Final Results

Sportech PLC 30 March 2006 Sportech PLC ('Sportech', 'the Company' or 'the Group') Preliminary Results for the 52 weeks ended 6 January 2006 Group Highlights •Turnover £490.8m (2004: £497.0m) •Profit before tax and exceptional restructuring costs of £9.7m (2004:£9.4m). Adjusted (pre exceptional) earnings per share of 1.14p (2004:1.11p). Loss after restructuring but before tax £6.4m (2004: profit of £8.2m), resulting in a loss per share of 0.97p (2004: EPS of 0.96p) •Net Debt reduced to £108.1m (2004: £112.8m) •Restructured Board, including a new Chief Executive and Finance Director. Additional strengthening of Management Team •Heavily loss making ITV contract terminated at lower cost than expected •Strategic review continuing •Development of a pipeline of new products •Good start to 2006 with: o improved Football Pools retention o strong growth in poker and sports betting Ian Penrose, Sportech's recently appointed Chief Executive, said today: 'We have commenced the process of building the Group into a more profitable and focused sports, leisure and gaming company. We have installed a new management team, undertaken a strategic analysis of all divisions and developed a number of new products and distribution channels for the future. The new Board and management team have instilled energy, drive and passion throughout the business which will deliver a successful future taking advantage of the opportunities for the Group.' For further information please contact: Ian Penrose, Chief Executive Sportech Plc Tel: 0151-288-3561 David Rydell/Zoe Sanders Bell Pottinger Corporate & Financial Tel: 020-7861-3232 www.sportechplc.com Chairman's Statement Introduction I was delighted to be appointed as Chairman of your Company on 1 February 2006. This is an exciting time to be involved with Sportech as positive change is happening at a great speed. Working closely with Ian Penrose, the recently appointed Chief Executive, there is a new sense of enthusiasm for the business and a passion to create a focused and more profitable Group. There are challenges ahead, but I am confident we now have the team in place to meet them. Transforming Activities, Strategy and Culture The business of Sportech today is undergoing a transformation. A new Chairman, Chief Executive and a wholly restructured Board is complemented by a newly appointed managerial team who will convene fully in July. We have appointed new financial advisers and brokers to work with the Board. Immediate steps have been taken to focus the Group on its profitable business streams whilst eliminating the loss making elements. To this end, the new management team has undertaken a strategic analysis of all divisions. As part of this process, in January 2006, Sportech terminated its contract to provide betting services to ITV. In addition, we have developed a pipeline of new products and distribution channels to maximise our strong UK gaming franchise. Financials Turnover for the year of £490.8 million was 1% down on last year. Profit before tax and exceptional restructuring costs increased by 3% to £9.7 million (2004: £9.4 million). There is an exceptional charge of £16.1 million (2004: £1.2 million), £0.7 million of which was the cash cost directly associated with the termination of our contract with ITV, a further £12.9 million being the write off of amounts paid to ITV since 2003, assets not previously expensed and redundancy costs. The loss for the year before tax is therefore £6.4 million (2004: profit of £8.2 million). Net debt was reduced to £108.1million (2004: £112.8million). No dividend is proposed. Board and Employees I should like to thank David Mathewson and Roger Withers for their contributions made to the Group as Chairman and Non-Executive Director (and latterly acting Managing Director) respectively. I should also like to express my thanks to the employees at Sportech who have remained steadfast in their commitment throughout this year of change. Our streamlined focus on the business activities being implemented will ensure that the hard work and loyalty of our workforce is duly rewarded. Outlook Sportech owns and operates some of the strongest brands in the UK gaming industry. A new energy and enthusiasm to succeed is permeating the business. It