6 March 2013

 

Sportech PLC ("Sportech", "the Company" or "the Group")

Preliminary results for the year ended 31 December 2012

 

 

Sportech, one of the world's leading pools and tote betting organisations, is pleased to announce its preliminary results for the year ended 31 December 2012.

 

 

 

A year of significant progress with underlying growth,

regulatory change and acquisition

 

 

 

Financial highlights

 

·      Revenue decreased by 5% to £112.0m (2011: £118.2m), due primarily to discontinuing unprofitable customer acquisition activities.

·      EBITDA* increased by 1% to £26.4m (2011: £26.1m).

·      Adjusted** profit before tax in line with last year at £15.7m (2011: £15.8m).

·      Statutory profit before tax reduced to £2.1m following refinancing and exceptional costs (2011: £8.0m).

·      Adjusted** earnings per share ("EPS") increased by 2% to 5.8p (2011: 5.7p).

·      Strong cash flow reduced net bank debt to £57.1m (2011: £59.2m) after acquiring eBet for initial cash consideration of £5.7m.

·      New £75.0m multi-bank revolving credit facility: larger and improved banking arrangements to facilitate growth initiatives.

 

*      EBITDA is stated pre exceptional costs and share option expense.

**     Adjusted numbers are stated before amortisation of acquired intangibles, exceptional costs, share of loss after tax of joint venture and other finance charges.

 

 

Strategic and operational highlights

 

Digital

 

·     Acquisition in December 2012, for up to $12.6m, of eBet Online Inc. ("eBet"), a leading provider of internet and mobile betting services for horseracing in North America. Acquisition enhances senior management talent pool and integration progressing well.

·     Regulatory approval to provide exclusive online betting on horseracing in Connecticut, for launch in Spring 2013.

·     New online platform to be launched also in Spring 2013, to initially drive online horseracing activity in USA.

·     e-Gaming platform in UK now powered by Playtech and positioned for growth, following challenging migrations from multiple providers.

 

Retail/offline

 

·     Strong performance from our US venues and telephone betting business with gross betting revenues ("handle") of $185m and EBITDA of $7.1m, reversing previous years of decline.

·     Our betting services business in the USA, trading as Sportech Racing, posted its first increase in EBITDA for several years, processing over $13bn in bets globally.

·     A resilient performance from our UK Football Pools and e-Gaming business with EBITDA of £20.0m in line with last year, the first time in many years that there has not been a significant decline in EBITDA.

 

UK Tote agreement

 

·     Signed an agreement last week with UK Tote, owned by Betfred, to sell and install 1,000 new terminals. This is the first major customer facing terminal acquisition by the UK Tote for many years. The terminals are initially expected to be used at the Royal Ascot meeting in June 2013.

 

Regulatory

 

·     Important positioning for the ongoing regulatory developments in the gaming markets of North America, the Netherlands and India.

 

VAT

 

·     The Group's claim for repayment of VAT was heard at the First-Tier Tax Tribunal on 8-10 October 2012. We expect the decision of that tribunal shortly.

 

 

 

 

 

Ian Penrose, Chief Executive of Sportech PLC, said:

 

"Sportech continues to transform into an international sports, gaming and entertainment business. We have revitalised the business over recent years, establishing a unique position in the regulated and emerging gaming markets worldwide, which should deliver significant opportunities, most notably for our licensed gaming business in the USA. Given our UK centric roots, it is pleasing that not only have we stabilised EBITDA in the UK for the first time in many years, but also that we are now generating half of our revenue from North America.

 

We have devoted considerable management time and resources in North America in order to develop a stronger business. Our investment policy helped us win approval to provide online betting on horseracing in Connecticut later this Spring, on an exclusive basis. Furthermore, we strengthened our position as one of the largest operators and providers of online and mobile betting technologies and services, by acquiring eBet Online Inc. in December 2012.

 

We consider that our activities in the North American gaming market, exposure to other regulated gaming markets worldwide and strengthened management team have positioned the Group well to take advantage of the opportunities ahead. We will also benefit from the revised financing arrangements and improved cash flow. Whilst economic conditions remain challenging in our two principal markets of the UK and USA, we have started 2013 trading in line with management's expectations."

 

-ends-

 

For further information contact:

 

Sportech PLC                                                                               020 7268 2400

Ian Penrose, Chief Executive

 

Brunswick Group LLP                                                                 020 7404 5959

Mike Smith, Alison Dykes

 

Investec Bank PLC                                                                      020 7597 5169

Patrick Robb

 

Panmure Gordon & Co                                                                020 7459 3600

Adam Pollock

Chairman's statement

 

Overview

 

Sportech is one of the world's leading operators and suppliers of pools and tote betting technology services, occupying a unique position in the highly regulated and emerging gaming markets worldwide. The financial performance, with an increase in EBITDA to £26.4m, combined with the cash generated from operations amounting to £26.6m, reflects these improvements and focused investments. We expect to see Sportech continue to build upon these firm foundations in 2013.

 

Following a period of integration and operational improvements in both our UK and North American businesses, we are pleased to have secured larger and improved banking arrangements that will facilitate business development and growth initiatives in the near future and which enabled us to strengthen our position in the North American marketplace by acquiring eBet, a leading provider of internet and mobile betting services for horseracing.

 

Financial performance

 

Group revenue of £112.0m (2011: £118.2m) has reduced by 5% primarily as a consequence of discontinuing unprofitable customer acquisition activities. EBITDA has increased by 1% to £26.4m (2011: £26.1m). Operating profit has decreased by £2.6m to £11.1m (2011: £13.7m), primarily due to increases in depreciation, amortisation and exceptional costs. Following a 13% reduction in finance costs to £4.1m, a reduced share of loss to £0.2m from the Group's joint venture in India and £4.7m of other finance charges associated with the refinancing and the mark-to-market exposures under the interest rate swaps, the Group made a profit before tax for the year of £2.1m (2011: £8.0m). Basic earnings per share amounted to 0.7p (2011: 2.6p). Adjusted profit before tax was flat at £15.7m (2011: £15.8m), with adjusted earnings per share up by 2% to 5.8p (2011: 5.7p).

 

Net bank debt has been reduced to £57.1m (2011: £59.2m) as a result of having acquired eBet for initial cash consideration of £5.7m. Importantly, during the period of repositioning for the Sportech business since 2006, net bank debt has been reduced by over 50%, which has enabled us to renegotiate our banking facilities in order to capitalise on the future opportunities we see ahead.

