Preliminary Results

RNS Number : 5245D

Sportech PLC

24 March 2011

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

Preliminary Results for the year ended 31 December 2010

Introduction

Sportech has been transformed into one of the world's leading pools and tote betting organisations over the last five years. The Group now occupies a strong position in the established regulated and emerging gaming markets around the world. Importantly, the Group has undergone a major strategic change with the acquisition of Scientific Games Racing ("SGR"), now renamed Sportech Racing, which provides a significant growth platform for the new international markets, not least in North and South American territories.

Sportech is well positioned for growth in 2011 and beyond as the Group benefits from the cash flows and profit contribution from Sportech Racing which will be an important addition to its existing strong profit and cash generative businesses.

Financial highlights

· Results for the period in line with market expectations

· Revenue increased by £6.6m to £71.2m (2009: £64.6m)

· Adjusted operating profit* of £17.4m (2009: £19.5m)

· Adjusted profit before tax of £11.9m (2009: £14.7m)

· EBITDA** of £19.7m reflecting the highly cash generative nature of the Group

· Net bank debt reduced by £7.7m (9.6%) to £72.2m (2009: £79.9m)

· Adjusted earnings per share ("EPS") of 5.4p (2009: 10.5p)

· Loss after tax and loss per share (after significant acquisition costs and non-cash amortisation charges) of £6.3m (2009: loss of £12.3m) and 3.9p (2009: loss of 12.2p)

· Revised banking facilities agreed and in place until 2013

· Successful equity fundraising raised gross proceeds of £29.2m

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

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

Strategic and operational highlights

· Completed acquisition of SGR, the tote pools ("pari-mutuel") technology provider and venue management division of Scientific Games Corporation

· Successfully cleared rigorous regulatory approval process, delivering the benefits of licensing in the USA

· The combined Group now processes over £8.5 billion of bets annually with customers in over 30 countries

· Focus has been on operational delivery across the business areas: the Football Pools, e-Gaming, Sportech Racing and emerging markets

· Integration of the enlarged business on schedule with progress made in the following areas:

o Significant refurbishment programme on existing venues in Connecticut underway

o Two new horseracing wagering venues opened in sports bars in Connecticut

o Opened first horseracing wagering offering in sports bar in California

· Joint venture with Playwin, the leading Indian lottery and gaming brand owned by Essel Group and launch of www.SportsHero.com

· Agreement with Ladbrokes.com to distribute pools products online to its customer database and with Jennings, Better and Chisholms bookmaking shops

· Two separate Football Pools jackpots won of £3 million each: one in March 2010 shared by 14 customers, and one in October 2010, the single highest winner in Football Pools' history

· Continuing development plans to migrate existing e-Gaming activities to single partner Playtech

· Secured a new five year licence, with an 18 month break, to continue the use of the Littlewoods brand name for e-Gaming purposes

Board and management changes

· Strengthened composition of the Board; Roger Withers appointed as Chairman, and three further Non-executive Directors appointed: Lorne Weil, Peter Williams and Mor Weizer

· Operational management team strengthened with appointment of Ian Hogg as Chief Operating Officer UK and Online and Brooks Pierce as President of Sportech Racing

Ian Penrose, Chief Executive of Sportech PLC, said:

"The completion of the acquisition of Scientific Games Racing has established Sportech as one of the world's leading pools and tote betting operators and the Group now occupies a unique position in the regulated and emerging gaming markets worldwide.

We have a very talented management team and a revitalised Board whose knowledge and experience will enable the Group to deliver on its growth strategy.

The business is strongly cash generative which will allow us to continue making improvements to our customer offering and as a result have the capability for strong profitable growth by taking advantage of the rapidly growing gaming markets worldwide.

Our current trading is in line with market expectations and we look forward to the future with confidence."

-ends-

For further information contact:

Ian Penrose

Chief Executive

Sportech PLC 020 7268 2400

Steve Cunliffe

Finance Director

Sportech PLC 020 7268 2400

David Rydell/Emma Kent/Rosanne Perry

Pelham Bell Pottinger 020 7861 3232

Patrick Robb

Investec Investment Banking 020 7597 5169

Andrew Burnett

Panmure Gordon & Co 020 7459 3600

Chairman's Statement

Overview

Over the last five years Sportech has been transformed into one of the world's leading pools and tote betting organisations. The Group has assembled a talented executive team and strengthened the composition of the Board with the appointment of Non-executive Directors who bring valuable skills and experience to the Group. The financial structure of the Company has been improved from a position of very high levels of debt into one of strong cash generation. I am delighted to have recently been appointed to the Board as Chairman. This is an exciting time for Sportech as the Group embarks upon the next stage in its development and looks to capitalise on its market-leading positions in regulated gaming markets worldwide.

Acquisition of Scientific Games Racing ("SGR", now renamed "Sportech Racing")

On 27 January 2010, Sportech announced the acquisition of Sportech Racing, the pari-mutuel operator, technology provider and venue management business, for an initial consideration of $65.0m, a deferred consideration of $10.0m and further contingent consideration of up to $8.0m, which will become payable in the event that Sportech Racing meets certain performance targets over the next three years. In February 2010, the Group successfully concluded a £29.2m fundraising by way of a firm placing and open offer. The funds raised were used to satisfy the cash consideration payable to Scientific Games Corporation ("SGC"). The balance of the consideration was satisfied by issuing shares in Sportech, resulting in SGC owning 19.99% of the share capital of the Company.

Despite announcing the acquisition in January 2010 and completing the equity fundraising in February 2010, Sportech was unable to complete the transaction until regulatory approvals were granted in various states in the USA and in the Netherlands. This was a very detailed and time consuming investigative process, and highlights both the challenges in, and benefits of, obtaining licensing in the USA. Sportech received all of its required regulatory approvals at the end of September 2010, and was able to finally conclude the acquisition of Sportech Racing in October 2010.

The acquisition transforms Sportech and gives the Company market-leading positions in the pools and tote betting markets for football and horseracing worldwide. Sportech now has operational bases in the UK, mainland Europe and the USA giving the Company a strong platform to drive growth from its international sport and gaming business.

Financial performance

The Group's financial performance has been in line with market expectations, notwithstanding the significant change and challenges in the year in order to deliver upon the Board's strategic objectives. 2010 has been a transitional year. Sportech is now well positioned for growth in 2011 and beyond as the Group benefits from the cash flows and profit contribution from Sportech Racing which will be added to its existing strong profit and cash generative businesses.

Group revenue has increased by £6.6m to £71.2m (2009: £64.6m). Operating profit (before amortisation of acquired intangibles and exceptional costs) has reduced by £2.1m to £17.4m (2009: £19.5m). There was an increase in net finance costs attributable to our revised banking arrangements to £5.5m (2009: £4.8m). Adjusted profit before tax was £11.9m (2009: £14.7m) with adjusted earnings per share of 5.4p (2009: 10.5p). This reduction principally reflects the increased number of shares in issue, following the equity fundraising and the allocation of shares to SGC upon the acquisition of Sportech Racing.

Following a number of charges principally associated with significant acquisition costs and annual non-cash amortisation charges, which amount in aggregate to £17.8m, the Group has reported a net loss before tax of £5.9m, an improvement of £11.1m on the loss in 2009. The loss per share has been reduced to 3.9p from 12.2p last year.

The reduction of net bank debt has been one of the key objectives for the Board. We are pleased to report a further reduction of £7.7m (9.6%) in net bank debt during the year to £72.2m (2009: £79.9m). Over the past five years, net bank debt has been reduced by £35.9m (33%).

Dividend

As in previous years, no dividend is proposed. The Board believes that it must continue to focus on debt reduction, as well as undertake selective investments in growth opportunities.

VAT claim

The Group announced in April 2009 that it 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 which, if applicable, could more than double the total amount claimed. The claim has not been recognised in the Group's financial statements. Following the anticipated rejection by HMRC in December 2010, Sportech appealed this decision in January 2011. Accordingly, the Board now expect the claim to be heard at the Independent First Tier Tax Tribunal towards the end of 2011.

Board and employees

Although I have only been Chairman for a few weeks, I am aware of the enormous efforts made by the Board and all of our employees as we concluded the first part of the turnaround strategy and moved into the integration and operational delivery phase. I would like to thank them for their dedication and commitment to the business and for their openness in welcoming me to the Board.