is early days, but sport, leisure and gaming are at the heart of our culture and offer exciting opportunities in rapidly evolving sectors. Sportech is in a strong position to capitalise on these. I look forward to the future with confidence. Piers Pottinger Chairman 30 March 2006 Chief Executive's Review Since becoming Chief Executive of Sportech in October 2005, we have embarked on a thorough review of the business in order to establish a clear direction and focus for the Group. We will lay firm foundations on which to build, thereby allowing the Group to take advantage of opportunities ahead. Restructuring of the Board and Management Team The Board has been restructured to maximise the key skills we already possess and further strengthen our team. On the Executive team, Gary Speakman has been promoted to Chief Operating Officer from Finance Director, reflecting his in-depth knowledge and direct experience of Sportech's operations. I am pleased to announce the appointment of Steve Cunliffe as Finance Director with effect from July 2006. A Chartered Accountant, Steve, aged 37, brings considerable experience across a range of leisure and manufacturing businesses. Also at Board level, Piers Pottinger has been appointed as Non-Executive Chairman. He possesses almost three decades of corporate experience and has close ties with the public relations, media and gaming industries. John Barnes has also joined as a Non-Executive Director. John has extensive experience and knowledge of marketing and of the leisure industry, both in Europe and the US, and will be a valuable addition to Sportech. Furthermore, at an operational level, I am also delighted to announce the appointment of Ted Taylor as Managing Director of Littlewoods Pools (with immediate effect) and Jon Sheehy as Marketing Director (with effect from July 2006). Ted, aged 45, brings significant commercial, technical and pool betting experience, both domestically and internationally, from his time at Arena Leisure Plc and Harry Ramsdens Plc, whilst Jon brings a wide range of strategic sales and marketing experience from his career with Shell, RAC Motoring Services, Lex Service and latterly Leisure Parcs. We believe we now have a Board and Management Team who have the energy, drive and dedication to capitalise on the significant potential for growth within the Group. A Clear and Focused Strategy The new strategy for the Company will take the strengths and qualities of Littlewoods' heritage and build upon these to re-establish Sportech's position in sport, leisure and gaming. As part of this, we will reinvigorate the Football Pools business, putting it at the heart of the Group. Sportech operates the world's largest football pool on the world's most popular sport - British football. There are over 550,000 customers playing every week for a jackpot of up to £2 million. We have been in business for 83 years, created over 60 million winners and paid out over £400 million to football and good causes. Starting this summer and in advance of the 2006 World Cup, we will focus on product diversification and multi-channel distribution. We will broaden our range of football games, thereby increasing their appeal to a wider customer base. We will also maximise the widespread distribution of our football products on to the internet, mobile telephony and internationally through partnerships, agencies and direct sales. An example of this is our recent partnership with PayPoint, enabling Football Pools and Littlewoods Lotto customers another payment method at over 14,000 accessible high street retail outlets. Littlewoods is one of the most trusted names in gaming and we are committed to building an associated suite of online gaming products to strengthen the current offering of casino, poker, bingo and fixed odds games. Following a review of the business, it became clear that Sportech's interactive gaming contract with ITV was commercially unviable. It had been loss making since inception, including an operating loss of £4.1m in 2005 and the continuation of this arrangement would expose Sportech to further losses of up to £30 million, as a consequence of operating losses and minimum guarantee payments over the next three years, which we were unwilling to tolerate. Consequently