 

Dividend

 

As in previous years, no dividend is proposed. With the transformation of the Group's business activities, its strong cash generation and enhanced banking facilities, the Board is evaluating its strategy as to when to commence the payment of a maiden dividend.

 

VAT claim

 

The Group's claim for in excess of £40.0m for the repayment of VAT overpaid in respect of the "Spot the Ball" game from 1979 to 1996 was heard at the First-Tier Tax Tribunal on 8-10 October 2012. This claim could exceed £80m with simple interest added. Whilst initially being advised that we could expect a decision earlier this year, the Board now expects an announcement shortly.

 

Board and employees

 

During the year, and in line with the development of the Group's strategy,the composition of the Executive members of the Boardwas addressed. As a consequence, we are delighted that we will be welcoming Cliff Baty as Chief Financial Officer in May 2013, who brings relevant industry and financial experience from his roles at Ladbrokes plc and Hilton Group plc. In addition, whilst not a Board member, we were pleased to welcome David Schreff, COO - The Americas. He joined us in December 2012, having had a career in senior management roles in the North American sports and entertainment industry.

 

Steve Cunliffe, Finance Director, leaves the Group today and Brooks Pierce, President Sportech Racing, resigned from the Board in May 2012. I would like to thank them both for their contribution to Sportech.

 

The development of Sportech into an international business with offices in the UK, USA, Europe and Asia has placed significant demands upon our executives and employees. The Board would like to thank them for their dedication and commitment to the business.

 

Outlook

 

Sportech has revitalised its business over recent years, establishing a unique position in the regulated and emerging gaming markets worldwide, which should deliver significant opportunities, most notably for our licensed gaming business in the USA. Despite the challenging global economic conditions, current trading is in line with the Board's expectations and we anticipatedelivering further momentum into 2013 and beyond. The Board looks forward to the future with confidence.

 

 

 

 

Roger Withers

Chairman

6 March 2013

 

Business and financial review

 

Business overview

 

The transformation of Sportech into an international sports, gaming and entertainment business from its UK centric roots continued apace in 2012.

 

We devoted considerable management time and resources in North America in order to develop a stronger business. Our responsible investment policy enabled us to receive approval to provide exclusive online betting on horseracing in the state of Connecticut which is planned to launch in Spring 2013. Furthermore, we strengthened our position as one of the largest operators and providers of online and mobile betting technologies and services, by acquiring the California-based eBet in December 2012.

 

Our activities in the UK have produced their best year-on-year performance for many years and our e-Gaming business is now poised for growth following the challenging multi-brand and software migrations to the Playtech platform.

 

We consider that the Group's significant position in the North American gaming market, exposure to other regulated markets worldwide, strengthened management team, strong cash flows and revised flexible financing arrangements position the Group well for taking advantage of the opportunities ahead.

 

Strategy update

 

At the end of 2010, Sportech acquired Scientific Games Racing, now renamed Sportech Racing, to expand its presence in the sports, gaming and entertainment business onto the international stage. In particular, this gave Sportech a large strategic position in one of the few legal gambling activities in North America, namely betting on horseracing and greyhound racing, in entertainment venues (large betting shops) and, where officially permitted, through telephone and online. We will continue to develop these various strands of our business, both organically and by acquisition, to strengthen our business activities in the USA, ahead of further expected regulatory change.

 

Regulation

 

We have established business interests in markets where pools and tote betting is a significant, if not the dominant, form of betting. In many of these markets, government regulation of gaming and/or online gaming is being actively reviewed. Sportech is now in a position to deliver growth in these markets and, in addition, expects significant potential upsides from international regulatory activity, the most significant of which are set out below.

 

USA

 

The Department of Justice ("DoJ") clarified its position on online gaming on 23 December 2011 and a number of states are actively exploring the liberalisation of betting and gaming.

 

Sportech has four offices, 700 employees and is licensed in 26 states (incorporating 50 individual licences) to provide horseracing betting facilities and systems, under which we provide tote betting systems to around 100 racecourse, casino and betting shop partners across the USA. In addition, we have the exclusive licence in perpetuity to operate betting on horseracing and greyhound racing in Connecticut and we host our operations at our data centres in New Jersey and California, processing over $6bn of horseracing bets in the USA alone. We are well positioned for regulatory developments, either at the federal level or on a state-by-state basis.

 

UK

 

The UK government has announced its intention to introduce a point of consumption tax in 2015 and to effectively regulate offshore gambling operators. Over 90% of Sportech's UK sourced revenue is onshore and, as such, we welcome the proposals to ensure fair competition.

 

The Netherlands

 

Sportech holds the exclusive licence to operate all betting on horseracing in the Netherlands. We do this through twelve betting shops, 40 point-of-sale locations in bars and shops and via our online horseracing site, Runnerz.nl. The Government in the Netherlands is in the process of establishing the legal framework for e-Gaming, which is expected to take effect from January 2015. We are actively engaged in the process. As an established licensed operator, employer and taxpayer in the Netherlands, Sportech is well positioned to develop and further expand its gaming activities.

 

India

 

Sportech considers that the market for legal gaming in India has great potential. As a consequence, and in view of required regulatory change, we have taken a long term approach to this market by establishing a joint venture with India's leading lottery business, Playwin,  whose parent company, the Essel Group, secured a provisional gaming licence in Sikkim in 2011. This is shortly expected to become a full gaming licence, following which our joint venture will provide technology and services to companies, including other members of the Essel Group, to be used in the operations of pools games.

Financial overview

Summary results

 

Revenue	2012 £m	2011 £m	Change £m
Football Pools	42.4	47.7	(5.3)
Sportech Racing	65.4	67.3	(1.9)
e-Gaming	4.8	4.1	0.7
Inter-segment elimination	(0.6)	(0.9)	0.3
Total	112.0	118.2	(6.2)

 

EBITDA	2012 £m	2011 £m	Change £m
Football Pools	18.5	18.5	-
Sportech Racing	10.2	10.0	0.2
e-Gaming	1.5	1.6	(0.1)
Corporate costs	(3.7)	(3.8)	0.1
Inter-segment elimination	(0.1)	(0.2)	0.1
Total	26.4	26.1	0.3

 

Operating profit *	2012 £m	2011 £m	Change £m
Football Pools	17.2	17.3	(0.1)
Sportech Racing	6.6	6.9	(0.3)
e-Gaming	1.1	1.4	(0.3)
Corporate costs	(5.1)	(4.9)	(0.2)
Inter-segment elimination	-	(0.2)	0.2
Total	19.8	20.5	(0.7)

 

 

*   Operating profit before amortisation of acquired intangibles and exceptional costs.

