B R A N D G U I D E L I N E S
June 2010 version 1.2
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Sportech PLC Annual Report and Accounts 2013
A leader in pools
and tote betting
Sportech PLC is a sports gaming and
entertainment company and one
of the world's leading pool betting
organisations, focusing on highly
regulated markets worldwide.
We have a presence in 25 countries and process over $13bn of bets annually. Our potent
combination of heritage, responsibility, technology and geographical reach places Sportech
in a unique position in the gaming sector.
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FIND OUT MORE
www.sportechplc.com
BUSINESS OVERVIEW
01 Highlights of the year
02 What we do
04 Why we are unique
06 Where we operate
08 Chairman’s statement
STRATEGIC REPORT
10 Chief Executive's review
12 Our business model and strategy
14 Principal risks
16 Financial review
19 Operational review
22 Corporate social responsibility
CORPORATE GOVERNANCE
24 Board of Directors and
Company Secretary
26 Senior management
27 Shareholder and corporate information
28 Corporate governance
36 Report of the Remuneration Committee
54 Directors' report
57 Independent auditors’ report
FINANCIAL STATEMENTS
61 Consolidated income statement
62 Consolidated statement
of comprehensive income
63 Statements of changes in equity
64 Balance sheets
65 Statements of cash flows
66 Accounting policies
75 Notes to the financial statements
B R A N D G U I D E L I N E S
June 2010 version 1.2
Highlights of the year
Progress against strategic objectives
with good US momentum
EBITDA (£m)
from continuing operations
£26.0m
Strategic and operational highlights
24.9
26.0
25.2
Sportech Racing and Digital
→ New contracts signed with major gaming businesses
in the US, Denmark and UK
→ Launched innovative mobile and online products
→ Strengthened European operations through the
acquisition of Data Tote
→ Integration of eBet complete with synergies realised
→ Formed joint ventures with NYX and Picklive to
supply online gaming and fantasy sports games
Sportech Venues
→ Opened flagship sports bar, restaurant and betting
venue in Bradley, Connecticut
→ Launched exclusive online horserace betting platform
for Connecticut customers
→ Signed development agreement to roll-out an estate
of branded sports bars and betting venues in California
Football Pools
→ Increase in spend per head has partially offset
forecast player number decline
→ Successful new player recruitment through direct
marketing offset by overall player decline
New divisional structure
→ Disposal of the loss-making UK e-Gaming business
→ Established three focused divisions
2011
2012
2013
CAPEX (£m)
£12.6m
12.6
8.3
5.3
2011
2012
2013
See also
→ FINANCIAL REVIEW p16–18
01
ANNUAL REPORT AND ACCOUNTS 2013 SPORTECH PLC BUSINESS OVERVIEW CORPORATE GOVERNANCE STRATEGIC REPORT FINANCIAL STATEMENTS What we do
Focused on
pools betting
Sportech PLC is one of the largest suppliers and operators of pari-mutuel (pools)
betting in the world, with a strong network of systems, services and venues.
Racing
We are the largest international
provider of pari-mutuel systems and
services, building on a rich history
by investing in new technologies
and wagering entertainment venues.
Football
At the core of our business
is the world’s oldest football
gaming business, embracing
technological solutions to deliver
a new customer experience.
Racing
CLEAR BET
BET JET
BET FUND
TRACK PLAY
QUANTUM
just for winner z
See also
→ OUR BUSINESS MODEL AND STRATEGY p12–13
02
SPORTECH PLC ANNUAL REPORT AND ACCOUNTS 2013 BUSINESS OVERVIEW Racing
Sportech Racing processes over $13bn of bets
across 30 countries and is recognised within the
industry as the global market leader.
We provide a wide range of wagering technology
solutions to racetracks, off-track betting networks
("OTBs"), internet wagering operators and casinos.
Our customers are some of the biggest racing
organisations in North America, Europe, Latin
America, the Caribbean and Asia. We have betting
and entertainment venues in Connecticut, California
and the Netherlands.
→ OPERATIONAL REVIEW p19 and p20
$13bn
WORTH OF BETS
PROCESSED
50%
OF NORTH AMERICAN
TOTE RACING BETS
PROCESSED
Football
The Football Pools was founded in 1923 and we
are very proud that our operational centre is still
based in Liverpool, in the north-west of England.
Over the last 90 years The Football Pools has
been famous for creating winners, having paid
out over £3bn in prize money to its customers.
The Football Pools has 360,000 players
every week.
→ OPERATIONAL REVIEW p21
1923
THE FOOTBALL POOLS
WAS FOUNDED
£3bn
PAID OUT TO CUSTOMERS
OVER THE LAST 90 YEARS
03
BUSINESS OVERVIEW CORPORATE GOVERNANCE STRATEGIC REPORT FINANCIAL STATEMENTS Why we are unique
A unique
combination of heritage, responsibility,
geographical reach and technology
Sportech is uniquely positioned
in the gaming sector, offering
customers a broad range of
products, some of the most
trusted and established brands
in gaming and a heritage that is
second to none.
Pools gaming is the most
prevalent form of sports betting
in the world and is worth an
estimated $80bn every year.
We are the operator of
the world’s oldest football
gaming business.
Heritage and
responsibility
We work with governments
and regulators to provide
sustainable and socially
responsible gaming
Technology
Our data centres are
staffed by computing
industry practitioners as
well as wagering
specialists
Geographical
reach
Sportech has a presence
in 25 countries and is
licensed by 36 agencies
worldwide
SPORTECH PLC ANNUAL REPORT AND ACCOUNTS 2013 BUSINESS OVERVIEW Heritage and responsibility
The Football Pools celebrated its 90th year in
→
2013 and is the world's oldest gaming company
with unrivalled integrity and heritage
90
YEARS OF THE
FOOTBALL POOLS
→
→
Pools gaming is the most prevalent form of
sports betting in the world and is worth an
estimated $80bn every year. In some markets
it is also the only legal way to bet on sports
Pools gaming also makes a positive impact
on the UK economy, contributing millions of
pounds every year through gaming duty, VAT
and corporation tax as well as creating direct
and indirect employment
£1.3bn
DONATED TO SPORTS,
ARTS AND GOOD CAUSES
Geographical reach
→
→
→
Sportech has operational presence in
25 countries worldwide and customers in
all the major tote betting markets globally
Our Racing business is operational in 34
states in North America, placing the Group
in a strategically important position to take
advantage of regulatory change
We have 15 betting venues in Connecticut,
US, varying in size from sports bar concession
models of 1,000 sq ft to stand alone venues
of 4,000 sq ft, to owned flagship venues of
50,000 sq ft
→
We also have satellite locations in California
and we are building sports bar concept
venues, the first to be opened in summer 2014
Technology
→
→
→
We continue to significantly modernise our
technology and product offering to stay at
the forefront of the dynamic gaming industry
Technology is fundamental to our business
and forms the core of our offering for all
of our customers
We continue to invest in and adopt new
technology and improve our offering through
product innovation, to ensure we have the
best performing and most relevant solutions
for our customers and business partners
25
COUNTRIES IN
WHICH SPORTECH
HAS A PRESENCE
982
EMPLOYEES BASED
IN NINE COUNTRIES
£3.8m
SPENT IN 2013
ON TECHNOLOGY
ENHANCEMENTS
30
BETTING WEBSITES
MAINTAINED AND
OPERATED IN THE US
05
ANNUAL REPORT AND ACCOUNTS 2013 SPORTECH PLC BUSINESS OVERVIEW CORPORATE GOVERNANCE STRATEGIC REPORT FINANCIAL STATEMENTS Where we operate
A presence
in 25 countries and 34 North American states
and licensed by 36 agencies worldwide
CANADA
California
UNITED STATES
Connecticut
New Jersey
BERMUDA
Liverpool
The Netherlands
UK
Berlin
IRELAND
GERMANY
FRANCE
AUSTRIA
DOMINICAN REPUBLIC
PUERTO RICO
SPAIN
PANAMA
GIBRALTAR
PERU
CHILE
ARGENTINA
AUSTRALIA
MAURITIUS
VENUES
California
Connecticut
The Netherlands
DATA CENTRES
Berlin
Liverpool
New Jersey
TOTE SERVICES AND
EQUIPMENT SALES
Argentina
Australia
Austria
Canada
Chile
Cyprus
Denmark
Dominican Republic
Finland
Germany
Ireland
Korea
Panama
Peru
Puerto Rico
Spain
Sweden
The Netherlands
Turkey
United Kingdom
USA
FOOTBALL POOLS
CUSTOMERS
Bermuda
France
Gibraltar
Ireland
Mauritius
United Kingdom
06
SPORTECH PLC ANNUAL REPORT AND ACCOUNTS 2013 BUSINESS OVERVIEW Racing
We provide a wide range
of betting technology solutions
to racetracks, off-track betting
networks, internet wagering
operators and casinos.
34 states
IN WHICH SPORTECH IS OPERATIONAL
WITHIN NORTH AMERICA
71%
OF USA POPULATION AND GDP IN STATES
WHICH SPORTECH IS LICENSED
Football
The Football Pools is the
world’s oldest football gaming
business, with unrivalled integrity
and heritage.
180
EMPLOYEES LOCATED IN OUR
LIVERPOOL HEADQUARTERS
360,000
CUSTOMERS PLAYING THE FOOTBALL POOLS
EVERY WEEK
Sportech Racing and Digital
Our Tote Services division has over 300 customers across
North America, South America, Canada, the Caribbean, Asia
and Europe. We sell our systems and hardware to customers
in Europe as well as South America, Asia and Australasia.
Our Digital division offers services to customers located
in North America and across the world as licences permit.
Connecticut venues
We have the exclusive and in perpetuity licence to operate
venues in the North American state of Connecticut where
we currently have 15 venues open. Our licence allows us
to have 18 venues and also gives us the right to exclusively
offer betting on horseracing and greyhounds online to
Connecticut residents.
Our position in California
We currently have seven locations in California where
we offer betting on horseracing and greyhounds. These are
typically small areas within larger facilities such as bowling
alleys and card rooms. The locations are across the state
of California and we plan to open further venues of a similar
size in the near future. In addition, our plan is to open sports
bars with betting facilities across the state over time, the
first of which is due to open in mid-2014. We have secured
approval to open ten such facilities in total, subject to
local town approvals being obtained.
Strong core business
The business continues to be proudly based out of Liverpool,
UK, and has customers across the globe playing The Football
Pools regularly.
Technology investment
Our modernisation programme for The Football Pools,
which began two years ago, will be completed in 2014
and will provide customers with single wallet functionality
and the ability to play a range of games on mobile and
tablet devices.
Charitable donations
Since the mid-1970s The Football Pools has contributed
£1.3bn at today’s value to football and other sports, the arts
and charitable causes. Today, £0.5m is generated annually
for charitable causes through the management and operation
of society lottery products.
07
ANNUAL REPORT AND ACCOUNTS 2013 SPORTECH PLC BUSINESS OVERVIEW CORPORATE GOVERNANCE STRATEGIC REPORT FINANCIAL STATEMENTS Chairman’s statement
SUMMARY
→ A year of strategic progress
for the Group
→ Earnings per share from continuing
operations amounted to 1.7p
(2012: 0.3p)
→ We have the right strategy
in place to capitalise on
unique opportunities
Performance and dividend
It has been a year of strategic progress for the Group. Our
highly regulated gaming businesses in the US, which now
represent 60% of the Group’s revenues, continue to grow
and take advantage of our unique regulatory and licensing
position. The Football Pools had a solid year, taking
important steps to arrest the decline in customers and
generating strong cash flows.
During the year, the Group acquired Data Tote in order
to strengthen our European operations, established joint
ventures with NYX Gaming and Picklive US to focus on the
emerging iGaming and fantasy sports markets in the US,
and disposed of our loss-making UK focused e-Gaming
business. These strategic transactions leave the Group
increasingly focused on our key growth markets and
the opportunities they present.
Basic earnings per share from continuing operations
amounted to 1.7p (2012: 0.3p). Adjusted profit before tax
from continuing operations was £14.5m (2012: £14.9m),
with adjusted basic earnings per share of 5.3p (2012: 5.4p),
primarily as a result of an increased depreciation charge.
Your Board is focused on growing the business and using its
cash flows to develop the opportunities presented primarily
in the US. To facilitate this, and as in previous years, no
dividend is proposed for the year ended 31 December 2013.
The Board continues to assess the appropriate time to
commence dividend payments.
“ Your Board is focused on growing
the business and using its cash
flows to develop the opportunities
presented primarily in the US.”
08
SPORTECH PLC ANNUAL REPORT AND ACCOUNTS 2013 BUSINESS OVERVIEW To support delivery of these opportunities we have
combined the Tote Services and Interactive Products
divisions into one larger organisation, Sportech Racing
and Digital. Together with Sportech Venues and The
Football Pools, this focused divisional structure will
drive the Group's future performance.
Board effectiveness
As Chairman, I am responsible for ensuring your
Board remains effective. I work closely with Ian Penrose,
Sportech’s Chief Executive, to ensure your Board provides
the appropriate support and guidance to the Executive
team. The Board carries out an annual performance review
in December of each year, analysing the effectiveness
and efficiency of the Board, the Board members and the
individual Committees. As a by-product of this, the Board
has decided to extend the duration of each Board meeting
and hold three Board meetings a year at its US operating
businesses. This will ensure that the quality and depth of
discussion is increased and, as a consequence, we have
reduced the number of scheduled Board meetings a year
from nine to seven.
→ CORPORATE GOVERNANCE p28-35
Last year we endeavoured to implement changes to
our Directors' Remuneration Report. This year we have
implemented the Department of Business, Innovation
and Skills requirements in full, and you can read the
report on pages 37 to 53. Our objective is to ensure
that remuneration arrangements clearly reflect our
strategic objectives and that the interests of management
and shareholders are properly aligned.
Board and employees
There have been a number of changes to the Board during
the financial year. Cliff Baty was appointed Chief Financial
Officer on 14 May 2013. Cliff brings with him considerable
industry experience, having previously worked in senior
financial roles at Ladbrokes plc. Rich Roberts was appointed
to the Board as a Non-executive Director on 3 December 2013.
Rich lives in New Jersey, US, and has many years' experience
developing businesses in the digital, mobile, social and
iGaming markets in the US. I am pleased to welcome them
both to the Sportech Board.
→ BOARD OF DIRECTORS AND COMPANY SECRETARY p24-25
John Barnes resigned from the Board on 3 December 2013
following seven years as a Non-executive Director, and
Mor Weizer resigned from the Board on 20 June 2013. I would
like to thank both John and Mor for their contributions, and in
particular, John for his longstanding commitment to the Group.
Sportech’s international reach and large customer base
places large demands on our Executives and employees
and the Board would like to thank them for their dedication
and commitment to the Group.
Outlook
Looking ahead, I believe we have the right strategy in place
to capitalise on the significant opportunities that exist for
Sportech across its divisions and I look forward to working
with the Board and Executive team to build on the
successes to date.
Roger Withers
Chairman
5 March 2014
09
ANNUAL REPORT AND ACCOUNTS 2013 SPORTECH PLC BUSINESS OVERVIEW CORPORATE GOVERNANCE STRATEGIC REPORT FINANCIAL STATEMENTS Chief Executive’s review
SUMMARY
→ The Group has delivered a good set
of results in a transformational year
→ We have strengthened the
management team and Board
→ We remain well positioned for future
growth in the US market and have
entered 2014 with confidence
Overview
Sportech is one of the world's leading operators and suppliers
of pools betting services, occupying a unique position in the
highly regulated and emerging gaming markets worldwide.
In 2010, Sportech established itself as one of the largest
European based gaming businesses with significant operations
in the United States. Since that time, the Group has continued
to invest in its businesses, such that over 60% of Group
revenues are now generated from our US-based operations,
where we are licensed by gaming regulators in 24 states,
employing 700 people across field operations and four
corporate offices.
The Group’s focus continues to be to build a multi-platform
(retail, telephone and online) dynamic gaming business in the
US. Initially focusing on the legal and highly regulated gaming
operations of horseracing and greyhounds, we will seek to take
advantage of organic business development opportunities.
Subsequently we plan to use this strong and expanding
platform to position the Group for broader-based gaming
opportunities as regulation evolves over the coming years.
“ The Group has continued to
invest in its businesses, so that
over 60% of the Group revenues
are now generated from our
US‑based operations.”
10
STRATEGIC REPORTSPORTECH PLC ANNUAL REPORT AND ACCOUNTS 2013 The Group is pleased to have increased its EBITDA from
continuing operations in 2013 by £0.8m to £26.0m with EBITDA
from US-based activities increasing by over 20%. The Football
Pools business delivered a strong performance with EBITDA
of £17.4m, representing 58% of Group EBITDA before central
costs. The Football Pools division is making good progress
towards stabilisation of its direct revenues and generates strong
cash flows.