As well as transforming the business and financial structure of the Group, the operational management has been strengthened and the Board composition addressed. Ian Hogg has been appointed as Chief Operating Officer ("COO") UK and Online, and Brooks Pierce was appointed as President of Sportech Racing upon completion of the acquisition. We have also welcomed Lorne Weil, currently Chairman and CEO of Scientific Games Corporation, as a Non-executive Director and Peter Williams, currently Non-executive Director of ASOS Plc, Cineworld and Silverstone Holdings as Senior Independent Non-executive Director. Today, we have announced that Mor Weizer, the CEO of Playtech Ltd, has replaced Shmuel Weiss as the Playtech appointed Non-executive Director.

Piers Pottinger, Kathryn Revitt and Jon Holmes have stepped down from their positions as Chairman and Non-executive Directors respectively, following the completion of the Sportech Racing acquisition. I would like to thank them personally for their contribution to the Group during the strategic turnaround process.

I would like to also place on record my thanks to John Barnes, who stepped up to the role of Acting Chairman in November 2010, to steer the Group through the three-month period post acquisition. John continues in his role as an Independent Non-executive Director.

Outlook

Sportech has transformed its business over recent years, establishing a unique position in the regulated and emerging gaming markets worldwide, being one of only a few European operators licensed to carry out gaming activities in the USA. Current trading is in line with market expectations, notwithstanding some extreme weather conditions in the USA during January 2011 and early February 2011, and the generally challenging economic environment. The Board looks forward to the future with confidence.

Roger Withers

Chairman

24 March 2011

Business and financial review

Group strategy

The Board's strategy for growth is to develop Sportech's already strong presence in the regulated and emerging gaming markets worldwide, capitalising upon the enlarged Group's knowledge, experience and integrity within the marketplace.

During the past year Sportech has been successfully transformed into one of the world's leading pools and tote betting operators and system providers, processing over £8.5 billion of bets annually (17% of the global horseracing tote market) and with customers in more than 30 countries. The Group operates in many regulated gaming markets worldwide and has a unique heritage and reputation for integrity - operating the world's oldest football gaming business, The Football Pools, since 1923 and commencing tote activities in the USA in 1932. Pools and tote betting is the "friendly face" of gaming and in many countries, is the only legal form of sports betting. The Group holds a number of licences issued by gaming regulators internationally, including the UK, Netherlands and several states in the USA. This is an enviable position to be in.

The Board intends to utilise its strong strategic market position to develop a stronger international presence, in order to enhance shareholder value. From a strong cash-generative base, the Group will be able to continue to invest in improving its range of products, technological capabilities and distribution routes. The Group will extend its pools and tote product range by adding online casino, poker and bingo products to further enhance our direct customer experience, and to bring a unified online and offline product offering to our business customers.

The opportunity for interactive online gaming products in North America, commencing with horseracing, which is legally approved by many regulators, and having representation in the rapidly growing economies with emerging gaming markets, initially focused on India, presents a significant profit opportunity for Sportech. The Board considers that its strategic move into the "business to business" pari-mutuel marketplace will open up new territories with local partners. In addition, through its exclusive licences to operate gaming venues in Connecticut and the Netherlands, the Group will drive profits through its focus on significantly enhancing the customer experience.

In order to deliver on its growth strategy the Group will partner with leading organisations as evidenced with the strategic shareholding taken by both SGC and Playtech and the joint venture with India's leading lottery business, Playwin.

2010 business overview

2010 was a year of intense activity with strategic, operational and financial change. The Group has been transformed with the acquisition of Sportech Racing. The acquisition process was complex, with operations in several countries and international regulatory approvals necessary. The period from February 2010, when shareholders approved the acquisition, to October 2010, when the acquisition was finally concluded, involved a very detailed investigation being carried out by international regulators into Sportech and its business conduct and activities, the Board, senior employees and certain shareholders. This was more time consuming and demanding than originally envisaged but the Group was delighted to have secured licences to carry out gaming activities and processes in certain key states in the USA and in the Netherlands as a whole.

Since the completion of the acquisition, good progress has been made with the integration of the enlarged Group. The focus has been on operational delivery with the following key highlights:

The Football Pools

· Recruitment of Ian Hogg, as COO UK and Online, and realignment of management structure

· Suite of pools products is now also available at Ladbrokes.com and the Jennings, Better and Chisholms betting shop chains, via Finsoft

· Reciprocal pools sharing agreement with Phumelela Gold, South Africa's largest pools, tote and horseracing company, to commence in August 2011

· Upgrade of customer contact centre

e-Gaming

· Commencement of the detailed work for integrated online products and services from Playtech

· Ongoing planning for the transfer of our customer offering on casino, poker, bingo and games from 888 and St Minver to Playtech

Sportech Racing

· Moved the entire operation from an integrated part of the previous parent company's business to a new facility in Atlanta

· Established an interactive products and services business unit to focus on profitable opportunities arising in the emerging USA online marketplace

· Commenced a £1.0m refurbishment programme on the twelve existing venues in Connecticut to be completed by the Kentucky Derby held on Saturday 7 May 2011

· Opened two new horserace wagering venues in sports bars in Connecticut

· Opened our first horserace wagering venue in a sports bar in California under Sportech's licence (licence allows up to 45 venues)

· Renewed 18 tote contracts in North America and secured a new Jai-Alai contract in Orlando and a tote contract in Chile

· Recruited new staff to operate the standalone business to fulfil roles previously undertaken by SGC

· Utilisation of key personnel from the UK to project manage the Connecticut refurbishment and marketing rejuvenation

India - emerging markets

· Sportech's joint venture partner, the Essel Group, one of India's largest conglomerates and the owner of Playwin, India's leading lottery business, is one of only three Indian operators to have secured a provisional online gaming licence in the North East Indian state of Sikkim

· Sportech will extend its existing SportsHero activities to enable the Essel Group to offer pools games, initially on cricket and football, in India by the end of June 2011

There has been significant progress in the operational focus of the enlarged business in a short period of time. This will continue through 2011 and beyond.

Financial overview

Summary results

Revenue	2010 £m	2009 £m	Change £m
Football Pools	52.1	58.9	(6.8)
Sportech Racing	14.8	-	14.8
e-Gaming	4.3	5.7	(1.4)
Total	71.2	64.6	6.6

Operating profit *	2010 £m	2009 £m	Change £m
Football Pools	18.7	20.5	(1.8)
Sportech Racing	1.0	-	1.0
e-Gaming	1.5	1.7	(0.2)
Corporate costs	(3.8)	(2.7)	(1.1)
Total	17.4	19.5	(2.1)

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

The Group's financial performance has been in line with market expectations, notwithstanding the significant change and challenges in the year in order to deliver upon the Board's strategic objectives. 2010 has been a transitional year. Sportech is well positioned for growth in 2011 and beyond as the Group benefits from the cash flows and profit contribution from Sportech Racing which will be an important addition to its existing strong profit and cash generative businesses.

Group revenue has increased by £6.6m to £71.2m (2009: £64.6m) generating an EBITDA of £19.7m. Operating profit (before amortisation of acquired intangibles and exceptional costs) amounts to £17.4m (2009: £19.5m). With an increase in net finance costs attributable to our revised banking arrangements to £5.5m (2009: £4.8m), adjusted profit before tax amounts to £11.9m (2009: £14.7m). Adjusted earnings per share is 5.4p (2009: 10.5p), the reduction principally reflecting the increased number of shares in issue following the equity fundraising in the year and the issue of consideration shares to SGC upon the acquisition of Sportech Racing.

The Group incurs an annual non-cash amortisation charge of £5.9m (2009: £6.6m) on the intangible assets acquired with Vernons in 2007. In addition, following the adoption of IFRS 3 'Business Combinations' (revised), all costs associated with the acquisition of Sportech Racing have been expensed through the Income Statement, which along with other exceptional costs, has led to a significant one-off exceptional charge of £9.9m (2009: £24.9m). The Group has also incurred other finance costs of £1.4m (2009: £0.2m), principally arrangement fees in respect of the new bank facilities announced earlier in the year. The Group has also accounted for its share of the start up losses of its Indian joint venture amounting to £0.6m (2009: £nil).

Following these charges, the Group has reported an £11.1m improvement in the net loss before tax to £5.9m (2009: loss of £17.0m), a loss after tax of £6.3m (2009: loss of £12.3m) and a loss per share of 3.9p (2009: loss of 12.2p per share).

