Adoption of IFRS
Sportech PLC
26 September 2005
IFRS RESTATEMENT INFORMATION
Transition to International Financial Reporting Standards (IFRS)
Sportech plc today releases restated financial information prepared under
International Financial Reporting Standards (IFRS) for the year to 31 December
2004 (53 weeks ended 7 January 2005) and for the six months to 30 June 2004 (26
weeks ended 2 July 2004).
This is the first year that the Group is required to present its results under
IFRS and the first published financial information under IFRS will be in respect
of the six months to 30 June 2005. The 2005 Annual Report will report the first
full year results prepared on that basis. The following disclosures are those
that are required to be made in the year of transition from United Kingdom
Generally Accepted Accounting Principles (UK GAAP) to IFRS. The Group's IFRS
adoption date is 8 January 2005, and the date of transition to IFRS is 3 January
2004. The financial information presented in this document is unaudited.
This document includes explanations of the impact of the transition from UK GAAP
to IFRS on the financial statements of Sportech plc and contains reconciliations
from UK GAAP to IFRS of the Group's net assets at 3 January 2004, 30 June 2004
and 7 January 2005, and of the Group's net profit or loss for the 6 months ended
30 June 2004 and year ended 31 December 2004.
Summary of Impact of Transition to IFRS
2004 2004
Full Year Half Year
UK GAAP IFRS UK GAAP IFRS
£m £m £m £m
Group turnover 497.0 497.0 254.5 254.5
Operating profit 6.3 15.5 4.6 9.1
Profit/(loss) before tax (0.8) 8.2 1.3 5.7
Profit/(loss) attributable to equity
shareholders (3.3) 5.6 (0.4) 4.0
EPS (0.56)p 0.96p (0.06)p 0.67p
Net assets 28.0 37.1 30.9 35.6
Net debt 112.8 112.8 114.8 114.8
Reconciliation of Profit/(loss) attributable to equity shareholders
2004 2004
Full Year Half Year
£m £m
Loss for the financial period under UK GAAP (3.3) (0.4)
Non - amortisation of goodwill 9.2 4.6
Other adjustments (0.3) (0.2)
------- -------
Profit for the financial period under IFRS 5.6 4.0
======= =======
Reconciliation of Movement in Net Assets
31 December 30 June 1 January
2004 2004 2004
£m £m £m
Net assets under UK GAAP 28.0 30.9 31.3
Non - amortisation of goodwill 9.2 4.6 -
Other adjustments (0.1) 0.1 0.2
--------- ------- -------
Net assets under IFRS 37.1 35.6 31.5
========= ======= =======
Impact on Group Cash Flows
The move from UK GAAP to IFRS does not change any of the cash flows of the
Group, although there are presentational changes to the format of the cash flow
statement.
Basis of Accounting
The financial information presented in this transition document has been
prepared in accordance with the accounting policies and presentation required by
those International Financial Accounting Standards, incorporating International
Accounting Standards (IAS's) and interpretations (collectively IFRS) published
by the International Accounting Standards Board (IASB), which are expected to be
endorsed by the EU and applicable for use in the Group's annual financial
statements for the year ended 31 December 2005, the Group's first annual
reporting date at which it is required to use IFRS. The financial information
for the six months ended 30 June 2004 and for the year ended 31December 2004 has
been restated on an IFRS basis. The endorsed IFRS that will be effective (or
available for early adoption) in the annual financial statements for the year
ended 31 December 2005 are still subject to change and to additional
interpretations and therefore cannot be determined with certainty. Accordingly,
the accounting policies for the period will only be determined finally when the
annual consolidated financial statements are prepared for the year ended 31
December 2005.
Sportech plc's transition date to IFRS is 3 January 2004. The Group prepared its
opening IFRS balance sheet at that date. The Group's IFRS adoption date is 8
January 2005.
The principal UK GAAP to IFRS adjustments relate to:
• Goodwill is no longer amortised , but is subject to an impairment
review, in line with IFRS 3 'Business Combinations'.
• Adoption of IAS 19 'Employee Benefits', recognising employee benefit
obligations, particularly pensions on the balance sheet.