we made the decision to terminate the contract. The Bet Direct business had a disappointing year due to a lack of management focus and, in common with the bookmaking industry, adverse sports results. Bet Direct comprises sports betting across telephone, internet, television and mobile and branded casino, poker and arcade games. Registered customers have increased by 22% to 459,000, while active customers have increased by 12% to 82,000. The continued operating losses arising from sports betting, which straddles both telephone and interactive gaming, means that Bet Direct has and will continue to receive an increased focus from the management team whilst the Board is strategically reviewing its options. Financial and Operating Review Group revenues in the year were £490.8m (2004: £497.0m). Operating profit before exceptional restructuring costs amounted to £17.2m, with Football Pools contributing £24.4m (2004: £24.3m). Total betting contributed an operating loss of £7.2m (2004: £7.6m) due to the continued losses from the ITV contract and the Bet Direct Sports Betting business, offset in part by profits from online Casino and Poker. After deducting interest of £7.5m (2004: £7.3m), profit before tax and exceptional restructuring costs, increased to £9.7m (2004: £9.4m). Restructuring costs amounted to £16.1m (2004: £1.2m) mainly reflecting the impact of the decision to terminate the ITV contract. The cash cost of this termination was £0.7m. The loss before tax was £6.4m compared to a profit before tax of £8.2m in the previous year, again reflecting the impact of the restructuring costs. The loss per ordinary share was 0.97p, compared to earnings per share of 0.96p in 2004. Adjusted (pre exceptional) earnings per share of 1.14p (2004: 1.11p). Operating cashflow increased to £5.7m (2004: £4.8m) with net debt reducing to £108.1m (2004: £112.8m). Revenues for the period have been recognised on a basis consistent with the treatment under UK GAAP in previous years and consistently with the results presented under IFRS for the 6 months ended 30 June 2005 and the accounting policies referred to in the IFRS transition document published on 26 September 2005. The accounting treatment of betting and gaming transactions under IFRS, including the application of IAS39 'Financial Instruments: Recognition and Measurement', is currently under discussion across the betting and gaming industry. The matter being considered is whether to treat betting and gaming transactions, including pool betting, as financial instruments. If this treatment was adopted, revenue from all betting and gaming transactions would be reported as gross win rather than the gross amount staked. There would be no impact on the Group cash flows and the impact on operating profit and net assets would not be expected to be material. Football Pools We own the strongest Football Pools business in the world. This is a significant asset for the Group. British football has a worldwide franchise and we are determined to find new routes to market for this unique product. Football Pools remains a very popular game played by over half a million customers every week with around seventy thousand winners each year. Our priorities for Football Pools in 2006 are product diversification and multi-channel distribution. We are currently looking to broaden our suite of products by developing new games, particularly those which are suited to new media channels and will attract new customers from a younger audience. With regard to distribution, we look to build on ways that complement our existing network of 13,000 door-to-door collectors allowing our customers more choice and flexibility. We have already made progress in this area and as we announced on 21 March 2006, we have signed a distribution agreement with PayPoint providing existing and new customers a convenient opportunity to play the game in 14,000 retail outlets. Total profits from Football Pools and related games, pre-restructuring costs, remained constant at £24.4m (2004:£24.3m). Total Football Pools revenues from the Littlewoods and Zetters brands were £67.1m, 16% lower than reported last year (2004: £79.5m). Pools Direct revenues, our subscription based channel, now account for 44% of UK revenues, and in this