Trading for the first eleven weeks of the year is in line with expectations and 2007 will see us continue to build upon these initial significant improvements. Ian Penrose Chief Executive Steve Cunliffe Finance Director 29 March 2007 Consolidated Profit and Loss Account For the year ended 31 December 2006 Group -------------- 2006 2005 Continuing operations Note £m £m ------------------------------ --------- -------- ----------- Stakes placed* 352.7 347.1 Gross win revenue 2 60.8 67.1 Cost of sales (17.1) (19.6) ------------------------------ --------- -------- ----------- Gross profit 43.7 47.5 Other income - 0.4 Distribution costs (0.8) (0.8) Administrative expenses (27.4) (40.2) ------------------------------ --------- -------- ----------- Operating profit before restructuring costs 18.4 22.2 Exceptional restructuring costs - ITV exit costs 4 - (13.6) Exceptional restructuring costs - Other 4 (2.9) (1.7) ------------------------------ --------- -------- ----------- Operating profit 2 15.5 6.9 Interest payable and similar items (6.4) (7.5) Interest receivable - - ------------------------------ --------- -------- ----------- Profit/(loss) before taxation 9.1 (0.6) Taxation 5 (1.5) (1.1) ----------------------------- --------- ---------- ----------- Profit/ (loss) for the financial year from continuing operations attributable to equity shareholders 7.6 (1.7) ----------------------------- --------- ---------- ----------- Discontinued Operations Profit/(loss) for the financial year from discontinued operations 3 6.5 (4.1) ----------------------------- --------- ---------- ----------- Profit/(loss) for the financial year attributable to equity shareholders 14.1 (5.8) ----------------------------- --------- ---------- ----------- Earnings/(loss) per share Basic and diluted 6 2.38 (0.97)p ----------------------------- --------- ---------- ----------- Earnings/(loss) per share from continuing operations Basic and diluted 6 1.28 (0.29)p ----------------------------- --------- ---------- ----------- --------- ---------- ----------- * Stakes placed does not represent a statutory number and is given for information purposes only. Statement of Recognised Income and Expense For the year ended 31 December 2006 Group -------------- 2006 2005 £m £m -------- ----------- Profit/(loss) for the financial year 14.1 (5.8) Actuarial gain on defined benefit scheme - 0.1 -------- ----------- Total recognised income/(expense) for the year 14.1 (5.7) -------- ----------- Consolidated Balance Sheet As at 31 December 2006 Group --------------- 2006 2005 £m £m ------- ------------ ASSETS Non-current assets Goodwill 145.2 145.2 Other intangible assets 0.2 1.0 Property, plant and equipment 2.1 4.8 Retirement benefit assets 0.3 0.3 Deferred tax assets 1.0 1.3 ------------------------------ ---------- ------- ------------ 148.8 152.6 ------------------------------ ---------- ------- ------------ Current assets Trade and other receivables 2.2 2.9 Cash and cash equivalents 0.4 1.6 ------------------------------ ---------- ------- ------------ 2.6 4.5 ------------------------------ ---------- ------- ------------ LIABILITIES Current liabilities Financial liabilities - borrowings (21.8) (22.8) Trade and other payables (14.0) (17.3) Current tax liabilities (1.5) - ------------------------------ ---------- ------- ------------ (37.3) (40.1) ------------------------------- ---------- ------- ----------- Net current liabilities (34.7) (35.6) ------------------------------- ---------- ------- ----------- Non-current liabilities Financial liabilities - borrowings (68.1) (85.3) Deferred tax liabilities (0.3) (0.3) ------------------------------- ---------- ------- ----------- (68.4) (85.6) ------------------------------- ---------- ------- ----------- NET ASSETS 45.7 31.4 ------------------------------- ---------- ------- ----------- SHAREHOLDERS' EQUITY Ordinary shares 29.6 29.6 Other reserves 0.2 0.2 Retained earnings 15.9 1.6 ------------------------------- ---------- ------- ----------- TOTAL SHAREHOLDERS' EQUITY 45.7 31.4 ------------------------------- ---------- ------- ----------- Consolidated Cash Flow Statement For the year ended 31 December 2006 Group ----------------- 2006 2005 Note £m £m -------- --------- ----------- Cash flows from operating activities Cash generated from operations 7 15.0 14.9 Interest received - 0.2 Interest paid (6.4) (7.5) Tax paid (2.0) (1.9) ------------------------------- -------- --------- ----------- Net cash from operating activities 6.6 5.7 ------------------------------- -------- --------- ----------- Net cash from operating activities before charity cash movement 7.8 6.2 Charity cash movement (1.2) (0.5) ------------------------------- -------- --------- ----------- Net cash from operating activities 6.6 5.7 ------------------------------- -------- --------- ----------- Cash flows from investing activities ------------------------------- -------- --------- ----------- Proceeds