 

The Group's financial performance is slightly ahead of market expectations.

 

Group EBITDA has increased by 1% to £26.4m (2011: £26.1m) on revenue of £112.0m (2011: £118.2m). Operating profit, before amortisation of acquired intangibles and exceptional costs, amounted to £19.8m (2011: £20.5m). With a reduction in net finance costs of 13% to £4.1m (2011: £4.7m), due to lower interest rates and repayment of debt, adjusted profit before tax amounted to £15.7m (2011: £15.8m). Adjusted earnings per share has increased by 2% to 5.8p (2011: 5.7p).

 

The Group incurs an annual non-cash amortisation charge of £5.9m (2011: £5.9m) on the intangible assets acquired with Vernons in 2007. The Group has also incurred exceptional costs of £2.8m (2011: £0.9m), principally redundancy costs in respect of the continued rationalisation of the business and costs in relation to the acquisition of eBet. The Group also incurred other finance charges of £4.7m (2011: £0.4m) principally due to the refinancing costs of £2.1m and a further £2.8m reflecting the mark-to-market valuation of interest rate swaps.

 

Corporate costs

 

Corporate costs have remained tightly controlled at £3.7m (2011: £3.8m). After accounting for a non-cash share option expense for the Group of £1.4m (2011: £1.1m), total corporate costs amounted to £5.1m (2011: £4.9m).

 

Taxation and other matters

 

The Group has incurred a tax charge of £0.8m (2011: £2.8m). The adjusted weighted average applicable tax rate was 26.8% (2011: 28.8%), reflecting the international territories in which Sportech operates. The Group remains with a net deferred tax asset of £1.3m (2011: £3.0m). During the year, the Group paid tax of £2.0m (2011: £1.0m).

 

The Group's claim for in excess of £40.0m for the repayment of VAT overpaid in respect of the "Spot the Ball" game from 1979 to 1996 was heard at the First-Tier Tax Tribunal on 8-10 October 2012. This claim could exceed £80m with simple interest added. The Board now awaits the decision which should be announced shortly.

 

Net debt and banking facilities

 

The strength of the Group's cash generation and the associated halving of the Group's bank debt during the turnaround period enabled the Group to successfully refinance in July 2012. We entered into a multi-bank facility, replacing the single bank arrangements, raised the total facility available and improved the structure of our financing arrangements, which now enable the Group to look forward to capitalising on the growth opportunities ahead.

 

The new £75.0m, multi-currency revolving credit facility, including up to £5.0m of ancillary working capital facilities across key trading jurisdictions, provided by Bank of Scotland plc, Barclays Bank PLC and The Royal Bank of Scotland plc, has an initial debt maturity date of 31 August 2015, which is able to be extended at the Group's request, with the agreement of the lenders, for a further twelve month period.

 

The revised financial covenants provide the Group with increased flexibility, whilst our borrowing costs will be dependent on the ongoing level of leverage with a debt margin payable of between 250 and 375 basis points per annum. An arrangement fee of 1.75% was paid at the outset of the facility which was expensed during 2012 along with associated refinancing, legal and debt advisory fees.

 

Net bank debt has been reduced to £57.1m (2011: £59.2m), after having acquired eBet for an initial cash consideration of £5.7m.

 

Cash generated from operations amounted to £26.6m (2011: £25.7m). Following net interest payments of £4.1m (2011: £4.7m) and tax payments of £2.0m (2011: £1.0m), cash generated from operating activities prior to exceptional costs was £20.5m (2011: £20.0m). After trading cash exceptional costs paid of £2.0m (2011: £0.9m) cash generated from operating activities amounted to £18.5m (2011: £19.1m). We invested a further £8.3m (2011: £5.3m) into tangible and intangible assets and injected a further £0.3m (2011: £0.8m) into Sports Hero, our Indian joint venture with the Essel Group.

 

The Group currently has £30.0m (having repaid £10.0m in February 2013) of interest rate swap agreements in place, which unwind by £10.0m each year, from February 2014 to February 2016 at an average rate (before the lending margin of the senior finance providers) of 4.8%. Under international accounting rules, such swap arrangements are fair valued at each reporting date and after deferred tax are valued at the end of the year as a net liability of £2.0m (2011: £2.8m). 

 

Deferred and contingent consideration

 

Deferred consideration of $10.0m plus interest at the rate of 1% above Bank of England base rate is payable on 30 September 2013 in respect of the acquisition of Sportech Racing. The discounted value of the deferred consideration translated into Sterling at 31 December 2012 is £6.1m (2011: £6.1m). There is also 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 (2011: £nil). In order to eliminate the Group's exposure on this deferred consideration to a potential weakening of Sterling against the US Dollar in 2013, we have entered into a forward contract to purchase $10.5m in September 2013 at a rate of £1 to $1.59, in order to settle this deferred consideration.

 

Furthermore, deferred consideration is also payable in respect of the acquisition of eBet, with £0.2m and £0.7m payable in December 2013 and 2014 respectively. In addition, an amount of up to £1.1m is potentially payable in early 2016 dependent on the EBITDA performance of the Group's enlarged Interactive Products and Services division in the year ended 31 December 2015. The Group has recognised a liability of £0.8m in relation to this contingent consideration.

 

Share capital

 

Current shares in issue remain unchanged from prior year and total 198,810,302.

 

Business review

 

Football Pools

 

	2012 £m	2011 £m
Stakes placed	64.5	75.8
Revenue	42.4	47.7
Direct costs	(9.2)	(10.5)
Overheads	(14.7)	(18.7)
EBITDA	18.5	18.5

 

The EBITDA generated from our Football Pools business of £18.5m was the same as last year. This is the first time in many years that EBITDA has not reduced significantly year-on-year.

 

The continued focus on the efficiency of our operation, together with a cost-effective customer management programme, has enabled the business to generate this consistent EBITDA from reduced revenue of £42.4m (2011: £47.7m) on stakes placed of £64.5m (2011: £75.8m).

 

To enable our customers to have more opportunities to win, we extended the number of opportunities to play our core Classic Pools game by eleven competitions to 94 in 2012. Further games are being added in 2013. This extension of game play has led to the average customer spend per week increasing by 4% to £2.58 (2011: £2.48).

