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

Preliminary Results for the year ended 31 December 2008

* Adjusted profit figures stated pre exceptional costs, amortisation of acquired intangibles and other noncash interest.

Ian Penrose, Chief Executive of Sportech PLC, said:

"2008 was another year of major transformation in delivering Sportech's turnaround strategy, with significant investment and management time being devoted to upgrading and modernising the Group's products, technology and routes to market. The result has been a vastly improved offering. As well as retaining our existing players and re-engaging with former customers, our new distribution channels and strategic marketing partnerships have enabled us to target new and younger players.

For the period since the start of the new football season in August 2008 to the end of the year, and for the first time in recent history, Sportech has been a net recruiter of customers to its suite of Football Pools products.

With many of the challenging immediate operational and financial initiatives now completed, Sportech, as a high-volume, small-value-ticket gaming business, enters 2009 in a significantly stronger position to withstand the economic downturn."

-ends-

Enquiries:

Sportech PLC

Ian Penrose, Chief Executive                                                                                                   0207 268 2400

Bell Pottinger Corporate & Financial
David Rydell / Emma Kent / Rosanne Perry                                                                          0207 861 3232

  Chairman's Statement

Overview

The Board has made considerable progress this year in implementing the changes required to deliver the turnaround of the business in line with the Group's strategic plan. There were three key initiatives that needed to be successfully addressed during 2008: the integration of Vernons following its acquisition in December 2007; the rebranding and relaunch of our Football Pools business; and the establishment of an e-Gaming partnership for our suite of online products.

Since the completion of the strategic review in 2007, the Board has been pursuing the objective of positioning our unique product, the Football Pools, at the heart of our business. It was of vital importance to modernise the fundamentals of the business. The acquisition of Vernons, its successful integration ahead of schedule, together with the expected levels of synergies, gave us the platform in terms of scale and product positioning on which to build. Having invested in new products, technology and modern distribution, the start of the football season in August 2008 marked the relaunch of our Football Pools business, which has enabled us to target a new and younger customer base, as well as re-engage with former players. 

On 24 June 2008, the Group strengthened its position in the online sector with the signing of a strategic distribution and marketing agreement with 888, to provide a suite of online products (including the Football Pools) to the domestic and international marketplace. I am confident that the benefits of this groundbreaking contract will be seen over the coming years.

The Group is well positioned to achieve its strategic objectives.

Financial Performance

We are pleased to report a continuing improvement in the financial position of the Group. Gross win revenues rose by £12.2m (20%) to £71.8m. Operating profit (before amortisation of acquired intangibles arising from the acquisition of Vernons and exceptional costs associated with the Vernons integration and the relaunch of the Football Pools) rose by £3.8m (20%) to £22.6m. Cash finance costs reduced by £0.9m (13%) to £5.8m. Adjusted profit before tax increased by £4.7m (39%) to £16.8m. Adjusted earnings per share amounted to 12.0p (2007: 13.4p).

 Following the planned exceptional costs and the amortisation of acquired intangibles in total amounting to £9.3m (2007: £0.5m), retained profit for the financial year amounted to £5.1m (2007: £8.1m). 

Even following the substantial exceptional costs, net debt, excluding deferred consideration for Vernons, has reduced to £83.2m (2007: £86.5m). Over the last three years and even after the acquisition and integration of Vernons, net debt has been reduced by £24.9m (23%), and we anticipate this trend will continue due to the strong cash generative nature of the business, coupled with stringent cash management.

 In December 2007 the Group entered into new, committed, ten year facility arrangements with the Bank of Scotland (now Lloyds Banking Group). The Group also implemented its strategy on interest rate hedging in the early part of 2008 and entered into swap agreements for three to eight years on a total of £60m of debt at an average rate (before the lending margin of the Bank of Scotland which blends to 1.85%) of 4.82%. This has reduced the Group's exposure to any volatility in the credit markets over the period of these agreements.

Dividend

As in previous years, no dividend is proposed as the Board believes that it must continue to invest in growth opportunities as well as further reducing debt.

Board and Employees

The Group has undergone another transformational year. The integration of Vernons, the relaunch and rebranding of the Football Pools business, together with the restructuring of our business operations in line with the Group's strategic objectives, has put significant pressure on the Board and its employees. I would like to express my thanks to those who contributed during this challenging year.