Outlook
We have launched a number of growth initiatives in February
this year, notably the exclusive online betting website and the
innovative sports bar, restaurant and betting facility, both in
Connecticut. We continue to make progress in California, and
our new technology developments are being well received by
customers. However, the severe snow storms and extreme cold
weather across the east coast of the US have resulted in the
closure of our retail venues on several days this year, and there
have been 170 race cancellations to date in 2014 compared to
54 in 2013. Whilst this has impacted on the performance of our
US operations, the Board remains confident in the Group's
prospects for the full year ahead.
Ian Penrose
Chief Executive
5 March 2014
During 2013, the Group made good progress in line with its
strategy. We continued to invest in our operations, to leverage
our unique exclusive licensing position in Connecticut, US, and
last month launched both the only legal website in Connecticut
for betting on horseracing, and opened a flagship sports bar,
restaurant and betting facility in Bradley. The investment is
aimed at increasing the distribution of racing, and widening the
exposure and thrill of betting on horseracing to a sport-based
audience. In another major step forward, we were able to
develop our extensive operations in California (where we
process all betting on horseracing, around $1.8bn per annum)
by obtaining a licence to develop a chain of branded betting
venues, restaurants and sports bars. The first venue will open in
Norco, near Los Angeles, in the summer of 2014. Furthermore,
we have invested in our core tote betting technology, and in
December launched a suite of market-leading online and
mobile betting products for our customers.
Corporately, and in line with our strategy of enhancing our
product range in the US, we established joint ventures with
NYX Gaming and Picklive US to focus on the emerging iGaming
and significant fantasy sports markets. Furthermore, we
acquired Data Tote for an initial consideration of £3.1m in order
to strengthen our European tote betting operations, whilst our
loss-making UK-focused e-Gaming business was sold towards
the end of the year for £3.0m. These strategic transactions
leave the Group increasingly focused on the attractive
opportunities in our key growth markets.
The Group has also made a number of organisational changes,
establishing three key divisions. We have created Sportech
Racing and Digital, which combined the former Sportech
Racing, Sportech Interactive Products and Services and also
eBet, in order to create one cohesive, larger division to provide
all terrestrial, online and mobile betting technology products to
our customers. This division is managed by Andrew Gaughan.
Our Sportech Venues business, operating Connecticut's
exclusive betting operations in retail venues, on the telephone
and now online at MyWinners.com, is led by Ted Taylor, and our
UK Football Pools business is led by Conleth Byrne. As a
consequence of the increase in the Group's activities overseas
and the reduction of activity in the UK following the sale of the
loss-making e-Gaming activity, Ian Hogg has decided to leave
the Group at, or before, the end of the year for personal reasons
as he does not wish to increase his duties overseas.
11
BUSINESS OVERVIEW CORPORATE GOVERNANCE STRATEGIC REPORT FINANCIAL STATEMENTSANNUAL REPORT AND ACCOUNTS 2013 SPORTECH PLC Our business model and strategy
Our business model
The Group is well positioned to capitalise on future growth
opportunities across its key markets.
FOCUS ON
POOLS/TOTE BETTING
REGULATORY AND LICENSING LEADERSHIP
Extensive licensing across the UK,
Netherlands and USA
CORE BUSINESS STRENGTH
Use of steady income streams from our existing assets
allows us to invest in other areas
USA EXPANSION
Investment in the
US business is
driving growth
ACQUISITIONS
Acquisitions strengthen
our European and
US operations
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SHAREHOLDER
VALUE
Your Board is committed to increasing
shareholder value in a sustainable way in order
to deliver long term returns to shareholders.
Supported by strategic positioning and
capitalising on our heritage, geographical reach
and infrastructure, we believe our business model
will enhance shareholder value.
12
STRATEGIC REPORTSPORTECH PLC ANNUAL REPORT AND ACCOUNTS 2013
Our strategy
The Group’s strategy is to develop Sportech’s position
as one of the world’s leading sports gaming companies.
1
Our core
business
2
Investment
for growth
3
Future
plans
Modernising core businesses
to secure cash generation
Industry leaders in highly
regulated markets
Capitalise on opportunities
as markets regulate
Strategic priorities
→ Stabilise our Football Pools
offline revenues from 2015
→ Maintain our significant share of
the USA racing pools market
→ Increase our Group’s digital
earning capabilities
2013 achievements
→ Drive value from our exclusive and
in perpetuity licence for betting
on horseracing in Connecticut
→ Evaluate opportunities arising
in California
→ Invest in innovation and new
technologies to remain at the
forefront of the industry
→ Be first to market and capitalise
on regulatory change
→ Growth through strategic acquisition
→ Continuous leadership in technology
enhancement
→ Modernisation of the Football
→ Venue in Bradley, Connecticut, has
→ Significant lobbying
Pools has advanced at pace and
will be complete in 2014
undergone $4m investment
to create high-end sports bar
→ New customer wins in 2013 include
Penn National Gaming and our
market share has been maintained
→ eBet has been integrated, achieving
the expected synergies and
contribution to Group earnings
→ Licensing and location secured for
first new sports bar in California
→ New technologies launched to the
market in Tucson in December 2013
with significant interest generated
programmes pursued
→ Acquisition of Data Tote to
strengthen offering in Europe
→ Patents secured for various
technological investments
Focus for 2014
→ Complete detailed process of
operational modernisation
→ Focus on product enhancement
and wider distribution
→ Expand our suite of products
online to complement developing
our venues and telephone
betting business
→ Develop further venue
opportunities in Connecticut
to capitalise on our licence
→ Open sports bar in California to
launch new concept to the market
→ Lobbying in key US states to
encourage regulatory change
→ Use footprint in the US to
develop NYX joint venture
opportunities in iGaming markets
→ Drive value from the Group’s
patented new technologies
→ Build a branded sports bar and
restaurant business in California
13
BUSINESS OVERVIEW CORPORATE GOVERNANCE STRATEGIC REPORT FINANCIAL STATEMENTSANNUAL REPORT AND ACCOUNTS 2013 SPORTECH PLC Principal risks
Appropriate risk
management aids
effective decision
making and helps to
ensure the risks the
business takes are
adequately assessed
and challenged.
The importance of measuring risk
Our risk management approach is to look at risks arising from all areas of the business both
through a top-down and bottom-up approach. The executive Boards of the three main business
units assess on an ongoing basis and formally update their business-specific risk registers
quarterly. The Board regularly reviews the risks associated with the Group’s activities and strategy
and formally reviews a Group risk register annually. In reviewing such risks, the Board ensures that
appropriate systems and controls are in place to mitigate the occurrence and impact of such risks.
Risk registers identify the most significant risks to the business and rate each risk on an unmitigated
basis first and then a mitigated basis following assessment of controls and processes in place
to reduce the impact of the risk.
The table shows the most significant risks to Sportech PLC as a Group, the potential impact of
such risks and the mitigating activities the Group carries out to reduce the likelihood and impact
of such risks. The movement in the level of the risk in the Board’s opinion is also indicated.
Risk description
Mitigating activities
Change
Regulatory – Licences
The Group operates under a number of
licences across worldwide jurisdictions,
including the UK and US. 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 and
penalties on the Group and could lead
to substantial legal costs. In certain
jurisdictions, personal liability rules
could lead to imprisonment of Group
personnel. There would also be the
threat of reputation damage, hindering
the expansion of the business into
other jurisdictions.
Operational – Economy
A significant proportion of the
Group’s annual income is derived from
consumer facing activities and is thus
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.
14
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 the requirements of our
licences worldwide;
Level
→ a key aspect of this is monitoring the territories from which
business is accepted, to ensure that the threat of legal action
against the Group is minimised, and that territories presenting
criminal/terrorist money laundering risk are avoided;
→ the Group employs a Group General Counsel in the UK to aid
compliance issues and also employs a General Counsel within
its key US 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 those employees
involved in areas of the business that have inherent regulatory risk.
Policies and procedures are in place to which staff adhere; and
→ where commercially realistic insurance policies are available, they
are purchased.
The Group continues
to operate in the
same jurisdictions
and monitors the
changing gaming
environment. There
have been no
detrimental changes
during the period
of note.
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 and currency downturn:
→ operating cost bases within the key operational divisions are
structured to offset potential declines in revenue;
→ revenue channels have been and continue to be expanded in terms
of both product and territory by the acquisition of a broader base
of revenue streams for the Group;
→ where possible, fixed income contracts (in respect of Sportech
Racing) have been entered into with our customers limiting
downside risk; and
→ management reviews performance against budget on a regular
basis which would highlight the need to implement change.
↓
Reducing
World economies
in which the Group
operates continue to
steadily recover from
the recent economic
downturns.
STRATEGIC REPORTSPORTECH PLC ANNUAL REPORT AND ACCOUNTS 2013 Risk description
Mitigating activities
Change
Operational – Technology
A significant proportion of the Group’s
annual income is dependent on
technology-led products.
Management ensures that the risk posed by technology is mitigated
where possible as follows:
→ the Group has two world-class data centres established in its key
trading jurisdictions which host the Group’s key technology solutions;
↓
→ the Group continues to invest heavily 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;
→ where third-party software is utilised, leading technology
providers are chosen as suppliers of choice; and
→ comprehensive disaster recovery procedures and infrastructure
are in place and are regularly reviewed and tested. Insurance cover
is obtained to mitigate the cost of business interruption.
Reducing
The Group has
invested significantly
during the period in
upgrading technology
thus continuing to
reduce this risk.
Financial
The Group has historically been
relatively highly leveraged and
dependent on the provision of debt
financing to enable it to continue its
operations. The change in the credit
markets that occurred over the last
few years increased the cost of bank
debt and reduced the availability
of alternate sources of finance. The
Group refinanced its debt in July 2012,
extending its term to August 2015.
Credit markets are tightening providing
the opportunity for the Group to reduce
its cost of debt going forward.
Health and safety
The Group runs a number of venues
offering 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 high 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:
→ refinanced in the summer of 2012 and now has three principal
lenders, Bank of Scotland Plc, Barclays Bank Plc and Royal Bank
of Scotland Plc. We maintain very close relationships with each
finance lender;
→ continues to be focused on cash generation to improve its
financial position;
→ maintains relationships with potential future finance partners and
keeps abreast of changing credit market conditions; and
→ monitors its performance against covenants on a regular basis.
−
Level
The Group’s facilities
are in place for
another 18 months
with a one year
extension option.
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 stored in time-delay safes and then removed from venues
as soon as possible;
→ appropriate insurance cover is maintained; and
→ there is a continual investment programme to refresh and update
venues. Health and safety requirements are addressed accordingly.
−
Level
There has been no
change in the Group’s
operations and thus
no change in the
level of the risk.
15
BUSINESS OVERVIEW CORPORATE GOVERNANCE STRATEGIC REPORT FINANCIAL STATEMENTSANNUAL REPORT AND ACCOUNTS 2013 SPORTECH PLC Financial review
SUMMARY
→ Revenue increased by 2% to £110.3m
(2012: £107.7m)
→ EBITDA* increased by 3% to £26.0m
(2012: £25.2m)
→ Adjusted** profit before tax
decreased by £0.4m to £14.5m
(2012: £14.9m)
→ Statutory profit before tax increased
to £5.2m (2012: £1.3m)
→ Adjusted** earnings per share
(“EPS”) fell 2% to 5.3p (2012: 5.4p)
→ Year end net debt of £63.4m
(2012: £57.1m)
16
Overview
Group revenue from continuing operations was slightly
ahead of prior year at £110.3m (2012: £107.7m). EBITDA
from continuing operations increased by 3% to £26.0m
(2012: £25.2m) driven by growth in Sportech Racing and
Digital which offset the decline in Football Pools. Adjusted
profit before tax was £14.5m (2012: £14.9m) impacted by an
increased depreciation charge following capital investment.
Profit after tax was £3.4m (2012: £1.3m) with basic earnings
per share from continuing operations of 1.7p (2012: 0.3p)
and adjusted earnings per share of 5.3p (2012: 5.4p). Net
debt at 31 December 2013 was £63.4m (2012: £57.1m).
An analysis of Group revenue, EBITDA and operating profit
by division is shown on page 18.
Corporate costs
Corporate costs of £3.9m (2012: £3.8m) have been managed
carefully and remain in line with the prior year. In addition,
we also have a non-cash share option expense under IFRS 2
of £1.5m (2012: £1.4m).
Depreciation and amortisation
The Group’s normal depreciation and amortisation charge
increased in the period to £5.7m (2012: £4.8m), principally
due to the ongoing capital expenditure in our businesses in
North America. In addition, the Group incurred a non-cash
“ The £95m VAT claim was determined
in the Group's favour in March 2013,
although an appeal will be held on
29 and 30 April 2014.”
CAPEX SPEND ANALYSIS CHART (£M)
2.8
Technology enhancement
in Sportech Racing and Digital
2.3
Bradley Sports Bar
1.7
Tote services
contract renewals
1.5
1.0
Football Pools
modernisation
programme
Existing venue
investment
1.0
Data centre upgrades
0.5
Discontinued operations
1.8
Other
*
EBITDA is from continuing operations and is stated before
exceptional costs and share option expense.
** Adjusted numbers are from continuing operations and are
stated before amortisation of acquired intangibles,
exceptional costs, share of loss after tax of joint ventures
and other finance income/(charges).
STRATEGIC REPORTSPORTECH PLC ANNUAL REPORT AND ACCOUNTS 2013 KEY PERFORMANCE INDICATORS
REVENUE
(£m)
£110.3m
ADJUSTED PROFIT
BEFORE TAX (£m)
£14.5m
CASH GENERATED FROM
OPERATIONS (£m)
£24.4m
114.7
107.7
110.3
15.1
14.9
14.5
25.7
26.6
24.4
2011
2012
2013
2011
2012
2013
2011
2012
2013
amortisation charge of £7.2m (2012: £5.9m) on the intangible
assets acquired with Vernons in 2007, eBet in 2012 and Data
Tote in 2013. The Vernons charge continues at an annualised
£5.9m until June 2014.
Exceptional costs
The Group has incurred exceptional costs of £2.7m
(2012: £2.8m) in the twelve month period. These costs
include restructuring and other costs of £1.3m (2012: £1.3m),
compensation for loss of office of £0.3m (2012: £0.3m),
costs in relation to the New Jersey licence of £0.3m
(2012: £0.4m), transaction costs in relation to acquisitions
of £0.3m (2012: £0.6m) and legal costs of £0.5m in
connection with the “Spot the Ball” VAT claim (2012: £0.2m).
Net finance costs
The Group has incurred net interest costs in the period
of £4.3m (2012: £4.1m). In addition, other finance income
amounted to £0.8m (2012: charges of £4.7m), primarily
being the fair value movement on interest rate swaps.
Net bank debt
The Group has a £75m revolving credit facility until
August 2015, which is enabling the Board to invest in strategic
opportunities, particularly in the USA. Net bank debt has
increased by £6.3m in the twelve month period to £63.4m
(31 December 2012: £57.1m), reflecting capital spend of £12.6m,
as well as £9.4m investment in acquisitions. The Group’s bank
leverage ratio for covenant testing purposes (net bank debt/
adjusted EBITDA) was 2.41x as at 31 December 2013
(31 December 2012: 2.12x). At 31 December 2013, this leverage
covenant was 3.0x (net bank debt/adjusted EBITDA).
Total shareholders’ equity and the Group’s net assets have
increased to £139.7m (31 December 2012: £135.4m).
Acquisitions and disposals
During the year the Group acquired Data Tote for £3.1m
in cash consideration with a potential further deferred
consideration payment of £1.0m in the event that the
business meets certain growth performance targets for
the period to 30 June 2016. Of this deferred consideration,
£0.1m was accrued at the acquisition date with £0.9m
accrued over the performance period subject to ongoing
assessment of expectations. Cash on balance sheet at the
acquisition date was £0.7m.
Total fair value of assets recognised was £3.2m with resultant
goodwill of £nil. Acquisition costs totalled £0.2m.
On 30 September 2013, £6.5m was paid to Scientific Games
Corporation Inc., representing deferred consideration
in relation to the 2010 acquisition of Sportech Racing.
Performance targets for the contingent element of
consideration were not met by 31 December 2013 and no
further payments under the acquisition agreement are due.
In addition £0.3m was paid in December 2013 in deferred
consideration for the 2012 acquisition of eBet Online Inc.
A further £0.7m is due to be paid in December 2014 with
additional maximum potential consideration due of £0.9m
based on future performance.
The Group disposed of its e-Gaming business to NetPlay TV
Group Limited on 31 October 2013 for total cash consideration
of £3.0m. This generated a net profit after tax from
discontinued operations of £0.1m including trading losses
and costs of disposal. This disposal followed a strategic
review that concluded the business was not of sufficient
scale ahead of the implementation of UK point of consumption
tax, which would impact the business significantly.