• Recognition of the cost of share based payments granted after 7 November
2002 in line with IFRS 2 'Share-Based Payment'.
• Recognition of fair value of financial Instruments, in line with IAS 39
'Financial Instruments: Recognition and Measurement'.
• Tax implications of the adjustments outlined above in accordance with
IAS 12 'Income Taxes'.
On transition to IFRS, an entity is generally required to apply IFRS
retrospectively, except where an exemption is available under IFRS1 ' First time
Adoption of International Financial Reporting Standards'. The Group has applied
the mandatory exemptions and certain of the optional exemptions from full
retrospective application of IFRS. The following is a summary of the key
elections from IFRS1 that were made by the Group:
• The Group has elected to adopt the IFRS 1 exemption in relation to
business combinations and will only apply IFRS 3 'Business Combinations'
prospectively from 3 January 2004. As a result, the balance of goodwill
under UK GAAP as at 31December 2003 will be deemed to be the cost of
goodwill at 3 January 2004.
• The Group has elected to apply the share based payment exemption. It has
applied IFRS 2 to those options that were issued after 7 November 2002 but
have not vested by 8 January 2005.
• The Group has applied IAS 32 'Financial Instruments: Disclosure and
Presentation' and IAS 39 'Financial Instruments: Recognition and
Measurement' for all periods presented and has therefore not taken
advantage of the exemption in IFRS1 that would enable the Group to only
apply these standards from 8 January 2005.
In addition to the above, there are presentational changes arising from the move
to IFRS. The financial statements will be presented in accordance with IAS 1
'Presentation of Financial Statements'.
In respect of cash flows, the transition from UK GAAP to IFRS does not change
any of the cash flows of the Group. The IFRS cash flow format is similar to UK
GAAP but presents various cash flows in different categories and in a different
order from the UK cash flow statement. All of the IFRS accounting adjustments
net out within cash generated from operations. No cash flow statements are
presented in this document.
Accounting policies
A summary of the more important Group accounting policies is set out below.
(a) Basis of consolidation
The consolidated financial statements include the accounts of the Company and
its subsidiaries.
(b) Turnover
Turnover represents:
* the value of entry fees receivable in respect of Football Pools recognised on
the date of the event;
* the value of bets received in relation to fixed odds betting and casino gaming
activities based on the date of the event;
* Poker revenues represent the commission ('rake') charged or tournament entry
fees where the player has concluded his participation in the tournament , both
based on the date of the event; and
* the value of goods and services sold to external customers, including
management fees to registered charities for the management of charity
lotteries, exclusive of value added tax.
(c) Deferred income
Deferred income is recognised as the value of entry fees receivable in respect
of competitions and sporting events held subsequent to the end of the financial
period.
(d) Deferred taxation
Deferred tax is provided in full, using the liability method on temporary
differences arising between the tax bases of assets and liabilities, and their
carrying amounts in the financial statements. Deferred tax is measured at the
rates expected to apply when the asset is realised or liability settled.
(e) Inventories
Stocks are valued at the lower of cost or estimated realisable value. Cost is
based on the first in, first out method of valuation.
(f) Foreign currencies
Transactions in foreign currencies are translated into sterling at the rate of
exchange ruling at the date of the transaction. Monetary assets and liabilities
in foreign currencies are translated at the rates of exchange ruling at the
balance sheet date.
(g) Tangible fixed assets
Tangible fixed assets are carried at historical cost less accumulated
depreciation.
(h) Depreciation
Depreciation is provided on a straight-line basis to write-off the cost of fixed
assets down to residual value over their anticipated useful lives at the
following annual rates:
Long leasehold land Nil
Long leasehold buildings Over remaining estimated useful life
(12 years)
Buildings' fixtures and fittings 4.0% - 20.0%
Plant, equipment and other fixtures and
fittings 10.0% - 33.3%
Leasehold improvements 10.0% or the period of the lease, if
shorter
Computers 14.3% - 33.3%
Motor vehicles 12.5% - 25.0%
Hand-held Pools bet capture
equipment 8.3%
(i) Goodwill
Goodwill arising on consolidation represents the excess of the fair value of
consideration given over the fair value of the separable net assets acquired.