 

We have increased the percentage of our core direct players who pay by automated payment methods to 58% from 55% in 2011. These include direct debit and recurring card transactions, as retention rates are considerably higher utilising these payment methods than traditional methods of cheque and one-off card payments. As at 31 December 2012, we had a total of 397,000 Football Pools customers, which was in line with the 30 June 2012 number of 394,000. During the final quarter of 2012, the business commenced various telephone call centre trials with the aim of recruiting new direct debit paying customers. The initial results have been encouraging and this activity is continuing in 2013. We anticipate that we will add around 10,000 new Football Pools customers in 2013 playing by direct debit through this new recruitment channel. We consider that because of the initiatives noted above, we have approached 2013 with a stronger core base of customers than in previous periods.

 

Broadening the distribution of the Football Pools products has always been core to revitalising the Football Pools and reversing a decline in customer numbers. We continue to strengthen our international distribution network and announced a distribution agreement with France-Pari, one of the oldest betting operators licensed in France, to introduce a number of Sportech's online football pools products to French players before the end of the football season.

 

Our continued investment in modernising the Football Pools has led to further cost reductions with operational overheads reduced by £4.0m (21%). Our focus on driving efficiencies through our operational activities continues and we expect further savings in 2013.

 

We are working to enhance our suite of products, and to this end we are looking to launch a version of the Longitude single pools product in the second quarter of this year, prior to a full launch on footballpools.com for the football season 2013/14.

e-Gaming

 

	2012 £m	2011 £m
Revenue	4.8	4.1
Direct costs	(1.1)	(0.5)
Overheads	(2.2)	(2.0)
EBITDA	1.5	1.6

 

2012 was a difficult period for our e-Gaming division. In the year, we completed the transfer of our brands (Littlewoods and Vernons), products (casino, poker and bingo) from two software providers (888 and G2) onto our platform and single wallet offering from Playtech, our 10% shareholder and strategic partner. This migration presented more operational challenges than initially envisaged, with operations, systems and databases in Alderney, Gibraltar, Tel Aviv, Manila, London and Liverpool. In addition, we have rebranded our online gaming activities using the Vernons name following the cessation of our rights to use the Littlewoods name on 30 June 2012.

 

We have invested considerable time and effort to position this division for growth and we expect to see the benefits of this work in the financial performance in 2013 and beyond.

 

In view of the difficult operating environment in place during the year, EBITDA reduced to £1.5m (2011: £1.6m). Active players in the year reduced by 39% to 29,000 (2011: 48,000).

 

Sportech Venues - The Netherlands

 

We have continued to rationalise the core business by reducing our betting shop portfolio from 15 to twelve, improving our point of sale outlets and developing our online betting on horseracing, all on an exclusive basis under a licence from the Ministry of Justice. In total, EBITDA for 2012 amounted to £0.1m (2011: £0.4m) and we anticipate growth from here following these improvements. As an established licensed operator, employer and taxpayer in the Netherlands, Sportech is well positioned to develop and expand its gaming activities as a result of regulatory change, which is expected to take effect from January 2015.

 

India

 

We have kept our investment and operational activities in India at a low level, investing £0.3m in 2012 ahead of the licensing process in Sikkim being progressed. The Board believes that the Group's expertise, history and heritage, together with the size of the Indian market and India's love of cricket, offers the Group, through its joint venture with India's leading lottery business, Playwin, significant medium term potential.

 

Sportech Racing and Venues

 

	2012 £m	2011 £m
Revenue	65.4	67.3
EBITDA	10.2	10.0

 

Progress has been made in all areas of our North American business. Encouragingly, this is already being reflected in the financial performance, having recorded a growth in EBITDA after several previous years of decline.

 

During the year your Board revisited the Group's strategy in order to ensure that we can capitalise on the opportunities ahead in the USA. As a result of this, we strengthened the management team, accelerated our online presence by acquiring eBet and, through our responsible investment policy, secured approval to provide exclusive online betting on horseracing in the state of Connecticut, which will be launched later this Spring.

 

Regulation for gambling is changing. We welcome the decision of Governor Christie to sign into law the internet Gambling Bill in New Jersey last week. With our licence in New Jersey, a data and operations centre, and the provision of tote betting services to the racetracks of New Jersey and six of the twelve casinos in Atlantic City, we continue to evaluate the additional business potential in the state. Given our extensive presence across the USA with four offices, 700 employees, over 100 customers in the gaming industry and licensed in 26 states (incorporating 50 individual licences), we look forward to further regulatory developments on either a state-by-state or federal basis.

 

A divisional analysis of EBITDA from our Sportech Racing and Venues business is as follows:

 

	2012 £m	2011 £m
Sportech Racing - Tote	4.3	3.7
Sportech Venues - USA	4.5	3.9
Central costs - USA	(0.2)	(0.4)
Total USA	8.6	7.2
Sportech Racing - European Tote	1.5	2.4
Sportech Venues - Netherlands	0.1	0.4
Sportech Inc - Total EBITDA	10.2	10.0

 

Total revenue for the year amounted to £65.4m, £1.9m behind last year, predominantly due to reduced terminal and system sales in Europe. Revenue generated is split approximately 50/50 between our Racing and Venues divisions.

 

Tote services and equipment

 

During the year, we extended many of our customer contracts, including our key contracts to provide tote services to all of the racetracks and off-track betting facilities in California and to TVG/Betfair, both of which have been extended to 2015.

 

We have increased our focus on our opportunities in California following the renewal of our Tote contract. We opened another wagering facility in a sports bar in Santa Clarita, California under our licence to install 45 such operations and recently received approval for a fifth sports bar (a mini satellite betting venue) to open later this year. In November 2012, we provided the tote systems and terminals to Santa Anita in Los Angeles for the hosting of the Breeders Cup where we processed over $127m of handle over two days. Furthermore, we have installed a new terminal network for our client in the Dominican Republic following capital expenditure of £1.6m.

 

Our Tote Services division also sells tote systems, terminals and associated software services to customers around the world. Of particular note, we completed the sale of a new tote system and terminals to our customers in Chile to operate five racetracks and 201 betting shops. Additionally, we completed the installation of over 1,240 terminals to Tabcorp in Australia.