Outlook

Sportech continues to make significant progress as it continues its transition into a growth oriented sports, leisure and gaming business. Trading for the first two months of 2009 is in line with the Board's expectations. While the Group is conscious of wider macro-economic issues, and notwithstanding the consequential impact of the now resolved delays in launching into the retail environment and the initial challenges that were presented by the transition to 888, the Board believes that Sportech's position as a high-volume, small-value-ticket gaming business places it in a favourable position to weather the economic downturn, as it has done on many occasions since the business was founded in 1923. With many of the challenging, immediate, operational and financial initiatives now completed, the Board remains confident regarding Sportech's future prospects.

Piers Pottinger 

Chairman

24 March 2009 

Business and Financial Review

Overview

The Group continues to develop as a growth-oriented sports, leisure and gaming business. The initiatives undertaken during 2008 have resulted in a major improvement in the strategic positioning and performance of the business, which we will look to further build on in 2009.

 We are extremely focused on all aspects of our turnaround strategy. Having positioned the Football Pools at the heart of our business, we are focused on getting the basics right to ensure we can deliver profitable growth. 

Considerable operational progress has been made over the period to deliver on the Group's strategic objectives. Notably these include the integration of the Vernons business, the August 2008 relaunch and rebranding of the core Football Pools business (formerly Littlewoods Football Pools and the recently acquired Vernons) as "The New Football Pools" alongside the launch of a series of new games aimed at a younger audience. In addition, we have invested in upscaling our online operations by forming a strategic marketing and distribution partnership with 888, first announced in June 2008 and initially launched in October 2008. The Board anticipates that these major initiatives will generate significant long term value for the Group.

Financial Overview

The financial results reflect the continuing improvements the Board has made to the Group as a result of the turnaround strategy. 

Gross win revenues rose by £12.2m (20%) to £71.8m. Operating profit (before amortisation of acquired intangibles arising from the acquisition of Vernons and exceptional costs associated with the Vernons integration and business relaunch) rose by £3.8m (20%) to £22.6m. Cash finance costs reduced by £0.9m (13%) to £5.8m. Adjusted profit before tax increased by £4.7m (39%) to £16.8m. Adjusted earnings per share amounted to 12.0p (2007: 13.4p).

Following the planned exceptional costs and the amortisation of acquired intangibles in total amounting to £9.3m (2007: £0.5m), profit before tax for the financial year was £7.1m (2007: £11.6m). 

Taxation of £2.0m is in line with standard corporation tax rates averaging 28.5% for the year following the change in corporation tax rates to 28.0% from April 2008. In addition, the Group is currently reviewing its position following the case law decided in the Fleming and Condé Nast cases which presents a window of opportunity to 31 March 2009 to make retrospective VAT claims for periods prior to 1997. Further announcements will be made on this matter as appropriate.

Retained profits and earnings per share (after significant amortisation and exceptional costs) for the year amounted to £5.1m (2007: £8.1m) and 5.1p (2007: 12.8p) respectively. 

Debt and Banking Facilities

Debt reduction remains a priority for the Group and we are pleased to report that, even following the substantial costs associated with the integration of Vernons and the relaunch of the Football Pools business, net bank debt has reduced to £83.2m (2007: £86.5m). Including the fair value of deferred consideration payable to Ladbrokes in respect of the acquisition of Vernons, net debt has reduced by £6.0m to £86.0m (2007: £92.0m).

The improvement in the financial position of the Group during the implementation of the turnaround strategy is highlighted by the fact that over the last three years, and even after the acquisition and integration of Vernons, net bank debt has been reduced by £24.9m (23%) and the ratio of net debt to EBITDA has improved from 5.3 times to 3.5 times over the same period. We anticipate that these trends will continue due to the strong cash generative nature of the business, coupled with stringent cash management.

In December 2007, the Group entered into new, committed, ten year facility arrangements with the Bank of Scotland (now Lloyds Banking Group). In addition, the Group has implemented its strategy on interest rate hedging during the year and has entered into swap agreements for three to eight years on a total of £60m at an average rate (before the lending margin of the Bank of Scotland which blends to 1.85%) of 4.82%. This will reduce the Group's exposure to any volatility in the credit markets. Under international accounting rules, such swap arrangements are fair valued at each reporting period. Due to the unexpected movements in interest rates that occurred in the second half of 2008 these swaps are valued at the year end at a net liability (after deferred tax) of £3.4m (2007: £nil), compared to an asset of £2.2m as at 30 June 2008. The Board considers that these arrangements are in the long term interests of the Group.