from sale of Bet Direct 10.8 - Proceeds from sale of property, plant and equipment - 0.4 Purchase of intangible fixed assets (0.1) (0.7) Purchase of property, plant and equipment (0.3) (1.1) ------------------------------- -------- --------- ----------- Net cash generated by /(used in) investing activities 10.4 (1.4) ------------------------------- -------- ---------- ----------- Cash flows from financing activities Finance lease principal payments (0.5) (0.3) Repayment of borrowings (15.0) (9.0) ------------------------------- -------- --------- ----------- Net cash used in financing activities (15.5) (9.3) ------------------------------- -------- --------- ----------- Net increase /(decrease) in cash and cash equivalents 1.5 (5.0) Cash and cash equivalents at 31 December 2005 (2.9) 2.1 ------------------------------------------- -------- --------- ----------- Cash and cash equivalents at 31 December 2006 (1.4) (2.9) -------------------------------------------- -------- --------- ----------- Cash and cash equivalents consists of: Cash and cash equivalents 0.4 1.6 Overdrafts (1.8) (4.5) ------------------------------- -------- --------- ----------- (1.4) (2.9) ------------------------------- -------- --------- ----------- Reconciliation of net debt Increase/(decrease) in cash in period 1.5 (5.0) Movement in charity cash 1.2 0.5 ------------------------------- -------- --------- ----------- Change in net debt resulting from cash flows 2.7 (4.5) Cash outflow from repayment in loans 15.0 9.0 Cash outflow from repayment of finance lease agreements 0.5 0.3 Other non-cash changes - (0.1) ------------------------------- -------- --------- ----------- Movement in net debt for the period 18.2 4.7 At 1 January 2006 (108.1) (112.8) ------------------------------- -------- --------- ----------- At 31 December 2006 (89.9) (108.1) ------------------------------- -------- --------- ----------- Net debt comprises Cash and cash equivalents including charity cash (1.4) (2.9) Less charity cash balances (0.4) (1.6) ------------------------------- -------- --------- ----------- Available cash and cash equivalents (1.8) (4.5) Leases (0.1) (0.6) Loans repayable within one year (20.0) (18.0) Loans repayable after one year (68.0) (85.0) ------------------------------- -------- --------- ----------- At 31 December 2006 (89.9) (108.1) ------------------------------- -------- --------- ----------- Notes to the Preliminary Statement For the year ended 31 December 2006 1. Basis of reporting a) The preliminary results have been prepared on the basis of the accounting policies set out in the Group's 2005 financial statements. b) The financial information set out in this announcement does not constitute the Group's statutory financial statements for the year ended 31 December 2006, but is extracted from those financial statements. The auditors have reported on those financial statements and have given an unqualified report which does not contain a statement under section 237 (2) or 237 (3) of the Companies Act 1985. 2. Segmental reporting 2006 ------------------------- Football Telephone Pools E-Gaming Betting Group Continuing operations £m £m £m £m ------------------------------ -------- -------- -------- -------- Gross win revenue 49.6 11.2 - 60.8 ------------------------------ -------- -------- -------- -------- Segment result before restructuring costs 17.4 1.0 - 18.4 Exceptional restructuring costs - other (2.9) - - (2.9) ------------------------------ -------- -------- -------- -------- Segment result 14.5 1.0 - 15.5 ------------------------------ -------- -------- -------- -------- Interest expense (6.4) ------------------------------ -------- -------- -------- -------- Profit before tax 9.1 Taxation (1.5) ------------------------------ -------- -------- -------- -------- Profit for the year from continuing operations 7.6 ------------------------------ -------- -------- -------- -------- Discontinued operations ------------------------------ -------- -------- -------- -------- Gross win revenue - 1.4 2.6 4.0 ------------------------------ -------- -------- -------- -------- Segment result - (0.4) (0.9) (1.3) ------------------------------ -------- -------- -------- -------- Profit on disposal of operation 10.6 ------------------------------ -------- -------- -------- -------- Taxation (2.8) ------------------------------ -------- -------- -------- -------- Profit for the year from discontinued operations 6.5 ------------------------------ -------- -------- -------- -------- Net profit attributable to equity shareholders 14.1 ------------------------------ -------- -------- -------- -------- 2005 ------------------------- Football Telephone Pools E-Gaming Betting Group Continuing operations £m £m £m £m ------------------------------ -------- -------- -------- -------- Gross win revenue 57.4 9.7 - 67.1 ------------------------------ -------- -------- -------- -------- Segment result before restructuring