17
BUSINESS OVERVIEW CORPORATE GOVERNANCE STRATEGIC REPORT FINANCIAL STATEMENTSANNUAL REPORT AND ACCOUNTS 2013 SPORTECH PLC Financial review continued
Revenue
Sportech Racing
and Digital
Sportech Venues
Football Pools
Inter-segment
elimination
Total
EBITDA
Sportech Racing
and Digital
Sportech Venues
Football Pools
Corporate costs
Inter-segment
elimination
2013
£m
35.9
34.1
41.3
2012
£m
31.7
Change
£m
4.2
33.7
42.9
0.4
(1.6)
(1.0)
(0.6)
(0.4)
110.3
107.7
2.6
2013
£m
7.7
4.8
17.4
(3.8)
(0.1)
2012
£m
5.5
Change
£m
2.2
4.7
18.8
(3.7)
(0.1)
0.1
(1.4)
(0.1)
—
Total
26.0
25.2
0.8
Operating profit *
Sportech Racing
and Digital
Sportech Venues
Football Pools
Corporate costs
Inter-segment
elimination
2013
£m
4.8
3.4
16.0
(5.3)
(0.1)
2012
£m
3.3
3.3
17.5
Change
£m
1.5
0.1
(1.5)
(5.1)
(0.2)
—
(0.1)
VAT claim
The VAT repayment claim, in respect of the “Spot the Ball”
game, was successfully determined in the Group’s favour
by the First-tier Tax Tribunal (“FTT”) in March 2013. HMRC
has been given leave to appeal this decision to the Upper
Tribunal and the appeal hearing will be held on 29 and
30 April 2014. The claim is for approximately £95m
including simple interest.
We are pleased with our success to date and remain confident
in our arguments and a successful outcome of the appeal.
The claim has not been recognised in the Group’s
financial statements.
Dividend
No dividend is proposed. The Board will continue to assess
when to commence the payment of a maiden dividend in
consideration of the Group’s financial position, business
performance and future growth opportunities.
Taxation
A tax charge for the period of £1.9m (2012: £0.8m) has been
provided at the weighted average applicable tax rate for the
Group of 26.8% (2012: 36.5%). The Group has a net deferred
tax asset of £0.7m (31 December 2012: £1.3m), representing
primarily foreign taxes withheld which can be utilised against
future profits and deferred tax provided on unvested share
options and on interest rate swap liabilities. Tax payments
of £1.7m were made during the period (2012: £2.0m),
principally representing final payments for prior year tax
liabilities and overseas tax deducted at source.
Share capital
During the year 6.0m shares were issued to settle employee
share options under the 2010 Performance Share Plan
award, increasing issued share capital to 204,851,114.
Total
18.8
19.0
(0.2)
*
Operating profit before amortisation of acquired intangibles
and exceptional costs.
Cliff Baty
Chief Financial Officer
5 March 2014
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18
STRATEGIC REPORTSPORTECH PLC ANNUAL REPORT AND ACCOUNTS 2013
Operational review
Sportech Racing
and Digital
£35.9m
REVENUE
£7.7m
EBITDA
Key financials
An analysis of revenue and EBITDA from our
Sportech Racing and Digital business is set out
as follows:
Tote Services
Equipment sales
Digital
Total revenue
Payroll
Other costs
EBITDA
2013
£m
2012
£m
27.9
25.8
4.1
3.9
35.9
4.3
1.6
31.7
(15.0)
(14.8)
(13.2)
(11.4)
7.7
5.5
Overview
Sportech Racing and Digital has a leading position worldwide
in the provision of Tote software both through land based
terminals and online solutions including mobile and tablet
devices. The business processes $13bn of bets annually and
is licensed in 24 states in the US with offices and operational
centres in Atlanta, New Jersey, Ireland, Germany and the UK.
The business has invested heavily in technology including
its suite of mobile applications (known as Digital Link) which
delivers an array of wagering and account management
services through the racing consumer’s own smart phone in
conjunction with the on-track wagering devices. In addition,
the division has developed a new online betting platform,
G4, to improve consumers’ online betting experience.
These investments will support the business’s future success,
ensuring its competitiveness and generating opportunities
for increased efficiency through technological developments.
During the year the business secured several major new
contracts including a six year agreement with Penn National
Gaming (“PNG”), a five year agreement with Danske Spil, the
state-owned Danish gaming operator and terminal sales to
the UK Tote.
In September, the business purchased Data Tote, a leading
provider of on-track and online greyhound and horserace
betting services in Europe. This acquisition further strengthens
our European operations through an increased customer base
and complementary product suite.
Tote Services
Within Tote Services, we have seen continued strong
operational performance from our customer within the
Dominican Republic following the investment made in new
terminals last year.
During H2 2013, we wound down our US west coast data centre
and transferred our operations to a single site in New Jersey.
This will deliver improved customer service and cost efficiencies
in 2014 and beyond. Revenues of £32.0m (2012: £30.1m)
included equipment sales of £4.1m (2012: £4.3m), and EBITDA
of £7.0m (2012: £5.7m) was generated.
Digital
Within Digital, the integration of the eBet business acquired in
December 2012 has been successfully achieved and expected
synergies of £0.2m were delivered in 2013 following call-centre
rationalisation and transfer of bet processing to our own Tote
system. Revenues for 2013 were £3.9m (2012: £1.6m) with
EBITDA of £0.7m (2012: loss of £0.2m), in line with
management expectations.
The Digital business has entered into a joint venture with NYX
Gaming Group, an award-winning supplier of online gaming
platforms and content, to provide online gaming products.
In addition the business has entered into a separate joint
venture with Picklive Limited to develop new fantasy sports
games targeting the rapidly growing US market. Both these
initiatives, together with the technological investments in the
G4 online betting platform and Digital Link mobile applications,
will help drive future performance.
19
BUSINESS OVERVIEW CORPORATE GOVERNANCE STRATEGIC REPORT FINANCIAL STATEMENTSANNUAL REPORT AND ACCOUNTS 2013 SPORTECH PLC Operational review continued
Connecticut Venues
In the state of Connecticut, Sportech Venues operates all
betting on horseracing under an exclusive and in perpetuity
licence for retail, telephone and internet.
During the year we have invested in our venues and online
opportunities to support future growth. February 2014 saw
the official opening of the “Bobby V’s” sports bar in Bradley, a
partnership with baseball legend and experienced restaurateur
Bobby Valentine. This new $4m facility allows customers to bet
on horse and greyhound racing while enjoying the amenities of
a high-end sports bar and restaurant. Also during the year we
have upgraded the facilities at Sports Haven, our 50,000 sq ft
venue, to create sports and games zones together with a
redesigned bar area. We are also progressing the development
of a potential new site in Stamford, a city close to the New York
state border with a population of 125,000 which currently has
no gambling venue.
February 2014 also saw the full launch of Connecticut’s
only legal online horserace betting platform, MyWinners.com.
This launch will be supported by marketing campaigns and
the issuance of formal cease and desist letters by the
Connecticut authorities.
2013 operating performance saw overall revenues £0.5m
ahead of prior year with EBITDA at £4.4m (2012: £4.4m),
with increased content costs being offset by other
overhead reductions.
Other Venues
Revenue for Other Venues was £5.9m (2012: £6.0m) with
EBITDA of £0.4m (2012: £0.3m).
During 2013, the Group provided betting technology and
services to customers of five third-party venues in southern
and central California. A further two outlets have opened in
early 2014. These outlets are performing well with a strong
return on invested capital; however, overall returns are restricted
due to the limited number of potential venues and the relative
Sportech share of the venues’ profits.
In December we signed an agreement with Southern
California Off Track Wagering, Inc. (“SCOTWinc”) for a licence
to allow Sportech to operate up to ten innovative retail venues
offering customers the ability to bet on horseracing in a
high-end sports bar and restaurant facility. The Group will
open the first venue, a 10,000 sq ft purpose-built facility in the
city of Norco, in the summer of 2014. This location is a joint
venture between Sportech and the Silky Sullivan Group LLC,
a food and beverage operator based in southern California.
This agreement will allow the business to benefit from an
enhanced share of horserace wagering margin together with
the food and beverage profits from the restaurant facility.
In the Netherlands, we operate a number of OTBs, point
of sale terminals and online betting on horseracing, all on
an exclusive basis under a licence from the Ministry of Justice.
This licence has been extended until December 2014 when
the government’s new laws regarding gambling are due to
come into effect. We continue to communicate closely with
the government regarding these plans.
Sportech Venues
£34.1m
REVENUE
£4.8m
EBITDA
Key financials
A detailed analysis of our Connecticut Venues
financials is set out below:
Connecticut Venues
Revenue
Tax
Track/tote/interface fees
Margin
Payroll
Facility costs
Other costs
Connecticut EBITDA
Other EBITDA
Total Venues EBITDA
2013
£m
28.2
(4.1)
(7.9)
16.2
(4.7)
(3.7)
(3.4)
4.4
0.4
4.8
2012
£m
27.7
(4.2)
(7.1)
16.4
(4.4)
(4.0)
(3.6)
4.4
0.3
4.7
20
STRATEGIC REPORTSPORTECH PLC ANNUAL REPORT AND ACCOUNTS 2013 Overview
The strategy of the Pools business is to stabilise then grow
revenues through improved customer retention, increase
spend per head from core customers and recruitment of new
players to direct debit and online channels. Modernisation of
the business continues with investment in technology driving
efficiencies including consolidation of customers into a single
database, enabling greater cross-sell opportunities and a
lower and more agile operating cost base.
Revenues for the period were £41.3m (2012: £42.9m),
the reduction driven primarily by a £1.6m decrease in
the collector and overseas channels. EBITDA fell by £1.4m
to £17.4m (2012: £18.8m) with cost efficiencies offset by
increased marketing spend to drive recruitment that will add
value into 2014 and beyond. Classic Pools average weekly
customer spend has increased to £2.67 (2012: £2.58) driven
by an increase in games to two games per week, every week.
As at December 2013, total customer numbers were 360,000
compared to 397,000 in prior year. In the direct channel,
customer numbers fell by 6% to 248,000. Importantly, we
also recruited 15,000 new customers to this channel through
our telemarketing investment and will increase this activity,
together with online marketing, to drive new player
acquisition throughout 2014.
We continue to broaden our product offering outside our
core Classic Pools product and in November, our Jackpot 12
pool grew to greater than £600,000 with one customer
winning £440,000.
To progress our digital offering, we have entered into an
agreement with NYX to develop a new footballpools.com site
with greater content, flexibility and functionality. The full site
is planned to launch in mid 2014 with mobile and tablet
applications of Classic Pools, Premier 10, Jackpot 12 and
Lucky Clover being launched during the first half of 2014.
Football Pools
£41.3m
REVENUE
£17.4m
EBITDA
Key financials
The key performance indicators of our Football
Pools division are set out below:
Revenue (£m)
EBITDA (£m)
Customer numbers ('000)
Weekly revenue per customer –
Classic Pools (£)
2013
£m
41.3
17.4
360
2.67
2012
£m
42.9
18.8
397
2.58
21
BUSINESS OVERVIEW CORPORATE GOVERNANCE STRATEGIC REPORT FINANCIAL STATEMENTSANNUAL REPORT AND ACCOUNTS 2013 SPORTECH PLC Corporate social responsibility
Responsibility to our
Customers
Responsibility to
Society
Licences to permit the provision of business-to-business
services for pari-mutuel betting on horse and greyhound
racing are held by Group companies in over 30 jurisdictions
in the Americas and Europe. Licences for business-to-
consumer activity for the same products are held in
Connecticut and Holland, and for a wider range of gambling
products in the UK and Alderney. To ensure that the
obligations placed on the Group under these licences are
adhered to, the Group employs a Director of Corporate
Affairs who is responsible for ensuring that the terms of all
applicable regulations are met. He works closely with the
Group General Counsel and local Legal counsel to ensure
the Group meets its policy of maintaining the highest
standards of compliance and integrity. The Group also
employs security and compliance staff whose primary role
is to ensure that our customers are treated fairly, that our
advertising is compliant with advertising standards and
codes, that the young and vulnerable are prevented from
accessing our products and that abuse and illegal behaviour
are identified and stopped. All gaming products are subject
to age restrictions and age verification software is used by
the Group where appropriate.
The Group actively promotes GamCare, the charity
providing support to those suffering through a gambling
problem, to its customers and nearly £0.5m has been
contributed to the Responsible Gambling Trust, GamCare’s
major funder, and its predecessor bodies over recent years.
The Venues business in Connecticut contributes over £0.1m
annually to promote responsible gambling in the state.
Below Young people from all over the UK compete at
the StreetGames Football Pools Fives Festival.
Opposite Carers Trust receiving a donation of £20,000
as part of an initiative with Preston North End F.C.
The Group’s support for communities across the UK is
virtually unparalleled; since the mid-1970s The Football
Pools has contributed £1.3bn at today’s value to football,
sport, the arts and charitable causes. Today the Group helps
to generate £0.5m annually for charitable use through its
management and operation of society lotteries within its
Football Pools business activities.
The Group was, for many years, the sole funder of the
Foundation for Sport and the Arts (www.thefsa.net), which
awarded grants amounting to several million pounds each
year. Many communities, organisations and individuals have
benefited from modest but critical training bursaries through
to significant funding for major capital projects. The Foundation
finally ceased its activities in 2013, after 22 years of supporting
communities across the UK with donations worth £630m.
Further support in recent years has focused on football and
included donations of over £6.0m to schemes developed
with the English and Scottish Football Leagues. Notably, the
SPL’s Football Fans in Training programme, promoting fitness
and weight loss, continues to attract international acclaim.
In 2013, to celebrate the 90th anniversary of The Football
Pools, the Group has been eager to continue its support
of grass roots football, where we believe the impact is
the greatest. The Football Pools announced that it would
partner with charity StreetGames in a two-year funding
arrangement worth £1.7m, to create a new football programme,
"StreetGames Football Pools Fives". As part of its commitment
to leave a lasting legacy by donating to sport, the arts and
other good causes, The Football Pools is working closely
with StreetGames to enhance the lives of young people in
disadvantaged areas and thereby promote change for good in
their local communities across the UK. Former England player
Gareth Southgate became an ambassador for the programme
in 2013 and, together with his involvement, we are looking
forward to supporting young people through this cause and
continuing to raise awareness of the scheme in 2014.
22
STRATEGIC REPORTSPORTECH PLC ANNUAL REPORT AND ACCOUNTS 2013 Responsibility towards the
Environment
Responsibility towards
Employees
The Group recognises its responsibility to achieve good
environmental practice and continues to strive for improvement
in its environmental impact.
The nature of its business results in the principal impact
arising from energy and paper consumption.
Wherever possible, waste consumable materials are recycled
or disposed of in a manner most suitable to reduce any
impact on the natural environment. The Group’s business
practices also encourage environmental good practice, and
the increasing use of technology to facilitate information
and data collection and dissemination has led to reduced
demand for paper resources.
All employees are encouraged to participate in the
implementation of this policy and suppliers of consumable
products are encouraged to be environmentally friendly,
wherever practical.
In compliance with the Companies Act 2006 (Strategic
Report and Directors’ Reports) Regulations 2013
requirements, the Group is reporting on greenhouse gas
emissions for the first time. The Group believes that the
approach it has taken, incorporating the use of relevant
audited costs and data sourced from highly regarded public
bodies, is robust, but it will undoubtedly be refined in future
years. It is currently using 2012 as its base year for emissions
reporting. As well as providing a summary of the Scope 1 and
Scope 2 CO2 emissions produced, an intensity ratio using
Group revenue is also included, showing a reduction in
intensity of 4.4% in 2013 over the base year performance.
CO2 (metric tonnes)
Group revenues (£m)
Intensity ratio
Reduction
2013
6,521
110.3
59.1
4.4%
2012
6,655
107.7
61.8
—
The Board is acutely aware of the vital contribution
of employees to the future success of the business.
It recognises the importance of providing employees
with information on matters of concern to them, enabling
employees to improve their performance and make an
active contribution to the achievement of the Group’s
business objectives. This is accomplished through formal
and informal briefings, meetings and will shortly be
extended to online communication via a Group intranet.
Employee representatives are consulted regularly on a wide
range of matters affecting their current and future interests.
The Group’s Investor in People accreditation reflects the
progressive training and development programmes that
are in place within the business.
The Group is committed to equality of opportunity and
dignity at work for all, irrespective of race, colour, creed,
ethnic or national origins, gender, marital status, sexuality,
disability, class or age. It ensures that recruitment and
promotion decisions are made solely on the basis of
suitability for the job.
In the UK, it is the policy of the Group to comply with
the requirements of the Disability and Equality Act 2010
in offering equality of opportunity to disabled persons
applying for employment, selection being made on the
basis of the most suitable person for the job in respect of
experience and qualifications. Training, career development
and promotion are offered to all employees on the basis of
their merit and ability.
Every effort is made to continue to employ, in the same
or alternative employment, and where necessary to retrain,
employees who become disabled during their employment
with the Group.
The Group proactively addresses health and safety
management and we have a programme of risk
identification, management and improvement in place.
