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

Preliminary Results for the year ended 31 December 2009

 

Financial Highlights

·      Adjusted operating profit* reduced by £3.1m to £19.5m (2008: £22.6m) primarily due to the investment in, and underperformance of, our online and e-Gaming operations respectively

·      Adjusted profit before tax* reduced by £2.1m to £14.7m (2008: £16.8m)

·      Net debt reduced by £6.1m to £79.9m (2008: £86.0m including deferred consideration)

·      Adjusted earnings per share ("EPS")* of 10.5p (2008: 12.0p)

·      Retained loss and loss per share (after significant non-cash amortisation and non-cash exceptional costs) of £12.3m (2008: profit of £5.1m) and 12.2p (2008: 5.1p EPS)

·      Revised banking facilities agreed and in place until 2013

 

* Adjusted profit figures are stated before exceptional costs, amortisation of acquired intangibles and other non-cash finance charges.

 

Post Year End Developments

·      Acquisition of Scientific Games Racing ("SGR"), the pari-mutuel technology provider and venue management business division of Scientific Games Corporation, for a total consideration of up to $83.0m (approximately £51.4m). The acquisition remains subject to certain international Regulatory Approvals, which we hope will be forthcoming shortly. The integration plan for SGR is at an advanced stage

·      Successful fundraising to raise gross proceeds of £29.2m via a Firm Placing and Placing and Open Offer at an issue price of 50p per share to part fund the SGR acquisition, together with the acquisition shares due to Scientific Games Corporation

·      Creation of Joint Venture with Playwin, the leading Indian lottery and gaming brand owned by Essel Group, to launch a multi-platform sports gaming business in the Indian market

·      £90.75m revised banking facilities secured on 31 December 2009 and revised following the fundraising, which gives the Group the flexibility it requires to develop organically as well as providing it with the ability to take advantage of available business development opportunities

 

Strategic and Operational Highlights

·      Modernisation of many aspects of the business now largely complete resulting in a significant upgrade and integration of the technology suite and a much improved customer offering

·      Resilience of core business demonstrated with customer recruitment and retention at highest level in recent years, despite the challenging economic backdrop

·      Integration of Vernons business now complete with operational and financial synergies continuing to exceed management's initial expectations

·      Successful first season for the re-branded Football Pools business with new and enhanced products and a community-based, football predictor website

·      Increased visibility of The New Football Pools brand through media partnerships with The Daily Telegraph, The Daily Mail, Metro and, most recently, The Trinity Mirror Group

·      Distribution through Licensed Betting Offices ('LBOs') commenced

·      Football Pools jackpot of £3m shared amongst 14 players last weekend - 21 March 2010

 

Ian Penrose, Chief Executive of Sportech PLC, said:

 

"2009 has been a landmark year of transition and transformation for Sportech as we completed our turnaround strategy in the face of some of the most challenging economic conditions experienced. We have modernised our business with the support of enhanced technological capabilities, significantly strengthened our financial position and are now offering our customers an improved portfolio of products through a broader range of distribution channels, than ever before."

 

"That the decline in profitability is due, primarily, to our continued investment in establishing our online football pools business and the underperformance of our e-Gaming business, is testament to the resilience of the business in these tough times.  Strong action has been taken to address the underperformance in these areas."

 

"The strategic acquisition of SGR, together with our entry into the Indian market in partnership with one of India's leading organisations, offers a unique opportunity to build a profit focused, global gaming business from strong pari-mutuel sporting and technology foundations. I am delighted that, on completion of the acquisition, Scientific Games Corporation and Playtech, two of the world's leading gaming organisations, will become commercial partners and strategic shareholders in Sportech to help capitalise on the exciting new opportunities and territories."

 

 

-ends-

 

Enquiries:

Sportech PLC

Ian R Penrose, Chief Executive / Steve Cunliffe, Finance Director                              0207 268 2400

 

Pelham Bell Pottinger

David Rydell / Emma Kent / Rosanne Perry                                                                 0207 861 3232

 

Chairman's Statement

Overview

2009 has been a year when the Board has concluded many of the objectives that arose from the strategic review in 2007 in order to turnaround the business. Having successfully integrated Vernons, re-launched the Football Pools business under The New Football Pools brand and undergone a complete overhaul of our technology operations, Sportech is now in a stronger position to drive profitable growth from its international sport and leisure gaming business.

At the start of 2010 we were pleased to announce the strategic acquisition of Scientific Games Racing ("SGR"), the pari-mutuel operator, technology provider and venue management business. The enlarged Group will have global reach, significant growth potential in those markets and the scale and capability to compete in the rapidly growing regulated gaming markets worldwide. The acquisition remains subject to certain international Regulatory Approvals, which we hope will be forthcoming shortly.

Financial Performance

The financial results reflect a resilient business performance in the face of the difficult trading and economic conditions faced by Sportech and the wider gambling sector throughout 2009. Underlying gross win reduced by £4.8m (6.7%) to £64.6m, although reported (headline) gross win has fallen by £7.2m due to a change in the accounting income recognition policy following the outsourcing of our casino and poker operations to 888 Holdings plc. Operating profit (before exceptional costs and amortisation of acquired intangibles) reduced by £3.1m to £19.5m (2008: £22.6m). Net finance costs reduced by £1.0m to £4.8m (2008: £5.8m) reflecting the reducing debt levels and lower average interest rates across the year. Adjusted profit before tax reduced by £2.1m (12.5%) to £14.7m (2008: £16.8m), primarily due to the investment in, and underperformance of, our online and e-Gaming operations. Adjusted earnings per share amounted to 10.5p (2008: 12.0p).