 

We are delighted to have signed an agreement last week to sell and install 1,000 new terminals this year to UK Tote, owned by Betfred. This is the first major customer facing terminal acquisition by the UK Tote for many years and we are pleased to have secured the order. The terminals are initially expected to be used at the Royal Ascot meeting in June 2013.

 

Following the creation of our Interactive Products and Services division in 2011 to focus on the regulated online horseracing market, we built upon the early momentum by acquiring eBet in December 2012. Following the acquisition, Sportech's enlarged US interactive operation will provide customised websites, mobile applications, interactive voice response ("IVR") systems and telephone betting services to 26 licensed gaming and racing customers across the USA. This reinforces Sportech's position in North America as one of the largest operators and providers of online and mobile betting technologies and services, and significantly increased the talent base of the Group's senior management team.

 

We will be launching our new online site later this Spring, to initially drive our US online horseracing activity levels, ahead of wider gaming product distribution as legislation permits. We consider that this platform will be a significant enhancement for our customers.

 

We were disappointed that after supplying New Jersey Account Wagering ("NJAW") with technology for account wagering, we were not selected as the operator for the state ADW. We will continue to process bets at our data and operations centre in New Jersey for the website operator, TVG.

 

Sportech Venues

 

In Connecticut, Sportech Venues operates all betting on horseracing under an exclusive and in perpetuity licence. This grants us the ability to own and operate 18 (of which 15 are open) retail venues in which customers can watch sports and place bets on horseracing and greyhound racing and in certain venues eat and drink in the bar/restaurant. Together with our telephone betting facilities we generated gross betting revenues of $185m, an increase of 1% from last year, despite a reduction in high roller activity which had an adverse impact of 1.5% on overall handle.

 

The venues and call centre benefited from a £0.7m capital investment plan (continuing on from the investment in 2011 of £2.2m) to improve our delivery to our customers. This investment programme, aimed at our venues, customers and staff, helped secure two important legislative improvements. First, changes were made to the Simulcast Bill to facilitate the provision of racing pictures to be installed in future betting venues and, second, this enabled us to receive approval to provide exclusive online betting on horseracing in the state of Connecticut, in addition to our venue and telephone operations.

 

We are actively seeking new sites for opening new gaming venues under our existing state licence and look forward to launching the online betting website, later this Spring.

 

Principal risks

 

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 first mitigate the occurrence of such risks and then mitigate the impact of any such risks. The principal risks the Group faces remain the same as outlined in the Annual Report and Accounts 2011.

 

 

 

 

 

 

 

Ian Penrose

Chief Executive

6 March 2013

Consolidated income statement
For the year ended 31 December 2012

		Group
		2012	2011
	Note	£m	£m
Revenue		112.0	118.2
Cost of sales		(61.0)	(64.7)
Gross profit		51.0	53.5
Distribution costs		(1.1)	(1.1)
Administrative expenses		(38.8)	(38.7)
EBITDA before exceptional costs and share option expense		26.4	26.1
Share option expense		(1.4)	(1.1)
Depreciation and amortisation (excluding amortisation of acquired intangibles)		(5.2)	(4.5)
Amortisation of acquired intangibles		(5.9)	(5.9)
Exceptional costs	5	(2.8)	(0.9)
Operating profit		11.1	13.7
Finance costs	6	(4.1)	(4.8)
Finance income	6	-	0.1
Other finance charges	6	(4.7)	(0.4)
Net finance costs	6	(8.8)	(5.1)
Share of loss after tax of joint venture		(0.2)	(0.6)
Profit before taxation		2.1	8.0
Adjusted profit before taxation *		15.7	15.8
Taxation	7	(0.8)	(2.8)
Profit for the year		1.3	5.2
Earnings per share attributable to owners of the parent during the year
Basic	8	0.7p	2.6p
Diluted	8	0.6p	2.5p
Adjusted earnings per share attributable to owners of the parent
during the year
Basic	8	5.8p	5.7p
Diluted	8	5.4p	5.4p

* 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

For the year ended 31 December 2012

		Group
		2012	2011
		£m	£m
Profit for the year		1.3	5.2
Other comprehensive (expense)/income:
Actuarial loss on retirement benefit obligations		(0.3)	(0.7)
Deferred tax on movement on retirement benefit obligations		0.1	0.3
Movement on derivative financial instruments		0.4	0.8
Deferred tax on movement on derivative financial instruments		(0.1)	(0.3)
Cumulative movement on derivative financial instruments - reclassification adjustment to the income statement		3.3	-
Cumulative deferred tax on movement on derivative financial instruments - reclassification adjustment to the income statement		(0.8)	-
Currency translation differences		(1.1)	0.1
Other comprehensive income for the year net of tax		1.5	0.2
Total comprehensive income for the year		2.8	5.4

 

Consolidated statement of changes in equity

For the year ended 31 December 2012
			Other reserves
	Ordinary shares	Share premium	Share option reserve	Pension reserve	Currency translation reserve	Financial instrument reserve	Retained earnings	Total
	£m	£m	£m	£m	£m	£m	£m	£m
At 1 January 2011	99.4	20.7	1.3	0.1	0.2	(3.3)	6.3	124.7
Comprehensive income
Profit for the year	-	-	-	-	-	-	5.2	5.2
Other comprehensive income
Financial instrument reserve movement *	-	-	-	-	-	0.5	-	0.5
Actuarial loss on retirement benefit obligations *	-	-	-	(0.4)	-	-	-	(0.4)
Currency translation differences	-	-	-	-	0.1	-	-	0.1
Total other comprehensive (expense)/income	-	-	-	(0.4)	0.1	0.5	-	0.2
Total comprehensive (expense)/income	-	-	-	(0.4)	0.1	0.5	5.2	5.4
Transactions with owners
Share option credit	-	-	1.1	-	-	-	-	1.1
Cancellation of share premium account	-	(20.7)	-	-	-	-	20.7	-
At 31 December 2011	99.4	-	2.4	(0.3)	0.3	(2.8)	32.2	131.2
Comprehensive income
Profit for the year	-	-	-	-	-	-	1.3	1.3
Other comprehensive income
Financial instrument reserve movement *	-	-	-	-	-	2.8	-	2.8
Actuarial loss on retirement benefit obligations *	-	-	-	(0.2)	-	-	-	(0.2)
Currency translation differences	-	-	-	-	(1.1)	-	-	(1.1)
Total other comprehensive (expense)/income	-	-	-	(0.2)	(1.1)	2.8	-	1.5
Total comprehensive (expense)/income	-	-	-	(0.2)	(1.1)	2.8	1.3	2.8
Transactions with owners
Share option credit	-	-	1.4	-	-	-	-	1.4
At 31 December 2012	99.4	-	3.8	(0.5)	(0.8)	-	33.5	135.4
*Net of deferred tax