Goodwill arising on acquisitions before the date of transition to IFRS (3
January 2004) has been frozen at the previous UK GAAP net book value at date of
transition subject to being tested for impairment at that date, and annually.
(j) Other intangible fixed assets
Other intangible fixed assets comprises computer software and externally
generated costs incurred in respect of developing interactive television gaming
products. These costs are amortised through the profit and loss account over
their estimated useful lives (five years) once trading has commenced. On
adoption of IFRS, computer software that under UK GAAP was classified as
tangible fixed assets has now been reclassified as intangible fixed assets.
(k) Advance commissions
Advance commissions paid to television broadcasters in accordance with the terms
of broadcasting contracts are held within prepayments and are recovered against
commissions due to broadcasters over the life of the relevant contract. The
Directors consider that sufficient revenue will be generated over the lives of
the contracts concerned to recover these payments.
(l) Development costs
Pre-design and development costs are charged to the profit and loss account as
incurred.
An internally generated intangible asset arising from the Group's development of
computer systems is recognised only if all of the following conditions are met;
*- An asset is created that can be identified (such as software and new
processes)
*- It is probable that the asset will generate future economic benefits; and
*- The development cost of the asset can be measured reliably.
These costs are being amortised on a straight-line basis over their anticipated
useful lives (four years). Where no internally generated asset can be
recognized, development expenditure is recognized as an expense in the period in
which it is incurred.
(m) Impairment of fixed assets and goodwill
Fixed assets and goodwill are subject to an annual review for impairment in
accordance with IAS 36 'Impairment of Assets '. Any impairment losses are
recognised in the profit and loss account in the year in which they occur.
(n) Leased assets
Rentals payable under operating leases are charged to the profit and loss
account on a straight-line basis over the lease term.
Tangible fixed assets acquired under hire purchase agreements are capitalised
and depreciated over their expected useful lives as it is anticipated that the
option to purchase the asset outright will be taken. The interest element of the
rental obligations is charged to the profit and loss account over the period of
the agreement.
(o) Pension contributions
The Group operates two pension scheme arrangements for its employees and
accounts for pensions under IAS 19 'Employee Benefits'. In respect of the
defined contributions scheme, payments to employees' defined contribution
schemes are charged to the profit and loss account as incurred. For the defined
benefit scheme, actuarial valuations are carried out at each annual balance
sheet date and actuarial gains and losses are recognised in full in reserves in
the period in which they occur.
(p) Financial instruments
The Group uses derivative financial instruments to reduce exposure to interest
rate movements. The Group does not hold or issue derivative financial
instruments for speculative purposes. Financial assets and liabilities are
recognized on the Group's balance sheet initially at fair value when the Group
becomes party to the contractual provisions of the instrument. Subsequent
measurement depends on the designation of the instrument in accordance with
IAS39 'Financial Instruments: Recognition and Measurement'
(q) Share Based Payments
The Group has elected to apply IFRS 2 'Share-Based Payment' to all relevant
share based payment transactions granted after 7 November 2002 but not fully
vested at 8 January 2005. The fair value of employee option plans is calculated
using the Black-Scholes model. In accordance with IFRS 2, the resulting cost is
charged to the income statement over the vesting period of the options. The
value of the charge is adjusted to reflect expected and actual levels of option
vesting.