As highlighted in our Interim Management Statement in November 2009, the Group has conducted a review of the carrying value of a number of assets, principally in respect of goodwill and intangible assets. This review has led to a non-cash exceptional charge of £21.8m. The Group also incurred non-cash amortisation of intangible assets amounting to £6.6m (2008: £2.6m). The Group has also incurred cash exceptional costs of £3.1m (2008: £6.7m) as the Group continued to reduce headcount and structure the Group appropriately going forward. As a result of both these exceptional items and increase in amortisation charges, the Group has incurred a loss before tax for the financial year of £17.0m (2008:  profit of £7.1m). Due to this loss, the Group has a taxation credit of £4.7m in the year (2008: tax charge of £2.0m). Retained losses and loss per share for the year amounted to £12.3m (2008: profit of £5.1m) and 12.2p (2008: earnings per share of 5.1p) respectively.

As a result of continued stringent cash management and due to the strong cash generative nature of the business, net debt has reduced by £6.1m to £79.9m (2008: £86.0m including deferred consideration),  Over the past four years, net debt has reduced by £28.2m (26%), despite significant investment in modernising the business and we anticipate this trend to continue.

Bank Facilities

On 31 December 2009, Sportech entered into an amendment agreement with Lloyds Banking Group to revise its banking facilities for the Group on an ongoing basis. The revised facilities, which amount to £90.75m, give the Group the flexibility it requires to develop organically as well as providing it with the ability to take advantage of other available business development opportunities. These facilities have subsequently been amended to accommodate the acquisition of SGR.

Dividend

As in previous years, no dividend is proposed as the Board believes that it must continue to reduce debt as well as selective investment in growth opportunities.

 

VAT claims

 

The Board announced on 1 April 2009 that the Group had submitted a claim for in excess of £40m to HM Revenue and Customs ("HMRC") for the repayment of VAT overpaid in respect of the 'Spot the Ball' game from 1979 to 1996. Interest may also be added to the principal sum claimed, if applicable.  The claim has not been recognised in the Group's financial statements.  The Group can give no guarantees as to the successful outcome of this claim, and has been advised that it may take a number of years to reach a final decision.  The Group's advisers remain in dialogue with HMRC regarding this process and we await further developments on this claim.

 

Board and Employees

The Group has undergone another transformational year. As we continue our evolution into a leading pari-mutuel gaming company with international reach, I would like to take this opportunity to express my thanks to the Board and all of our employees for their ongoing contribution and commitment to the business.

 

Recent Corporate Activity

In January 2010 we announced the acquisition of SGR, the pari-mutuel and venue management business division of Scientific Games Corporation. Ownership of SGR is expected to enable the combined Group to become one of the leading pari-mutuel systems providers in Europe, North America and South America, and to pursue rapidly growing markets in the rest of the world. The acquisition remains subject to certain international Regulatory Approvals, which we hope will be forthcoming shortly.  On completion of the SGR acquisition, the Sportech management team will be further strengthened through the appointment of Lorne Weil the existing Chairman of Scientific Games Corporation, as a non executive Director in his personal capacity and Brooks Pierce, in an executive capacity, to the Board.

In addition, the Group has entered into a Joint Venture with Playwin, India's leading lottery and gaming brand, to launch a multi-platform sports gaming business in the Indian market.

The Group also announced in February 2010 that it had successfully raised £29.2m (approximately £22.4m net of all acquisition and capital raising costs and expenses) by way of a Firm Placing and a Placing and Open Offer. The majority of the funds raised, together with the issue of new shares in Sportech PLC, will be used as consideration payable to Scientific Games Corporation on our acquisition of SGR.

Outlook

Trading for the first two months of 2010 is in line with the Board's expectations. The Group has continued to expand its range of products, secured additional distribution and significantly enhanced its technological capabilities whilst the customer offering continues to improve and represents a strong base on which to build.

 

Piers Pottinger

Chairman

25 March 2010

 

Business and Financial Review

 

Overview

The three main objectives that came out of the strategic review back in 2007 were to overhaul the existing products, establish a pipeline of new products, modernise the technology infrastructure and review distribution routes, all of which were largely outdated. These initiatives were imperative if we were to turnaround the fortunes of a business that had historically been in decline. The Board is pleased to report that these planned improvements have largely been completed during 2009 and the result is a much improved business with engaging games, which are accessible to play and supported by modern technology to deliver them to our customers. From this position we will continue to strengthen the corporate positioning and performance of the business.

Financial Overview

The financial results reflect a resilient business performance in the face of the difficult trading and economic conditions faced by Sportech and the wider gambling sector during 2009. Underlying gross win reduced by £4.8m (6.7%) to £64.6m, although reported (headline) gross win has fallen by £7.2m due to a change in the accounting income recognition policy following the outsourcing of our casino and poker operations to 888 Holdings plc ("888"). Operating profit (before exceptional costs and amortisation of acquired intangibles) reduced by £3.1m to £19.5m (2008: £22.6m), primarily due to the investment in and underperformance of our online and e-Gaming operations. Net finance costs reduced by £1.0m to £4.8m (2008: £5.8m) reflecting the reducing debt levels and lower average interest rates across the year. Adjusted profit before tax reduced by £2.1m (12.5%) to £14.7m (2008: £16.8m). Adjusted earnings per share amounted to 10.5p (2008: 12.0p).