Consolidated balance sheet

As at 31 December 2012

		Group
		2012	2011
	Note	£m	£m
ASSETS
Non-current assets
Goodwill	11	153.4	147.6
Intangible fixed assets		47.4	50.4
Property, plant and equipment		16.1	14.3
Net investment in joint venture		0.5	0.3
Trade and other receivables		-	0.1
Deferred tax assets		1.3	3.0
		218.7	215.7
Current assets
Trade and other receivables		8.0	8.6
Inventories		1.6	2.6
Cash and cash equivalents		2.9	3.3
		12.5	14.5
TOTAL ASSETS		231.2	230.2
LIABILITIES
Current liabilities
Derivative financial instruments		(2.7)	(3.7)
Financial liabilities	10	(6.3)	(14.0)
Trade and other payables		(22.3)	(22.9)
Provisions		(0.3)	(0.3)
Current tax liabilities		(0.6)	(1.5)
		(32.2)	(42.4)
Net current liabilities		(19.7)	(27.9)
Non-current liabilities
Financial liabilities	10	(61.5)	(54.6)
Retirement benefit liability		(1.6)	(1.3)
Provisions		(0.5)	(0.7)
		(63.6)	(56.6)
TOTAL LIABILITIES		(95.8)	(99.0)
NET ASSETS		135.4	131.2
EQUITY
Ordinary shares		99.4	99.4
Other reserves		2.5	2.4
Financial instrument reserve		-	(2.8)
Retained earnings		33.5	32.2
TOTAL EQUITY		135.4	131.2

 

 

Consolidated statement of cash flows

For the year ended 31 December 2012

		Group
		2012	2011
	Note	£m	£m
Cash flows from operating activities
Cash generated from operations	9	26.6	25.7
Interest received		-	0.1
Interest paid		(4.1)	(4.8)
Tax paid		(2.0)	(1.0)
Net cash generated from operating activities before cash exceptional costs		20.5	20.0
Cash exceptional costs		(2.0)	(0.9)
Net cash generated from operating activities		18.5	19.1
Cash flows from investing activities
Investment in joint venture		(0.3)	(0.8)
Acquisition of eBet Online Inc. net of cash acquired	11	(5.7)	-
Purchase of intangible fixed assets		(3.2)	(1.4)
Purchase of property, plant and equipment		(5.1)	(3.9)
Net cash used in investing activities		(14.3)	(6.1)
Cash flows from financing activities
Refinancing fee paid - exceptional cost		(2.1)	-
Net cash outflow from repayment of borrowings		(2.5)	(10.5)
Net cash used in financing activities		(4.6)	(10.5)
Net (decrease)/increase in cash and cash equivalents		(0.4)	2.5
Cash and cash equivalents at the beginning of the year		3.3	0.8
Cash and cash equivalents at the end of the year		2.9	3.3
Reconciliation of net bank debt
(Decrease)/increase in cash in the year		(0.4)	2.5
Net cash outflow from repayment of borrowings		2.5	10.5
Movement in net bank debt for the year		2.1	13.0
At 1 January		(59.2)	(72.2)
At 31 December		(57.1)	(59.2)
Net bank debt comprises:
Cash and cash equivalents		2.9	3.3
Loans repayable within one year		-	(14.0)
Loans repayable after one year		(60.0)	(48.5)
At 31 December		(57.1)	(59.2)

 

 

 

 

 

 

Notes to the Preliminary Statement

For the year ended 31 December 2012

1.   Reporting entity

 

Sportech PLC (the "Company") is a company domiciled in the UK and listed on the London Stock Exchange. The Company's registered office is 249 West George Street, Glasgow, Scotland G2 4RB. The consolidated financial statements of the Company as at and for the year ended 31 December 2012 comprise the Company, its subsidiaries and joint venture (together referred to as the "Group"). The principal activities of the Group are sports betting, entertainment and wagering technology solutions.

 

2.   Basis of reporting

 

a.   The accounting policies used in preparation of this preliminary announcement have remained unchanged from those set out in the Group's 2011 financial statements.  They are also consistent with those in the full financial statements which have yet to be published. The preliminary results for the year ended 31 December 2012 were approved by the Board of Directors on 6 March 2013.

b.   The financial information set out in this announcement does not constitute statutory financial statements for the years ended 31 December 2012 and 2011 within the meaning of section 435 of the Companies Act 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 498 of the Companies Act 2006.

 

c.   The consolidated financial statements have been prepared in accordance with International Financial Reporting Standards as adopted by the European Union (IFRSs as adopted by the EU), IFRIC interpretations and the Companies Act 2006 applicable to companies reporting under IFRS. The financial statements have been prepared under the historical cost convention, as modified by the revaluation of certain financial assets and liabilities (including derivative instruments) at fair value through profit or loss.

 

d.   The Group has committed revolving credit banking facilities totaling £75m in place with Bank of Scotland plc, Barclays Bank plc and Royal Bank of Scotland plc until August 2015. The Group's forecasts and projections, which have been prepared for the period to 30 June 2014 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 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 financial statements.

 

3.   Estimates

 

The preparation of consolidated financial statements requires management to make judgements, estimates and assumptions that affect the application of accounting policies and the reported amounts of assets and liabilities, income and expense. Actual results may differ from these estimates.

 

4.   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, which makes strategic and operational decisions.

The Group has identified its business segments as outlined below:

-    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;

-    Sportech Racing - provision of pari-mutuel wagering services and systems worldwide principally to the horseracing industry and off-track betting venue management;

-    e-Gaming - the operation of a portfolio of online casino, poker, bingo and fixed-odds games supplied via third-party software providers; and

-    Corporate costs - central costs relating to the Company in its capacity as the PLC holding company of the Group.