The Board receives a report in respect of health and safety
across all of its businesses at each Board meeting.
23
BUSINESS OVERVIEW CORPORATE GOVERNANCE STRATEGIC REPORT FINANCIAL STATEMENTS Board of Directors and Company Secretary
INTRODUCTION
Your Board composition has
changed in the year. Cliff Baty
joined as Chief Financial Officer and
Rich Roberts joined as Independent
Non-executive Director. John Barnes
and Mor Weizer stepped down
during the year.
The Board has a balance of
Executive Directors, Independent
Non-executive Directors and
Non-executive Directors with
wide industry connections,
knowledge and experience.
The Board met nine times in the
year, seven times in the UK and
twice in North America.
Roger Withers (71)
Non-executive Chairman
Ian Penrose (48)
Chief Executive
Date of appointment February 2011
Date of appointment October 2005
Board Committees
N
Roger was appointed Chairman in
February 2011. Roger has over 40 years’
experience in the leisure and gaming
industries. Roger has held a number of
Non-executive Directorships, including
Chairman of Playtech Limited, Chairman
of Arena Leisure PLC and Executive
Chairman of Bass Leisure South Africa.
Roger has also held senior management
positions in market-leading companies
including Ladbrokes, Bass, BLMS and
Coral Racing, as well as Directorships
with a number of substantial privately held
companies in the property, technology,
publishing and exhibitions sectors.
Ian was appointed Chief Executive in
October 2005 and has led the turnaround
of Sportech from a declining and UK-centric
business with very high levels of debt into
one of the world’s leading pools and tote
gaming companies. He was previously Chief
Executive of Arena Leisure PLC, which he
joined in 1998, shortly after the formation of
the company, and left in September 2005,
having built the UK’s largest horseracing
and media group. Ian is also a Trustee of
the National Football Museum.
R
A
N
Remuneration Committee
Audit Committee
Nomination Committee
ID
Independent Directors Committee
Note: red icon indicates
Chairman of committee
Cliff Baty (43)
Chief Financial Officer
Ian Hogg (50)
Chief Operating Officer,
Consumer Facing Business
Date of appointment May 2013
Date of appointment October 2010
Cliff was appointed to the Board in
May 2013 joining from Ladbrokes plc,
where he held a number of senior finance
roles including Finance Director of its
e-Gaming and International businesses.
Cliff was also a Director of Ladbrokes’
Spanish retail betting joint venture since
its inception in 2007 as well as Ladbrokes’
businesses in Italy, South Africa and
Asia. Cliff worked for Ladbrokes for
seven years and prior to that was Group
Financial Controller of Hilton Group plc.
He qualified as a Chartered Accountant
with Ernst & Young, where he worked
for ten years.
Ian was appointed to the Board in
October 2010. From 2005 to 2009, Ian
was a founding shareholder and Managing
Director of Better, the UK betting shop
business, which he built up to an estate
of 44 shops and then merged with the
Jennings betting shop chain. From 1998
to 2004, he was the Director of Online at
Arena Leisure PLC and was seconded for
18 months as Managing Director of At The
Races. Previously Ian has been a consultant
to BSkyB and Tote Tasmania. Ian was also
Chairman of Fox Poker Club until its sale
to Genting Plc.
24
CORPORATE GOVERNANCESPORTECH PLC ANNUAL REPORT AND ACCOUNTS 2013 Peter Williams (60)
Senior Independent
Non-executive Director
David McKeith (62)
Independent Non-executive Director
Rich Roberts (49)
Independent Non-executive Director
Date of appointment February 2011
Board Committees R A N ID
Date of appointment August 2011
Board Committees R A N ID
Date of appointment December 2013
Board Committees R A N
Peter was appointed Senior Independent
Non-executive Director in February 2011.
Peter is a Non-executive Director of
Rightmove plc and Cineworld Group plc;
Chairman of both OfficeTeam, an office
supplies business, and Mister Spex, an
online retailer based in Berlin; and a trustee
of the Design Council. In the past he has
also served on the boards of ASOS plc,
the EMI group, Silverstone Holdings
Limited, Blacks Leisure Group plc,
JJB Sports plc, GCap Media plc and
Capital Radio Group plc. In his executive
career, he was Chief Executive at Alpha
Group plc and prior to that Chief Executive
of Selfridges plc where he also acted as
Chief Financial Officer for over ten years.
David was appointed to the Board as
an Independent Non-executive Director
in August 2011 and chairs the Audit
Committee. He has around 30 years’
experience as a chartered accountant
and tax adviser in large professional
firms, latterly as office senior partner
for PricewaterhouseCoopers LLP in
Manchester. Since 2008 he has developed
a portfolio of non-executive roles. He is
chairman of the Halle Orchestra and of
Greater Manchester Chamber of Commerce.
In July 2013 he was appointed as a
Non-executive Director of Norcros PLC,
where he is Senior Independent Director
and Audit Committee Chairman.
Rich was appointed Non-executive Director
in December 2013. He has over 20 years of
game and gaming experience across senior
business development and C-level positions.
As Chief Executive Officer (“CEO”) of
Slingo, Inc. from 2010 to 2013, Rich led the
three-year turnaround of the company
to profitability and acquisition by Real
Networks. At Real Networks, he is currently
responsible for the Slingo Studio and Global
Storefront businesses. During his tenure as
CEO, Rich built Slingo into a global game
brand with the top played Facebook game
and iOS casino game with over 100m
total players on all game platforms. Prior
to that, Rich was VP (Chief Revenue
Officer) of Playfirst Inc. and previously
led Hasbro Interactive/Atari into the
digital game industry.
Lorne Weil (68)
Non-executive Director
Luisa Wright (36)
Group General Counsel
and Company Secretary
Date of appointment October 2010
Date of appointment February 2011
Lorne was appointed Non-executive
Director in October 2010 and brings more
than 20 years of wide-ranging gaming
industry experience to the Board. Lorne
was Chairman of the Board of Scientific
Games Corporation Inc. from 1991 to 2013,
and was Chief Executive Officer for all but
24 months of that time. During his tenure,
Lorne built a global leader in providing
customised, end-to-end gaming solutions to
lottery and gaming organisations worldwide.
He is also a member of the Board of
Overseers of Columbia Business School,
where he is also Chairman of the Advisory
Board of the Entrepreneurship Center.
Luisa was appointed Group General Counsel
and Company Secretary in February 2011.
She joined the Company from Olswang LLP,
where she specialised for over ten years in
advising clients in the gambling, sport and
media sectors. As Group General Counsel of
Sportech PLC, Luisa provides legal advice to
the Board and senior management and
coordinates legal and regulatory advice
across the Group.
25
BUSINESS OVERVIEW CORPORATE GOVERNANCE STRATEGIC REPORT FINANCIAL STATEMENTSANNUAL REPORT AND ACCOUNTS 2013 SPORTECH PLC Senior management
SPORTECH PLC
THE FOOTBALL POOLS
SPORTECH RACING
AND DIGITAL
SPORTECH VENUES
Mickey Kalifa
Corporate Development
Director
Conleth Byrne
Managing Director
Andrew Gaughan
President – Sportech Racing
and Digital
Ted Taylor
Managing Director –
Connecticut Venues
and Online
Richard Boardley
Director of Corporate Affairs
Nick Mounteer
Director of Online
Mark Gregory
Managing Director –
Sportech Digital
Phil Balderamos
Managing Director –
California Venues
Bob Mercer
Corporate Development
Executive and Acting
Finance Director
– Sportech Racing and Digital
Carl Lynn
Finance Director
Louis Skelton
Vice President
of Technical Services
James D Birney
Vice President of Finance
Nicola McCabe
Group Financial Controller
Kevan Woodcock
Director of Technology
Frank J Chesky III
Vice President and
General Counsel
Paul Klomp
Managing Director –
Netherlands
Venues and Online
26
CORPORATE GOVERNANCESPORTECH PLC ANNUAL REPORT AND ACCOUNTS 2013
Shareholder and corporate information
Internet
The Group’s website,
www.sportechplc.com, is regularly
updated to provide information about
the Group, including all of the Group’s
press releases and announcements.
Registrar
Any enquiries concerning your
shareholding should be addressed
to the Company’s Registrar. The
Registrar should be notified promptly
of any change in a shareholder’s
address or other details.
Tel: 0871 664 0300
E-mail: ssd@capitaregistrars.com
Shareholder portal:
www.capitashareportal.com
Investor relations
Requests for further copies of the
Annual Report and Accounts, or other
investor relations enquiries, should be
addressed to the Group at:
E-mail: ir@sportechplc.com
Tel: 0207 268 2400
Head Office
Sportech PLC
101 Wigmore Street
London W1U 1QU
Company registration number
SC69140
Company Secretary
Luisa Wright
Bob Mercer (Alternate)
UK Operational Centre
Football Pools
Walton House
Charnock Road
Liverpool L67 1AA
USA Operational Centres
Sportech Inc. and
Sportech Venues
555 Long Wharf Drive
New Haven, CT 06511
Sportech Racing and Digital
1095 Windward Ridge Parkway
Building 300 Suite 170
Alpharetta, GA 30005
Registered office
Sportech PLC
Collins House
Rutland Square
Edinburgh
Midlothian
EH1 2AA
Financial advisers
and joint stockbroker
Investec Bank (UK) Ltd
2 Gresham Street
London EC2V 7QP
Joint stockbroker
Panmure Gordon & Co.
One New Change
London EC4M 9AF
Principal bankers
Bank of Scotland plc
10 Gresham Street
London EC2V 7AE
Royal Bank of Scotland plc
280 Bishopsgate
London EC4Y 1HS
Barclays Bank PLC
3 Hardman Street
Spinningfields
Manchester M3 3HF
Solicitors
Freshfields Bruckhaus
Deringer LLP
65 Fleet Street
London EC4Y 1HS
Olswang LLP
90 High Holborn
London WC1V 6XX
Statutory auditors
PricewaterhouseCoopers LLP
Chartered Accountants and Statutory
Auditors
8 Princes Parade
St Nicholas Place
Liverpool L3 1QJ
Registrars
Capita Asset Services
The Registry
34 Beckenham Road
Beckenham
Kent BR3 4TU
27
BUSINESS OVERVIEW CORPORATE GOVERNANCE STRATEGIC REPORT FINANCIAL STATEMENTSANNUAL REPORT AND ACCOUNTS 2013 SPORTECH PLC Corporate governance
Chairman’s overview
Dear shareholder
Sportech is committed to sound
corporate governance and
believes it to be essential for
business integrity and for
shareholders’ trust in their Board.
The responsibility for good
governance lies with the Board,
chaired by me, and I take a
strong interest in ensuring the
principles are disseminated
throughout the organisation.
Our report to you on corporate governance explains
how we approach and implement the principles of good
governance across Sportech and the level of importance
we give to each area.
The effectiveness of our Board is a key priority, as we
believe this to be fundamental in order to deliver on business
objectives and ultimately to deliver shareholder value, whilst
operating in an ethical way. During the year, John Barnes
has retired from the Board after contributing immensely
to the Group over the seven years of his Non-executive
Directorship. We were delighted to announce the
appointment of Rich Roberts who, following an in-depth
search process, has been selected for his experience in
multi-platform entertainment industries and networks
across the USA.
Our Committees are structured to ensure the responsibilities
of the Board are carried out effectively and in line with best
practice procedure. Detail on each Committee and its
responsibilities and duties carried out during the year under
review can be found within this report.
We will continue to strive for best practice governance and
use our time together as a Board, and within communication
between Directors outside of formal meetings, to address
the core responsibilities of strategy, review of financial and
operational performance, review of risk management and
internal controls and ensuring the composition of the Board
delivers an effective governing body for Sportech.
Roger Withers
Chairman
5 March 2014
28
CORPORATE GOVERNANCESPORTECH PLC ANNUAL REPORT AND ACCOUNTS 2013 BOARD COMPOSITION
12%
Chairman
38%
Executive Directors
38% Independent
Non-executive Directors
12%
Non-executive Directors
LENGTH OF SERVICE
AT 31 DECEMBER 2013
2
3
2
Up to two years
Two to three years
Three to six years
1 More than six years
Compliance with the UK Corporate
Governance Code
Sportech is committed to a high standard of corporate
governance. The Financial Reporting Council published
in 2012 a revised version of the UK Corporate Governance
Code (the “Code”), which took effect for financial years
beginning on or after 1 October 2012. As such, Sportech
has complied throughout the financial year ended
31 December 2013 with the provisions of the revised Code.
A copy of the Code is publicly available from www.frc.org.
It is the policy of the Board to manage the affairs of the
Company in accordance with the principles of the Code so
far as the Board believes it is practical. This report, together
with the Remuneration Report on pages 37 to 53, describes
how the Company has applied the main principles of
corporate governance as set out in the Code.
Board of Directors
The Board currently comprises the Non-executive
Chairman, three Executive Directors, three Independent
Non-executive Directors and one Non-executive Director
as follows:
Roger Withers Non-executive Chairman
Ian Penrose
Chief Executive
Cliff Baty
Chief Financial Officer
Ian Hogg
Chief Operating Officer,
Consumer Facing Business
Peter Williams Senior Independent Non-executive Director
David McKeith Independent Non-executive Director
Rich Roberts
Independent Non-executive Director
Lorne Weil
Non-executive Director
On 6 March 2013, 20 June 2013 and 3 December 2013,
Steve Cunliffe, Mor Weizer and John Barnes respectively,
resigned from the Board. Cliff Baty was appointed
to the Board on 14 May 2013 as Chief Financial Officer.
Rich Roberts was appointed to the Board on 3 December 2013
as an Independent Non-executive Director.
Biographies of the Board members appear on pages 24
and 25. These illustrate the wide-ranging business experience
of Board members, which is essential to manage effectively
a business of the size and complexity of Sportech.
The Board considers Peter Williams, David McKeith and
Rich Roberts to be Independent Directors. In light of his
previous roles as Chairman of Playtech Limited, from which
he resigned on 10 October 2013 (although he is retained
as an industry adviser through to September 2014) and
retained adviser to Scientific Games Corporation Inc. (“SGC”),
a position that came to an end on 30 September 2013, which
were held upon his appointment as Chairman of the Board,
Roger Withers cannot be deemed to be independent.
Similarly, whilst Lorne Weil sits on the Board in his own
personal capacity and not as a representative of SGC, due
to the fact that Lorne Weil was Chairman and Chief
Executive of SGC until November 2013, coupled with SGC’s
19.99% shareholding in Sportech PLC up to 7 January 2014,
the Board deems Lorne Weil not to be independent.
Conflicts of interest
The Board has a procedure in place to deal with a situation
where a Director has a conflict of interest, as required by
the Companies Act 2006. As part of this process, the
members of the Board prepare a list of other positions held
and all other conflict situations that may need authorising
either in relation to the Director concerned or his/her
connected persons. The Board considers each Director’s
situation and decides whether to approve any conflict
situations, taking into consideration what is in the best
interests of the Company and whether the Director’s ability
to act in accordance with his or her wider duties is affected.
Each Director is required to notify the Company Secretary
of any potential or actual conflict situations that will need to
be authorised by the Board. Authorisations given by the
Board are reviewed annually.
The Independent Directors Committee of the Board has
powers to deal with matters concerning the Company and
its major shareholders, including in relation to areas where
conflicts of interest might otherwise arise.
29
BUSINESS OVERVIEW CORPORATE GOVERNANCE STRATEGIC REPORT FINANCIAL STATEMENTSANNUAL REPORT AND ACCOUNTS 2013 SPORTECH PLC Corporate governance continued
BOARD RESPONSIBILITY
CHAIRMAN
BOARD OF DIRECTORS
DIVISIONAL OPERATING
BOARDS
CORPORATE BUSINESS
FUNCTIONS
Board effectiveness
Division of responsibilities, information
and professional development
The Board of Directors is responsible for the management
of the business of the Company and its long term success.
It may exercise all the powers of the Company subject to
the provisions of relevant statutes and the Company’s
Articles. The Articles, for instance, contain specific provisions
and restrictions regarding the Company’s power to borrow
money. A copy of the Articles is available to view by request
from the Company Secretary or from the Company’s website,
www.sportechplc.com/investor_centre/shareholder_
information/memorandum_and_articles_of_association.
The Board is also responsible for setting the Company’s
strategic objectives and managing the Company’s resources
to enable those objectives to be met.
The division of responsibility between the Chairman and
the Chief Executive is clearly defined and has been agreed
by the Board. The Chairman is primarily responsible for
the workings of the Board and ensuring its effectiveness.
The Chief Executive is responsible for running the Group’s
business, for implementing Board strategy and policy
and for shareholder communication. The Chairman also
ensures that Directors maintain the appropriate skills
and knowledge to fulfil their responsibilities and that the
Company provides the necessary resources to Directors
to enable this to be achieved, both by way of induction
upon joining the Board and thereafter by way of updates.