As highlighted in our Interim Management Statement dated 19 November 2009, the Group has conducted a review of the carrying value of a number of assets, principally in respect of goodwill and intangible assets. This review has led to a non-cash exceptional charge of £21.8m. In addition, the Group has also reviewed the useful life of the intangible assets acquired with Vernons in December 2007. The principal impact of this review was to revise the useful life of the customer relationships to five years from 1 July 2009 which generated an increase in the non-cash amortisation of intangibles to £6.6m (2008: £2.6m). The Group has also incurred cash exceptional costs of £3.1m (2008: £6.7m) as the Group continued to reduce headcount and structure the Group appropriately going forward. As a result of both these exceptional items and increase in amortisation charges, the Group has incurred a loss before tax for the financial year of £17.0m (2008:  profit of £7.1m). Due to this loss, the Group has a taxation credit of £4.7m in the year (2008: tax charge of £2.0m). Retained losses and loss per share for the year amounted to £12.3m (2008: profit of £5.1m) and 12.2p (2008: earnings per share of 5.1p) respectively.

Debt and Banking Facilities

Debt reduction remains a priority for the Group and net debt at the year end has reduced by £6.1m (7.1%) to £79.9m (2008: £86.0m). This includes the final payment of £3.0m made in December 2009 to Ladbrokes Plc for the deferred consideration in respect of the acquisition of Vernons. Cash generated from operating activities amounted to £15.9m. With net interest payments reducing to £4.8m (2008: £5.2m) and tax payments reducing to £0.8m (2008: £2.0m), net cash generated from operations amounted to £9.8m (2008: £11.0m). In 2009, we invested a further £4.0m into tangible and intangible assets.

Over the past four years net debt has reduced by £28.2m (26%) while at the same time, the Group has made considerable investments in modernising the business.  We anticipate a further significant improvement in this debt reduction over the coming years as the majority of the capital investment required to affect this modernisation has now been made.

At the end of December 2009 Sportech announced that it had entered into an amendment agreement with Lloyds Banking Group to revise its banking facilities for the Group on an ongoing basis. The revised facilities give the Group the flexibility it requires to develop organically as well as providing it with the ability to take advantage of other available business development opportunities.

The principal terms of the revised facilities are as follows. Total facilities amount to £90.75m, comprising £87.75m of senior facility term loans and a £3.0m working capital facility. There is an amendment of the maturity date on the senior facility to 30 June 2013 and extension of the maturity date on the working capital facility to 30 December 2010. The key financial covenants of the revised facilities have been adjusted to provide greater headroom until the end of the term and an agreement made to use part of the revised term loan to finance business development opportunities going forward. The margin over LIBOR in respect of the revised facilities was 3.5% (and is now currently 3%) per annum until expiry and as part of the amendment agreement, the Company has, post year end, paid the Bank's upfront fees of £0.9m,  being equivalent to 1%. of the gross proposed facility limits. Subsequent to the year end, these facilities were amended to accommodate the acquisition of SGR and the Capital Raising, details of which are noted below.

The Group has a number of interest rate swap agreements in place in respect of £60.0m of its term debt with maturity dates of one to six years at an average rate (before the lending margin of Lloyds Banking Group) of 4.82%. Under international accounting rules, such swap arrangements are fair valued at each reporting period. These swaps are valued at the year end as a net liability (after deferred tax) of £3.0m (£3.4m). The Board considers that these arrangements continue to be in the long term interests of the Group.

Taxation and other matters

The Group has tax assets for the year (including losses) of approximately £15.0m primarily arising from the non-cash exceptional charge. In the first instance the group anticipates being able to utilise £5.2m of tax losses against previous period taxable profits and the group has recently received a refund of tax in respect of prior years of £1.5m. The remaining tax assets amounting to approximately £10.0m will be carried forward to utilise against future taxable profits as appropriate.

The Board has previously announced that the Group had submitted a claim for in excess of £40m to HMRC for the repayment of VAT overpaid in respect of the 'Spot the Ball' game from 1979 to 1996. Interest may also be added to the principal sum claimed, if applicable. The claim has not been recognised in the Group's financial statements.  The Group can give no guarantees as to the successful outcome of this claim, and has been advised that it may take a number of years to reach a final decision. The Group's advisers remain in dialogue with HMRC regarding this process and we await further developments on this claim.

The Football Pools Business

Overview                     

A key objective of our turnaround strategy has been to position our unique product, The Football Pools, at the heart of our business. The Group has continued to focus on its modernisation and revitalisation in order to appeal to a new and younger audience as well as to existing and former players.  The acquisition of Vernons, and the successful integration of the business, gave us the platform in terms of scale and product positioning, on which to build a larger customer base.

Many key objectives of the turnaround have been met and, having successfully repositioned the Football Pools at the heart of the business, Sportech continues to develop this unique suite of cash generative products. We have made significant strides in modernising many aspects of our business, the end product of which has enabled us to launch new products and target new routes to market.

Premier 10 and Super 6 have been introduced to extend the customer offering into shorter odds games to complement the traditional Classic Football Pools long odds game, and have both been well received. Premier 10 is "The Official UK Football Pool of the Premier League", and the Super 6 format offers pool betting opportunities throughout the week to mirror the fixture list as football continues its march from a Saturday afternoon pastime to a near seven days a week fixture list. Top prizes range from £30,000 to £3 million, with a whole host of smaller, regular prizes. 

We are delighted that last weekend we paid out a jackpot of £3 million which was shared between 14 of our New Football Pools customers. In addition, one Zetters customer scooped the £1 milion Zetters jackpot, the highest Zetters jackpot this Century.

We have a range of exciting new products for 2010.  We will shortly be launching a new digital version of the classic favourite game "Spot the Ball", which, by combining the existing game played on paper by 34,000 customers with a new digital offering, will offer the highest online jackpots available on a weekly basis. 

The World Cup 2010 in South Africa offers Sportech an excellent opportunity to profile its ever increasing product range to a wider market place.  We have a range of new games available for the World Cup, focusing on the excitement of that event and combining a unique online and offline business approach to products, pools and marketing.  Various versions of these new games will then be taken forward into the new football season 2010/11. 