Cash generated from operating activities (before exceptional items) has increased from £19.6m to £24.9m. With exceptional items paid amounting to £6.7m, net interest payments made falling to £5.2m (2007: £6.7m) and tax payments reducing from £2.9m to £2.0m, net cash generated from operating activities amounted to £11.0m (2007: £9.7m). In 2008, we invested £4.1m in tangible and intangible fixed assets, £3.0m on paying the first installment of deferred consideration to Ladbrokes plc for the acquisition of Vernons (the final outstanding balance of £3.0m is due in December 2009) and £0.6m on acquiring the football website, 4theGame.com.

No dividend is proposed as the Board believes that it must continue to invest in growth opportunities as well as further reducing debt.

The New Football Pools

Overview    

Since the completion of the strategic review in 2007 the Board has been focused on positioning our unique product, the Football Pools, at the heart of our business. It has been of vital importance to modernise many of the fundamentals of our business. The acquisition of Vernons, and the successful physical integration of the business ahead of schedule, gave us the platform, in terms of scale and product positioning, on which to build. Having invested in new products, technology and modern distribution, the start of the football season in August 2008 marked the relaunch of our Football Pools business, which has seen the Group target a new and younger customer base, as well as re-engage with former players.

Launch of the New Football Pools

In order to get the Group into a position of being able to relaunch the Football Pools business and deliver growth, it was imperative to develop additional, engaging games and new ways to play the pools which would appeal to a new and younger customer base, as well as re-engage former players. Products, technology and distribution have been the three key areas that we have improved and which act as the cornerstone of our turnaround strategy.

The launch of The New Football Pools, to coincide with the start of the football season in August 2008, concluded a 15 month period of activity which saw the introduction of new technology, a major overhaul and update of the Group's brand strategy, the launch of a suite of new products and the securing of new distribution routes.

Products

Alongside the update of existing games, two new core products, Premier 10 and Footy 15, have been introduced to extend the customer offering into shorter odds games, complementing the traditional Classic Football Pools long odds game. Premier 10 is "The Official UK Football Pool of the Premier League" and Footy 15 focuses on matches from the Premier League, the Championship, Scottish Premier League and Europe. Top prizes range from £20,000 up to £3m, with a whole host of smaller, regular prizes. Clearly, the greater the number of players, the greater the potential for prize funds to grow. Both of these products have been well received.

Technology

Making our games easy to access and play is fundamental to restoring growth. Investing in new technology to replace the Group's previously outdated systems has been a vital step in order to achieve this, enabling new distribution channels and delivering operational benefits.

The Group's technology infrastructure has been fundamentally overhauled by our technology partners, Scientific Games and Orbis. The development of an "open architecture" system facilitates the processing of customer entries from a variety of sources, including paper coupons, postal entries, direct debit customers, internet entries and white label online partners, mobile, handheld, machine entries, retail, EPOS and international. As a consequence, the ability for customers to play the new, engaging games in a simple and accessible manner has been greatly enhanced. 

We are delighted that we have successfully completed the initial implementation of this project during 2008 and we will be completing the technological integration of Vernons by the start of the 2009/10 football season. 

Distribution

The new technology backbone has facilitated a significant expansion in our distribution capabilities, enabling us to secure new partners to make our football pool products widely available and more visible to potential customers.

In December 2008, a selection of the Group's games was made available to customers across the Ladbrokes' betting shop estate. Whilst this was some six months later than we had envisaged, it is pleasing to finally access a new distribution channel and new revenue streams. This delay has slowed our progress in the wider retail gaming environment, but we are now in discussions with a number of other gaming operators in respect of the distribution of our products. In addition, commencing in May 2009, football pool products will be made available to customers of 888 and it is anticipated that these products will be available to all 4.9m registered users of their website, 888.com, by the start of the 2009/2010 football season. 

Integration of Vernons

We are pleased to report that considerable progress has been made with the integration of the Vernons business into Sportech's existing Football Pools business. The products and pools were integrated seamlessly, which facilitated the relaunch and rebranding of Littlewoods Football Pools and Vernons Football Pools as The New Football Pools in August 2008. One year ahead of schedule, we relocated the entire business from Fortune House (which remains with the vendors, Ladbrokes) into Walton House, Liverpool, the operations centre for Sportech. The synergies of £1.5m that have been derived in 2008 from this integration process exceeded initial expectations, having benefited from the accelerated timetable. 