			2012
										Inter-
	Football		Sportech					Corporate		segment
	Pools		Racing			e-Gaming		costs		elimination		Group
	£m		£m			£m		£m		£m		£m
Revenue from sale of goods	42.4		4.4			4.8		-		(0.2)		51.4
Revenue from rendering of services	-		61.0			-		-		(0.4)		60.6
Total revenue	42.4		65.4			4.8		-		(0.6)		112.0
EBITDA before exceptional costs and share option expense	18.5		10.2			1.5		(3.7)		(0.1)		26.4
Share option expense	-		-			-		(1.4)		-		(1.4)
Depreciation and amortisation
(excluding amortisation of acquired
intangibles)	(1.3)		(3.6)			(0.4)		-		0.1		(5.2)
Segment result before amortisation of acquired intangibles and exceptional costs	17.2		6.6			1.1		(5.1)		-		19.8
Amortisation of acquired intangibles	(5.9)		-			-		-		-		(5.9)
Exceptional costs	(0.7)		(1.4)			-		(0.7)		-		(2.8)
Operating profit/(loss)	10.6		5.2			1.1		(5.8)		-		11.1
Net finance costs												(8.8)
Share of loss after tax of joint venture												(0.2)
Profit before taxation												2.1
Taxation												(0.8)
Profit for the year												1.3
					2011
											Inter-
		Football		Sportech					Corporate		segment
		Pools		Racing			e-Gaming		costs		elimination	Group
		£m		£m			£m		£m		£m	£m
Revenue from sale of goods		47.7		6.3			4.1		-		(0.4)	57.7
Revenue from rendering of services		-		61.0			-		-		(0.5)	60.5
Total revenue		47.7		67.3			4.1		-		(0.9)	118.2
EBITDA before exceptional costs and share option expense		18.5		10.0			1.6		(3.8)		(0.2)	26.1
Share option expense		-		-			-		(1.1)		-	(1.1)
Depreciation and amortisation
(excluding amortisation of acquired
intangibles)		(1.2)		(3.1)			(0.2)		-		-	(4.5)
Segment result before amortisation of acquired intangibles and exceptional
costs		17.3		6.9			1.4		(4.9)		(0.2)	20.5
Amortisation of acquired intangibles		(5.9)		-			-		-		-	(5.9)
Exceptional costs		(0.3)		(0.3)			-		(0.3)		-	(0.9)
Operating profit/(loss)		11.1		6.6			1.4		(5.2)		(0.2)	13.7
Net finance costs												(5.1)
Share of loss after tax of joint venture												(0.6)
Profit before taxation												8.0
Taxation												(2.8)
Profit for the year												5.2

 

5.   Exceptional costs

 

Exceptional costs by type are as follows:

	2012	2011
	£m	£m
Included in administrative expenses:
Redundancy and restructuring costs in respect of the rationalisation and modernisation of the business	0.9	0.5
Compensation for loss of office	0.3	-
Fees in relation to Spot the Ball First-Tier Tax Tribunal	0.2	-
Transaction costs in respect of the acquisition of eBet Online Inc.	0.6	-
Licensing costs in New Jersey in respect of the acquisition of
Sportech Racing	0.4	0.2
Other exceptional costs	0.4	0.2
	2.8	0.9
Included in net finance costs:
Refinancing fee	2.1	-
Fair value of derivative financial instruments reclassified to the income statement	3.3	-
Movement on derivative financial instruments post designation as ineffective	(0.5)	-
	4.9	-
Total exceptional costs	7.7	0.9

 

6.   Net finance costs

	2012	2011
	£m	£m
Interest payable on bank loans, derivative financial instruments and overdrafts	4.1	4.8
Interest receivable on cash balances	-	(0.1)
Refinancing fee	2.1	-
Fair value of derivative financial instruments reclassified to the
income statement	3.3	-
Movement on derivative financial instruments post designation as ineffective	(0.5)	-
Non-cash finance (income)/charges *	(0.1)	0.5
Foreign exchange gain on financial assets and liabilities denominated in foreign currency	(0.1)	-
Profit on foreign exchange contracts	-	(0.1)
Net finance costs	8.8	5.1

* Non-cash finance (income)/charges are in respect of the deferred consideration payable on the acquisition of Sportech Racing in October 2010.

The refinancing fee, the fair value movements on derivative financial statements, the foreign exchange gain on financial assets and liabilities denominated in foreign currency, the non-cash finance (income)/charges and the profit on foreign exchange contracts are all together shown as other finance charges in the income statement. Included in the above table are exceptional costs of £4.9m (2011: £nil).

 

7.   Taxation

	2012	2011
	£m	£m
Current tax:
Current tax on profit for the year	1.1	2.1
Adjustments in respect of prior years	(0.1)	0.2
Total current tax	1.0	2.3
Deferred tax:
Origination and reversal of temporary differences	(0.4)	0.3
Effect of changes in tax rates	0.2	0.2
Total deferred tax	(0.2)	0.5
Total taxation charge	0.8	2.8

 

The tax on the Group's profit before taxation 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:

	2012	2011
	£m	£m
Profit before taxation	2.1	8.0
Add share of loss after tax of joint venture	0.2	0.6
Profit before taxation and share of loss after tax of joint venture	2.3	8.6
Tax calculated at domestic tax rates applicable to profits in the respective countries	0.8	2.5
Tax effects of:
- permanent differences	(0.1)	0.1
- deferred tax not previously provided	-	(0.2)
- effect of changes in tax rates	0.2	0.2
- adjustments in respect of prior years	(0.1)	0.2
Total taxation charge	0.8	2.8

 

The weighted average applicable tax rate was 36.5% (2011: 28.8%). The increase is as a result of a change in mix of profits in jurisdictions with varying tax rates.

 

 

8.   Earnings per share

 

The calculations of earnings per share ("EPS") are based on the following profit attributable to ordinary shareholders and the weighted average number of shares in issue:

	2012				2011
		Weighted				Weighted
		average	Per			average	Per
		number	share			number	share
	Profit	of shares	amount		Profit	of shares	amount
	£m	'000	Pence		£m	'000	Pence
Basic EPS	1.3	198,810	0.7		5.2	198,810	2.6

 

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 26.8% (2011: 28.8%):

	2012				2011
		Weighted				Weighted
		average	Per			average	Per
		number	Share			number	share
	Profit	of shares	Amount		Profit	of shares	amount
	£m	'000	Pence		£m	'000	Pence
Operating profit before amortisation of acquired intangibles and exceptional costs	19.8	198,810	10.0		20.5	198,810	10.3
Net finance costs (excluding other finance charges)	(4.1)	198,810	(2.1)		(4.7)	198,810	(2.4)
Adjusted profit before tax	15.7	198,810	7.9		15.8	198,810	7.9
Tax at 26.8% (2011: 28.8%)	(4.2)	198,810	(2.1)		(4.5)	198,810	(2.2)
Adjusted basic EPS	11.5	198,810	5.8		11.3	198,810	5.7

 

Certain employee options (707,070 in number; 2011: 707,070) have been excluded from the calculated diluted EPS as their exercise price is greater than the weighted average share price during the year and therefore would not be dilutive. The weighted average number of shares that have a dilutive effect on adjusted EPS is 13,742,000 (2011: 9,249,000).  Diluted basic EPS is 0.6p (2011: 2.5p) and diluted adjusted EPS is 5.4p (2011: 5.4p).