Corporate costs

Whilst we continue to focus on cost control, it has been necessary to strengthen our central management team to ensure that we were able to integrate and manage the acquisition of Sportech Racing appropriately. Corporate costs have therefore increased to £3.8m (2009: £2.7m) including a non-cash share option expense under IFRS 2 of £0.4m (2009: £0.2m).

Taxation and other matters

The Group has incurred a tax charge of £0.4m (2009: tax credit of £4.7m) despite the reported loss, principally due to the disallowable nature of a number of transaction related costs. The weighted average applicable tax rate was 27.7% (2009: 28.0%). The Group remains with a net deferred tax asset of £3.5m, having utilised £0.6m of losses brought forward against taxable profits in 2010 but having disclaimed capital allowances with a tax value of £0.6m. During the year, the Group received the expected refund from HMRC of £1.7m discharging the current tax debtor recognised in the prior year financial statements.

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, which if applicable, could more than double the sum. On the 21 December 2010, the Company received the anticipated formal notice from HMRC advising that the claim has been rejected. Under HMRC guidelines, the Group had 30 days from the notice to formally lodge an appeal to the Independent First Tier Tax Tribunal which it duly did on 11 January 2011. We are currently waiting for a Tribunal date to be set but would anticipate that such a date would be towards the end of 2011. The claim has not been recognised in the Group's financial statements.

Debt and banking facilities

The reduction of net bank debt has been one of the key objectives for the Board. We are therefore pleased to report a further reduction of £7.7m (9.6%) in net bank debt during the year to £72.2m (2009: £79.9m). Over the past five years, net bank debt has reduced by £35.9m (33%). Cash generated from continuing operations amounted to £16.3m (2009: £19.0m). Following net interest payments of £5.5m (2009: £4.8m) and net tax receipts of £1.7m (2009: tax payments of £0.8m), cash generated from operating activities prior to exceptional costs was £12.5m (2009: £13.4m). After trading cash exceptional costs of £2.5m (2009: £3.1m) and exceptional acquisition costs of £7.4m, net cash generated from operating activities amounted to £2.6m (2009: £10.3m). We invested a further £2.5m (2009: £4.0m) into tangible and intangible assets, including £0.5m into Sportech Racing in the three months of ownership in 2010 and invested an initial £0.5m (2009: £nil) into our new Indian joint venture.

To part fund the acquisition of Sportech Racing, the Group completed an equity fundraising in February 2010 raising £28.2m net of expenses. £19.9m of these funds were used to settle the cash consideration due to the vendor SGC, £7.4m were used in settling acquisition expenses (as noted above) and a further £0.9m in settling bank refinancing costs.

The Group has also reduced its bank leverage ratio (net bank debt/EBITDA) from 5.3 times at the end of 2005 to 3.7 times at the end of 2010. With a full year's EBITDA contribution from Sportech Racing and the significant free cash flow the Group now generates, the Group's net bank debt and bank leverage are both anticipated to reduce substantially in 2011.

At the end of December 2009 the Group entered into an amendment agreement with Lloyds Banking Group to revise its banking facilities on an ongoing basis. In February 2010 these facilities were amended to accommodate the acquisition of Sportech Racing and the associated equity fundraising undertaken at that time. The Group currently has drawn senior facility term loans of £73.0m (2009: £82.0m). A further £4.0m of senior facility term loans remain undrawn and are available to finance business development opportunities. The maturity date of the senior facility is June 2013. In addition the Group has a £3.0m working capital facility which is due for renewal in June 2011. The key financial covenants of the revised facilities have been adjusted to provide greater headroom until the end of the term. The margin over LIBOR in respect of the revised facilities is 3.0% per annum until expiry and, as part of the amendment agreement, the Company paid the bank's arrangement fees of £0.9m, being equivalent to 1% of the gross facility limits as at 31 December 2009.

The Group has a number of interest rate swap agreements in place in respect of £60.0m of its term debt, with maturity dates from March 2011 to February 2016 at an average rate (before the lending margin of Lloyds Banking Group) of 4.82%. £10.0m of these swaps unwind each year, commencing in March 2011. Under international accounting rules, such swap arrangements are fair valued at each reporting date. These swaps are valued at the end of the year as a net liability, after deferred tax of £3.3m (2009: £3.0m). These agreements, which were entered into over two years ago, have reduced the Group's exposure to any volatility in the credit markets. The Group has also entered into a number of forward foreign exchange contracts to hedge against currency fluctuations in its two main trading currencies outside of Sterling, being the US Dollar and the Euro, for the first six months of 2011. At the year end, the Group has $6.0m and €3.0m outstanding forward exchange contracts at rates of approximately $1.61 to £1.00 and €1.16 to £1.00. These foreign exchange contracts have been fair valued at the balance sheet date with the resultant liability of £0.1m accounted for in other finance charges as an unrealised loss on forward contracts.

Acquisition of Sportech Racing

Sportech Racing was acquired on 5 October 2010. Under IFRS 3 'Business Combinations' (revised), the consideration and the assets acquired have been fair valued at the date of acquisition. The consideration paid consisted of cash, equity shares, deferred consideration and contingent consideration and in total amounted to a fair value consideration of £44.1m. At the time of announcing the acquisition, the headline value was anticipated at £51.4m, which included the contingent consideration and equity shares being issued at 50p, whereas due to the time delays experienced, the fair value of the shares had reduced to 42.5p, the share price on the day of completion.

Initial cash and equity consideration amounting to £38.8m was mostly paid and issued on the date of completion with a final working capital adjustment settled in early 2011. Deferred consideration of $10.0m plus interest at the rate of 1% above Bank of England base rate is payable on 30 September 2013. This has been fair valued as deferred consideration payable of £5.3m. There is the potential for performance related contingent consideration of up to $8.0m to be paid subject to certain performance criteria being met. A fair value of £nil has been attributed to this contingent consideration. The fair value of the assets acquired have been calculated as £44.1m with no resultant goodwill or negative goodwill arising.

Share capital

The Company issued 58,415,520 new ordinary shares in February 2010 as a result of the firm placing and placing and open offer in respect of the acquisition of Sportech Racing at 50p per share. On 5 October 2010, the Company issued a further 39,742,179 ordinary shares to SGC as part of the purchase consideration for Sportech Racing. Current shares in issue total 198,810,302.

Football Pools

Strategy

As part of the revitalisation of the Football Pools, Sportech has focused its efforts on three key elements: products, technology and distribution.

· Products: increasing the number and range of products to offer our customers

· Technology: to ensure ease of integration for third-party distribution and to operate efficiently

· Distribution: expanding our distribution channels to enable more customers to play

Products

We have continued to improve and expand our product base into a suite of Football Pools games that ranges from long-odds games with multi-million pound top prizes through to shorter-odds pool games.

We have aligned our product mix to closely follow the expanding football fixture list and to offer our customers increasing opportunities to play and win. As a result, the number of Classic Pools games that our customers were able to play in 2010 increased from 66 to 71 and we anticipate a further increase in 2011 and into 2012 as we continue to expand on the number of Classic Pools games. We expect the financial benefit of this further expansion of Classic Pools games to be realised in the second half of 2011, which we expect to result in a further increase in average spend per customer.

In addition, our online customers and distribution partners now have access to a significantly increased variety of gaming opportunities with the launch of a number of new games, including Head to Head and Score 3. With these new products complementing our existing Classic Pools, Premier 10 and Super 6 games, we anticipate offering our customers many more pool gaming opportunities in the 2010/11 football season than in the 2009/10 season. This significantly enhances the appeal of our customer offering and will enable us to recruit more customers and increase their average spend per head.

One of the principles behind increasing the level of gaming opportunities available to our customers is to ensure that our customers enjoy the winning experience on a more frequent basis. We were delighted that during the course of 2010 we managed to create some record winners. In March 2010, 14 Football Pools customers shared a £3m jackpot and one lucky Zetters customer scooped the £1m Zetters jackpot, the highest this century. Then in October 2010, one of our long standing customers scooped the £3m jackpot on his own to become the highest ever single winner in the history of the Football Pools.

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 and has continued throughout 2010. By modernising our technology we have enabled new distribution channels and delivered operational benefits.

The Group's technology infrastructure has been fundamentally overhauled. 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 our new, engaging games in a simple and accessible manner has been greatly enhanced. In addition, the operational benefits have been significant, with the ability to run additional pools and settle those pools to our customers in a cost effective and timely manner being critical to our ability to gain new distribution partners.