channel, customer retention was 91% whereas in the collector channel customer retention was 81%. Further improvements in gross margin, operating cost savings and lower marketing offset almost entirely the impact of the revenue decline, with the resultant profit from Football Pools totalling £23.1m (2004: £23.2m). Other games, including Spot the Ball, contributed revenues of £6.2m (2004: £7.5m) and profits of £1.3m (2004: £1.1m). This included operating losses, pre-restructuring, from scratchcards of £0.1m (2004: £0.6m loss). We exited the scratchcard business as planned in 2005 and no further costs will be incurred. Betting Betting comprises our casino and poker activities, together with our Bet Direct Sports Betting business and the contract, now terminated, with ITV. Revenues are generated either via the telephone or interactively over the internet or interactive television. Betting contributed an operating loss of £7.2m (2004: £7.6m) with our Casino and Poker business generating a profit of £1.7m (2004: £2.0m), our ITV contract losing £4.1m (2004: £5.5m) and Bet Direct Sports Betting losing £4.8m (2004: £4.1m). This is analysed below in further detail. Operating Profit/(Loss) Interactive Telephone 2005 2004 £m £m £'m £'m Television (ITV) (4.1) (4.1) (5.5) Bet Direct Sports Betting (2.5) (2.3) (4.8) (4.1) --------- --------- --------- --------- Betting excluding Casino and Poker (6.6) (2.3) (8.9) (9.6) Casino and Poker 1.7 - 1.7 2.0 --------- --------- --------- --------- Total Betting (4.9) (2.3) (7.2) (7.6) --------- --------- --------- --------- Interactive Betting The Group has made considerable progress in this market. Our internet-based portfolio comprises a number of UK focused gaming sites offering casino, poker and entertainment games such as bingo and sportsbook. Customers are predominantly from the UK. Gross win (defined as poker commission received and casino stakes less winnings), across our Casino and Poker products was up 14% to £10.0m (2004: £8.8m) driven by good growth in LittlewoodsPoker.com and the introduction of a branded Bet Direct Casino and Poker service. Other interactive products saw flat gross win of £2.3m (2004: £2.3m). We experienced an 80% increase in our Casino and Poker active customers. We are working closely with our online technology partner for Littlewoods Casino and Poker, the Canadian company Cryptologic, and in early 2006 we upgraded LittlewoodsPoker.com. The focus on the poker business has helped to drive average weekly rake (commission received) above £60,000 in March 2006, nearly three times the weekly rake compared to the same period last year. The combination of a very strong brand in this rapidly growing poker sector, together with further innovative promotion of online poker at offline tournaments, gives us confidence about the growth potential of this part of our business. The LittlewoodsCasino.com site offers a wide variety of over 80 gaming products, including the new Marvel comic themed games. In line with the rest of the industry, Casino experienced a significant downturn in performance from April 2005. We are now turning our attention to this area of our business to enhance the strategic and operational focus. In February 2006, Sportech launched LittlewoodsBingo.com aiming to tap into the lucrative bingo market. The bespoke games are provided by St Minver, a leading supplier of gaming solutions. Following a successful soft launch, the marketing programme has now commenced which will cross sell bingo to the Company's existing 550,000 regular pools customers. Television 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 inception and, with no prospect of a commercial return, the Board decided to terminate the contract with immediate effect in January 2006. Our red button based, 24/7, content within the ITVi service continued to be loss making during 2005, with an operating loss of £4.1m (2004: £5.5m). Although the cost of delivering the gaming service with ITV reduced significantly, following the planned restructuring of the development team, gross win was averaging just £4,000 per week and was commercially unviable. Through Bet Direct, Sportech remains on the Sky platform and within At The Races, and these television based gaming services contributed a £1.0 million gross win in 2005. The decision to terminate the ITV contract will result in Sportech eliminating an expected operating loss in 2006 and avoiding further potential losses of up to £30 million over the remaining three years of the contract. As a consequence of the termination, the 2005 results have been 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 which is lower than previously anticipated . There are no further costs or payments to be made with regards to the ITV contract. Sportech and ITV will have no further engagement. Telephone Betting The adverse sporting results impacted most significantly on telephone gross win which reduced to £5.5m (2004: £8.1m). Telephone margins reduced to 7% compared to the very strong margins experienced in 2004 (2004: 10%). With direct costs and overheads reduced significantly, particularly call handling following its insourcing in late 2004, the operating loss from Telephone Betting was 18% lower than last year at £2.3m (2004: £2.8m loss). The restructuring costs associated with the insourcing was £0.6m (2004: £0.3m) and in line with expectations. Current Trading and Outlook The turnaround of Sportech has commenced with critical business decisions being taken. Cash generation continues to be strong and revenues from our football games are in line with expectations with improved customer retention in the first 11 weeks of the new financial year of 87% (2005: 86%). Gross win from Betting has been 26% higher than in the comparable period in 2005, reflecting improved sports margins and strong poker growth. The poker rake is 185% higher than the comparable period in 2005. We aim to transform the Group by placing sport, leisure and gaming at the heart of our business, with new products and multi-channel distribution to revitalise our existing business and market opportunities. We are changing the focus, culture and therefore future potential of the company, and will build upon the foundations currently being developed. Ian R Penrose Chief Executive 30 March 2006 CONSOLIDATED PROFIT AND LOSS ACCOUNT For the 52 weeks ended 6 January 2006 Unaudited Unaudited Note 52 Weeks 53 Weeks ended 6 ended 7 January January 2006 2005 (restated) £m £m Continuing operations Revenue 3 490.8 497.0 Cost of sales (439.8) (439.9) ------- ------- Gross profit 51.0 57.1 Other income 0.4 - Distribution costs (0.1) (0.1) Administrative expenses (50.2) (41.5) ------------------------- ------ ------- ------- Operating profit before restructuring costs 17.2 16.7 Exceptional restructuring costs - ITV exit costs 4 (13.6) - Exceptional restructuring costs - Other 4 (2.5) (1.2) ------------------------- ------ ------- ------- Operating profit 3 1.1 15.5 Interest payable and similar items (7.5) (7.4) Interest receivable - 0.1 ------- ------- (Loss)/profit before taxation (6.4) 8.2 Taxation 5 0.6 (2.6) ------- ------- (Loss)/profit for the year from continuing operations (5.8) 5.6 ------- ------- (Loss)/profit for the financial year (5.8) 5.6 ======= ======= (Loss)/profit attributable to equity shareholders (5.8) 5.6 ======= ======= (Loss)/earnings per share Basic and diluted 6 (0.97)p 0.96p ======= ======= (Loss)/earnings per share from continuing operations Basic and diluted 6 (0.97)p 0.96p ======= ======= CONSOLIDATED STATEMENT OF RECOGNISED INCOME AND EXPENSE For the 52 weeks ended 6 January 2006 Unaudited Unaudited 52 Weeks 53 Weeks ended 6 ended 7 January January 2006 2005 (restated) £m £m (Loss)/profit for the financial year (5.8) 5.6 Actuarial gain on defined benefit scheme 0.1 - ------- ------- Total recognised (expense)/income for the year (5.7) 5.6 ======= ======= CONSOLIDATED BALANCE SHEET As at 6 January 2006 Unaudited Unaudited 6 January 7 January 2006 2005 (restated) £m £m ASSETS Non-current assets Goodwill 145.2 145.2 Other intangible assets 1.0 2.8 Property, plant and equipment 4.8 7.5 Prepayments - 5.9 Retirement benefit assets 0.3 0.2 Deferred tax assets 1.3 0.3 ------- -------- 152.6 161.9 ------- -------- Current assets Trade and other receivables 2.9 4.4 Financial assets - derivative financial instruments - 0.2 Cash and cash equivalents 1.6 2.4 ------- -------- 4.5 7.0 ------- -------- LIABILITIES Current liabilities Financial liabilities- borrowings (22.8) (11.5) Trade and