Following a period of customer research and internal business analysis, and with the experience of a similar exercise carried out in 2007 in respect of the Littlewoods Football Pools customer base, we took the decision to enhance the product offering for the Vernons customer base, as part of the consolidation of activities to The New Football Pools. This was the first time in 14 years that such an initiative to improve the product offering and the associated average weekly spend per head had been undertaken and we have been very pleased with the results. Average stakes increased by 29% to £1.57 per customer, per week, partially offset by a one-off customer loss of 6%. The initiative began in August 2008 and we anticipate seeing the full financial benefit in 2009.

International Expansion

The Board considers that the international marketplace offers great potential for our pari-mutuel games of skill and the development of a strong technological backbone has been paramount in enabling the potential of the international marketplace to be realised from an operational and distribution capability.

Having made the necessary significant investment in our technological infrastructure and product suite, we believe the pari-mutuel gaming model now has significant commercial appeal across international markets and a variety of sports. Sportech is actively pursuing international expansion plans, particularly in Asia and Eastern Europe and although no conclusion has yet been reached - as we are focused on balancing the risk and reward profile on investment models - the Board continue to have advanced discussions with a number of parties with a view to securing the right long term opportunities. 

Following our acquisition of Vernons we are now the largest gaming operator in Mauritius, having had representation in Mauritius and neighbouring islands for over 58 years. We have built upon this position by recently merging the two operations in Mauritius into one, invested in a scanning system for football pools coupons on the island and enhanced our local marketing activities. For the first time in many years, 2008 witnessed a growth in revenues derived from our international activities, we are seeing that trend continue into 2009 and we now have a much more efficient business operation.  

Football Gaming - Retail, Financials and Customer Numbers 

Following several years of severe decline in the performance of the Football Gaming business, it is pleasing that through a combination of managing the core Football Pools business more effectively and the successful acquisition of Vernons, major progress in this area has been achieved. Gross win has increased by £13.8m (29%) to £61.0m (2007: £47.2m) and before restructuring costs, operating profit has increased by £6.4m (34%) to £25.0m (2007: £18.6m).

Our focus on customer retention continues and we are pleased to report that for the third year running, the rate of customer losses is continuing to improve. Excluding the expected one-off customer losses associated with the Vernons product repositioning and price enhancements, customer attrition within our traditional Classic Pools product is down to 7% (2007: 9%), an improvement on historic years where customer attrition rates were running in the mid to late teens.  

Football Pools Online Strategy 

In time for the new football season, we launched an innovative website, footballpools.com, which combines the enhanced range of football prediction games with comprehensive content aimed at both the football fan and the wider general public. In addition to the streaming of breaking football news headlines, we have introduced a host of innovative new features to enable the customer to predict the match outcomes, ranging from match previews and reviews, to recent head-to-head match results. To improve the enjoyment and interactivity of the site, we have introduced a community-focused, fans forum, private league functionality and unique content which has been very well received by our customers.

The Group has secured partnerships with a number of media organisations, including The Daily Telegraph, The Daily Mail, The Daily Mirror, FourFourTwo and Footy Mad. Initial results from these partners has been mixed, with certain of these relationships working better than others. Much has been learnt from the unique nature of these pioneering opportunities, which will be implemented on an ongoing basis and for the new season, as appropriate. As a consequence of the above, and in a year of planned heavy start-up investment, the online football division incurred an operating loss of £1.9m (2007: loss of £0.6m). The total number of active customers on footballpools.com amounted to 30,000, of whom 25,000 have been active since August 2008, out of a total of 66,000 registered customers (of whom 39,000 registered in 2008) as at 31 December 2008.

Ongoing Online Progress

Since the year end, considerable progress has been made in many areas. A number of changes have been made to the staffing structure, as we look to build on the initial progress and develop a leading social gaming application based on football, the world's leading sport. 

A central driver of this has been the development of mini-leagues, where players can bet with and against their friends/colleagues/team-mates in their predictions of a set of football matches. Players score points for each correct answer and will compete against their "social network" in a week, and season long league table. The ultimate fantasy football meets prediction gaming. We have received very positive feedback from various media and look forward to the new season when we anticipate having many players competing in such leagues. We are delighted that last week, an initial version of the mini-leagues was launched in conjunction with The Daily Telegraph's Fantasy Football section.