costs 24.4 (2.2) - 22.2 Exceptional restructuring costs - ITV exit costs - (13.6) - (13.6) Exceptional restructuring costs - other (0.5) (1.2) - (1.7) ------------------------------ -------- -------- -------- -------- Segment result 23.9 (17.0) - 6.9 ------------------------------ -------- -------- -------- -------- Interest expense (7.5) ------------------------------ -------- -------- -------- -------- (Loss) before tax (0.6) Taxation (1.1) ------------------------------ -------- -------- -------- -------- (Loss) for the year from continuing operations (1.7) ------------------------------ -------- -------- -------- -------- Discontinued operations ------------------------------ -------- -------- -------- -------- Gross win revenue - 2.6 5.5 8.1 ------------------------------ -------- -------- -------- -------- Segment result before restructuring costs - (2.7) (2.3) (5.0) Exceptional restructuring costs - other - - (0.8) (0.8) ------------------------------ -------- -------- -------- -------- Segment result - (2.7) (3.1) (5.8) ------------------------------ -------- -------- -------- -------- Taxation 1.7 ------------------------------ -------- -------- -------- -------- (Loss) for the year from discontinued operations (4.1) ------------------------------ -------- -------- -------- -------- Net (loss) attributable to equity shareholders (5.8) ------------------------------ -------- -------- -------- -------- 3. Discontinued Activities 2006 2005 £m £m Trading losses (1.3) (5.8) Tax on trading losses - current 0.4 1.7 ------- -------- 0.9 (4.1) ------- -------- Profit on disposal of Bet Direct 10.6 - Tax on profit on disposal of Bet Direct - current (1.1) - - deferred (2.1) - ------- -------- 7.4 - ------- -------- Profit/(loss) for the period from discontinued operations 6.5 (4.1) ------------------------------------------ ------- -------- On 7 June 2006 the group disposed of its Bet Direct branded sports betting business to 32Red plc for £12.5m. A summary of the net assets disposed, and of the profit and net cash generated is as follows; 2006 £m Tangible assets 0.7 Intangible assets 0.7 Current assets 0.4 Current liabilities (1.6) ------------------------------------------ ------- Net assets disposed 0.2 Disposal costs 1.7 Net gain on disposal 10.6 ------------------------------------------ ------- Sale proceeds 12.5 Less customer deposits transferred to 32Red plc (1.5) ------------------------------------------ ------- Net cash inflow on sale 11.0 ------------------------------------------ ------- Reconciliation to net cash in cashflow statement: Sale proceeds 12.5 Disposal costs (1.7) ------------------------------------------ ------- Net cash inflow on sale of Bet Direct per cash flow statement 10.8 ------------------------------------------ ------- The net cash flows after tax for the Bet Direct business are as follows: 2006 2005 £m £m Operating (2.5) (3.1) Investing 10.7 (1.3) Financing (0.5) (0.2) ------------------------------------------ ------- ------- Net cash inflow /(outflow) 7.8 (4.6) ------------------------------------------ ------- ------- 4. Restructuring costs All restructuring costs for continuing operations are included within administration costs within the profit and loss account. 2006 2005 Continuing operations £m £m ------------------------------------------ ------- -------- Exceptional restructuring costs - e-Gaming - ITV exit costs - 13.6 ------------------------------------------ ------- -------- Exceptional restructuring costs: - Other Football Pools 2.9 0.5 e-Gaming - 1.2 ------------------------------------------ ------- -------- 2.9 1.7 ------- -------- 2.9 15.3 ------- -------- Discontinued operations Exceptional restructuring costs: - Other - Telephone Betting - 0.8 ------------------------------------------ ------- -------- Exceptional restructuring costs 2.9 16.1 ------------------------------------------ ------- -------- ITV exit costs The write off comprises: Write off of advance commissions 10.1 Impairment of plant and equipment 1.6 Impairment of intangible assets 1.0 Other costs 0.9 ------------------------------------------ ------- -------- 13.6 ------- -------- The contract with ITV was terminated in the prior financial year. The exit costs comprised the write off of advance payments made since the inception of the contract with ITV that were to have been recovered against future commissions to be earned by ITV over the life of the contract. These payments were not recoverable in the event of a termination. The impairment of plant and equipment related to specific items used for the delivery of service to ITV. The impairment of intangible assets related to the write off of unrecovered costs incurred in securing the ITV contract as well as e-Gaming software. Other costs mainly comprised staff redundancy expenses. Other restructuring costs Other exceptional restructuring costs in the current year relate to asset impairments and accrued building lease payments resulting from the strategic review of the business currently underway and relate to the rationalisation of building infrastructure and asset impairment charges, together with associated staff redundancy costs. Other exceptional restructuring costs in the prior year relate to further costs in respect of the establishment of an in house call centre and rationalisation of the e-Gaming cost base together with associated head office support costs within the e-Gaming and Telephone Betting segments as well as rationalisation of the operating cost base within the Football Pools segment. 