Luisa Wright, the Company’s Group General Counsel and
Company Secretary, provides in-house legal advice to the
Board and management. During Luisa’s maternity leave
period in 2013, the Board engaged and retained various
advisers in order to continue to receive counsel where and
when necessary. In addition, the Company takes external
legal advice where appropriate to ensure compliance with
best practice. As Company Secretary, Luisa Wright also
advises the Chairman and the Board on all governance
matters. Bob Mercer was appointed Company Secretary
(Alternate) until Luisa returned from maternity leave.
The Board has in place a number of key processes designed
to ensure that management responsibilities are clear.
Executive Directors distribute relevant information and
key financial reports to Board members in advance of each
meeting, together with other materials required to facilitate
proper consideration of business issues. A schedule of
reserved matters for the Board has been established and
communicated to the Senior Management teams.
An Executive Board, chaired by the Chief Executive,
oversees the detailed operations of the business. The
Executive Board meets formally on a regular basis to
update the Group on ongoing corporate matters and to
review the performance of each business segment and
progress against key operational targets.
The Company maintains insurance cover in respect of legal
action against its Directors and independent professional
advice may be taken by the Directors as required, at the
Company’s cost.
Board performance evaluation
The Board is satisfied that each Director continues to show
the necessary commitment, allocates sufficient time to
discharge their duties and continues to be an effective
member of the Board due to their skills, expertise and
business acumen.
In 2012 a full-scale Board and Committee review process
was implemented, which is and will be performed annually
towards the end of each financial year. All Board members
are invited to complete an online self-assessment and
evaluation of the effectiveness of the Board. Amongst other
things, Directors are asked for their views on Company
strategy; key challenges for the business; the mix of skills,
experience, independence, knowledge and diversity on the
Board (including gender); effectiveness of the Board’s
engagement with shareholders; and how well the Board
operates. The output of the confidential questionnaires
completed in December 2013 was discussed with the Board
at the February 2014 Board meeting. The Board found the
performance of each Director to be effective and concluded
that the Board provides the effective leadership and control
required for a listed company. The evaluation found the
Board Committees were working well. The Board will
continue to review its procedures, its effectiveness and
development in the financial year ahead.
30
CORPORATE GOVERNANCESPORTECH PLC ANNUAL REPORT AND ACCOUNTS 2013 Board meetings
The Board meets at least seven times a year. Certain matters are considered at all Board meetings including the Chief
Executive’s report; the latest available Group consolidated accounts and Chief Financial Officer’s report; divisional reports
and the strategic developments report. Directors unable to attend a Board meeting receive all materials to be presented
and can discuss any issue which may arise with the Chairman or any Executive Director.
Attendance at scheduled meetings of the Board and its Committees in 2013
Number of meetings held in year
Executive Directors
Ian Penrose
Cliff Baty (appointed 14 May 2013)
Ian Hogg
Steve Cunliffe (resigned 6 March 2013)
Non-executive Directors
Roger Withers
Peter Williams
Rich Roberts (appointed 3 December 2013)
John Barnes (resigned 3 December 2013)
David McKeith
Lorne Weil
Mor Weizer (resigned 20 June 2013)
Main
Board
9
9
6 (6)
9
— (2)
8 (9)
8 (9)
— (—)
8 (9)
8 (9)
1 (9)
1 (4)
Audit Remuneration
Committee
6
Committee
4
Nomination
Committee
2
Independent
Directors
Committee
2
—
—
—
—
4
— (—)
3 (3)
4
—
—
—
—
—
—
6
— (—)
5 (5)
5 (6)
—
—
—
—
—
—
2
— (—)
2
2
—
—
—
—
—
—
2
— (—)
2
2
—
—
The figures in brackets indicate the number of meetings held in the period in which the individual was a Board member.
There are seven scheduled Board meetings for 2014.
In relation to Lorne Weil, the Board considers that, notwithstanding the number of main Board meetings attended,
Lorne Weil’s vast experience and relationships within the gaming sector are valuable to the Group going forwards,
particularly in the strategically important North American market. Furthermore, he receives all materials to be presented
at such meetings and undertakes regular meetings with the Chairman and Chief Executive to ensure that he is able to
contribute to the Group.
Committees
The Committees of the Board are the Audit Committee, Remuneration Committee, the Nomination Committee and the
Independent Directors Committee. The terms of reference of the Audit, Remuneration and Nomination Committees are
available on request from the Company Secretary and are available on the corporate website, www.sportechplc.com/
investor_centre/corporate_governance. Management ensures that the Committees are provided with all the necessary
resources to enable them to undertake their duties in an effective and efficient manner. The Company Secretary or her
delegate acts as secretary to the Committees.
BOARD COMMITTEES
BOARD OF DIRECTORS
AUDIT
COMMITTEE
REMUNERATION
COMMITTEE
NOMINATION
COMMITTEE
INDEPENDENT
DIRECTORS COMMITTEE
David McKeith
Chairman
Peter Williams
Chairman
Roger Withers
Chairman
Peter Williams
Chairman
Peter Williams
David McKeith
David McKeith
David McKeith
Rich Roberts
Rich Roberts
Peter Williams
Rich Roberts
31
BUSINESS OVERVIEW CORPORATE GOVERNANCE STRATEGIC REPORT FINANCIAL STATEMENTSANNUAL REPORT AND ACCOUNTS 2013 SPORTECH PLC Corporate governance continued
Committees continued
The Audit Committee
Financial reporting
The primary role of the Committee in relation to financial
reporting is the review with both management and the
external auditor of the appropriateness of the half-year
and annual financial statements concentrating on,
amongst other matters:
consistency of the Annual Report as a whole and
ensuring it presents a fair, balanced and understandable
picture of the Company as well as providing shareholders
with the information necessary to assess the Company’s
performance, business model and strategy;
the quality and acceptability of accounting policies
and practices;
the clarity of the disclosures and compliance with
financial reporting standards and relevant financial
and governance reporting requirements;
material areas in which significant judgements have
been applied or there has been discussion with the
external auditors; and
any correspondence from regulators in relation to our
financial reporting.
To aid its review, the Committee considered internal
reports from the Chief Financial Officer, the Finance
Director – The Football Pools, the Group Financial
Controller and the external auditors on the outcomes
of their half-year review and annual audit.
The primary areas of judgement considered by
the Committee in relation to the 2013 financial
statements were:
the assumptions underlying impairment testing of the
Group’s goodwill and intangible assets, particularly in
relation to the Football Pools;
the assessment and disclosure of the going concern
concept; and
in relation to taxation, both the provisioning for
potential current tax liabilities and the appropriateness
of deferred tax asset recognition.
In order to be comfortable with the consistency, fairness
and accuracy of these financial statements the following
was undertaken in relation to these key areas of judgement:
detailed review and discussion of models used
for impairment testing and forecasts for going
concern reviews;
stressing of assumptions to understand impacts; and
scenario analysis.
The judgements in relation to asset impairment largely
relate to the assumptions (principally discount and
growth rates) underlying the calculation of the value in
use of the business being tested for impairment, primarily
Chairman and financial expert
David McKeith
Members
Peter Williams, John Barnes (until his resignation
on 3 December 2013), Rich Roberts (from
27 January 2014).
The Audit Committee of the Board comprises the
Independent Non-executive Directors and is currently
chaired by David McKeith, who is considered to have
recent, relevant financial experience. Biographies of the
members of the Audit Committee appear on page 25. The
Committee is scheduled to meet at least three times a
year. The Committee’s main responsibilities include
reviewing the Annual Report and Accounts and Interim
Report, including considering significant financial
reporting issues and judgements that they contain.
The Committee reviews, and challenges where necessary,
the consistency and changes to accounting policies,
methods used to account for significant and unusual
transactions, whether the Company has followed
appropriate accounting standards and the clarity of
disclosure in the Company’s financial statements.
Further to this, the Committee is delegated from the
Board the responsibility for review of the effectiveness
of internal controls, the Company’s whistleblowing
procedures and the need for an internal audit function
as well as the scope, extent and effectiveness of such
a function. The Chief Financial Officer and other Senior
Management are invited to attend the Committee
as appropriate.
32
CORPORATE GOVERNANCESPORTECH PLC ANNUAL REPORT AND ACCOUNTS 2013 Committees continued
The Audit Committee continued
the achievement of the long term business plan
underlying the valuation process. The Committee
addresses this matter through receiving regular updates
on the business plans and measurement against targets.
In addition the Committee considers findings of the work
of the auditors in this area.
External audit
The Committee is responsible for the relationship with
the external auditors. The Committee considers the nature
and extent of non-audit services provided by the auditors
in order to seek to balance the maintenance of objectivity,
access to applicable technical expertise and value for money.
To help avoid the objectivity and independence of the
external auditors becoming compromised, the Committee
has a formal policy governing the engagement of the
external auditor to provide non-audit services. This policy
precludes PricewaterhouseCoopers LLP from providing
certain services such as internal audit work or accounting
services. For all other services the Chief Financial Officer
must approve spend on discrete projects in excess of
£10,000 and secondary approval is required from the
Chairman of the Audit Committee for spend on projects
that are estimated will exceed £50,000 in fees. The
Committee is regularly updated on the spend to date with
the external auditors and also with other financial advisers.
The auditors are also subject to professional standards
that safeguard the integrity of their auditing role. The
Committee remains confident that the objectivity and
independence of the external auditors are not in any way
impaired by reason of the audit and non-audit services
which they provide to the Group. Moreover, the Committee
is satisfied that such work is best handled by them, either
because of their knowledge of the Group or because they
have been awarded it through a competitive tendering
process. In addition, the independence of the auditors
is safeguarded by the use of separate teams for individual
assignments such as acquisition due diligence and the
audit being subject to internal PricewaterhouseCoopers LLP
quality control procedures. A breakdown of non-audit
fees charged by the auditors is disclosed in note 5 in the
notes to the financial statements. A significant proportion
of the non-audit fees charged by the auditors in 2013 relates
to work undertaken in respect of ongoing issues in relation
to indirect taxes and in relation to advice on accounting and
tax treatment of the Spot the Ball VAT claim. It was
concluded by the Committee that it was in the interest
of the Company to purchase these services on a single
tender basis from PricewaterhouseCoopers LLP due to
the cumulative historical knowledge already gained, the
timing of the work, the tie-in to the financial statements
and confidentiality.
Effectiveness
The effectiveness of the external audit process is dependent
on appropriate audit risk identification and at the start of
the audit cycle we receive from PricewaterhouseCoopers LLP
a detailed audit plan (“Audit Strategy Memorandum”),
identifying their assessment of these key risks. For 2013
the significant risks identified were in relation to asset
impairment, management override of controls and revenue
recognition due to the inherent management judgement
required in these areas.
The Committee holds private meetings with the external
auditors at each meeting to provide additional opportunity
for open dialogue and feedback from the Committee and
the auditors without management being present. Matters
typically discussed include the auditors’ assessment
of business risks and management activity thereon,
the transparency and openness of interactions with
management, confirmation that there has been no restriction
in scope placed on them by management, independence
of their audit and how they have exercised professional
scepticism. The Chairman of the Audit Committee also
has regular discussions with the external audit partner
outside the formal committee process.
Appointment and re-appointment
The Committee considers the re-appointment of the
external auditors, including the rotation of the audit partner
each year, and also assesses their independence on an
ongoing basis. The external auditors are required to rotate
the audit partner responsible for the Group audit every five
years. The current lead audit partner has been in place now
for three financial year ends. PricewaterhouseCoopers LLP
have been the Company’s external auditors since 2000,
although a competitive tender process was conducted
in 2006. As part of the Committee’s review of the objectivity
and effectiveness of the audit process, an assessment was
made not to put the audit engagement out to tender in 2013.
The Committee will continue to assess the appropriate time
at which an audit tender process should be conducted
and continues to assess the effectiveness, independence
and value for money of PricewaterhouseCoopers LLP.
The Audit Committee provided the Board with its
recommendation to the shareholders on the re-appointment
of PricewaterhouseCoopers LLP as external auditors
for the year ending 31 December 2014 and as a result,
in accordance with Section 489 of the Companies Act
2006, a resolution proposing the re-appointment of
PricewaterhouseCoopers LLP as our auditors will be
put to the shareholders at the 2014 AGM. There are no
contractual obligations restricting the Committee’s choice
of external auditors and we do not indemnify our external
auditors. The Committee will keep the appointment of
the external auditors under annual review.
33
BUSINESS OVERVIEW CORPORATE GOVERNANCE STRATEGIC REPORT FINANCIAL STATEMENTSANNUAL REPORT AND ACCOUNTS 2013 SPORTECH PLC Corporate governance continued
Committees continued
The Audit Committee continued
Internal control and internal audit
The Board is responsible for the Group’s system of
internal control and for reviewing its effectiveness; this
responsibility has been delegated to the Audit Committee.
On this basis, there is an ongoing process for identifying,
evaluating and managing significant risks faced by the
Group. Such a system is designed to manage rather than
eliminate the risk of failure to achieve business objectives
and can only provide reasonable and not absolute assurance
against material misstatement or loss. Controls are
monitored by management review. Data consolidated
into the Group’s financial statements is reconciled to the
underlying financial systems. A review of the consolidated
data is undertaken by management to ensure that the true
position and results of the Group are reflected through
compliance with approved accounting policies and the
appropriate accounting for non-routine transactions.
The Group performs an annual strategy and budgeting
process and the Board approves the annual Group
budget as part of its normal responsibilities. The Group
results are reported monthly to the Board. A quarterly
forecasting regime is adhered to and revised forecasts
are produced for the Board whenever significant financial
trends are identified in the periods between the
quarterly assessments.
The Audit Committee reviews the effectiveness of the
internal control environment of the Group, excluding that
of the Group’s joint ventures. It receives reports from the
external auditors, which include recommendations for
improvement. The Audit Committee’s role in this area
is confined to a high-level review of the arrangements
for internal control. Significant risk issues are referred to
the Board for consideration. Risk registers are produced
and maintained at a divisional level and the significant
key risks relevant at a Group level selected from these
registers are presented to the Board. The principal risks
facing the Group and the mitigating actions taken by the
Board and management are included on pages 14 and 15
of the Strategic Report. The Group separately employs
an India-based accountant as a consultant who is
responsible for ensuring the integrity of results and
robustness of internal controls and procedures in the
Group’s joint venture. Similarly, as and when the
operations of the Group’s newly formed joint ventures
become material, resources will be deployed to ensure
integrity of results and that the Group’s high standard of
internal control is replicated.
To manage lower-level risks, a risk management programme
is in place, supported by a business control and risk
self-assessment process and a business continuity plan.
The risk management programme places responsibility
on managers to identify risks facing each business unit
and for implementing procedures to mitigate these risks.
The risk appraisal process has been reviewed by the
Board and accords with the Turnbull Guidance. The Audit
Committee and Board have reviewed the effectiveness
of the internal controls of the Group for the year ended
31 December 2013 and up to the date of approval of the
Annual Report and Accounts. This review covered financial,
operational, risk management and compliance controls.
The Group does not have an internal audit function. The
Audit Committee has considered the use of an internal
audit function during the year but considers that due to
the size and nature of the Group there is not a requirement
for such an internal function. The central Group Finance
function continues to undertake certain work of an
internal audit nature and reports findings to the Audit
Committee. During the year, the Audit Committee
determined that external internal auditors should
be engaged to perform a review over key business
cycles and controls. The firm engaged was Deloitte LLP,
who undertook the scope of work agreed and reported
their findings to the Committee. The Committee will
review the effectiveness and value of the work undertaken
and agree an ongoing internal audit strategy during the
coming months.
Whistleblowing policy
The Company is committed to providing a safe and
confidential avenue for all employees within the Group to
raise concerns about serious wrongdoings. The Company
also acknowledges the requirements of the UK Corporate
Governance Code in this regard, which states that the
Audit Committee should review arrangements by which
staff of the Group may, in confidence, raise concerns
about possible improprieties in matters of financial
reporting or other matters. Further to this, an appropriate
policy so as to encourage and enable staff to raise any such
concerns is in place and has been throughout the year.
David McKeith
Chairman of the Audit Committee
5 March 2014
34
CORPORATE GOVERNANCESPORTECH PLC ANNUAL REPORT AND ACCOUNTS 2013 Committees continued
The Remuneration Committee
The Remuneration Committee of the Board comprised
the three Independent Non-executive Directors, until
the resignation of John Barnes on 3 December 2013,
and is chaired by Peter Williams. Rich Roberts joined
the Committee from 27 January 2014. Biographies of
the members of the Remuneration Committee appear on
page 25. The purpose of the Committee is to ensure that the
remuneration of Executive Directors and Senior Executives,
together with their terms and conditions of employment,
is sufficient to recruit and retain individuals of the calibre
required to ensure profitable growth of the business. The
Remuneration Report is set out on pages 37 to 53.