As mentioned previously, the Group continues to modernise its traditional Pools business and has made further significant progress in the integration of Vernons and the overhaul of the Group's technology infrastructure.  This exercise, which has been largely completed in 2009, will deliver further cost savings on top of the already significant synergies derived from the acquisition of Vernons.

Throughout 2009 we have continued to invest in establishing our online football activities, which were initially launched at the start of the 2008/09 football season. Following extensive customer focus and user group consultations, and ahead of the 2009/10 football season, the footballpools.com website was significantly enhanced to drive game play, improve the customer experience and refresh the mini league proposition.  The recent introduction of Instant Win games has been well received by our customers and we look forward to augmenting our football offering with other soft gaming propositions in due course.

In 2009 the Group took the opportunity to use the lessons learned from its media partnerships in 2008 to refine the relationships developed through these pioneering opportunities and, in conjunction with the launch of the social gaming platform which brings online networking functionality and football pools game play to leading Fantasy Football communities, the Group signed new partnership agreements with three leading media outlets, The Daily Telegraph, The Daily Mail and Metro to make this new offering available to over 400,000 fantasy football players.  This development represents a significant addition to the Group's technology portfolio.

Further advertising and marketing initiatives, both online and in print, have been incorporated into these agreements to create an even stronger visible presence for The New Football Pools. Specifically, in the printed editions of The Daily Telegraph, the newspaper's sport section features a dedicated weekly column incorporating Alan Hansen in his dual role as the Telegraph's face of Fantasy Football and a member of The New Football Pools 'Pools Pundits' team. These media partnerships were augmented in January 2010 with the addition of Trinity Mirror to promote the Football Pools and drive game play, particularly on the Classic Pools game.

 

The Football Pools - Financials and Customer Numbers

Overall, we have made pleasing progress in our Football Pools business to demonstrate its increasing resilience and strong cash flow generation.  Despite the most challenging economic conditions for many years, we have 622,000 active customers of The New Football Pools which represents a 5% (2008: 6%) reduction on previous years, the best performance since the introduction of the National Lottery in 1994.

Trading has been particularly resilient in the traditional direct to home market which now accounts for 70% of the weekly Classic Pools customer base. We have successfully increased the number of competitions that our direct customers are able to play so that at 31 December 2009 68% of our customers are playing 66 competitions a year compared to 29% in 2008. Gross win from this resilient direct to home market was stable.

Following on from the positive trend above, we have also seen marked improvements in the performance of our collector channel. This channel is continuing the recent trend of continually improving the customer retention levels such that retention levels of 86% are running at the highest levels since 1994 (2008: 81%).  This is particularly pleasing considering the challenging times that many of our customers find themselves in.

For the year ending 31 December 2009, the retail division of our Football Pools business generated gross win revenues of £57.8m (2008: £61.0m) and operating profit before exceptional costs and amortisation intangibles of £23.6m (2008: £25.0m).

We have increased the cost base of our online operation in order to deliver the operating functionality that we require.  As a consequence, an operating loss of £3.1m was incurred (2008: loss of £1.9m). We are already seeing the benefits from the activity levels and actions taken to focus the cost base and operational structure of this division. The total number of active customers on footballpools.com amounted to 50,000 in 2009, a 67% increase on those active customers in 2008.

Technology

Investment in technology has been vital to restoring growth and making our product offering more engaging, more accessible and easy to play. This was a process that began in 2007 but has continued throughout 2009 and by modernising our technology we have enabled new distribution channels and delivered operational benefits.

The Group's technology infrastructure has been fundamentally overhauled by our technology partners, SGR 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.

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.

Throughout 2009 a selection of the Group's games have been available to customers across the Ladbrokes' betting shop estate. Since May 2009, Football Pool products have been made available to the poker customers of 888.  We have a pipeline of distribution opportunities which are expected to be rolled out during 2010.

Integration of Vernons

The physical integration of Vernons is now complete and all material technological integration work has been performed, delivering significant benefits to the Group.  

International Expansion

The Board considers that the international market place 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 market place 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.

On 15 January 2010, Sportech announced its entry into a joint venture with Playwin, the leading Indian lottery and gaming business, owned by one of the sub-continent's largest conglomerates, Essel Group, to launch a multi platform, sports gaming business in the Indian market.  The joint venture will target India's substantial base of sports fans within its vast population of nearly 1.2 billion.  The new gaming platform has been specifically developed for the Indian audience and is expected to be launched later this Spring with a suite of predication and fantasy games initially centred around India's most popular sports, namely cricket, football and Formula 1. The joint venture will be promoted across Essel Group's key media assets, including India's highest rated TV channels network, Zee TV, and India's leading cable and DTH operators, WWIL and Dish TV.  As India's largest gaming and lottery business, with licences to operate throughout India, Playwin games are played across the entire country, both through its network of gaming terminals located in over 12,000 retail establishments and through its rapidly growing online network. 

Furthermore, the Board is pleased to have recently concluded arrangements with the State-owned TOTE Tasmania Pty Ltd and expects that a number of its Football Pool products will be available to customers of this rapidly growing company during 2010.

e-Gaming

The Group operates an e-Gaming division offering online, casino, poker, bingo and instant win games to a large registered and active customer base. The Group operates in conjunction with three different software suppliers and it has been apparent that the Group needed to consolidate these activities in order to create a coherent customer and technology offering in order to drive growth in this area.

As an initial step in this process, in June 2008 the Group signed a strategic distribution and marketing agreement with 888, which went live operationally in October 2008.  This partnership, for which both organisations had high operational and strategic expectations, has been disappointing both operationally and financially, as the Board initially announced on 4 August 2009.