We are continuing to focus on operational efficiency improvements and 2011 has seen the launch of a new self service website for our traditional retail customers, www.pools.co.uk. Customers can renew their Classic Pools offering online without needing to post documents and engage in manual processes, in addition to easily finding out information on winning numbers and statistics. Whilst this website is in its infancy, we are already seeing encouraging signs of customer renewal in a very cost efficient manner. It is intended to expand the products offered for renewal on this website over a period of time.

We have also focused on enhancing our online offering, with an upgraded footballpools.com website launched in August 2010, offering more gaming opportunities, better navigation and improved customer experience. Built into this website is technology that allows a simple, seamless integration of our enlarged suite of Football Pools games into third-party gaming websites. This effectively offers additional gaming products to our partners at a guaranteed margin with no risk to them. Ladbrokes.com is the first partner to benefit from these enhancements and we anticipate further partnerships to emerge in due course as discussed below.

Distribution

One of the key elements of the revitalisation of the core Football Pools business has been to access improved distribution routes in order to recruit additional customers and increase pool liquidity. During 2009 and into 2010, economic conditions impacted on our ability to make the progress we would have liked in securing these distribution routes, as potential distribution partners have focused internally. Therefore we continued to focus on the ongoing modernisation of the core Football Pools business by further enhancing our technology, increasing our product range and improving our customer experience. These enhancements, both offline and online, have accelerated our ability to integrate our products seamlessly into third-parties' offerings.

We have started to see the benefit of this work at the start of 2011 with the launch of Football Pools on Ladbrokes.com enabling customers of Ladbrokes.com, to play our Football Pools products on their website. We have also signed a reciprocal agreement with Phumelela Gold International Limited, South Africa's largest pools, tote and horseracing company, whereby customers of both companies can bet into each other's Football Pools products. We anticipate this partnership going live at the start of the 2011/12 football season. We have also now completed the integration of our products into the Finsoft technology platform, utilised by many of the smaller independent bookmaker chains, and we are pleased to announce that from last week, Jennings, Better and Chisholms are now able to offer Football Pools products in their 127 betting shops. This number is expected to increase to over 200 prior to the summer. We have an active pipeline of potential distribution partners and we anticipate being able to announce a number of new distribution arrangements throughout the course of 2011.

Financial and customer numbers

Total operating profit before exceptional costs and amortisation of acquired intangibles for the Football Pools division amounted to £18.7m (2009: £20.5m) on revenue of £52.1m (2009: £58.9m). This incorporates both the traditional retail Football Pools channels and online Football Pools previously reported separately.

The traditional retail Football Pools channel, for the year, reported an operating profit contribution of £20.4m (2009: £23.6m) on revenue of £50.9m (2009: £57.8m). During the period we successfully merged the former Vernons and Littlewoods customer databases, giving us further clarity on our customer profile, and overhauled our call centre to create a sales and customer service centre. Working practices continue to be modernised and we expect to see the benefits of these changes flowing through into the beginning of next year.

As we highlighted in our interim results in August 2010, we have focused on increasing spend per head from our existing core customer base rather than target expensive low margin recruitment. Whilst this has had an inevitable impact on active customer numbers, it ensures a more focused approach to profitable customer recruitment and retention. As at 31 December 2010, we had a total of 532,000 active Football Pools customers (2009: 622,000). Our strategy to increase the average spend per week from our customers, principally on our core Classic Pools product, is continuing to bear fruit with an increase in revenue per customer per week on the Classic Pools product to £2.32 per week (2009: £2.25), offsetting some of the revenue shortfall from loss of customer numbers.

In respect of our online Football Pools channel, operating losses have been significantly reduced by £1.4m to £1.7m (2009: loss of £3.1m), principally due to a restructuring of the cost base now that the online distribution channel is fully operational. The focus in the year was to improve the technological and product offering so that it was easier for customers to play additional games (and therefore increase average spend per player) and subsequently simplified the third-party integration path. This has led to the integration with Ladbrokes.com, and a doubling in the average stakes per player to £296. We expect this process to continue.

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 became apparent that the Group should 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 Holdings Plc ("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 has previously stated.

As part of the acquisition of Sportech Racing, the Board considered that there was a material upside from producing a seamless customer offering, that operates both online and offline from a single wallet and with customer loyalty benefits. The Group wants to be in the position of extending its pools and tote product range by adding online casino, poker, bingo and instant win games to further enhance our direct customer experience and to bring a unified online and offline product offering to our business customers. The Board intends to make these products available to the regulated markets in which the combined Group has more than 140 business customers in over 30 territories. Depending on the regulatory environment applicable to an individual customer, the intention is for each customer to be able to choose from one or more of the above product offerings.

We were therefore delighted that Playtech, the world's leading online gaming software provider, shared this vision and we are now working together to create this product suite. In addition, Playtech has taken a 9.99% shareholding in the enlarged Sportech in order to capitalise on these exciting new opportunities and territories. It is the intention that all our current e-Gaming activities will be migrated to the Playtech systems during 2011, commencing with Vernons.co.uk and Littlewoods Bingo prior to the half year. Littlewoods Casino and Poker and GameOn Bingo will transfer following the contractual break point we have with 888 towards the end of 2011. Football Pools and horseracing pools/tote will be added to this suite of products by a "Pools Plug-in" in 2012, to create this unified offering, also enabling distribution of our pools and tote products to the customers of Playtech.

We were pleased to secure an extension to our licensing agreement with Shop Direct Group ("SDG"), one of the UK's largest home shopping companies and owners of the Littlewoods brand, for the continued use of the Littlewoods brand for online e-Gaming activities. The licensing agreement, which is for five years with an annual break clause after an initial 18 month period, allows us to continue to operate and market the established Littlewoods brand name across our existing e-Gaming websites. In addition, we have agreed to collaborate with SDG, by making an online bingo product available to the online and offline customers of Littlewoods.

In anticipation of these product improvements and the subsequent migration of our customers to the Playtech software, we have focused our trading efforts during the year on core customer retention and lapsed customer reactivation, rather than new customer recruitment. As a consequence, we are pleased that we have held operating profits broadly level with last year at £1.5m (2009: £1.7m) on reduced revenues due to this lack of new player recruitment of £4.3m (2009: £5.7m). The number of active customers during 2010 reduced as a consequence to 29,200 (2009: 52,300), whilst we witnessed the anticipated strong increase in gross win per player to £265 (2009: £183).

Our partnership with 888 for the supply and management of many of our e-Gaming products resulted in operating profits of £1.0m (2009: £1.1m). Littlewoods Bingo increased its profitability to £0.6m (2009: £0.5m), whilst Vernons.co.uk contributed a loss of £0.1m (2009: profit of £0.1m).

Whilst the financial performance of our e-Gaming division in 2010 has been disappointing, this was expected due to significant changes affecting the software suppliers to Sportech. We remain confident of our ability to build a substantial, profitable e-Gaming business from our established base, in conjunction with our strategic shareholder and commercial partner Playtech Limited. The Board anticipates that the benefits will be first seen in 2011, with the resultant financial benefits being delivered in 2012 and beyond.

Sportech Racing

In January 2010, Sportech announced the acquisition of SGR (now renamed Sportech Racing) for $75.0m, rising to $83.0m in the event of certain growth conditions. The completion of the acquisition was dependent upon regulatory approvals being granted in various states in the USA, and in the Netherlands. This was a very detailed and time consuming investigative process. However, although it proved a challenging undertaking, importantly it highlighted the benefits of obtaining licensing in the USA. Sportech received all its required regulatory approvals at the end of September 2010, and the acquisition was concluded in October 2010.

As a consequence of the acquisition, Sportech has become one of the leading pools and tote betting organisations in the world. Sportech Racing is one of the world's leading tote (pari-mutuel) operators and system providers, processing over 17% (£8.5 billion) of all tote bets on horseracing internationally.

Sportech Racing has two principal divisions:

(i) Sportech Racing provides tote betting systems to customers in over 20 countries, including processing approximately 50% of all bets on horseracing in the USA through terminals and world class operations and data centres on the East and West Coast of the USA and in Essen, Germany.

(ii) Sportech Venues operates all betting on horseracing under exclusive licences in (a) the state of Connecticut in perpetuity and (b) in the Netherlands to 2013.

Business integration and restructuring

Since completing this strategically important acquisition, focus has turned to the operational performance.