 

9.   Cash flow from operating activities

 

Reconciliation of profit before taxation to cash flows from operating activities

	Group
	2012	2011
	£m	£m
Profit before taxation	2.1	8.0
Adjustments for:
Exceptional costs	2.8	0.9
Share of loss after tax of joint venture	0.2	0.6
Depreciation	2.6	2.1
Amortisation of acquired intangibles	5.9	5.9
Amortisation of other intangibles	2.6	2.4
Net finance costs	4.1	4.7
Other finance charges	4.7	0.4
Share option expense	1.4	1.1
Movement in retirement benefit obligation	-	(0.1)
Movement in provisions	(0.2)	(0.3)
Changes in working capital:
Decrease in trade and other receivables	1.0	3.6
Decrease/(increase) in inventory	1.0	(1.6)
Decrease in trade and other payables	(1.6)	(2.0)
Cash flows from operating activities	26.6	25.7

 

10. Maturity of financial liabilities

		Group
		2012	2011
		£m	£m
Bank loans repayable within one year		-	14.0
Bank loans repayable between one and two years		-	48.5
Drawn revolving credit facility due between two and five years		60.0	-
Total bank borrowings		60.0	62.5
		Group
		2012	2011
		£m	£m
Current
Bank loans due within one year		-	14.0
Deferred consideration due within one year		6.3	-
Total current financial liabilities		6.3	14.0
Non-current
Bank loans due after one year		-	48.5
Drawn revolving credit facility due after one year		60.0	-
Deferred consideration due after one year		1.5	6.1
Total non-current financial liabilities		61.5	54.6
Total financial liabilities		67.8	68.6

 

11. Business combination of eBet Online Inc. 

On 19 December 2012, the Group acquired 100% of the issued share capital of eBet Online Inc. ("eBet"), a leading USA business to business online betting operator and technology and services provider focused on the North American horseracing betting market.

The acquisition of eBet reinforces Sportech's position as one of the largest operators and providers of online and mobile betting technologies and services across North America. The combination of eBet and Sportech's USA interactive business is expected to create significant strategic and operational synergies. eBet brings an incremental customer base with strong year-on-year revenue growth that will broaden Sportech's share of the account betting market in North America.

Following the acquisition, Sportech's enlarged USA interactive operation will provide customised websites, mobile applications, interactive voice response systems and telephone betting services to 29 licensed gaming and racing customers across the USA.

In addition to its betting technologies, Sportech will continue to provide its customers with a comprehensive package of services designed to maximise wagering revenue, including full-service marketing, content management and end‑user customer service and technical support.

Goodwill arising on the acquisition amounted to £5.8m.

The following table summarises the fair value of consideration paid for eBet and the amounts of the assets acquired and liabilities assumed recognised at acquisition date.

Provisional fair value of consideration at 19 December 2012			£m
Cash			5.8
Deferred consideration			0.9
Deferred contingent consideration			0.8
Total fair value of consideration transferred			7.5
Recognised provisional fair value amounts of identifiable assets acquired and liabilities assumed			£m
Cash			0.1
Intangible assets - customer contracts and relationships			1.8
Intangible assets - software			0.3
Intangible assets - other			0.9
Trade and other receivables			0.3
Trade and other payables			(0.5)
Income tax liability			(0.1)
Deferred tax liability			(1.1)
Total identifiable net assets			1.7
Goodwill			5.8
Total fair value of consideration transferred			7.5

Deferred consideration 

Deferred consideration of $1.5m is payable as follows:

-     $0.4m payable on the first anniversary of the acquisition; and

-     $1.1m payable on the second anniversary of the acquisition.

The deferred consideration accrues simple interest at 2% and the total amount payable has been discounted to its present value as required by IFRS 3 'Business Combinations' (revised).

Deferred contingent consideration

There is potential for Contingent Consideration of up to $1.8m to be payable if, the combined USA business' EBITDA (of Interactive Products and Services) for the year ended 31 December 2015 reaches the following:

-     less than $3.5m - the contingent consideration payable will equal $nil; and

-     equal or greater than $3.5m - the contingent consideration payable will equal $0.8m plus $0.40 for every $1 that the combined USA business of Interactive Products and Services exceeds $3.5m by, up to a maximum amount payable of $1.8m.

The amount payable is due no later than 40 days after delivery of the Group financial statements for the year ended 31 December 2015 or, in case of any dispute, ten days following the final determination of the independent accountant.

The Directors have reviewed the potential consideration payable based on the above performance requirements and accordingly recognised a fair value of £0.8m ($1.3m), representing the present value of the Group's estimate of the probability weighted cash outflow (discounted at 8.3%). An additional £0.3m ($0.5m) of the potential consideration payable has been treated as employment costs under IFRS 3 'Business Combinations' (revised) and will accordingly be accrued on a time apportioned basis to 31 December 2015. This expectation will be reviewed annually in accordance with IFRS 3 'Business Combinations' (revised).

Acquisition costs

Acquisition related costs amounting to £0.6m have been recognised as an expense in the consolidated income statement as an exceptional item.

Provisional fair value amounts of identifiable assets acquired and liabilities assumed

The fair values of the identifiable assets acquired and liabilities assumed are considered provisional in nature due to the business combination occurring close to the year end. Management will continue to monitor the provisional values during the year ended 31 December 2013 to ensure any fair value amendments are identified as a hindsight adjustment.

 

12. Contingent asset

The Board has previously announced that the Group had submitted a claim for in excess of £40.0m 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 successful, given the timeframe of the claim, could more than double the sum claimed. The Group is currently awaiting the decision of a First-Tier Tax Tribunal.  Accordingly, the claim has not been recognised in the Group's financial statements.
 

13. AGM

The Annual General Meeting will be held at 10 am on 14 May 2013 at the the offices of Olswang LLP, 90 High Holborn, London WC1V 6XX.