RECONCILIATION OF CONSOLIDATED profit and loss account
For the year ended 31 December 2004
Effect of
Notes UK transition
GAAP to IFRS IFRS
£m £m £m
Continuing operations
Revenue 497.0 - 497.0
Cost of sales (439.9) - (439.9)
------- ------- -------
Gross profit 57.1 - 57.1
Distribution costs (0.1) - (0.1)
Administrative expenses 1, 6, 9 (50.7) 9.2 (41.5)
------- ------- -------
Operating profit before restructuring
costs 7.5 9.2 16.7
Restructuring costs (1.2) - (1.2)
------- ------- -------
Operating profit 6.3 9.2 15.5
Interest payable and similar items 4 (7.6) 0.2 (7.4)
Interest receivable 4 0.5 (0.4) 0.1
------- ------- -------
Profit/(loss) before taxation (0.8) 9.0 8.2
Taxation 5 (2.5) (0.1) (2.6)
------- ------- -------
Profit/(loss) for the year from
continuing operations (3.3) 8.9 5.6
------- ------- -------
Profit/(loss) for the financial year (3.3) 8.9 5.6
======= ======= =======
Profit/(loss) attributable to equity
shareholders (3.3) 8.9 5.6
======= ======= =======
Earnings per share
Basic and diluted (0.56)p 1.52p 0.96p
======= ======= =======
Earnings per share from continuing
operations
Basic and diluted (0.56)p 1.52p 0.96p
======= ======= =======
IFRS RESTATEMENT INFORMATION
RECONCILIATION OF CONSOLIDATED profit and loss account
For the six months to 30 June 2004
Effect of
Notes UK transition
GAAP to IFRS IFRS
£m £m £m
Continuing operations
Revenue 254.5 - 254.5
Cost of sales (225.5) - (225.5)
------- ------- -------
Gross profit 29.0 - 29.0
Distribution costs (0.1) - (0.1)
Administrative expenses 1,6,9 (24.3) 4.5 (19.8)
------- ------- -------
Operating profit before restructuring
costs 4.9 4.5 9.4
Restructuring costs (0.3) - (0.3)
------- ------- -------
Operating profit 4.6 4.5 9.1
Interest payable and similar items 4 (3.5) 0.1 (3.4)
Interest receivable 4 0.2 (0.2) -
------- ------- -------
Profit before taxation 1.3 4.4 5.7
Taxation 5 (1.7) - (1.7)
------- ------- -------
Profit/(loss) for the period from
continuing operations (0.4) 4.4 4.0
------- ------- -------
Profit/(loss) for the financial period (0.4) 4.4 4.0
======= ======= =======
Profit/(loss) attributable to equity
shareholders (0.4) 4.4 4.0
======= ======= =======
Earnings per share
Basic and diluted (0.06)p 0.75p 0.67p
======= ======= =======
Earnings per share from continuing
operations
Basic and diluted (0.06)p 0.75p 0.67p
======= ======= =======
IFRS RESTATEMENT INFORMATION
RECONCILIATION OF EQUITY
As at 1 January 2004
Effect of
transition
Notes UK GAAP to IFRS IFRS
£m £m £m
ASSETS
Non-current assets
Goodwill 1 145.2 - 145.2
Other intangible assets 2 1.2 1.5 2.7
Property, plant and equipment 2 9.1 (1.5) 7.6
Retirement benefit assets 7 - 0.2 0.2
Deferred tax assets 5 0.7 (0.1) 0.6
------- ------- -------
156.2 0.1 156.3
------- ------- -------
Current assets
Trade and other receivables 8.9 - 8.9
Financial assets - derivative financial
instruments 4 0.6 0.1 0.7
Cash and cash equivalents 4.1 - 4.1
------- ------- -------
13.6 0.1 13.7
------- ------- -------
LIABILITIES
Current liabilities
Financial liabilities: - borrowings (22.8) - (22.8)
Trade and other payables (19.8) - (19.8)
Current tax liabilities (1.7) - (1.7)
------- ------- -------
(44.3) - (44.3)
------- ------- -------
------- ------- -------
Net current liabilities (30.7) 0.1 (30.6)
------- ------- -------
Non-current liabilities
Financial liabilities: - borrowings (94.2) - (94.2)
------- ------- -------
NET ASSETS 31.3 0.2 31.5
======= ======= =======
SHAREHOLDERS' EQUITY
Ordinary shares 29.6 - 29.6
Retained earnings 8 1.7 0.2 1.9
------- ------- -------
TOTAL SHAREHOLDERS' FUNDS 31.3 0.2 31.5