Despite the launch of GameOn Bingo, GameOn Poker and GameOn Casino to complement the existing Littlewoods Casino and Littlewoods Poker, profitability has reduced from £3.0m in 2007 to £1.1m in 2009, despite a 35% increase in marketing spend (2008: profit of £1.6m). As the Board announced on 27 January 2010, the acquisition of SGR together with the commercial and shareholding relationship with Playtech, put at risk discussions that were being held with 888 regarding the commercial and operational terms of the relationship. As a consequence of subsequent deliberations, there has been a negative impact on the expected contribution from the 888 strategic partnership agreement of £2.0m in 2009.

The performance of our other two e-Gaming activities was better. LittlewoodsBingo.com maintained its profits at £0.5m, the same as last year and Vernons.co.uk made £0.1m, up from a breakeven position in 2008. With 18,000 and 16,000 active players respectively, we expect to make further progress in this area.

Playtech

As part of the acquisition of SGR, the Board sees material upside from producing a seamless customer offering, that operates both online and offline from a single wallet and customer loyalty benefits, incorporating football pools, horseracing pools, other pools offerings, casino, poker, bingo and instant win games to the highly regulated markets in which the combined Group will have over 140 business customers in over 20 territories, in addition to its standard/existing customer facing offerings. Depending on the regulatory environment applicable to an individual customer, the intention is for each customer to be able to choose from one of more of the above product offerings.

We are delighted that Playtech, the world's leading online gaming software provider, shares this vision and we will be working together to create this product suite. In addition, Playtech has taken a 9.9% shareholding in the enlarged Sportech (currently 12.5% prior to the completion of the acquisition of SGR) in order to capitalise on these exciting new opportunities and territories.

Branding Strategy

As previously reported, 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 2008, in conjunction with its branding and marketing advisers, and concluded that the two Football Pool brands, Littlewoods Football Pools and Vernons Pools, should be re-branded The New Football Pools with effect from the start of the 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.

Proposed Acquisition of SGR, Capital Raising and amendment to banking facilities

On 27 January 2010, the Group announced that it had entered into an agreement to acquire SGR, a business division of Scientific Games Corporation comprising a leading provider of pari-mutuel wagering services and systems worldwide and a venue management business, for a total consideration of up to US$83m (approximately £51.4m). The consideration comprises an initial consideration of US$65m payable at completion, deferred consideration of US$10m payable on 30 September 2013 and a further potential deferred consideration of up to US$8m which will become payable in the event that SGR meets certain performance targets over the next three years.

The initial consideration will be satisfied by:

 (i)  an issue to the vendor, Scientific Games Corporation, of 39,742,179 new ordinary shares; and

(ii)  a payment of approximately US$32.9m in cash (approximately £20.4m). The deferred consideration will be satisfied by a payment of US$10m in cash and the further deferred consideration will be satisfied by a further payment of up to US$8m in cash.

The completion of the acquisition is subject to the satisfaction (or waiver, where applicable) of a number of conditions, including the receipt of certain Governmental approvals within certain territories that SGR operates in. It is anticipated that these approvals will be forthcoming within a short period of time and the acquisition of SGR will be completed shortly thereafter.

The Group also announced on 27 January 2010 that it intended to raise £29.2m (approximately £22.4m net of all acquisition and capital raising costs and expenses) in a Capital Raising by way of a firm placing and a placing and open offer consisting of the issue of 58,415,520 new ordinary shares at an issue price of 50p per new ordinary share.  The net proceeds of the Capital Raising will be used to finance the cash consideration payable on completion of the acquisition, unless the acquisition fails to complete, in which case the net proceeds of the Capital Raising will be applied to reduce the Group's liabilities under its debt facilities.

At a General Meeting of the Company held on 12 February 2010 all resolutions to approve the proposed acquisition and capital raising and other related matters were duly passed without amendment.   On 15 February 2010, the new Capital Raising shares were issued by the Company.

On 27 January 2010 the Group also entered into an amendment to its Debt Facilities provided by Lloyds Banking Group.  This amendment covers two scenarios: (i) the Capital Raising completes and the acquisition of SGR is also completed and (ii) the Capital Raising completes but the acquisition does not complete. The principal amendments to the facilities are dependent on which scenario but relate to:

(i)   levels of facility available to the Company;

(ii)   a reduction in margin payable above LIBOR;

(iii)  amendments to certain financial covenants.

Further details of the acquisition of SGR, the Capital Raising and the amendment to the bank facilities can be found in the Prospectus issued to shareholders on 27 January 2010, a copy of which can be found on the Group's website at www.sportechplc.com

Summary

Sportech is now offering its customers an improved range of products through a wider network of distribution channels and with the support of significantly enhanced technological capabilities. As we approach the 2010 World Cup Sportech continues to realise its ambition of becoming a profit focused, leading international pari-mutuel operator, product and systems provider. The acquisition of SGR is an excellent fit with the existing business and one which creates further opportunity to capitalise on the international growth potential of pools gaming on two of the world's most popular sports: football and horseracing.