In line with the business plan and as budgeted at the time of the acquisition, we have successfully moved the entire operation from an integrated part of the previous parent company's business to a new standalone office and warehouse facility in Atlanta. In addition, we will shortly be relocating into new offices in New Haven, Connecticut, adjacent to our flagship Sports Haven property, to house Sportech's North American headquarters, interactive products and services, the support function for our Connecticut venues business and ancillary activities. To complete the separation of the business from SGC, we have, as planned, also recruited a number of employees to fulfil roles previously undertaken by SGC.

Initially focusing on the legal online horseracing market, the Board considers that there is significant potential in the online gaming market in the USA and elsewhere. As regulation permits, this will then be extended to a full suite of horseracing, football, casino, poker, bingo and instant win games. As a consequence an interactive products and services business unit has been established to provide a focus on this rapidly evolving area.

Sportech Racing

Our USA Racing Tote services business supplies tote technology and equipment to racetracks and Off Track Betting shops ("OTB") in the USA and Canada that account for more than 50% of the total wagering handle (betting turnover). In addition, we supply and operate tote technology solutions across Central and South America. Many of our contracts are fixed price contracts ensuring our income is now less dependent on the fluctuating handle seen across the horseracing tote industry during the last few years. Again, we have made good progress in the short period of our ownership with 18 existing tote service and supply contracts renewed or extended since acquisition.

We have also made good progress in securing further distribution and system sales, with a new agreement signed in Chile for the provision of pari-mutuel wagering systems, terminals, interactive wagering platforms and services at the Hipodromo Chile and Club Hipico de Santiago. The agreement spans racetracks, phone betting, teletracks' centres and 201 OTB locations. Delivery of the systems and services is expected in the latter part of 2011. This follows a deal signed in 2010 to supply pari-mutuel wagering systems and terminals to the Jockey Club Argentina that is also due to be delivered in 2011. In addition, we have also recently entered into a new contract and installed new terminals and systems for operating Jai-Alai pari-mutuel wagering in Orlando.

As a result of various restructuring initiatives, we have increased management responsibility for the team in Europe generally and shortened their reporting lines into Sportech Racing.

The Group has successfully secured a licence to provide wagering on horseracing for 45 venues away from the racecourses in California. The first one was opened in December 2010 and we have a pipeline of additional potential venues.

Sportech Venues

(i) Connecticut

As part of the acquisition of Sportech Racing, the Group secured an exclusive licence in perpetuity to operate all betting on horseracing in the state of Connecticut. This includes a licence to operate up to 18 OTB facilities and a telephone betting operation.

Prior to the acquisition, only 13 of these venue licences were being utilised and telephone betting was being carried out in 11 states. The Board considers that there is significant potential under this licence and is actively investing in these facilities, opening new facilities and looking to expand the number of states from which it takes telephone betting in line with its competitors across the USA.

Over recent months, we have expanded the sports bar concept by introducing betting facilities into two established sports bars with an already established customer base. We are encouraged by the early results displayed and are in discussions with other operators to extend this further. This new concept of combining elements of the customer offer to include food, drink, sport, horseracing and betting has received a warm welcome. Whilst the local licensing process is lengthy, we are aiming to open another venue prior to the end of 2011.

In line with the business planning process during the time of the acquisition, we have embarked upon a capital spend of over £1.0m in the first half of 2011 to refurbish a number of existing OTB locations in order to drive profitable growth by raising the standards of presentation and the levels of customer service and experience. This refurbishment programme will be completed by the Kentucky Derby which is on Saturday 7 May 2011.

In order to facilitate this refurbishment and opening programme, senior personnel from the UK have been utilised to project manage this process from a business and marketing perspective.

We also offer the ability for customers to place wagers by phone and will seek to expand the number of states from which we take telephone betting beyond the current 11 states, as none of our existing competitors in this area restrict this activity as severely as we currently do.

(ii) Netherlands

In the Netherlands, we hold the exclusive licence to operate pari-mutuel betting on horseracing until June 2013. We operate online, through an OTB network and through point of sale ("POS") operations in smaller retail outlets. The majority of our revenue is derived from betting on non-Dutch racing, in particular on UK, South African, Swedish and French racing. We have recently refurbished one OTB with positive effects on revenue. We are focused on growing the online business and have reduced the POS network to focus on the larger profitable units. The Government is reviewing the legislation around gambling, both online and offline in the Netherlands. We are monitoring developments closely, and would anticipate that our position as an established, regulated operator, with both physical and online activities, will place us in a strong position to take advantage of opportunities that may arise.

Financial results

For the year ending 31 December 2010, Sportech Racing was only part of the Group for three months and in this time contributed £14.8m of revenue, £1.7m of EBITDA and £1.0m of operating profit before exceptional costs. There are no prior year comparatives. Our American operations generated 80% of revenue and 88% of EBITDA with the remainder generated from our European operations.

Indian joint venture

The Board considers that the international marketplace offers great potential for our pari-mutuel games of skill, particularly in regulated and emerging gaming markets, where we can leverage our heritage and track record of operational integrity. 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. Both Sportech and Playwin have agreed to contribute a total of £2.0m each over the next two years to the joint venture. The Group had invested £0.5m of cash in the first year of operations and has accounted for its share of losses in the Income Statement amounting to £0.6m.

In May 2010, we launched www.SportsHero.com, offering sports prediction and fantasy games on cricket, football, tennis and Formula 1. At the end of December 2010, the site had received nearly 1 million unique visitors and 117,000 registrations online and through mobile phones.

The Essel Group is one of only three Indian operators to have secured a provisional online gaming licence in the North East Indian state of Sikkim. As a consequence, through a newly formed group company, the Essel Group will be able to offer a number of online gaming products. Sportech will extend SportsHero's activities to enable the Essel Group to offer pool games, initially on cricket and football, in India which is expected to launch by the end of June 2011.

Sportech has been closely monitoring the marketplace in India for a number of years and anticipates that through its careful and structured approach, including partnering with India's largest lottery business, the potential in the emerging market may now start to be realised.

Industry activity

Sportech is one of the world's leading pools and tote betting organisations, processing over £8.5 billion of tote bets annually across 30 countries. The UK Government has announced that it intends to sell the UK Tote, a business whose principal activities include betting shops and the exclusive licence to carry out tote betting on horseracing in the UK. Sportech retains a close interest in the sale process, specifically in relation to the Totepool division, as this is an activity that the Group is a world leader in, with its UK operational centre is also based in the North West of England close to the UK Tote.

Principal risks

The Board regularly reviews the risks associated with the Group's activities and strategy. In reviewing such risks, the Board ensures that appropriate systems and controls are in place to firstly mitigate the occurrence of such risks and secondly mitigate the impact of any such risks. The principal risks the Group faces are noted below:

Risk type and impact

Mitigation

Regulatory risk

The Group operates under a number of licences across worldwide jurisdictions, including the UK and USA. The loss or inadvertent breach of any such licence could have a significant impact on the Group's ability to continue to trade within that and other jurisdictions and therefore on the Group's trading and results. In addition, such loss or inadvertent breach would potentially lead to the imposition of fines on the Group and could lead to substantial legal costs.

The Group considers that its licences to operate around the world are a key asset to the business and as such looks to mitigate the inherent risk within this area as follows:

· the Group employs a Director of Corporate Affairs, one of whose primary roles is to ensure compliance with licences worldwide;

· the Group has recently appointed a Group General Counsel in the UK to aid compliance issues and has also appointed a General Counsel within its key USA subsidiary, Sportech Inc.;

· the Group employs third-party specialist legal counsel as appropriate to ensure relationships with regulatory bodies are maintained at the highest level;

· regular updates and training are provided to employees; and

· all directors (including Non-executive Directors) have clauses in their contracts requiring them to provide whatever information is required by regulatory authorities to ensure Sportech PLC remains licensed in its key jurisdictions.

Operational risk

A significant proportion of the Group's annual income is derived from consumer facing industries and is therefore subject to the impact of economic downturns. Any significant downturn in the economy could lead to a negative impact on the results of the Group and its cash flows.

A significant proportion of the Group's annual income is dependent on technology led solutions.