======= ======= =======
IFRS RESTATEMENT INFORMATION
RECONCILIATION OF EQUITY
As at 30 June 2004
Effect of
transition
Notes UK GAAP to IFRS IFRS
£m £m £m
ASSETS
Non-current assets
Goodwill 1 140.6 4.6 145.2
Other intangible assets 2 1.5 2.0 3.5
Property, plant and equipment 2 8.9 (2.0) 6.9
Retirement benefit assets 7 - 0.2 0.2
Deferred tax assets 5 0.7 (0.1) 0.6
------- ------- -------
151.7 4.7 156.4
------- ------- -------
Current assets
Trade and other receivables 10.8 - 10.8
Financial assets - derivative financial
instruments 4 0.4 - 0.4
Cash and cash equivalents 2.9 - 2.9
------- ------- -------
14.1 - 14.1
------- ------- -------
LIABILITIES
Current liabilities
Financial liabilities: - borrowings (8.5) - (8.5)
Trade and other payables (17.4) - (17.4)
Current tax liabilities (1.8) - (1.8)
------- ------- -------
(27.7) - (27.7)
------- ------- -------
Net current liabilities (13.6) - (13.6)
------- ------- -------
Non-current liabilities
Financial liabilities: - borrowings (107.2) - (107.2)
------- ------- -------
NET ASSETS 30.9 4.7 35.6
======= ======= =======
SHAREHOLDERS' EQUITY
Ordinary shares 29.6 - 29.6
Retained earnings 8 1.3 4.7 6.0
------- ------- -------
TOTAL SHAREHOLDERS' FUNDS 30.9 4.7 35.6
======= ======= =======
IFRS RESTATEMENT INFORMATION
RECONCILIATION OF EQUITY
As at 31 December 2004
Effect of
transition
Notes UK GAAP to IFRS IFRS
£m £m £m
ASSETS
Non-current assets
Goodwill 1 136.0 9.2 145.2
Other intangible assets 2 1.3 1.5 2.8
Property, plant and equipment 2 9.0 (1.5) 7.5
Prepayments 3 5.9 - 5.9
Retirement benefit assets 7 - 0.2 0.2
Deferred tax assets 5 0.5 (0.2) 0.3
------- ------- -------
152.7 9.2 161.9
------- ------- -------
Current assets
Trade and other receivables 4.4 - 4.4
Financial assets - derivative financial
instruments 4 0.3 (0.1) 0.2
Cash and cash equivalents 2.4 - 2.4
------- ------- -------
7.1 (0.1) 7.0
------- ------- -------
LIABILITIES
Current liabilities
Financial liabilities: - borrowings (11.5) - (11.5)
Trade and other payables (17.4) - (17.4)
Current tax liabilities (1.3) - (1.3)
------- ------- -------
(30.2) - (30.2)
------- ------- -------
Net current liabilities (23.1) (0.1) (23.2)
------- ------- -------
Non-current liabilities
Financial liabilities: - borrowings (101.6) - (101.6)
------- ------- -------
(101.6) - (101.6)
------- ------- -------
NET ASSETS 28.0 9.1 37.1
======= ======= =======
SHAREHOLDERS' EQUITY
Ordinary shares 29.6 - 29.6
Retained earnings 8 (1.6) 9.1 7.5
------- ------- -------
TOTAL SHAREHOLDERS' FUNDS 28.0 9.1 37.1
======= ======= =======
IFRS RESTATEMENT INFORMATION
Notes to the Restatements
1. Goodwill
Impact on profit & loss accounts
6 months to Year to 31
30 June December
2004 2004
(Unaudited) (Unaudited)
£m £m
Non-amortisation of goodwill 4.6 9.2
========= =========
Impact on balance sheet
30 June 31 December 1 January
2004 2004 2004
(Unaudited) (Unaudited) (Unaudited)
£m £m £m
Increase in Goodwill 4.6 9.2 -
========= ========= =========
UK GAAP required Goodwill to be written off over its estimated useful life,
which the Group determined to be no longer than 20 years. Under IFRS, Goodwill
is considered to have an indefinite life and is not amortised, but is subject to
annual impairment tests. This adjustment reverses the goodwill amortisation
charged under UK GAAP. This adjustment increases profit before tax for the six
months to 30 June 2004 by £4.6m and profit before tax for the year to 31
December 2004 increases by £9.2m. The carrying value of the goodwill in the
balance sheets at the end of each of those periods is correspondingly increased.