The Nomination Committee
The Nomination Committee comprised the three Independent
Non-executive Directors, until the resignation of John Barnes
on 3 December 2013. It now comprises the three current
Independent Non-executive Directors and the Chairman of
the Board, who also now chairs this Committee. Biographies
of the members of the Nomination Committee appear on
pages 24 and 25.
The Committee’s main objectives are to lead the process
for any new appointments to the Board, whether Executive
or Non-executive, and make recommendations to the Board
in relation to the same, evaluate the balance of skills,
knowledge and experience on the Board, consider any
matters relating to the continuation in office of any Director
at any time, review Committee memberships and formulate
plans for succession. The Nomination Committee’s activities
are underpinned by the principle that all appointments
should be made on merit, against objective criteria and
with due regard to the benefits of diversity on the Board.
Accordingly, the Committee prepares a description of the
role and capabilities required for a particular appointment.
The Committee, in its recommendations to the
Board, acknowledges that diversity extends beyond the
boardroom and supports management in their efforts to
build a diverse organisation throughout the Group. Out of a
workforce of approximately 1,000 employees, 41% are female
and out of 15 members of Senior Management 14% are female.
The Committee endorses the Company’s policy to attract
and develop a highly qualified and diverse workforce; to
ensure that all selection decisions are based on merit and
that all recruitment activities are fair and non-discriminatory.
Although at present there are no female Board members,
the Committee acknowledges the importance of diversity,
including gender, to the effective functioning of the Board.
Furthermore, the Board acknowledges the recommendations
of the Davies Report, and supports the principle of improving,
in particular, gender imbalance, both at a board level and
throughout its businesses. Subject to securing suitable
candidates, when recruiting additional Directors and/or filling
vacancies that arise when Directors do not seek re-election,
we will seek to appoint new Directors who fit the skills criteria
and gender balance that is in line with the Company’s policy.
We continue to focus on encouraging diversity of business
skills and experience, recognising that Directors with diverse
skill sets, capabilities and experience gained from different
geographic and cultural backgrounds enhance the Board.
On 14 May 2013, Cliff Baty was appointed as Chief Financial
Officer and joined the Board. On 3 December 2013,
Rich Roberts joined the Board as Independent Non-executive
Director. During the recruitment process for both Cliff and
Rich, the Board utilised an executive search consultancy
(Odgers Berndtson) to ensure the Board appointed Directors
that have the skills criteria and industry experience that the
Board requires to meet the future growth of the Group.
Odgers Berndtson is a UK executive search firm, helping
private and public sector organisations find the highest calibre
people for permanent and interim management appointments
in the UK and internationally. Odgers Berndtson is considered
independent of the Group.
The Independent Directors Committee
The Independent Directors Committee comprised the three
Independent Non-executive Directors until John Barnes’
resignation and is chaired by Peter Williams. The Committee
now comprises Peter Williams and David McKeith only and is
responsible for dealing with matters where conflicts of interest
might arise due to the Board’s previous composition and
shareholder representation. The Committee met on two
occasions during the year.
Investor relations
There is regular dialogue with shareholders through a planned
programme of investor relations which includes formal
presentations of the Group’s results by the Chief Executive
and Chief Financial Officer. Meetings also take place with
institutional investors and analysts on a regular basis and there
is regular communication with shareholders through the Annual
and Interim Reports and Sportech’s corporate website (www.
sportechplc.com). They are also available at other times, outside
close periods, to enter into dialogue with these shareholders. All
shareholders have the opportunity to question the Board at the
AGM both formally and informally. The Non-executive Directors
have taken steps to develop an understanding of the views
of the major shareholders about the Company through
face-to-face contact and analyst and broker briefings.
All resolutions at the 2013 AGM were voted by way of a
manual poll. This follows best practice and allows the
Company to count all votes rather than just those of
shareholders attending the meeting. As recommended by
the Code, all resolutions were voted separately and the
voting results, which included all votes cast for, against and
those withheld, together with all proxies lodged prior to the
meeting, were indicated at the meeting and the final results
were released to the London Stock Exchange as soon as
practicable after the meeting. The announcement was also
made available on the Company’s corporate website. As in
previous years, the proxy form and the announcement of
the voting results made it clear that a ‘vote withheld’ is not
a vote in law and will not be counted in the calculation of
the proportion of the votes for or against the resolution.
By order of the Board
Luisa Wright
Company Secretary
5 March 2014
35
BUSINESS OVERVIEW CORPORATE GOVERNANCE STRATEGIC REPORT FINANCIAL STATEMENTSANNUAL REPORT AND ACCOUNTS 2013 SPORTECH PLC Report of the Remuneration Committee
Letter from the Remuneration Committee Chairman
Executive, 35% of the entitlement for the Chief Financial
Officer and 21% of the entitlement for the Chief
Operating Officer, Consumer Facing Business.
Two-thirds of the Performance Share Plan (“PSP”)
awards granted in 2010 vested in the year under review.
The elements vesting were subject to absolute and
relative TSR performance with the performance period
ending in October 2013 with these elements vesting in
full. This was the result of a three-year growth in TSR
of 127% which exceeded the absolute growth targets
and ranked the company above the upper quartile in
relative terms. One-third of these awards vested based
on EPS growth over the three-year period ending
31 December 2012 with this element of the awards
vesting at 62.0% of the maximum based on EPS
growth of 11.35% p.a. over three financial years.
One-third of the PSP awards granted in 2011 will vest
subject to an earnings per share (“EPS”) performance
measure ending 31 December 2013. This part of the
awards is expected to vest at 47.5%, subject to the
Committee’s approval, based on EPS growth of 9.45%
p.a. over three financial years. The remaining two-thirds
of the 2011 awards vests based on relative and absolute
TSR performance which will be measured over
a three-year period ending November 2014.
The Committee has reviewed the variable incentive
payouts based on the financial period ended
31 December 2013 and is satisfied that the reward
reflects the performance delivered.
Policy for 2014
The Committee has reviewed the remuneration policy in
line with the current business strategy and considers it to
remain fit for purpose. As such, no material changes have
been proposed for 2014 and beyond, save that the fees
for the Chairman and Non-executive Directors have
been increased.
Shareholder feedback
The Committee has not proposed any significant
changes to the remuneration policy for 2013 or 2014
that necessitated any direct consultations with
shareholders during the year. However, the Committee
welcomes any feedback on this Report and the
remuneration policy in general and hopes for your
continued support at the AGM.
Peter Williams
Senior Independent Non-executive
Director and Chairman of the
Remuneration Committee
5 March 2014
Dear shareholder
I am pleased to present the Remuneration Report
(the “Report”) for the year ended 31 December 2013.
This Report sets out the remuneration paid to Directors
over the year under review and details the remuneration
policy for the forthcoming year. The Committee has now
adopted the finalised reporting regulation guidance and
has sought to achieve transparency and clarity for
shareholders in this report.
The Directors on the Remuneration Committee (the
“Committee”) are mindful of balancing the increased
focus and guidance from stakeholders on remuneration
issues with the need of the Company to attract and
retain the best available talent. The Committee is
comfortable that in 2013 it achieved an appropriate
balance in this regard. More generally, the Committee
believes that the policy outlined in this Report achieves
its overriding objectives of establishing a stable
remuneration policy going forward, enabling the
recruitment, retention and motivation of a talented
Executive Management team that is fully incentivised
to maximise shareholder value and capable of taking
the business forward through its next phase of
strategic development.
In addition, given that the package has a substantial
weighting towards long term performance, the Committee
is comfortable that the current arrangements do not
inadvertently encourage undue risk taking and that its
policy motivates behaviours that are in the long term
interests of the Company and its shareholders.
In determining remuneration levels, the Committee has
taken account of market conditions, the performance of
the Company, responsibility to shareholders and good
corporate governance. Accordingly, basic salaries of
Executive Directors for 2014 have increased by 2%, with
no increases taking place in the other elements of
remuneration vis-à-vis 2013.
Performance and reward in relation to 2013
The bonus payments for 2013, based on the Group and
operating divisions achieving an EBITDA result in line
with the target level of performance set (which took into
account market forecasts as reported at the start of
2013) and individually tailored strategically important
objectives, were 40% of the entitlement for the Chief
36
CORPORATE GOVERNANCESPORTECH PLC ANNUAL REPORT AND ACCOUNTS 2013 Remuneration report
for the year ended 31 December 2013
This Report has been prepared in accordance with
the Large and Medium-Sized Companies and Groups
(Accounts & Reports) (Amendment) Regulations 2013
(the “Regulations”).
The Directors’ Remuneration Policy Report will be subject
to a binding shareholder vote at the AGM with an effective
date of 13 May 2014 and will apply for the three-year period
thereafter. In practice the policy detailed in the report will
operate for the entire current financial year. The Annual
Report on Remuneration will be subject to an advisory
shareholder vote at the AGM. This Report is intended to be
in full compliance with the requirements of the Regulations
and the UK Corporate Governance Code 2012 issued by
the Financial Reporting Council (the “Code”).
PricewaterhouseCoopers LLP has audited the contents of
the Report to the extent required by the Regulations.
Directors’ Remuneration Policy
The Committee’s key objectives are to: (i) establish a
competitive remuneration policy for the Executive
Directors; and (ii) align Senior Executives’ remuneration
with the interests of shareholders and other stakeholders,
including customers and employees.
In connection with this, the Committee aims to ensure that
the remuneration packages offered to Executive Directors
and Senior Executives:
are competitive and attract, retain and motivate
Executives of the right calibre;
reflect their responsibility and experience within
the business;
incorporate a significant element of performance related
pay linked to the achievement of challenging performance
criteria that are aligned with the Group’s strategy and
increased shareholder value but remain appropriate given
the Group’s risk profile;
provide a total remuneration offering at ‘target’ levels of
performance that is competitive in the relevant market;
incentivise performance beyond ‘target’ levels, to be
achieved by offering a significant proportion of remuneration
to be delivered through incentive related pay;
create a strong alignment between the interests of Senior
Management and the sustained delivery of shareholder value;
take due account/full consideration of the principles set
out in the Code;
take due account of pay and employment conditions
elsewhere in the Group;
provide the foundation for overall reward and remuneration
structures at Senior Management levels; and
provide an appropriate balance between
non-performance related and performance related pay.
The Committee reviews the remuneration policy and
in particular performance related pay scheme structures
on an annual basis to ensure that they continue to operate
within the agreed risk framework of the Group. The
Committee also ensures that an effective system of
control and risk management is in place with regards
to remuneration, which includes access to the Audit
Committee to discuss matters of operational and financial
risk. The Committee is satisfied that the current policy
does not encourage or reward for undue risk taking.
The Committee ensures that performance related
pay structures will not raise environmental, social or
governance (“ESG”) risks by inadvertently motivating
irresponsible behaviour. More generally, with regard to
the overall remuneration structure, there is no restriction
on the Committee which prevents it from taking into
account corporate governance on ESG matters.
The policy, in relation to subsequent years, will be kept under
review to ensure that it reflects any changing circumstances.
Remuneration for Executive Directors
The main component parts of the remuneration packages
for Executive Directors are detailed in the table on pages
38 to 41, which should be read in conjunction with the
recruitment/promotion policy on page 44, and the
‘Detailed remuneration policy for 2014’ section of the
Annual Report on Remuneration, which starts on page 45.
37
BUSINESS OVERVIEW CORPORATE GOVERNANCE STRATEGIC REPORT FINANCIAL STATEMENTSANNUAL REPORT AND ACCOUNTS 2013 SPORTECH PLC Remuneration report continued
for the year ended 31 December 2013
Directors’ Remuneration Policy continued
Remuneration for Executive Directors continued
Poilcy table
Remuneration element and purpose
Operation
Opportunity
Performance metrics
Base salary
To attract and retain key individuals.
Reflects the relevant skills and experience in role.
Salaries are set on 1 January each year and reviewed
annually against performance, experience,
responsibilities, relevant market information and the
level of workforce pay increases.
A broad-based assessment of individual and Company
performance is considered as part of any salary review.
Pension
To provide cost-effective, yet market competitive,
retirement benefits.
Contribution to a personal pension arrangement or
cash in lieu of pension by way of a salary supplement.
8% of salary for Executive Directors. Only basic annual
Not applicable.
salary is pensionable.
Benefits
To provide cost-effective, yet market competitive, benefits.
A car allowance for certain Executive Directors, private
health insurance and life insurance cover.
The Committee may offer Executive Directors other
employee benefits on broadly similar terms to those
of the wider workforce.
Annual bonus plan
To motivate Executive Directors and incentivise the
achievement of key financial and strategic goals and
targets over the financial year.
Bonus is paid wholly in cash.
Based on the achievement of performance metrics
with a sliding scale from a threshold to maximum level
of performance.
Clawback may be applied in the event of material
misconduct and/or an error in the calculation of the
bonus payable.
38
The salaries set for 1 January 2014 are:
CEO – £385,000
CFO – £245,000
COO, Consumer Facing Business – £256,000
Annual increases will usually be commensurate with those
of the wider workforce.
If there are significant changes in responsibility or a
change in scope, increases may exceed this level.
New joiners, where pay is initially set below market levels,
may experience larger increases as their salary is
progressed towards the market rate, based on their
development in the role.
Car allowance of £16,000 for the Chief Executive and
Not applicable.
£12,300 for the Chief Operating Officer, Consumer
Facing Business.
Family cover private health insurance.
Life insurance cover of four times salary.
The value of insured benefits may vary from year to year
based on the third-party costs of supplying the benefits.
Where Executive Directors are recruited from overseas,
benefits more tailored to their geographical location may
be provided.
Maximum bonus potential is 100% of salary for the
The majority of the bonus will be based on financial
Chief Executive and 75% of salary for other Directors.
measures such as EBITDA targeted performance of the
The Committee, in its discretion, acting fairly and
reasonably, may alter the bonus outcome (upwards or
downwards) if it feels that the payout is inconsistent with
the Company’s overall performance and events taking
place during the year along with any other factors it
Group (and operating divisions as appropriate), which
takes into account market forecasts, and a minority of
the bonus will be based on Group strategic objectives
and/or personal objectives tailored to the achievement
of the Group strategic goals.
considers relevant. The Committee will consult with the
The proportion of the maximum bonus that may
Company’s major shareholders before any exercise of its
become payable at the threshold performance level
discretion to increase the bonus outcome and will explain
where financial targets are set will be 0% of that part
the use of any such discretion in the relevant Annual
of the bonus. Bonuses above this level are earned on
Report on Remuneration.
a graduated basis to the maximum performance level.
Where strategic targets are set, it is not always
practicable to operate targets that can be assessed
using a graduated scale.
The performance measures used for the 2013 annual
bonus and those proposed for 2014 are described in the
Annual Report on Remuneration starting on page 45.
CORPORATE GOVERNANCESPORTECH PLC ANNUAL REPORT AND ACCOUNTS 2013 Directors’ Remuneration Policy continued
Remuneration for Executive Directors continued
Poilcy table
Base salary
To attract and retain key individuals.
Salaries are set on 1 January each year and reviewed
annually against performance, experience,
responsibilities, relevant market information and the
Reflects the relevant skills and experience in role.
level of workforce pay increases.
To provide cost-effective, yet market competitive,
retirement benefits.
Pension
Benefits
To provide cost-effective, yet market competitive, benefits.
A car allowance for certain Executive Directors, private
health insurance and life insurance cover.
The Committee may offer Executive Directors other
employee benefits on broadly similar terms to those
of the wider workforce.
Annual bonus plan
Bonus is paid wholly in cash.
To motivate Executive Directors and incentivise the
achievement of key financial and strategic goals and
Based on the achievement of performance metrics
with a sliding scale from a threshold to maximum level
targets over the financial year.
of performance.
Clawback may be applied in the event of material
misconduct and/or an error in the calculation of the
bonus payable.
Remuneration element and purpose
Operation
Opportunity
Performance metrics
A broad-based assessment of individual and Company
performance is considered as part of any salary review.
The salaries set for 1 January 2014 are:
CEO – £385,000
COO, Consumer Facing Business – £256,000
CFO – £245,000
Annual increases will usually be commensurate with those
of the wider workforce.
If there are significant changes in responsibility or a
change in scope, increases may exceed this level.
New joiners, where pay is initially set below market levels,
may experience larger increases as their salary is
progressed towards the market rate, based on their
development in the role.
Contribution to a personal pension arrangement or
cash in lieu of pension by way of a salary supplement.
8% of salary for Executive Directors. Only basic annual
Not applicable.
salary is pensionable.
Car allowance of £16,000 for the Chief Executive and
£12,300 for the Chief Operating Officer, Consumer
Facing Business.
Not applicable.
Family cover private health insurance.
Life insurance cover of four times salary.
The value of insured benefits may vary from year to year
based on the third-party costs of supplying the benefits.
Where Executive Directors are recruited from overseas,
benefits more tailored to their geographical location may
be provided.
Maximum bonus potential is 100% of salary for the
Chief Executive and 75% of salary for other Directors.