5. Tax on profit/(loss) on ordinary activities 2006 2005 £m £m --------- ---------- Current tax - continuing operations UK corporation tax at 30% (2005: 30%) 3.2 - Adjustments in respect of prior periods 0.1 - ------------------------------------- --------- ---------- Total current tax 3.3 - ------------------------------------- --------- ---------- Deferred tax - continuing operations Current year (credit)/charge (0.4) 1.1 Adjustments in respect of prior periods (1.4) - ------------------------------------- --------- ---------- Total deferred tax (1.8) 1.1 ------------------------------------- --------- ---------- Total taxation charge 1.5 1.1 ------------------------------------- --------- ---------- The taxation charge for the period is lower (2005: higher) than the standard rate of corporation tax in the UK (30%). The differences are explained below: 2006 2005 £m £m --------- ---------- Profit/(loss) on ordinary activities before tax 9.1 (0.6) ------------------------------------- --------- ---------- Profit/(loss) on ordinary activities multiplied by the standard rate of corporation tax in the UK of 30%(2005: 30%) 2.7 (0.2) Effects of: Permanent differences 0.2 0.1 Trading losses not previously recognised (1.5) - Trading losses not recognised - 1.2 Adjustments to tax in respect of prior periods 0.1 - ------------------------------------- --------- ---------- Total taxation charge 1.5 1.1 ------------------------------------- --------- ---------- 6. Earnings/(loss) per share The calculations of earnings/(loss) per share (EPS) are based on the following profits/(losses) attributable to ordinary shareholders and the weighted average numbers of shares: 2006 2005 ------------------- ------------------ Weighted Weighted average average number of Per share number of Per share Profit shares amount Loss shares Amount £m '000 Pence £m '000 Pence ------------------- ------ -------- -------- -------- -------- --------- Basic and diluted EPS 14.1 592,074 2.38 (5.8) 592,074 (0.97) -------------- ------ -------- -------- -------- -------- --------- Earnings per share from continuing operations --------------- ------ -------- -------- -------- -------- --------- Basic and diluted EPS 14.1 592,074 2.38 (5.8) 592,074 (0.97) Profit on sale of Bet Direct (net of tax) 7.4 592,074 (1.25) - 592,074 - Pre-tax losses from discontinued operations (1.3) 592,074 0.22 5.8 592,074 0.97 Tax relating to discontinued operations 0.4 592,074 (0.07) (1.7) 592,074 (0.29) ------ -------- -------- -------- -------- -------- --------------- Basic and diluted EPS from continuing operations 7.6 592,074 1.28 (1.7) 592,074 (0.29) --------------- ------- -------- -------- -------- -------- -------- 7. Cash flow from operating activities Reconciliation of operating profit to net cash flow from operating activities Group ------------- 2006 2005 Continuing operations £m £m ---------------------------------------- -------- --------- Net profit/(loss) 7.6 (1.7) Adjustments for: Taxation 1.5 1.1 Depreciation 0.8 2.0 Impairment of property, plant and equipment 1.2 1.6 Profit on disposal of property, plant and equipment - (0.4) Amortisation of intangibles 0.3 0.6 Impairment of intangibles 0.1 1.0 Interest expense 6.4 7.5 Other non-cash changes 0.2 0.2 Changes in working capital: Decrease in prepayments - 5.9 (Increase)/decrease in trade and other receivables (0.2) 1.7 (Decrease)/increase in trade and other payables (1.0) (0.4) ---------------------------------------- -------- --------- Cash generated from/(used in) continuing operations 16.9 19.1 ---------------------------------------- -------- --------- Discontinued operations ---------------------------------------- -------- --------- Net profit/(loss) 6.5 (4.1) Adjustments for: Taxation 2.8 (1.7) Depreciation - 0.2 Profit on disposal of Bet Direct (10.6) - Amortisation of intangibles 0.1 0.8 Changes in working capital: Decrease in trade and other receivables - 0.3 Decrease in trade and other payables (0.7) 0.3 ---------------------------------------- -------- --------- Cash (used in) discontinued operations (1.9) (4.2) ---------------------------------------- -------- --------- Cash generated from operations 15.0 14.9 ---------------------------------------- -------- --------- This information is provided by RNS The company news service from the London Stock Exchange