other payables (17.3) (17.4) Current tax liabilities - (1.3) ------- -------- (40.1) (30.2) ------- -------- Net current liabilities (35.6) (23.2) ------- -------- Non-current liabilities Financial liabilities- borrowings (85.3) (101.6) Deferred tax liabilities (0.3) - ------- -------- (85.6) (101.6) ------- -------- ------- -------- NET ASSETS 31.4 37.1 ======= ======== SHAREHOLDERS' EQUITY Ordinary shares 29.6 29.6 Other reserves 0.2 0.1 Retained earnings 1.6 7.4 ------- -------- TOTAL SHAREHOLDERS' EQUITY 31.4 37.1 ======= ======== CONSOLIDATED CASH FLOW STATEMENT For the 52 weeks ended 6 January 2006 Unaudited Unaudited Note 52 Weeks 53 Weeks ended 6 ended 7 January January 2006 2005 (restated) £m £m Cash flows from operating activities 7 Cash generated from operations 14.9 14.3 Interest received 0.2 0.5 Interest paid (7.5) (7.3) Tax paid (1.9) (2.7) ------- -------- Net cash from operating activities 5.7 4.8 ------- -------- Cash flows from investing activities Proceeds from sale of property, plant and equipment 0.4 0.3 Purchase of intangible fixed assets (0.7) (0.3) Purchase of property, plant and equipment (1.1) (1.9) ------- -------- Net cash used in investing activities (1.4) (1.9) ------- -------- Cash flows from financing activities Net proceeds from issue of new bank loan - 3.0 Finance lease principal payments (0.3) - Repayment of borrowings (9.0) (1.0) ------- -------- Net cash used in financing activities (9.3) 2.0 ------- -------- Net (decrease)/increase in cash and cash equivalents (5.0) 4.9 Cash and cash equivalents at 7 January 2005 2.1 (2.8) ------- -------- Cash and cash equivalents at 6 January 2006 (2.9) 2.1 ------- -------- Cash and cash equivalents consists of: Cash and cash equivalents 1.6 2.4 Overdrafts (4.5) (0.3) ------- -------- (2.9) 2.1 ------- -------- Reconciliation of net debt (Decrease)/increase in cash in period (5.0) 4.9 Movement in charity cash 0.5 (0.3) ------- -------- Change in net debt resulting from cash flows (4.5) 4.6 Cash inflow from increase in loans - (3.0) Cash outflow from repayment of loans 9.0 1.0 New hire purchase agreements - (0.7) Cash outflow from repayment of hire purchase agreements 0.3 - Other non-cash changes (0.1) - ------- -------- Movement in net debt for the period 4.7 1.9 At 7 January 2005 (112.8) (114.7) ------- -------- At 6 January 2006 (108.1) (112.8) ======= ======== Net debt comprises; Cash and cash equivalents including charity cash (2.9) 2.1 Less charity cash balances (1.6) (2.1) ------- -------- Available cash and cash equivalents (4.5) - Hire purchase agreements (0.6) (0.9) Loans repayable within one year (18.0) (10.9) Loans repayable after one year (85.0) (101.0) ------- -------- (108.1) (112.8) ======= ======== NOTES TO THE PRELIMINARY STATEMENT For the 52 weeks ended 6 January 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 2004 financial statements with the exception of the changes resulting from the adoption of International Financial Reporting Standards (IFRS) referred to in note 2 below. The preliminary results have been drawn up for the 52 week period from 8 January 2005 to 6 January 2006 (2005, 53 week period). b) The preliminary results for the 52 weeks ended 6 January 2006 are unaudited. The financial information on pages 9 to 17 does not amount to full financial statements within the meaning of Section 240 of the Companies Act 1985 (as amended). The comparative figures for the 53 weeks ended 7 January 2005 do not constitute statutory accounts. Apart from the changes resulting from the adoption of International Financial Reporting Standards, these figures have been extracted from the audited accounts for that period which have been delivered to the registrar of companies and on which the auditors issued an unqualified report which did not contain a statement under either section 237 (2) or (3) of the Companies Act 1985. 