 

 

Ian R Penrose

Chief Executive

 

 

Steve Cunliffe

Finance Director

 

25 March 2010

 

 

 

Consolidated income statement

For the year ended 31 December 2009

		Group
		2009	2008
Continuing operations	Note	£m	£m
Gross win revenue	4	64.6	71.8
Cost of sales		(14.6)	(17.2)
Gross profit		50.0	54.6
Distribution costs		(0.8)	(0.8)
Administrative expenses		(61.2)	(40.5)
Operating profit before amortisation of acquired intangibles and exceptional costs		19.5	22.6
Amortisation of acquired intangibles		(6.6)	(2.6)
Exceptional costs	6	(24.9)	(6.7)
Operating (loss)/profit	4	(12.0)	13.3
Finance costs	5	(4.8)	(6.5)
Finance income	5	-	0.7
Non-cash finance charges	5	(0.2)	(0.4)
(Loss)/profit before taxation		(17.0)	7.1
Adjusted profit before taxation*		14.7	16.8
Taxation	7	4.7	(2.0)
(Loss)/profit for the financial year from continuing operations attributable to equity shareholders		(12.3)	5.1
(Loss)/earnings per share from continuing operations
Basic and diluted	8	(12.2)p	5.1p
Adjusted earnings per share
Basic and diluted	8	10.5p	12.0p

* 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.

 

 

Consolidated statement of comprehensive income

For the year ended 31 December 2009

		Group
		2009	2008
	Note	£m	£m
(Loss)/profit for the financial year	4	(12.3)	5.1
Other comprehensive income:
Actuarial loss on retirement benefit obligations		(0.1)	(0.1)
Movement on derivative financial instruments		0.5	(4.7)
Deferred tax on derivative financial instruments		(0.1)	1.3
Other comprehensive income/(expense) for the year net of tax		0.3	(3.5)
Total recognised (expense)/income for the year attributable to equity shareholders		(12.0)	1.6

 

Consolidated statement of changes in equity

For the year ended 31December 2009
			Other reserves
	Share capital	Share premium	Share option reserve	Pension reserve	Financial Instrument reserve	Retained earnings	Total
Group	£m	£m	£m	£m	£m	£m	£m
At 1 January 2008	50.3	20.7	0.4	02	-	23.8	95.4
Profit for the year	-	-	-	-	-	5.1	5.1
Financial instrument reserve movement	-	-	-	-	(3.4)	-	(3.4)
Share option credit	-	-	0.3	-	-	-	0.3
Pension reserve charge	-	-	-	(0.1)	-	-	(0.1)
At 31 December 2008	50.3	20.7	0.7	0.1	(3.4)	28.9	97.3
Loss for the year	-	-	-	-	-	(12.3)	(12.3)
Financial instrument reserve movement	-	-	-	-	0.4	-	0.4
Share option credit	-	-	0.2	-	-	-	0.2
Pension reserve charge	-	-	-	(0.1)	-	-	(0.1)
At 31 December 2009	50.3	20.7	0.9	-	(3.0)	16.6	85.5

 

Consolidated balance sheet

As at 31 December 2009

		Group
		2009	2008
	Note	£m	£m
ASSETS
Non-current assets
Goodwill		147.6	165.5
Other intangible assets		30.3	37.4
Property, plant and equipment		1.5	2.0
Retirement benefit assets		-	0.2
Deferred tax assets		2.3	1.5
		181.7	206.6
Current assets
Trade and other receivables		8.5	2.5
Current tax receivable		1.9	-
Deferred tax assets		1.3	-
Cash and cash equivalents		2.3	3.5
		14.0	6.0
TOTAL ASSETS		195.7	212.6
LIABILITIES
Current liabilities
Derivative financial instruments		(4.2)	(4.7)
Financial liabilities		(8.0)	(9.8)
Trade and other payables		(23.6)	(19.9)
Current tax liabilities		(0.2)	(1.0)
		(36.0)	(35.4)
Net current liabilities		(22.0)	(29.4)
Non-current liabilities
Financial liabilities	10	(74.0)	(79.0)
Deferred tax liabilities		(0.2)	(0.9)
		(74.2)	(79.9)
TOTAL LIABILITIES		(110.2)	(115.3)
NET ASSETS		85.5	97.3
SHAREHOLDERS' EQUITY
Ordinary shares		50.3	50.3
Share premium		20.7	20.7
Other reserves		0.9	0.8
Financial instrument reserve		(3.0)	(3.4)
Retained earnings		16.6	28.9
TOTAL SHAREHOLDERS' EQUITY		85.5	97.3

 

 

Consolidated statement of cash flows

For the year ended 31 December 2009

		Group
		2009	2008
	Note	£m	£m
Cash flows from operating activities
Cash generated from operations	9	15.4	18.5
Net interest paid		(4.8)	(5.2)
Tax paid		(0.8)	(2.0)
Net cash generated from operating activities		9.8	11.3
Net cash from operating activities before charity and customer cash		10.3	11.0
Charity cash and customer cash movement		(0.5)	0.3
Net cash generated from operating activities		9.8	11.3
Cash flows from investing activities
Vernons deferred consideration		(3.0)	(3.0)
Acquisition of 4thegame		-	(0.6)
Purchase of intangible fixed assets		(3.8)	(3.5)
Purchase of property, plant and equipment		(0.2)	(0.6)
Net cash used in investing activities		(7.0)	(7.7)
Cash flows from financing activities
Proceeds from borrowings		3.0	3.0
Repayment of borrowings		(7.0)	(11.0)
Net cash used in financing activities		(4.0)	(8.0)
Net decrease  in cash and cash equivalents		(1.2)	(4.4)
Cash and cash equivalents at 31 December 2008		3.5	7.9
Cash and cash equivalents at 31 December 2009		2.3	3.5
Reconciliation of net debt
Decrease in cash in year		(1.2)	(4.4)
Movement in charity and customer cash		0.5	(0.3)
Change in net debt resulting from cash flows		(0.7)	(4.7)
Cash outflow from repayment of loans		7.0	11.0
Cash inflow from loans taken		(3.0)	(3.0)
Movement in net debt for the year		3.3	3.3
At 1 January 2009		(83.2)	(86.5)
At 31 December 2009		(79.9)	(83.2)
Net debt comprises:
Cash and cash equivalents including charity and customer cash		2.3	3.5
Less charity and customer cash balances		(0.2)	(0.7)
Available cash and cash equivalents		2.1	2.8
Loans repayable within one year		(8.0)	(7.0)
Loans repayable after one year		(74.0)	(79.0)
At 31 December 2009		(79.9)	(83.2)

 

Notes to the Preliminary Statement

For the year ended 31 December 2009

1.   Reporting Entity

 

Sportech PLC ('the Company') is a company domiciled in the UK.  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 2009 comprise the Company and its subsidiaries (together referred to as 'the Group').  The principal activities of the Group are those of Football Gaming and e-Gaming.