Management has taken and continues to take mitigating actions to protect the Group from current and potential operational and commercial risks in respect of economic downturn:

· revenue channels have been expanded both by product and by country with the acquisition of Sportech Racing, providing a broader base of revenue streams for the Group;

· operating cost bases within the key operational divisions have been restructured to offset potential declines in revenue;

· revenue channels within the UK are being expanded by the distribution of the Group's key products through additional channels to market; and

· where possible, fixed income contracts have been entered into with our customers limiting our downside risk.

Management ensures that the risk posed by technology is mitigated where possible as follows:

· the Group has a number of world class data centres established in its key trading jurisdictions which host the Group's key technology solutions;

· the Group continues to invest in upgrading its technology solutions to ensure compliance with best practice;

· group systems, principally in the USA and in the Netherlands, are subject to annual third-party audit to provide assurances to our customers that our systems are robust and complete; and

· where third-party software is utilised, leading technology providers are chosen as suppliers of choice, particularly in respect of our e-Gaming operations.

Financing risk

The Group continues to be relatively highly leveraged and is dependent on the provision of debt financing to enable it to continue its operations. The change in the credit markets that have occurred over the last three years has increased the cost of bank debt and reduced the availability of alternate sources of finance.

To mitigate this risk:

· the Group maintains a close relationship with its existing bankers, Lloyds Banking Group. In addition, the Group has established a number of relationships with other lenders to ensure that if required, alternate sources of finance may be made available;

· the Group is also very focused on cash generation and debt reduction to ensure the financing risk is mitigated by the reduction in the Group's leverage; and

· the Group has entered into a number of long term contractual interest fixes to de-risk the interest element of the cash flows of the Group.

Health and safety risk

The Group runs a number of venues running pari-mutuel wagering, principally in the state of Connecticut, USA and the Netherlands. These operations involve the handling of significant sums of cash. In addition, the venues are used by a significant number of customers on a daily basis. The Group therefore has a significant health and safety risk in respect of both its employees and its customers.

The Group takes the following actions to ensure the health and safety of its employees and customers:

· suitably qualified Health and Safety Managers are employed by the Group to ensure compliance with Group policies;

· security processes and procedures are in place to ensure excess cash is removed from venues as soon as possible; and

· continued investment in the venues to ensure health and safety issues are addressed within each venue.

Summary

The completion of the acquisition of Sportech Racing has established Sportech as one of the world's leading pools and tote betting operators and the Group now occupies a unique position in the regulated and emerging gaming markets worldwide.

The transformation and turnaround of the Sportech business has been lengthy and challenging and carried out in difficult economic conditions. As we focus on profitable growth in 2011, the business is strongly cash generative, enabling us to effect ongoing improvements to our customer offering and, as a result, have the capability to take advantage of the rapidly growing global gaming markets.

Ian Penrose

Chief Executive

Steve Cunliffe

Finance Director

24 March 2011

Consolidated income statement

For the year ended 31 December 2010

		Group
		2010	2009
	Note	£m	£m
Revenue		71.2	64.6
Cost of sales		(25.1)	(14.6)
Gross profit		46.1	50.0
Distribution costs		(1.0)	(0.8)
Administrative expenses		(43.5)	(61.2)
Operating profit before amortisation of acquired intangibles and exceptional costs		17.4	19.5
Amortisation of acquired intangibles		(5.9)	(6.6)
Exceptional costs	5	(9.9)	(24.9)
Operating profit/(loss)		1.6	(12.0)
Finance costs	6	(5.6)	(4.8)
Finance income	6	0.1	-
Other finance charges	6	(1.4)	(0.2)
Net finance costs	6	(6.9)	(5.0)
Share of loss after tax of joint venture		(0.6)	-
Loss before taxation		(5.9)	(17.0)
Adjusted profit before taxation*		11.9	14.7
Taxation	7	(0.4)	4.7
Loss for the year from continuing operations attributable to equity shareholders		(6.3)	(12.3)

Loss per share from continuing operations
Basic and diluted	8	(3.9)p	(12.2)p
Adjusted earnings per share from continuing operations
Basic	8	5.4p	10.5p
Diluted	8	5.2p	10.5p

* Adjusted profit before taxation is profit before taxation, amortisation of acquired intangibles, exceptional costs, share of loss after tax of joint venture and other finance charges.

Consolidated statement of comprehensive income

For the year ended 31 December 2010

	Group
	2010	2009
	£m	£m
Loss for the year	(6.3)	(12.3)
Other comprehensive income: Actuarial loss on retirement benefit obligations
Actuarial gain/(loss) on retirement benefit obligations	0.2	(0.1)
Deferred tax on actuarial gain on retirement benefit obligations	(0.1)	-
Movement on derivative financial instruments	(0.3)	0.5
Deferred tax on derivative financial instruments	-	(0.1)
Currency translation differences	0.2	-
Other comprehensive income for the year net of tax	-	0.3
Total comprehensive income for the year attributable to equity shareholders	(6.3)	(12.0)

Consolidated statement of changes in equity

For the year ended 31 December 2010
			Other reserves
	Share capital	Share premium	Share option reserve	Pension reserve	Currency translation reserve	Financial instrument reserve	Retained earnings	Total
	£m	£m	£m	£m	£m	£m	£m	£m
At 1 January 2009	50.3	20.7	0.7	0.1	-	(3.4)	28.9	97.3
Comprehensive income
Loss for the year	-	-	-	-	-	-	(12.3)	(12.3)
Other comprehensive income
Financial instrument reserve movement*	-	-	-	-	-	0.4	-	0.4
Actuarial loss on retirement benefit obligations*	-	-	-	(0.1)	-	-	-	(0.1)
Total other comprehensive income	-	-	-	(0.1)	-	0.4	-	0.3
Total comprehensive income	-	-	-	(0.1)	-	0.4	(12.3)	(12.0)
Transactions with owners
Share option credit	-	-	0.2	-	-	-	-	0.2
At 31 December 2009	50.3	20.7	0.9	-	-	(3.0)	16.6	85.5
Comprehensive income
Loss for the year	-	-	-	-	-	-	(6.3)	(6.3)
Other comprehensive income
Financial instrument reserve movement*	-	-	-	-	-	(0.3)	-	(0.3)
Actuarial gain on retirement benefit obligations*	-	-	-	0.1	-	-	-	0.1
Currency translation differences	-	-	-	-	0.2	-	-	0.2
Total other comprehensive income	-	-	-	0.1	0.2	(0.3)	-	-
Total comprehensive income	-	-	-	0.1	0.2	(0.3)	(6.3)	(6.3)
Transactions with owners
Share option credit	-	-	0.4	-	-	-	-	0.4
Proceeds from shares issued	49.1	-	-	-	-	-	(4.0)	45.1
At 31 December 2010	99.4	20.7	1.3	0.1	0.2	(3.3)	6.3	124.7
*Net of deferred tax

Consolidated balance sheet

As at 31 December 2010

		Group
		2010	2009
	Note	£m	£m
ASSETS
Non-current assets
Goodwill		147.6	147.6
Intangible fixed assets		57.1	30.3
Property, plant and equipment		12.4	1.5
Trade and other receivables		0.1	-
Retirement benefit assets		0.1	-
Deferred tax assets		4.1	3.6
		221.4	183.0
Current assets
Trade and other receivables		12.2	8.5
Inventories		1.0	-
Current tax receivable		-	1.9
Cash and cash equivalents		1.8	2.1
		15.0	12.5
TOTAL ASSETS		236.4	195.5
LIABILITIES
Current liabilities
Overdraft		(1.0)	-
Derivative financial instruments		(4.6)	(4.2)
Financial liabilities	10	(12.0)	(8.0)
Trade and other payables		(24.6)	(23.4)
Provisions		(0.7)	-
Current tax liabilities		(0.2)	(0.2)
		(43.1)	(35.8)
Net current liabilities		(28.1)	(23.3)
Non-current liabilities
Financial liabilities	10	(66.5)	(74.0)
Share of net liabilities of joint venture		(0.1)	-
Retirement benefit liability		(0.8)	-
Provisions		(0.6)	-
Deferred tax liabilities		(0.6)	(0.2)
		(68.6)	(74.2)
TOTAL LIABILITIES		(111.7)	(110.0)
NET ASSETS		124.7	85.5
EQUITY
Ordinary shares	12	99.4	50.3
Share premium		20.7	20.7
Other reserves		1.6	0.9
Financial instrument reserve		(3.3)	(3.0)
Retained earnings		6.3	16.6
TOTAL EQUITY		124.7	85.5