2. Adoption of International Financial Reporting Standards On 26 September 2005 Sportech plc published financial information in accordance with IFRS, as adopted by the EU, on the London Stock Exchange. This document included explanations of the impact of the transition from UK GAAP to IFRS on the financial statements of Sportech plc and contained reconciliations in respect of the restatement of the 2004 full year accounts from UK GAAP to IFRS of the Group's net assets at 4 January 2004 and 7 January 2005, and of the Group's net profit for the 52 week ended 7 January 2005. The document is available on the Group's website. Revenue for the period has been recognised on a basis consistent with the treatment under UK GAAP in previous years and consistently with the results presented under IFRS for the 6 months ended 30 June 2005 and the accounting policies referred to in the IFRS transition document published on 26 September 2005. The accounting treatment of betting & gaming transactions under IFRS, including the application of IAS39 'Financial Instruments: Recognition and Measurement', is currently under discussion across the betting and gaming industry. The matter being considered is whether to treat betting and gaming transactions as financial instruments. If this treatment was adopted, revenue from all betting and gaming transactions would be reported as gross win rather than the gross amount staked. There would be no impact on the Group cash flows and the impact on operating profit and net assets would not be expected to be material. 3. Segmental reporting 52 weeks ended Football Interactive Telephone Group 6 January 2006 pools betting betting £m £m £m £m Continuing operations Revenue 73.3 335.3 82.2 490.8 ----------------- ------- ------- ------- ------- Segment result before restructuring costs 24.4 (4.9) (2.3) 17.2 Exceptional restructuring costs - ITV exit costs - (13.6) - (13.6) Exceptional restructuring costs - Other (0.5) (1.2) (0.8) (2.5) ----------------- ------- ------- ------- ------- Segment result 23.9 (19.7) (3.1) 1.1 ----------------- ------- ------- ------- ------- Interest expense (7.5) Interest income - ----------------- ------- ------- ------- ------- Loss before tax (6.4) Income taxes 0.6 ----------------- ------- ------- ------- ------- Loss for the year from continuing operations (5.8) ----------------- ------- ------- ------- ------- Net loss attributable to equity shareholders (5.8) ----------------- ------- ------- ------- ------- 53 weeks ended Football Interactive Telephone Group 7 January 2005 (restated) pools betting betting £m £m £m £m Continuing operations Revenue 87.0 327.4 82.6 497.0 ----------------- ------- ------- ------- ------- Segment result before restructuring costs 24.3 (4.8) (2.8) 16.7 Exceptional restructuring costs - Other (0.6) (0.3) (0.3) (1.2) ----------------- ------- ------- ------- ------- Segment result 23.7 (5.1) (3.1) 15.5 ----------------- ------- ------- ------- ------- Interest expense (7.4) Interest income 0.1 ----------------- ------- ------- ------- ------- Profit before tax 8.2 Income taxes (2.6) ----------------- ------- ------- ------- ------- Profit for the year from continuing operations 5.6 ----------------- ------- ------- ------- ------- Net profit attributable to equity shareholders 5.6 ----------------- ------- ------- ------- ------- 4. Exceptional restructuring costs 52 Weeks 53 Weeks ended 6 ended 7 January January 2006 2005 £m £m Exceptional restructuring costs - Interactive - ITV exit cost 13.6 - ------- ------- Other restructuring costs; Football pools 0.5 0.6 Interactive betting 1.2 0.3 Telephone betting 0.8 0.3 ------- ------- 2.5 1.2 ------- ------- ------- ------- 16.1 1.2 ======= ======= ITV exit costs The exceptional restructuring costs comprise; 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 on 3 January 2006. The exit costs comprise 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 on termination. The impairment of plant and equipment relates to specific items used for the delivery of the service to ITV. The impairment of intangible assets relates to the write off of un-recovered costs incurred in securing the ITV contract as well as interactive gaming software. Other costs mainly comprise staff redundancy expense. Other exceptional restructuring costs Other exceptional restructuring costs in the current year relate to further costs in respect of the establishment of an in house call centre and further rationalisation of the interactive cost base together with associated head office support costs within the interactive and telephone betting segments as well as further rationalisation of the operating cost base within the football pools segment. Exceptional restructuring costs in the prior year relate to the establishment of an in house call centre operation within the telephone betting segment, further rationalisation of the football pools operating cost base, and rationalisation of interactive development teams consequent upon the transition from development to trading stage. 