 

2.   Basis of Reporting

 

a.   The preliminary results have been prepared on the basis of the accounting policies set out in the Group's 2008 financial statements.

b.   The financial information set out in this announcement does not constitute the Group's statutory financial statements for the year ended 31 December 2009, 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.

 

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

 

2009 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 management committee that makes strategic and operational decisions.

The Group has four business segments; Football Gaming - Retail, Football Gaming - Online, e-Gaming and Corporate costs.

Additional information on the Group segments is as follows;

 

 

	2009
	Football	Football
	Gaming	Gaming		Corporate
	-Retail	-Online	e-Gaming	costs	Group
	£m	£m	£m	£m	£m
Gross win revenue	57.8	1.1	5.7	-	64.6
Segment result before exceptional costs and amortisation of acquired intangibles	23.6	(3.1)	1.7	(2.7)	19.5
Amortisation of acquired intangibles	(6.0)	(0.6)	-	-	(6.6)
Exceptional costs	(19.5)	(4.7)	-	(0.7)	(24.9)
Operating (loss)/profit	(1.9)	(8.4)	1.7	(3.4)	(12.0)
Net finance costs					(5.0)
Loss before taxation					(17.0)
Taxation					4.7
Loss for the year from continuing operations					(12.3)

 

2008 Segmental Reporting

	2008
	Football	Football
	Gaming	Gaming		Corporate
	-Retail	-Online	e-Gaming	costs	Group
	£m	£m	£m	£m	£m
Gross win revenue	61.0	0.8	10.0	-	71.8
Segment result before exceptional costs and	25.0	(1.9)	2.1	(2.6)	22.6
Amortisation of acquired intangibles	(2.6)	-	-	-	(2.6)
Exceptional costs	(6.5)	(0.2)	-	-	(6.7)
Operating profit/(loss)	15.9	(2.1)	2.1	(2.6)	13.3
Net finance costs					(6.2)
Profit before taxation					7.1
Taxation					(2.0)
Profit for the year from continuing operations					5.1

 

 

5.   Net finance costs

	2009	2008
	£m	£m
Interest payable on bank loans and overdrafts	(4.8)	(6.5)
Interest receivable on derivative financial instrument	-	0.7
Non-cash finance charges*	(0.2)	(0.4)
Net finance costs	(5.0)	(6.2)

*Non-cash finance charges are in respect of deferred consideration payable following the acquisition of Vernons in 2007.

 

 

6.   Exceptional Costs

 

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

	2009	2008
Continuing operations	£m	£m
Football Gaming - Retail	19.5	6.5
Football Gaming - Online	4.7	0.2
Corporate costs	0.7	-
Total exceptional costs	24.9	6.7

 

Exceptional costs in the current year relate to redundancy costs in respect of the continuing rationalisation of the business, an impairment charge relating to the review of the carrying value of goodwill, ongoing seeding costs in respect of new games, intangible asset impairments relating to the Football Gaming - Online business and other exceptional costs.  Exceptional costs in the prior 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.  Included in the total exceptional costs of £24.9m, are £21.8m of non-cash charges being £17.9m impairment of goodwill and £3.9m impairment of intangible assets.

 

7.   Tax on (loss)/profit on ordinary activities

	2009	2008
Current tax - continuing operations	£m	£m
UK corporation tax	(1.5)	1.6
Adjustments in respect of prior years	(0.4)	(0.1)
Total current tax	(1.9)	1.5
Deferred tax - continuing operations
Current year (credit)/charge	(2.9)	0.5
Adjustments in respect of prior years	0.1	-
Total deferred tax	(2.8)	0.5
Total taxation (credit)/charge	(4.7)	2.0

 

The taxation credit for the year is below (2008: in line with) the standard rate of corporation tax in the UK (28.0% average in the year).  A reconciliation is shown below:

  

	2009	2008
	£m	£m
(Loss)/profit on continuing operations before tax	(17.0)	7.1
(Loss)/profit on ordinary activities multiplied by the standard rate of corporation tax in the UK at an average of 28% (2008: 28.5%)	(4.8)	2.0
Effects of:
- permanent differences	0.4	0.2
- trading losses not previously recognized	-	(0.1)
- adjustments to tax in respect of prior years	(0.3)	(0.1)
Total taxation (credit)/charge	(4.7)	2.0

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%).

8.   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.

	2009				2008
		Weighted				Weighted
		average	Per			average	Per
		number	share			number	share
	Loss	of shares	amount		Profit	of shares	amount
	£m	'000	Pence		£m	'000	Pence
Basic and diluted EPS	(12.3)	100,653	(12.2)		5.1	100,653	5.1

 

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%:

	2009				2008
		Weighted				Weighted
		average	Per			average
		number	share			number	Per
	Profit	of shares	amount		Profit	of shares	share
	£m	'000	Pence		£m	'000	Pence
Operating profit before exceptional costs and amortisation of acquired intangibles	19.5	100,653	19.4		22.6	100,653	22.5
Net bank interest (excluding non- cash finance charges)	(4.8)	100,653	(4.8)		(5.8)	100,653	(5.8)
Adjusted profit before tax	14.7	100,653	14.6		16.8	100,653	16.7
Tax at 28.0% (2008: 28.5%)	(4.1)	100,653	(4.1)		(4.8)	100,653	(4.7)
Adjusted EPS	10.6	100,653	10.5		12.0	100,653	12.0

 

Certain employee options have not been included in the calculation of diluted EPS because their exercise is contingent on the satisfaction of specific criteria that had not been met at the end of the year. In addition, certain employee options have also been excluded from the calculated EPS as their exercise price is greater than the closing share price during the year and therefore would not be dilutive.