Running parallel to this is our approach to act as a "business to business" provider of unique football pools games and to "white label" their distribution to online bookmakers, gaming companies and other media companies. This will facilitate increasing liquidity into the pools and enable widespread distribution of our products which are the biggest pools games on British football, provided by the oldest football gaming company in the world. Work is ongoing to create the technology (application program interfaces or APIs) to make such integrations as seamless as possible. Further announcements will be made in due course.

In November 2008, the Group acquired the world's oldest football community website, 4theGame, at a cost of £600,000.  With 700,000 unique monthly users and an international customer base, this has been a strategically important acquisition that is a perfect host site to cross-sell and market the full suite of Sportech's football games, in addition to providing cost efficient football content to footballpools.com. Since the acquisition, we have been focusing on integrating the site into our product offerings in order to maximise its value. This will be completed by Summer 2009.

e-Gaming

As a consequence of the strategic review, which was completed in 2007, it was apparent that the Group needed to consolidate certain of our e-Gaming activities to create a coherent customer and technology offering in order to drive growth in this area. This was augmented by our need to evolve the brand name away from Littlewoods to GameOn as part of our planned branding strategy referred to in this Business Review.  

The contract with Cryptologic, who were the software suppliers to Littlewoods Casino and Poker, was due to expire in September 2008. The strategic aims of the Group, coupled with this contract expiry date and the changing business dynamics in this sector, led us to review the market to ascertain the optimum course of action for the Group.

Strategic Marketing, Distribution and Technology Partnership with 888 

On 24 June 2008 we signed a strategic distribution and marketing agreement with 888.

This partnership will allow the promotion of The New Football Pools across 888's entire gaming database, one of the largest in the world. 888 also provides a turnkey online gaming operation, creating the technology platform required to power all aspects of our principal online gaming operations - notably, Littlewoods Casino.com, Littlewoods Poker.com, as well as Instant Win Games and international sports betting opportunities - provided and managed by 888 under our brands. Additionally, commencing in May 2009, football pools products will be made available to customers of 888 and it is anticipated that these products will be available to all 4.9m registered users of their website, 888.com, by the start of the 2009/2010 football season. Importantly, 888 will actively assist in the marketing of all Sportech's products to both companies' existing and new customers in the UK and overseas. 

The improved service includes the creation of a common platform and e-wallet, enabling a seamless cross promotion of our suite of gaming products. It will also allow expansion of our online gaming products into appropriate international territories utilising the vast reach and language capabilities inbuilt into the 888 gaming platform.

Both LittlewoodsCasino.com and LittlewoodsPoker.com were launched in October 2008 on the 888 platform; GameOn Bingo was launched in January 2009; GameOn Quickplay, our suite of leading instant win and slot games, is being launched imminently; and a range of football pools games will be available to 888's customers later this year, commencing with their launch on 888 Poker in May 2009.

Following the announcement of the strategic partnership with 888 there was inevitably an intense period of activity to launch this new venture. Alongside the technical and marketing challenges, we restructured our internal resources and moved our regulatory and operational activities from Malta to Israel and Gibraltar. We experienced a hugely challenging period, as a consequence of certain contractual terms agreed six years ago, to move our customers to the new improved platform. Whilst overall, active casino players in the year grew by 3% to 15,200 and active poker players remained constant at 7,800, the impact of the transition to 888 and the overall downturn in the economic climate, especially in the fourth quarter, had a negative impact on gross win per player. This has reduced the profitability generated by Casino and Poker to £1.6m (2007: £3.0m), illustrating quite clearly how difficult this transition period has been. This has had a consequential effect on 2009, as it has meant that we have commenced this year with a lower run rate of customer numbers and gross win than envisaged prior to launch last year. However, the Board remains confident that this strategic initiative will deliver significant value over the medium term.

LittlewoodsBingo.com

LittlewoodsBingo.com, launched in 2006, has had a strong year, reporting a 150% increase in profitability to £0.5m. Registered customers grew by 67% to 205,000 and active players grew by 42% to 18,500.

We have high hopes of creating a fast-growing, highly-profitable bingo operation. Growth is continuing as a result of focused marketing activity, together with high profile television campaigns undertaken in 2008 and continuing in 2009. We will continue to leverage the household name of Littlewoods and its reputation as the trusted name in gaming.

We continue to work closely with our bingo, technology and network partner St Minver to drive this forward and we expect to see further benefits in the coming year.

