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