 

9.   Cash flow from operating activities

 

Reconciliation of operating profit to net cash flow from operating activities

	Group
	2009	2008
Continuing operations	£m	£m
Net (loss)/profit	(12.3)	5.1
Adjustments for:
Taxation	(4.7)	2.0
Depreciation	0.7	0.6
Amortisation of intangibles acquired with Vernons	6.6	2.6
Amortisation of other intangibles	0.4	0.3
Impairment of intangibles	4.4	-
Goodwill impairment	17.9	-
Net interest expense	4.8	5.8
Non-cash interest	0.2	0.4
Share option charge	0.2	0.3
Changes in working capital:
(Increase)/decrease in trade and other receivables	(6.0)	0.3
Increase in trade and other payables	3.2	1.1
Cash generated from continuing operations	15.4	18.5

 

10.  Maturity of financial liabilities

 

Bank loans are repayable as follows:

		Group
		2009	2008
		£m	£m
Within one year		8.0	7.0
Between one and two years		10.0	8.0
Between two and five years		64.0	34.0
Over five years		-	37.0
		82.0	86.0

 

Following the revision of the banking facilities to accommodate the acquisition of SGR (see note 11), bank loans due within one year have increased to £9.0m and within two to five years, to £12.0m.

 

11. Events after the reporting period

1) Proposed Acquisition of Scientific Games Racing, Capital Raising and amendment to banking facilities

On 27 January 2010, the Group announced that it had entered into an agreement to acquire SGR, a business division of Scientific Games Corporation ("SGC") comprising a leading provider of pari-mutuel wagering services and systems worldwide and a venue management business, for a total consideration of up to US$83.0 million (approximately £51.4 million). The consideration  comprises an initial consideration of US$65.0 million payable at completion, deferred consideration of US$10.0 million payable on 30 September 2013 and a further potential deferred consideration of up to US$8 million which will become payable in the event that SGR meets certain performance targets over the next three years.

The initial consideration will be satisfied by:

1.     an issue to the vendor, SGC, of 39,742,179 new ordinary shares  at an issue price of 50 pence per share; and                                                                    

2.     a payment of approximately US$32.9 million in cash (approximately £20.4 million). The deferred consideration will be satisfied by a payment of US$10.0 million in cash and the further deferred consideration will be satisfied by a further payment of up to US$8.0 million in cash.

The completion of the acquisition is subject to the satisfaction (or waiver, where applicable) of a number of conditions, including the receipt of certain regulatory approvals within certain territories that SGR operate in. It is anticipated that these approvals will be forthcoming within a short period of time and the acquisition of SGR will be completed shortly thereafter.

The Group also announced on 27 January 2010 that it intended to raise £29.2 million (approximately £22.4 million net of all acquisition and Capital Raising costs and expenses) in a Capital Raising by way of a firm placing and a placing and open offer consisting of the issue of 58,415,520 new ordinary shares at an issue price of 50 pence per new ordinary share.  The net proceeds of the Capital Raising will be used to finance the cash consideration payable on completion of the acquisition, unless the acquisition fails to complete, in which case the net proceeds of the Capital Raising will be applied to reduce the Group's liabilities under its debt facilities.

At a General Meeting of the Company held on 12 February 2010 all resolutions to approve the proposed acquisition and Capital Raising and other related matters were duly passed without amendment.   On 15 February 2010, the new Capital Raising shares were issued by the Company.

The Group also entered into on 27 January 2010, an amendment to its Debt Facilities provided by Lloyds Banking Group.  This amendment covers two scenarios: (i) the Capital Raising completes and the acquisition of SGR is also completed; and (ii) the Capital Raising completes but the acquisition does not complete.  The principal amendments to the facilities are dependent on which scenario but relate to:

1.    Levels of facility available to the Company

2.    A reduction in margin payable above LIBOR

3.    Amendments to certain financial covenants

 

Further details of the proposed acquisition of SGR, the Capital Raising and the amendment to the bank facilities can be found in the Prospectus issued to shareholders on 27 January 2010, a copy of which can be found on the Group's website at www.sportechplc.com

 

2) Foreign Exchange Contracts

Following the announcement of the proposed acquisition of SGR, the Group has entered into certain foreign exchange contracts to:

1.    fix the sterling acquisition price of the cash element of the purchase consideration by contracting to purchase US$33.0m  at an agreed price following the completion of the Capital Raising;

2.    fix the exchange rate at which the anticipated earnings from the acquisition will be translated into sterling for the 15 months commencing 1 April 2010 by entering into a series of forward sale contracts for US $15.0m  and  €15.0m, the principal trading currencies of SGR.

 

3) Creation of Joint Venture to launch a multi-platform sports gaming business in the Indian market

On 15 January 2010, the Company announced the creation of a joint venture with Playwin, a leading Indian lottery and gaming brand owned by the Essel Group, to launch a multi-platform sports gaming business in the Indian market. The Company and Playwin will each be investing an initial £2.0million for their 50% stake in the Joint Venture to fund the start up costs of the business.