Consolidated statement of cash flows

For the year ended 31 December 2010

		Group
		2010	2009
	Note	£m	£m
Cash flows from operating activities
Cash generated from continuing operations	9	16.3	19.0
Interest received		0.1	-
Interest paid		(5.6)	(4.8)
Tax received/(paid)		1.7	(0.8)
Net cash generated from operating activities before cash exceptional costs		12.5	13.4
Cash exceptional costs - acquisition costs in relation to Sportech Racing		(7.4)	-
Cash exceptional costs - other		(2.5)	(3.1)
Net cash generated from operating activities		2.6	10.3
Cash flows from investing activities
Vernons deferred consideration		-	(3.0)
Investment in joint venture		(0.5)	-
Acquisition of Sportech Racing, net of cash acquired	11	(19.2)	-
Purchase of intangible fixed assets		(1.7)	(3.8)
Purchase of property, plant and equipment		(0.8)	(0.2)
Net cash used in investing activities		(22.2)	(7.0)
Cash flows from financing activities
Proceeds from issuance of ordinary shares, net of issuance costs	12	28.2	-
Bank arrangement fee paid - exceptional cost		(0.9)	-
Proceeds from borrowings		-	3.0
Repayment of borrowings		(9.0)	(7.0)
Net cash generated from/(used in) financing activities		18.3	(4.0)
Net decrease in cash and cash equivalents		(1.3)	(0.7)
Cash and cash equivalents at the beginning of the year		2.1	2.8
Cash and cash equivalents at the end of the year		0.8	2.1

Reconciliation of net bank debt
Decrease in cash in the year		(1.3)	(0.7)
Cash outflow from repayment of loans		9.0	7.0
Cash inflow from loans taken		-	(3.0)
Movement in net bank debt for the year		7.7	3.3
At 1 January		(79.9)	(83.2)
At 31 December		(72.2)	(79.9)

Net bank debt comprises:
Cash and cash equivalents		0.8	2.1
Loans repayable within one year		(12.0)	(8.0)
Loans repayable after one year		(61.0)	(74.0)
At 31 December		(72.2)	(79.9)

Notes to the Preliminary Statement

For the year ended 31 December 2010

1. Reporting entity

Sportech PLC ("the Company") is a company domiciled in the UK and listed on the London Stock Exchange. The Company's registered office is 249 West George Street, Glasgow, Scotland G2 4RB. The consolidated financial statements of the Company as at and for the year ended 31 December 2010 comprise the Company, its subsidiaries and joint venture (together referred to as "the Group"). The principal activities of the Group are those of Football Gaming, e-Gaming, the provision of pari-mutuel wagering services and systems and venue management.

2. Basis of reporting

a. The preliminary results have been prepared on the basis of the accounting policies set out in the Group's 2010 financial statements and have been consistently applied to all years presented.

b. The financial information set out in this announcement does not constitute statutory financial statements for the year ended 31 December 2010 within the meaning of section 435 of the Companies Act 2006, but is extracted from those financial statements. The auditors have reported on those financial statements and have given an unqualified report which does not contain a statement under section 498 of the Companies Act 2006.

c. The consolidated financial statements have been prepared in accordance with International Financial Reporting Standards as adopted by the European Union (IFRSs as adopted by the EU), IFRIC interpretations and the Companies Act 2006 applicable to companies reporting under IFRS. The financial statements have been prepared under the historical cost convention.

d. The Group has long term committed banking facilities in place with Lloyds Banking Group. The Group meets its day-to-day working capital requirements through a working capital facility, which is due for renewal in June 2011. The Directors have no reason to believe that the current working capital facility will not be renewed at a similar level to that currently in place. The Group's forecasts and projections, which have been prepared for the period to 31 March 2012 and taking into account reasonably possible changes in performance, show that the Group will be able to operate within the level of its current facilities, meet term loan repayments as they fall due and comply with its banking covenants. After making reasonable enquiries, the Directors have a reasonable expectation that the Company and the Group have adequate resources to continue in operational existence for the foreseeable future. Accordingly they continue to adopt the going concern basis in preparing the financial statements.

3. Estimates

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

4. Segmental reporting

Operating segments are reported in a manner consistent with the internal reporting provided to the chief operating decision maker. The chief operating decision maker, who is responsible for allocating resources and assessing performance of the operating segments, has been identified as the Executive Committee that makes strategic and operational decisions.

The Group has four reportable segments; Football Pools, Sportech Racing, e-Gaming and Corporate costs.

Additional information on the Group segments is as follows:

	2010
	Football		Sportech					Corporate
	Pools		Racing		e-Gaming			costs		Group
	£m		£m		£m			£m		£m
Total revenue	52.1		15.0		4.3			-		71.4
Less inter-segment revenue	-		(0.2)		-			-		(0.2)
Group revenue	52.1		14.8		4.3			-		71.2
EBITDA before exceptional costs and share option expense	19.7		1.7		1.6			(3.3)		19.7
Share option expense	-		-		-			(0.4)		(0.4)
Depreciation and amortisation (excluding amortisation of acquired intangibles)	(1.0)		(0.7)		(0.1)			(0.1)		(1.9)
Segment result before amortisation of acquired intangibles and exceptional costs	18.7		1.0		1.5			(3.8)		17.4
Amortisation of acquired intangibles	(5.9)		-		-			-		(5.9)
Exceptional costs	(1.0)		(0.7)		-			(8.2)		(9.9)
Operating profit/(loss)	11.8		0.3		1.5			(12.0)		1.6
Net finance costs										(6.9)
Share of loss after tax of joint venture										(0.6)
Loss before taxation										(5.9)
Taxation										(0.4)
Loss for the year from continuing operations										(6.3)
Group revenue		58.9		-		5.7	-		64.6
EBITDA before exceptional costs and share option expense		21.5		-		1.8	(2.5)		20.8
Share option expense		-		-		-	(0.2)		(0.2)
Depreciation and amortisation (excluding amortisation of acquired intangibles)		(1.0)		-		(0.1)	-		(1.1)
Segment result before amortisation of acquired intangibles and exceptional costs		20.5		-		1.7	(2.7)		19.5
Amortisation of acquired intangibles		(6.6)		-		-	-		(6.6)
Exceptional costs		(24.2)		-		-	(0.7)		(24.9)
Operating (loss)/profit		(10.3)		-		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)

5. Exceptional costs

Exceptional costs by type are as follows:

	2010	2009
	£m	£m
Included in administrative expenses:
Redundancy costs in respect of the continuing rationalisation and modernisation of the business	0.7	1.2
Seeding costs in respect of new games	0.4	0.3
Integration costs in respect of the acquisition of Sportech Racing	0.6	-
Impairment of goodwill	-	17.9
Impairment of intangible assets	-	3.9
Transaction costs - acquisition of Sportech Racing	7.4	-
Other exceptional costs	0.8	1.6
	9.9	24.9
Included in net finance costs:
Bank arrangement fee	0.9	-
Total exceptional costs	10.8	24.9

6. Net finance costs

	2010	2009
	£m	£m
Interest payable on bank loans, derivative financial instruments and overdrafts	(5.6)	(4.8)
Interest receivable on cash balances	0.1	-
Bank arrangement fees	(0.9)	-
Non-cash finance charges*	(0.2)	(0.2)
Loss on foreign exchange contracts	(0.3)	-
Net finance costs	(6.9)	(5.0)

*Non-cash finance charges are in respect of the deferred consideration payable on the acquisition of Sportech Racing in October 2010. In prior year, non-cash finance charges were in respect of the deferred consideration payable on the acquisition of Vernons in 2007 which was settled in full in 2009.

Bank arrangement fees, non-cash finance charges and loss on foreign exchange contracts are together shown as other finance charges in the Income Statement. Included in the above table are exceptional costs of £0.9m (2009: £nil).