2. Software classification
Computer software that had been included as tangible fixed assets under UK GAAP
is included within intangible assets under IFRS.
3. Prepayments
Prepayments recoverable in more than one year classified as current assets due
within one year under UK GAAP have been reclassified as non-current assets
4. Financial instruments
Impact on profit & loss accounts
6 months to Year to 31
30 June December
2004 2004
(Unaudited) (Unaudited)
£m £m
Non amortisation of interest rate cap and
adjustment to fair value - reduction in interest
payable 0.1 0.2
Adjustment of interest rate swap to fair value
- reduction in interest receivable (0.2) (0.4)
--------- ---------
(0.1) (0.2)
========= =========
Impact on balance sheet
30 June 31 December 1 January
2004 2004 2004
(Unaudited) (Unaudited) (Unaudited)
£m £m £m
Adjustment of interest rate cap to
fair value (0.4) (0.3) (0.5)
Adjustment of interest rate swap to
fair value 0.4 0.2 0.6
--------- --------- ---------
- (0.1) 0.1
========= ========= =========
All derivative financial instruments are required to be carried on the balance
sheet at fair value. Under IFRS, hedge accounting for derivatives is only
allowed where detailed documentation in accordance with IAS 39 is in place. The
Group is not able to satisfy these documentation requirements in respect of
interest rate swaps and caps entered into as economic hedges, and accordingly
the change in fair values of these derivatives is reflected in the profit and
loss account. The carrying value of the interest rate cap under UK GAAP at 31
December 2003 was £0.6m being the un-amortised part of the cap premium (at cost,
£0.9m)
IFRS RESTATEMENT INFORMATION
Notes to the ResTATEMENTS (continued)
5. Deferred tax
Impact on profit & loss accounts
6 months to Year to 31
30 June December
2004 2004
(Unaudited) (Unaudited)
£m £m
Reduction in tax charge, consequential
from IFRS changes - (0.1)
========= =========
Impact on balance sheet
30 June 31 December 1 January
2004 2004 2004
(Unaudited) (Unaudited) (Unaudited)
£m £m £m
Reduction in deferred tax balances,
consequential from IFRS changes (0.1) (0.2) (0.1)
========= ========= =========
Deferred tax charges and balances have moved as a consequence of changes arising
from the adoption of IFRS.
6. Share based payments
Impact on profit & loss accounts
6 months to Year to 31
30 June December
2004 2004
(Unaudited) (Unaudited)
£m £m
Increase in administration costs 0.1 -
========= =========
The profit and loss account has been charged for share-based remuneration in
respect of share options, which have been valued using an option-pricing model.
IFRS 2, 'Share Based Payments', requires the assignment of fair values at the
date of grant of options awarded to employees after 7 November 2002, which had
not vested by 1 January 2005. The expense is spread over the vesting period of
the options
7. Pensions
Impact on balance sheet
30 June 31 December 1 January
2004 2004 2004
(Unaudited) (Unaudited) (Unaudited)
£m £m £m
Recognition of pension surplus 0.2 0.2 0.2
========= ========= =========
8. Reserves
Impact on balance sheet
30 June 31 December 1 January
2004 2004 2004
(Unaudited) (Unaudited) (Unaudited)
£m £m £m
Non-amortisation of goodwill (see
note 1) 4.6 9.2 -
Recognition of pension surplus (see
note 7) 0.2 0.2 0.2
Derivative financial instruments
(see note 4) - (0.1) 0.1
Increase in deferred tax (see note
5) (0.1) (0.2) (0.1)
--------- --------- ---------
4.7 9.1 0.2
========= ========= =========
9. Profit & Loss account - administrative expenses
6 months to Year to 31
30 June December
2004 2004
(Unaudited) (Unaudited)
£m £m
Reduction in Goodwill amortisation (4.6) (9.2)
Share options charge 0.1 -
--------- ---------
Reduction in administration expenses (4.5) (9.2)
========= =========
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