5. Tax on (loss)/profit on ordinary activities 52 Weeks 53 Weeks ended 6 ended 7 January January 2006 2005 (restated) £m £m Current tax - continuing operations UK corporation tax @ 30% (2005, 30%) - 2.4 Adjustments in respect of prior periods - (0.1) ------- ------- Total current tax - 2.3 ------- ------- Deferred tax - continuing operations Current year (0.6) 0.3 Adjustments in respect of prior periods - - ------- ------- Total deferred tax (0.6) 0.3 ------- ------- Total taxation (credit)/charge (0.6) 2.6 ======= ======= The taxation (credit)/charge for the period is lower (2005: higher) than the standard rate of corporation tax in the UK (30%). The differences are explained below: 52 Weeks 53 Weeks ended 6 ended 7 January January 2006 2005 (restated) £m £m (Loss)/profit on ordinary activities before tax (6.4) 8.2 ======= ======= (Loss)/profit on ordinary activities multiplied by the standard rate of corporation tax in the UK of 30% (2005:30%) (1.9) 2.4 Effects of: Other permanent differences 0.1 0.3 Trading losses not recognised 1.2 - Adjustments to tax in respect of prior periods - (0.1) ------- ------- Total taxation (credit)/charge (0.6) 2.6 ======= ======= The effective rate of tax for the year is 9% (2005; 30%). The low effective rate of tax credit is attributable to the non-recognition of the full tax benefit of the exceptional restructuring costs in respect of the ITV exit as it was not possible to fully utilise this against other group taxable profits in the year. 6. (Loss)/earnings per share The calculations of earnings per share are based on the following (losses)/ profits attributable to ordinary shareholders and the weighted average numbers of shares. 52 Weeks ended 6 53 Weeks ended 7 January 2006 January 2005 (restated) (Loss)/ Weighted Per share (Loss)/ Weighted Per share Earnings average amount Earnings average amount number of pence number of pence shares shares £m '000 £m '000 Basic and diluted EPS (5.8) 592,074 (0.97)p 5.6 592,074 0.96p ======= ======= ======= ======= ======= ======= The calculations of adjusted (pre-exceptional) earnings per share are based on the following profits attributable to ordinary shareholders and the weighted average numbers of shares. 52 Weeks ended 6 53 Weeks ended 7 January 2006 January 2005 (restated) (Loss)/ Weighted Per share (Loss)/ Weighted Per share Earnings average amount Earnings average amount number of pence number of pence shares shares £m '000 £m '000 Operating profit before restructuring cost 17.2 592,074 2.91p 16.7 592,074 2.83p Net interest (7.5) 592,074 (1.27)p (7.3) 592,074 (1.24)p ------- ------- ------- ------- ------- ------- 9.7 592,074 1.64p 9.4 592,074 1.59p Tax @ 30% (2.9) 592,074 (0.50)p (2.8) 592,074 (0.48)p ------- ------- ------- ------- ------- ------- Adjusted (pre-exceptional) EPS 6.8 592,074 1.14p 6.6 592,074 1.11p ======= ======= ======= ======= ======= ======= 7. Cash flow from operating activities Reconciliation of operating profit to net cash inflow from operating activities 52 Weeks 53 Weeks ended 6 ended 7 January January 2006 2005 (restated) £m £m Continuing operations Net (loss)/profit (5.8) 5.6 Adjustments for: Taxation (0.6) 2.6 Depreciation 2.2 1.5 Impairment of property, plant and equipment 1.6 - Profit on disposal of property, plant and equipment (0.4) - Amortisation of intangibles 1.5 1.1 Impairment of intangibles 1.0 - Interest income - (0.1) Interest expense 7.5 7.4 Other non-cash changes 0.1 - Changes in working capital: Decrease/(increase) in prepayments 5.9 (5.9) Decrease in trade and other receivables 2.0 4.5 (Decrease) in payables (0.1) (2.4) ------- -------- Cash generated from continuing operations 14.9 14.3 ------- -------- ------- -------- Cash generated from operations 14.9 14.3 ------- -------- This information is provided by RNS The company news service from the London Stock Exchange

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