7. Tax on loss on ordinary activities

	2010	2009
	£m	£m
Current tax:
Current tax on losses for the year	0.1	(1.5)
Adjustments in respect of prior years	-	(0.4)
Total current tax	0.1	(1.9)
Deferred tax:
Origination and reversal of temporary differences	0.2	(2.8)
Impact of changes in tax rates	0.1	-
Total deferred tax	0.3	(2.8)
Total taxation charge/(credit)	0.4	(4.7)

The tax on the Group's loss before tax differs from the theoretical amount that would arise using the weighted average tax rate applicable to profits and losses of the consolidated entities as follows:

	2010	2009
	£m	£m
Loss before tax	(5.9)	(17.0)
Add share of loss after tax of joint venture	0.6	-
Loss before tax and share of loss of joint venture	(5.3)	(17.0)
Tax calculated at domestic tax rates applicable to profits/(losses) in the respective countries	(1.5)	(4.8)
Tax effects of:
- permanent differences	1.8	0.5
- effect of changes in tax rates	0.1	-
- adjustments to tax in respect of prior years	-	(0.4)
Total taxation charge/(credit)	0.4	(4.7)

7. Tax on loss on ordinary activities (continued)

The weighted average applicable tax rate was 27.7% (2009: 28.0%). The decrease is as a result of the acquisition of Sportech Racing and the overseas operations incorporated in the business.

8. Earnings per share

The calculations of Earnings per Share ("EPS") are based on the following loss attributable to ordinary shareholders and the weighted average numbers of shares in issue:

	2010			2009
		Weighted			Weighted
		average	Per		average	Per
		number	share		number	share
	Loss	of shares	amount	Loss	of shares	amount
	£m	'000	Pence	£m	'000	Pence
Basic and diluted EPS	(6.3)	161,179	(3.9)	(12.3)	100,653	(12.2)

The calculations of adjusted EPS are based on the following profits attributable to ordinary shareholders, the weighted average numbers of shares and an estimated tax charge of 27.7% (2009: 28.0%).

	2010			2009
		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 amortisation of acquired intangibles and exceptional costs	17.4	161,179	10.8	19.5	100,653	19.4
Net finance costs (excluding exceptional cost and other finance charges)	(5.5)	161,179	(3.4)	(4.8)	100,653	(4.8)
Adjusted profit before tax	11.9	161,179	7.4	14.7	100,653	14.6
Tax at 27.7% (2009: 28.0%)	(3.3)	161,179	(2.0)	(4.1)	100,653	(4.1)
Adjusted basic EPS	8.6	161,179	5.4	10.6	100,653	10.5

Certain employee options have been excluded from the calculated diluted EPS as their exercise price is greater than the weighted average share price during the year and therefore would not be dilutive. The number of shares which have a dilutive effect on adjusted EPS is 2,973,000 (2009: nil). Diluted EPS is 5.2p (2009: 10.5p); there is no effect on basic loss per share.

9. Cash flow from operating activities

Reconciliation of loss after tax to net cash flow from operating activities

	Group
	2010	2009
Continuing operations	£m	£m
Loss after taxation	(6.3)	(12.3)
Adjustments for:
Taxation	0.4	(4.7)
Cash exceptional costs	9.9	3.1
Share of loss after tax of joint venture	0.6	-
Depreciation	0.8	0.7
Amortisation of intangibles acquired with Vernons	5.9	6.6
Amortisation of other intangibles	1.1	0.4
Impairment of intangibles	-	4.4
Goodwill impairment	-	17.9
Net finance costs	5.5	4.8
Other finance charges	1.4	0.2
Share option expense	0.4	0.2
Changes in working capital:
Decrease/(increase) in trade and other receivables	5.7	(6.0)
Increase in inventory	(0.1)	-
(Decrease)/increase in trade and other payables	(9.0)	3.7
Cash generated from continuing operations	16.3	19.0

10. Maturity of financial liabilities

Bank loans are repayable as follows:

	Group
	2010	2009
	£m	£m
Within one year	12.0	8.0
Between one and two years	14.0	10.0
Between two and five years	47.0	64.0
Total bank loans	73.0	82.0
Deferred consideration due after one year	5.5	-
Total financial liabilities	78.5	82.0

11. Acquisition of Sportech Racing

On 5 October 2010, the Group acquired 100% of the issued share capital of the racing businesses and venues management business of Scientific Games Corporation. Sportech Racing provides a wide range of wagering technology solutions to racetracks, off-track betting networks (OTBs), internet wagering operators and casinos. The business also owns and operates direct to consumer brands including Winners, a network of off-track betting venues and phone wagering service, and Runnerz, the exclusive home of pools/tote wagering on horseracing in the Netherlands.

Ownership of Sportech Racing 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.

There was no goodwill arising on the acquisition.

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

Fair value of consideration at 5 October 2010

	£m
Cash	21.9
Equity instruments (39,742,179 ordinary shares)	16.9
Deferred consideration	5.3
Total fair value of consideration transferred	44.1

Recognised amounts of identifiable assets acquired and liabilities assumed
Cash and cash equivalents	2.7
Intangible assets - software (separately acquired)	15.7
Intangible assets - software	0.4
Intangible assets - other	15.8
Property, plant and equipment	10.9
Inventories	0.9
Trade and other receivables	8.9
Trade and other payables	(9.5)
Retirement benefit obligation	(0.8)
Deferred tax asset	0.5
Provisions	(1.4)
Total identifiable net assets	44.1
Goodwill	-
	44.1

The fair value of the 39.7m ordinary shares issued as part of the consideration paid for Sportech Racing was based on the published share price on 5 October 2010.

Deferred consideration of $10.0m is payable on 30 September 2013, plus interest at a rate of the average Bank of England base rate plus 1% for the period 5 October 2010 (inclusive) to 30 September 2013 (inclusive). The amount payable has been discounted to its present value as required by IFRS 3 'Business Combinations' (revised).

11. Acquisition of Sportech Racing continued

There is the potential for contingent consideration of up to $8.0m to be payable if, during the three-year period commencing at the date of the end of the first quarter after completion (the Contingent Consideration Period), certain EBITDA targets are met, as follows:

(a) in the event that no relevant US business acquisition is consummated during the Contingent Consideration Period, $5.0m shall be payable if the average annual EBITDA of the Sportech Racing business equals or exceeds $20.0m but is less than $21.0m; or

(b) in the event that no relevant US business acquisition is consummated during the Contingent Consideration period, $8.0m shall be payable if the average annual EBITDA of the Sportech Racing business equals or exceeds $21.0m; or

(c) in the event that any relevant US business acquisition is consummated during the Contingent Consideration period, $8.0m shall be payable if the annual EBITDA of the enlarged Sportech Racing business, less 15% of the purchase price paid for the relevant US business acquisition, equals or exceeds $25.0m.

The undiscounted future payment the Group could potentially be required to pay under this arrangement is either $nil, $5.0m or $8.0m. Based on both Management's and the stock market's current expectations for the performance of Sportech Racing over the three year measurement period, the Directors believe that the probability of achieving the organic performance requirements is low. Management also has no current expectations of acquiring further businesses in the US that fall within the above measurement criteria. Accordingly, the fair value of the contingent arrangement is currently considered to be £nil and is therefore included in the financial statements at that value. There has been no change in this expectation between acquisition date and 31 December 2010.

The fair value of trade and other receivables is £8.9m. The gross contractual amount for trade receivables due is £9.7m, of which £0.8m is expected to be uncollectable.

No contingent liabilities have been recognised as at the acquisition date.

The revenue included in the Consolidated Income Statement since 5 October 2010 contributed by Sportech Racing was £14.8m and the profit after tax for the same period was £0.3m. Had Sportech Racing been acquired on 1 January 2010, the consolidated Income Statement would show revenue of £125.4m and loss after tax of £2.3m.

Acquisition related costs of £7.4m have been charged to the Income Statement and included in administrative expenses.

12. Ordinary shares

Allotted, called up and fully paid

	2010		2009
Ordinary shares of 50p each (2009: 50p)	'000	£m	'000	£m
At 1 January	100,653	50.3	100,653	50.3
Issue of shares during the year	98,157	49.1	-	-
At 31 December	198,810	99.4	100,653	50.3

The Company issued 58,415,520 ordinary shares on 15 February 2010 (36.7% of the total ordinary share capital issued) as a result of a Firm Placing and Placing and Open Offer. The fair value of the shares issued amounted to £29.2m (50p per share). The Company issued 39,742,179 ordinary shares on 5 October 2010 (19.99% of the total ordinary share capital issued) to Scientific Games Corporation as part of the purchase consideration for Sportech Racing. The ordinary shares issued have the same rights as the shares in issue. The fair value of the shares issued amounted to £16.9m (42.5p per share). The difference between fair value of shares issued and nominal value (£3.0m) has been debited to retained earnings. The related transaction costs which amounted to £1.0m have been debited to retained earnings as there was no premium on either issue during the year.

This information is provided by RNS

The company news service from the London Stock Exchange

END

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