The Committee, in its discretion, acting fairly and
reasonably, may alter the bonus outcome (upwards or
downwards) if it feels that the payout is inconsistent with
the Company’s overall performance and events taking
place during the year along with any other factors it
considers relevant. The Committee will consult with the
Company’s major shareholders before any exercise of its
discretion to increase the bonus outcome and will explain
the use of any such discretion in the relevant Annual
Report on Remuneration.
The majority of the bonus will be based on financial
measures such as EBITDA targeted performance of the
Group (and operating divisions as appropriate), which
takes into account market forecasts, and a minority of
the bonus will be based on Group strategic objectives
and/or personal objectives tailored to the achievement
of the Group strategic goals.
The proportion of the maximum bonus that may
become payable at the threshold performance level
where financial targets are set will be 0% of that part
of the bonus. Bonuses above this level are earned on
a graduated basis to the maximum performance level.
Where strategic targets are set, it is not always
practicable to operate targets that can be assessed
using a graduated scale.
The performance measures used for the 2013 annual
bonus and those proposed for 2014 are described in the
Annual Report on Remuneration starting on page 45.
39
BUSINESS OVERVIEW CORPORATE GOVERNANCE STRATEGIC REPORT FINANCIAL STATEMENTSANNUAL REPORT AND ACCOUNTS 2013 SPORTECH PLC Remuneration report continued
for the year ended 31 December 2013
Directors’ Remuneration Policy continued
Remuneration for Executive Directors continued
Poilcy table continued
Remuneration element and purpose
Operation
Opportunity
Performance metrics
Long term incentive plan
To motivate Executive Directors and incentivise delivery
of performance over the long term.
Annual awards of performance share awards which
vest subject to performance after three years.
Directors may be entitled to dividends which accrue
Performance share awards of up to 100% of salary can be
Awards will be granted subject to a combination
granted for a normal annual grant, with up to 200% of
of relative TSR and financial measures (such as EPS)
salary used in exceptional circumstances.
over a three-year period.
To encourage greater shareholder alignment by rewarding
TSR outperformance.
To facilitate share ownership.
on vested awards.
The policy is to grant awards of up to 100% of salary
The Committee will review the appropriateness of the
for Directors.
performance conditions on an annual basis and may make
changes to the weightings or introduce new measures
which are aligned to the Company strategy at that time.
A minority (25%) of the award will vest for threshold
levels of performance, rising on a straight-line basis
to full vesting for outperformance.
The performance measures used for the 2013 PSP
award and those proposed for the 2014 PSP award
are described in the Annual Report on Remuneration.
All Employee Share Plans
To promote wider employee share ownership.
All employees (including Executive Directors) may be
invited periodically to participate in a Company
Sharesave plan.
Participants would have the right to commit to a
savings contract whereby the proceeds can be used
towards the exercise of an option granted at the time
they participate. The exercise price can be discounted
by up to 20% of the share price on grant.
Monthly savings limits are based on HMRC rules which
Not applicable.
currently limit monthly savings towards share purchases
under three-year savings contracts to £250 per calendar
month, increasing to £500 from tax year 2014/2015.
Executive share ownership
To align Executive Directors’ and shareholders’ interests.
All Executive Directors are expected to hold an
investment of at least 100% of base salary in the
Company, using 50% of net awards under the
Company’s LTIPs to achieve the shareholdings,
if required.
100% of salary for all Executive Directors.
Not applicable.
Non-executive fees
To attract and retain high-calibre Non-executive Directors.
To set remuneration by reference to the responsibilities
and time commitment undertaken by each
Non-executive Director.
Fee levels are reviewed on a regular basis and are set
based on expected time commitments, responsibilities
and in context of the fee levels in companies of a
comparable size and complexity, and reflecting the
onerous obligations of international racing regimes.
The Non-executive Chairman’s fee is £120,000 per annum.
Not applicable.
UK-based Non-executive fees are set at £47,500 with an
additional £5,000 for each committee sat on (maximum
of two). A set fee of $100,000 per annum is paid as a
US-based Non-executive fee.
Any increase in fees may be above those of the wider
workforce (in percentage terms) in any particular year,
reflecting the periodic nature of any review and changes
to time commitments and/or responsibilities.
40
CORPORATE GOVERNANCESPORTECH PLC ANNUAL REPORT AND ACCOUNTS 2013 Remuneration element and purpose
Operation
Opportunity
Performance metrics
Performance share awards of up to 100% of salary can be
granted for a normal annual grant, with up to 200% of
salary used in exceptional circumstances.
Awards will be granted subject to a combination
of relative TSR and financial measures (such as EPS)
over a three-year period.
The policy is to grant awards of up to 100% of salary
for Directors.
The Committee will review the appropriateness of the
performance conditions on an annual basis and may make
changes to the weightings or introduce new measures
which are aligned to the Company strategy at that time.
A minority (25%) of the award will vest for threshold
levels of performance, rising on a straight-line basis
to full vesting for outperformance.
The performance measures used for the 2013 PSP
award and those proposed for the 2014 PSP award
are described in the Annual Report on Remuneration.
Monthly savings limits are based on HMRC rules which
Not applicable.
currently limit monthly savings towards share purchases
under three-year savings contracts to £250 per calendar
month, increasing to £500 from tax year 2014/2015.
Directors’ Remuneration Policy continued
Remuneration for Executive Directors continued
Poilcy table continued
Long term incentive plan
To motivate Executive Directors and incentivise delivery
of performance over the long term.
To encourage greater shareholder alignment by rewarding
Annual awards of performance share awards which
vest subject to performance after three years.
Directors may be entitled to dividends which accrue
on vested awards.
TSR outperformance.
To facilitate share ownership.
All Employee Share Plans
To promote wider employee share ownership.
All employees (including Executive Directors) may be
invited periodically to participate in a Company
Sharesave plan.
Participants would have the right to commit to a
savings contract whereby the proceeds can be used
towards the exercise of an option granted at the time
they participate. The exercise price can be discounted
by up to 20% of the share price on grant.
Executive share ownership
To align Executive Directors’ and shareholders’ interests.
All Executive Directors are expected to hold an
investment of at least 100% of base salary in the
Company, using 50% of net awards under the
Company’s LTIPs to achieve the shareholdings,
if required.
100% of salary for all Executive Directors.
Not applicable.
Non-executive fees
To attract and retain high-calibre Non-executive Directors.
To set remuneration by reference to the responsibilities
and time commitment undertaken by each
Non-executive Director.
Fee levels are reviewed on a regular basis and are set
based on expected time commitments, responsibilities
and in context of the fee levels in companies of a
comparable size and complexity, and reflecting the
onerous obligations of international racing regimes.
The Non-executive Chairman’s fee is £120,000 per annum.
Not applicable.
UK-based Non-executive fees are set at £47,500 with an
additional £5,000 for each committee sat on (maximum
of two). A set fee of $100,000 per annum is paid as a
US-based Non-executive fee.
Any increase in fees may be above those of the wider
workforce (in percentage terms) in any particular year,
reflecting the periodic nature of any review and changes
to time commitments and/or responsibilities.
41
BUSINESS OVERVIEW CORPORATE GOVERNANCE STRATEGIC REPORT FINANCIAL STATEMENTSANNUAL REPORT AND ACCOUNTS 2013 SPORTECH PLC Remuneration report continued
for the year ended 31 December 2013
Directors’ Remuneration Policy continued
Remuneration for Executive Directors continued
The Committee operates the annual bonus plan and long
term incentive plans according to their respective rules
and consistent with normal market practice, the Listing
Rules and HMRC rules where relevant, including flexibility
in a number of regards. These include:
timing of awards and payments;
the size of an award (within the limits noted in the
table above), and when and how much should vest;
who receives an award or payment;
dealing with a change of control or restructuring
of the Group;
determining whether a participant is a good/bad leaver
for incentive plan purposes and whether and what
proportion of awards vest;
any adjustments required to awards in certain
circumstances (e.g. rights issues, corporate restructuring,
events and special dividends); and
the weightings, measures and targets for the annual
bonus plan and LTIP from year to year.
The Committee retains the discretion to adjust the targets
and/or set different measures and alter weightings for the
annual bonus plan and to adjust targets for the LTIP if
events occur (e.g. a major acquisition or disposal) which
cause it to determine that the conditions are unable to
fulfil their original intended purpose and the change would
not be materially less difficult to satisfy.
Illustration of policy application
£1,203k
32%
32%
£722k
13%
27%
£433k
Long term share awards
Annual bonus (cash)
Total fixed pay
£673k
28%
29%
£645k
28%
29%
£415k
11%
22%
£278k
£433k
11%
22%
£289k
100%
60%
36%
100%
67%
43%
100%
67%
43%
s
0
0
0
£
1,200
1,000
800
600
400
200
0
Minimum
Target
Maximum
Minimum
Target
Maximum
Minimum
Target
Maximum
Ian Penrose
Ian Hogg
Cliff Baty
The relative proportions of fixed and performance related remuneration for the Executive Directors, based on the
remuneration policy, is shown below based on three performance scenarios: minimum, target and maximum.
1. Minimum = fixed pay only (base salary, benefits and pension);
2. Target = 50% of annual bonus and 25% vesting of the PSP awards; and
3. Maximum = 100% of annual bonus payable and 100% vesting of the PSP awards.
Salary levels are based on those applying on 1 January 2014.
The value of taxable benefits is the estimated cost of supplying those benefits (using the cost for the year ended
31 December 2013 as a proxy).
The pension value is based on an 8% of salary contribution/supplement.
Amounts have been rounded to the nearest £1,000. Share price growth has been ignored.
42
CORPORATE GOVERNANCESPORTECH PLC ANNUAL REPORT AND ACCOUNTS 2013 Directors’ Remuneration Policy continued
Existing awards
The Committee intends to honour any commitments,
including outstanding PSP awards, on the terms applicable
at the time each such commitment was made. The relevant
outstanding awards are described in more detail on page 49.
Policy on contracts of service
All Directors have rolling contracts with notice periods
of no more than twelve months.
Roger Withers
Ian Penrose
Cliff Baty
Ian Hogg
Peter Williams
John Barnes *
David McKeith
Rich Roberts
Lorne Weil
Mor Weizer **
Date of
appointment
07.02.11
01.10.05
14.05.13
05.10.10
07.02.11
11.11.05
25.08.11
03.12.13
05.10.10
23.03.11
Notice period
3 months
12 months
12 months
12 months
3 months
3 months
3 months
3 months
3 months
3 months
* John Barnes resigned on 3 December 2013.
** Mor Weizer resigned on 20 June 2013.
Copies are available for inspection on request to the
Company Secretary.
It is the Committee’s policy for the notice periods of
Executive Directors to be twelve months or less.
In the event of termination, the Committee’s policy is
that payments on termination should reflect the specific
circumstances prevailing. In general it would be the
Committee’s policy to make a payment in lieu of notice
where necessary, limited to base salary and benefits. To the
extent that an individual might otherwise seek to bring a
claim against the Company in relation to the termination
of their employment (e.g. for breach of contract or unfair
dismissal), the Committee retains the right to make an
appropriate payment in settlement of such potential or
actual claims. Payments in connection with any statutory
entitlements (e.g. in relation to redundancy) may be made as
required. In connection with the foregoing, the Committee
reserves the right to award to an Executive Director a bonus
in respect of the period of the year in which notice of
termination had not been served (and, in certain exceptional
circumstances, in respect of any period following receipt of
notice of resignation) that the individual remained in
employment, subject to the appropriate performance
measures being achieved. The determination of any share
incentive vesting would be subject to the rules of the
relevant plan, but in general where an individual is a good
leaver (death, injury or disability, retirement, redundancy
transfer of business outside of the Group and any other
reason the Committee decides) their awards would vest on
the cessation date, unless the Committee decides the award
should continue to the original vesting date and remain
subject to the appropriate performance measures being
achieved and time pro rating (unless the Committee decides
it is inappropriate to apply time pro rating).
The Committee would intend to apply the above policy
for any new appointment, which may include the ability
to make phased payments with mitigation.
The Non-executive Directors have letters of appointment
which provide for notice by either party giving to the other
not less than three months’ notice in writing. The Company
may also terminate by making a payment in lieu of notice.
None of the employment contracts of the Directors
contain special contractual termination provisions.
Policy on external appointments
Sportech PLC recognises that its Directors are likely
to be invited to become Non-executive Directors of
other companies and that such exposure can broaden
experience and knowledge, which will benefit the
Company. Executive Directors are therefore allowed to
accept Non-executive appointments and retain any fees
earned, with the Board’s prior permission, as long as these
are not likely to lead to conflicts of interest. In this regard,
Ian Penrose is a Trustee of the National Football Museum,
a registered charity, and he receives no remuneration in
respect of this appointment.
Other employees’ pay
The Committee did not consult with employees directly
on matters of Executive remuneration. However, the
Committee is aware of the disconnect which can be
created if Executive Director remuneration is set in
isolation and therefore is updated during the year with
details of the pay and employment conditions in the wider
workforce. In particular the Committee is made aware of
general salary increases, general benefit provision and the
proposed level of annual bonuses. The Committee is also
responsible for reviewing the participants of the LTIPs
and participation levels in the all-employee plans.
Base salary increases across the Group were in the range
of 0% to 2.0% for 2014, reflecting the RPI prevailing in the
country in which the individual is employed. The Executive
Directors are employed in the UK and therefore their
increase of 2.0% is consistent with the general pay award
for UK-based employees.
Remuneration policy across the Group
The remuneration policy described in this Report is
broadly consistent with the policy used for other Senior
Executives of the Company. A significant proportion of
remuneration remains performance related, although
lower quantums will operate.
The majority of employees will participate in annual bonus
schemes, although the limits and performance metrics will
vary according to the seniority and location of the role.
Participation in the LTIPs is targeted at Senior
Management and key staff, to align employees’ interests
with those of shareholders.
The majority of new employees are eligible to join a
defined contribution pension plan.
43
BUSINESS OVERVIEW CORPORATE GOVERNANCE STRATEGIC REPORT FINANCIAL STATEMENTSANNUAL REPORT AND ACCOUNTS 2013 SPORTECH PLC Remuneration report continued
for the year ended 31 December 2013
Directors’ Remuneration Policy continued
Policy on Executive Director recruitments/promotions
In relation to an external executive recruitment or an internal promotion the Committee will follow the principles
outlined in the table below:
Element of remuneration
Policy
Base salary
Salary levels will be set based on:
the particular experience, knowledge and skill of the individual;
market rates for comparable positions in companies of a similar size and complexity; and
internal Company relativities.
Where considered appropriate the Committee may wish to set the initial salary below
the perceived market rate (e.g. to reflect an individual’s limited experience at a PLC
board level) but with the view to make phased increases, potentially above those of
the wider workforce as a percentage of salary, to achieve the desired market
positioning over time. Any increases would be subject to the individual’s continued
development and performance in the role.
Benefits
A new appointment would be offered the same benefits package (or equivalent in line
with local market practice) as that provided to current Executive Directors.
Where considered necessary, the Committee may be required to pay certain
relocation expenses, legal fees and other costs incurred by the individual in relation
to their appointment.
A defined contribution or cash supplement (or equivalent in line with local market
practice) at the level provided to current Executive Directors may be provided.
The Committee would envisage the annual bonus for any new appointment operating
as set out in the Policy Table for current Executive Directors. The annual bonus
maximum would be limited to that of the current Chief Executive.
However, the Committee may consider it necessary (depending on timing and the
nature of the appointment) to set different tailored performance measures for the
initial bonus year.
Ongoing LTIP awards will be made on the same terms as current Executives,
albeit possibly with different performance periods depending on the timing of the
appointment. The maximum ongoing award will be no higher than that of the current
Chief Executive. An award may be made shortly after an appointment.
For internal promotions, existing awards will continue over their original vesting period
and remain subject to their terms as at the date of grant.
A new appointment would be eligible to participate in the Sharesave Plan under the
same terms as all other employees.
To facilitate an external recruitment, it may be necessary to buy out remuneration
which would be forfeited on the appointee leaving their previous employer. When
determining the quantum and structure of any buy-out awards the Committee will,
where possible, use a consistent basis, taking into account the form of remuneration
(cash or shares), timing horizons and the application of any performance criteria.
Buy-out awards, if used, will be granted using the Company’s existing share plans
to the extent possible, although awards may also be granted outside of these schemes
if necessary and as permitted under the Listing Rules.
Pension
Annual bonus
Long term incentives
Buy-out awards
44
CORPORATE GOVERNANCESPORTECH PLC ANNUAL REPORT AND ACCOUNTS 2013 Directors’ Remuneration Policy continued
Shareholder engagement
The Committee considers an open and constructive
dialogue with investors to be vitally important to
establishing a successful remuneration policy which is
considered fair by both Executives and shareholders.
Therefore, the Committee will consult with major investors
whenever material changes to the policy are proposed.
The Committee also welcomes investor feedback and will
consider views raised at the AGM and regular meetings
throughout the year when establishing the overall policy.