Vernons.co.uk

Continuing with the approach set out above for Littlewoods Bingo, we have been encouraged by the performance of the online activities of Vernons. For 84 years Vernons has also been a household name with a strong reputation for games, winning, trust and integrity. Vernons has grown its active customer base to 22,500 players in 2008, achieved a break-even position in line with expectations and we are reviewing our customer service and technology platform options to optimise the position over the medium term. We will be refreshing the website later this year with a modern, yet traditional feel as we look to continue to develop in the area of soft gaming.

Branding Strategy

As previously stated, the "Littlewoods" name is used under a ten year licence agreement which expires in September 2010. The Group carried out an extensive branding review, in conjunction with its branding and marketing advisers, and concluded that the two football pool brands, Littlewoods Football Pools and Vernons, should be rebranded The New Football Pools with effect from the start of the new football season in August 2008. The nature and structure of Zetters Football Pools has led us to keep that brand in place for its very loyal customer base.

As a consequence, a full rebranding exercise, together with extensive communication to all stakeholders, including customers, collectors, suppliers, industry, press and the City, was carried out in time for the relaunch of the business as The New Football Pools.

In line with our requirement to amend our e-Gaming brands, we have created a suite of GameOn brands for our casino, poker, bingo and Quickplay products. GameOn Bingo has been launched, GameOn Quickplay is launched later this month and our strategy for evolving LittlewoodsCasino.com and LittlewoodsPoker.com over to the GameOn brand will be enacted later this year.

We are evaluating the options for our other two remaining brands, LittlewoodsBingo.com and Vernons.co.uk, both of which sit very comfortably in the soft gaming arena, an area we are looking to develop further.  

Summary and Outlook

Despite launching The New Football Pools into challenging economic circumstances, customer numbers continue to show their strongest resilience since the introduction of the National Lottery in 1994. For the period from the start of the new football season in August to the end of 2008, and for the first time in recent history, Sportech has been a net recruiter of customers to its suite of Football Pools products. 

Sportech continues to make significant progress as it continues its transition into a growth-oriented sports, leisure and gaming business.  While the Group is conscious of wider macro-economic issues, and notwithstanding the consequential impact of the now resolved delays in launching into the retail environment and the initial challenges that were presented by the transition to 888, the Board believes that Sportech's position as a high-volume, small-value-ticket gaming business places it in a favourable position to weather any economic downturn, as it has done on many occasions since the business was founded in 1923.  With many of the challenging immediate operational and financial initiatives now completed, the Board remains confident regarding Sportech's future prospects.

Ian Penrose

Chief Executive

Steve Cunliffe

Finance Director

24 March 2009

Consolidated Income Statement

For the year ended 31 December 2008

* Adjusted profit before taxation is profit before taxation, amortisation of acquired intangibles, exceptional costs and other non-cash finance charges in respect of the deferred consideration payable on the acquisition of Vernons.

Statement of recognised income and expense

For the year ended 31 December 2008

Consolidated Balance Sheet

As at 31 December 2008

Consolidated Cash Flow Statement

For the year ended 31 December 2008

Notes to the Preliminary Statement

For the year ended 31 December 2008

2. Segmental Reporting

2008 Segment Reporting

2007 Segment Reporting

3. Finance (costs)/income

*Non-cash finance charges are in respect of deferred consideration payable on the acquisition of Vernons.

4. Exceptional Costs

All exceptional costs for continuing operations are included within administrative costs within the income statement:

Exceptional costs in the current year relate to redundancy costs in respect of the continuing rationalisation of the business, ongoing seeding costs in respect of new games, re-branding and re-launch of the combined Football Pools business as the New Football Pools, in addition to costs associated with the integration of the Vernons business, and other exceptional costs. Exceptional costs in the prior year relate to redundancy costs and initial seeding costs of new games offset by the release of amounts accrued in previous years in respect of building costs following the surrender of a lease.

5. Tax on profit on ordinary activities

The taxation charge for the year is in line with (2007: in line with) the standard rate of corporation tax in the UK (28.5% average in the year). A reconciliation is shown below:

It is expected that in future years the rate will be in line with the standard rate of corporation tax in the UK (28.0%).

6. Earnings per share

The calculations of earnings per share (EPS) are based on the following profits attributable to ordinary shareholders and the weighted average numbers of shares in issue adjusted following the share consolidation in December 2007.

The calculations of adjusted EPS are based on the following profits attributable to ordinary shareholders and the weighted average numbers of shares and an estimated tax charge of 28.5%:

7. Cash flow from operating activities

Reconciliation of operating profit to net cash flow from operating activities