Annual Report on Remuneration
The Committee’s Terms of Reference are available from
the Company Secretary and can be found on the
Company’s website at www.sportechplc.com/investor_
centre/corporate_governance/remuneration_committee_
terms_of_reference.
The Committee met six times during the year and the
following key activities have been undertaken:
review of best practice;
approval and grant of annual awards under the PSP in the
year under review;
review of the PSP performance conditions and approval
to retain both challenging financial growth conditions
and Total Shareholder Return (“TSR”) conditions. For
2013, the weighting on each performance metric was
changed so that vesting will take place based on relative
TSR performance and EPS growth (i.e. absolute TSR
performance is no longer to be retained as a long term
performance metric), as described on pages 50 and 51.
This basis is to be kept for the 2014 issue;
in February 2014, approval of bonus awards, paid out in
line with the 2013 bonus policy and approval of bonus
policy for 2014;
review of the Chairman’s remuneration;
review of base salaries for the Executive team; and
review and approval of terms of employment for Cliff Baty.
The Committee’s recommendations in 2013 and early 2014
were all accepted and implemented by the Board.
Compliance with best practice
During 2013, the Committee has, with the assistance of its
independent remuneration consultants, New Bridge Street
(“NBS”) (a trading name of Aon Plc), reviewed its practices
and policies to ensure they are in line with what it perceives
to be best practice and the Company’s strategic objectives.
The Committee continues to be committed to the principles
of good governance as set out in the Code.
Composition of the Remuneration Committee
The Committee currently consists of Peter Williams
(Chairman), David McKeith and Rich Roberts, who are
all Independent Non-executive Directors. John Barnes
was a member of the Committee until his resignation
on 3 December 2013. Rich Roberts was appointed as
a member of the Committee on 27 January 2014. None
of the Committee has any personal financial interest
(other than as a shareholder), conflicts of interest from
cross-Directorships or day-to-day involvement in the
running of the business.
Peter Williams became Chairman of the Committee in
April 2011, taking over from John Barnes. The Chief
Executive and Chairman are invited to attend meetings
although neither is present when matters affecting his own
remuneration are discussed. The Company Secretary acts
as secretary to the Committee.
The Committee retains independent remuneration
consultants, NBS, to advise on all aspects of Executive
remuneration. NBS is a member of the Remuneration
Consultants Group and has signed up to its Code of
Conduct. NBS has no connection with Sportech other
than in the provision of advice on Executive remuneration.
The terms of engagement with NBS are available from
the Company Secretary on request. The fees of the
independent remuneration consultants in relation to the
services provided by them to the Company during the
financial year were £64,415, of which £33,000 related
to advice to the Company on the implementation and
administration of share incentive schemes.
The Committee reviews its relationships with external
advisers on a regular basis and believes that no conflicts
of interest exist.
Detailed remuneration policy for 2014
Basic annual salary
Each Executive Director’s basic salary is reviewed
and determined by the Committee annually, taking into
account the individual’s performance and experience.
The Committee also makes use of independent benchmark
data provided by external remuneration consultants,
takes due account of market median data in separate
comparator groups based on sector, size and complexity,
and is aware of the level of salary increases awarded to
other employees within the Group.
Ian Penrose, Chief Executive, was awarded a salary
increase of 2%, which is consistent with the general pay
award for all UK-based employees. He is paid a salary of
£385,000 per annum with effect from 1 January 2014.
Cliff Baty, Chief Financial Officer, is paid a salary of
£245,000 per annum with effect from 1 January 2014, an
increase of 2%, which is consistent with the general pay
award for all UK-based employees.
Ian Hogg, Chief Operating Officer, Consumer Facing
Business, is paid a salary of £256,000 per annum with effect
from 1 January 2014, an increase of 2%, which is consistent
with the general pay award for all UK-based employees.
Performance related bonus
The maximum bonus potential for the Chief Executive for
2014 is 100% of basic salary and for the Chief Operating
Officer, Consumer Facing Business and Chief Financial
Officer is 75% of basic salary.
For each Executive Director, their performance related
bonus is based on the EBITDA performance of the Group
(and operating divisions as appropriate), delivering on
45
BUSINESS OVERVIEW CORPORATE GOVERNANCE STRATEGIC REPORT FINANCIAL STATEMENTSANNUAL REPORT AND ACCOUNTS 2013 SPORTECH PLC Remuneration report continued
for the year ended 31 December 2013
Annual Report on Remuneration continued
Detailed remuneration policy for 2014 continued
Performance related bonus continued
Group strategic objectives and meeting personal targets.
The EBITDA-based proportion of the bonus, which
represents 70% of each Director’s bonus entitlement, is
operated with a range set around a budgeted EBITDA figure
(taking into account City forecasts). Strategic and personal
objectives include continuing to develop our multiple
business interests in Connecticut and California, rolling out
our racing and digital footprint and developing the Sportech
team to take advantage of these new and innovative
business opportunities. Further detail about such strategic
and personal objectives is considered commercially sensitive
and will therefore not be disclosed prospectively. The
Committee will consider whether retrospective disclosure
is appropriate. This bonus is wholly payable in cash.
Pension arrangements
The Company will contribute into a defined contribution
scheme for the Executive Directors at a rate of 8%. Only
basic annual salary is pensionable.
Other benefits
Executive Directors are entitled to the following other
main benefits:
Chief Executive – 29 working days’ holiday per annum
in addition to normal bank and public holidays. Other
Executive Directors – 25 working days’ holiday per annum
in addition to normal bank and public holidays;
a car allowance of £16,000 for the Chief Executive
and £12,300 for the COO, Consumer Facing Business;
private health insurance for themselves, their spouse
and children; and
life insurance of four times salary.
Long Term Incentive Plan (“LTIP”)
The Committee believes that share ownership and the
granting of share-based incentives strengthens the link
between Executives’ personal interests and those of the
shareholders. The Company has two long term share plans
in place, being a share option scheme and a performance
share plan (“PSP”). The Company’s policy has been to only
grant awards under the PSP since its adoption in 2007.
It is the Committee’s intention to grant awards in 2014 at 100%
of salary to the Chief Executive and 75% of salary to the other
Directors. The targets to apply to the 2014 awards will be the
same as those applied to the 2013 awards being, 50% based
on the Company’s relative TSR performance (Part A) and 50%
based on performance against a challenging range of EPS
growth targets (Part B).
The vesting of Part A of each such award will be dependent
on Sportech’s TSR over a fixed three-year period relative
to the TSR of the constituents of the FTSE Small Cap
Index (excluding investment trusts) over the same period
(the comparator group set as at the date of grant).
No portion of Part A will vest unless Sportech’s TSR
performance at least matches the median of the TSR
performance within the comparator group; thereafter the
following vesting schedule will apply:
The Company’s TSR rank against the TSR
of the comparator companies
Median
Between median and upper quartile
Upper quartile (or better)
Extent of vesting of Part A
25%
Pro rata between
25% and 100%
100%
The vesting of Part B of each such award will be
dependent on Sportech’s EPS performance over a fixed
three-year period. No portion of Part B will vest unless
Sportech’s EPS growth is at least equal to the Retail Prices
Index (“RPI”) plus 4% per annum; thereafter the following
vesting schedule will apply:
The Company’s EPS growth
At least RPI + 4% p.a.
Between a minimum of RPI + 4% p.a.
and 10% p.a.
At least RPI + 10% p.a.
Extent of vesting of Part B
25%
Pro rata between
25% and 100%
100%
EPS performance will be tested from a base year
ended 31 December 2013 with EPS being calculated
on such adjusted basis as the Remuneration Committee
determines appropriate. Adjusted EPS for such purposes
will be disclosed in due course at the time of vesting in the
Remuneration Report.
Policy on Executive share ownership
The Board has adopted a formal policy in respect of
Executive share ownership, pursuant to which all Executives
are expected to invest in the Company to a level of at least
100% of annual salary over time, save that under such
policy Executives may build to this level using 50% of net
awards under the Company’s long term incentive plans.
Current share ownerships are set out on page 52.
Non-executive Directors’ fees and incentives
The fees of the Non-executive Directors are set by the
Board following a review against fee levels operated in
companies of a comparable size and after taking into
account the anticipated time commitment of each role.
The Non-executive Directors do not participate in any
incentive, pension or benefit schemes of the Company,
other than in the case of Lorne Weil who was issued an
incentive award in October 2010 (see page 51).
The fees set for 1 January 2014 are £120,000 for the Chairman
and a set fee of £47,500 (with a further £5,000 for each
Committee they sit on) for UK-based Non-executives and
a set fee of $100,000 for US-based Non-executives. The
fees set for Non-executives are at the top end of the upper
quartile for comparable companies, reflecting the onerous
international regulatory environment for Sportech and the
fact that Board meetings will be held in both the US and the
UK, necessitating additional travel and time commitments.
Details of each Director’s remuneration for the year ended
31 December 2013 are given in the table opposite.
46
CORPORATE GOVERNANCESPORTECH PLC ANNUAL REPORT AND ACCOUNTS 2013 Annual Report on Remuneration continued
Directors’ remuneration for the year ended
31 December 2013
Basic annual salary
Ian Penrose, Chief Executive, £377,000 per annum,
with effect from 1 January 2013.
Cliff Baty, Chief Financial Officer, £240,000 per annum
with effect from 14 May 2013.
Directors’ remuneration for 2013 (audited)
Ian Hogg, Chief Operating Officer, Consumer Facing
Business, £251,000 per annum with effect from
1 January 2013.
Steve Cunliffe, Finance Director, £205,000 per annum,
with effect from 1 January 2013 and until date of
termination, being 6 March 2013.
Year of
appointment
Fees/
salary
£000
Taxable
benefits2
£000
Pension
£000
Bonuses
£000
Long term
incentives
£000
Compensation for
loss of office
£000
Executive Directors
Ian Penrose
Cliff Baty
(appointed 14 May 2013)
Ian Hogg
Steve Cunliffe
(resigned 6 March 2013)
Non-executive Directors
Roger Withers
Peter Williams
John Barnes
(resigned 3 December 2013)
David McKeith
Lorne Weil
Rich Roberts (appointed
3 December 2013)
Mor Weizer 1
(resigned 20 June 2013)
Aggregate emoluments
2005
2013
2010
2006
2011
2011
2005
2011
2010
2013
2011
377
154
251
38
65
45
45
45
35
5
—
17
—
14
—
—
—
—
—
—
—
—
30
10
20
—
—
—
—
—
—
—
—
151
63
40
—
—
—
—
—
—
—
—
816
—
482
527
—
—
—
—
627
—
—
—
—
—
141
—
—
—
—
—
—
—
1 Mor Weizer did not receive any remuneration in his role as Non-executive Director as he sat on the Board as a representative of Playtech Limited.
2 Taxable benefits comprise various medical insurance policies and car allowances.
Directors’ remuneration for 2012 (audited)
1,060
31
60
254
2,452
141
3,998
Year of
appointment
Fees/
salary
£000
Taxable
benefits2
£000
Pension
£000
Bonuses
£000
Long term
incentives
£000
Compensation for
loss of office
£000
Executive Directors
Ian Penrose
Ian Hogg
Steve Cunliffe
(resigned 6 March 2013)
Brooks Pierce
(resigned 10 May 2012)
Non-executive Directors
Roger Withers
Peter Williams
John Barnes
(resigned 4 December 2013)
David McKeith
Lorne Weil
Mor Weizer 1
(resigned 20 June 2013)
Aggregate emoluments
2005
2010
2006
2010
2011
2011
2005
2011
2010
2011
370
246
205
92
65
45
45
45
35
—
49
13
13
3
—
—
—
—
—
—
30
20
16
2
—
—
—
—
—
—
93
92
33
17
—
—
—
—
—
—
1,148
78
68
235
233
140
156
69
—
—
—
—
195
—
793
2013
Total
£000
1,391
227
807
706
65
45
45
45
662
5
—
2012
Total
£000
775
511
423
—
—
—
254
437
—
—
—
—
—
—
65
45
45
45
230
—
254
2,576
1 Mor Weizer did not receive any remuneration in his role as Non-executive Director as he sat on the Board as a representative of Playtech Limited.
2 Taxable benefits comprise various medical insurance policies and car allowances.
47
BUSINESS OVERVIEW CORPORATE GOVERNANCE STRATEGIC REPORT FINANCIAL STATEMENTSANNUAL REPORT AND ACCOUNTS 2013 SPORTECH PLC Remuneration report continued
for the year ended 31 December 2013
Annual Report on Remuneration continued
Directors’ remuneration for the year ended
31 December 2013 continued
Performance related bonus
The maximum bonus potential for the Chief Executive
in the year under review was 100% of basic salary, and for
each of the Chief Financial Officer and the Chief Operating
Officer, Consumer Facing Business was 75% of basic salary.
For each Executive Director their performance related
bonus was based on (i) the EBITDA performance of the
Group (with EBITDA of individual operating divisions
included within the targets set for the Chief Operating
Officer, Consumer Facing Business) and (ii) strategic
objectives aligned with Group strategic goals.
EBITDA performance
The Committee considered the Group’s EBITDA performance
for these purposes excluding the e-Gaming business and
exercised its discretion to scale back the bonuses based on
this performance test to take account of the losses made
during the year in the e-Gaming business prior to achieving
what was considered a successful sale out of the Group. With
this in mind, in respect of both the Chief Executive and the
Chief Financial Officer, achievement was determined to
be 10% out of a maximum target of 70% of potential bonus,
and for the Chief Operating Officer, Consumer Facing
Business achievement was deemed to be 6% out of a
maximum target of 85% of potential bonus (it being noted
that his target had a split of Group and operating divisional
EBITDA (being up to 30% and 55% respectively of this part
of his bonus), and no bonus was payable with regards to
the EBITDA performance of the relevant individual
operating division).
The actual targets set (e.g. the numbers included in
the Group’s financial plans) are considered to remain
commercially sensitive and consideration will be given
to disclosing these in future years.
Strategic objectives
With regards to the Chief Executive, his strategic targets
related to delivering against a number of growth focused
initiatives primarily in relation to the Group’s activities in the
USA. These included the development of the Bradley sports
bar, restaurant and betting venue, achieving a successful
outcome in relation to exclusive online opportunities in
Connecticut, establishing business opportunities in California
and developing the Group’s operational team and structure.
These were assessed to have been achieved in full, resulting in
an award of 30% out of a maximum target of 30% of potential
bonus. The strategic targets relating to the Chief Financial
Officer included improving the operational capability and
reporting of the finance function within the Group and
undertaking a detailed evaluation and assessment of
opportunities in the e-Gaming market. These targets were
considered to have been largely met, resulting in an award of
25% out of a maximum target of 30% of potential bonus. The
strategic targets for the Chief Operating Officer, Consumer
Facing Business related to the ongoing development of
the UK Football Pools business and its move to stabilising
profitability and cash flows, and the targets relating to this
objective were met in full, resulting in an award of 15%
out of a maximum target of 15% of potential bonus.
The bonus payable to the Chief Financial Officer was in
respect of the full year under review (i.e. based on his full
year salary) notwithstanding that he joined the Company
in May 2013. This was agreed as part of the terms of his
recruitment to offset the forfeiture of the bonus he would
have earned but forfeited when he agreed to join Sportech
and resigned from his then employment. The Remuneration
Committee was comfortable taking this approach (i.e. offering
performance related compensation based on performance
at Sportech) as opposed to estimating the cash value of
a bonus forfeited on leaving his former employer.
The table below summarises the overall bonus result.
Individual
Chief Executive
Chief Financial Officer
Chief Operating Officer, Consumer Facing Business
Total bonus: % Maximum (% salary payable)
40% of maximum (40% of salary payable)
35% of maximum (26.25% of salary payable)
21% of maximum (15.75% of salary payable)
48
CORPORATE GOVERNANCESPORTECH PLC ANNUAL REPORT AND ACCOUNTS 2013 Annual Report on Remuneration continued
Directors’ remuneration for the year ended
31 December 2013 continued
Performance related bonus continued
Strategic objectives continued
The Committee is comfortable that the level of bonuses
paid to Executive Directors reflects both the Company and
individual performance during the year.
Pension arrangements
The Company contributed into a defined contribution scheme
for the Executive Directors at a rate of 8%. Only basic annual
salary was pensionable. Four Directors (2012: three Directors)
were members of defined contribution schemes during the
year. Contributions paid by the Company in respect of these
Directors are as shown in the table on page 47.
Long Term Incentive Plans (“LTIPs”)
Awards vested in relation to performance
ending 2013
Part of the awards granted in 2010 and 2011 reached the
end of their performance periods in the year under review.
This includes the two-thirds of the 2010 award subject to
relative TSR and absolute TSR (performance period ended
5 October 2013) and one-third of the 2011 award subject
to EPS (performance period ended 31 December 2013).
Summary details of the full conditions applying to the 2010
and 2011 awards are included as a footnote to the PSP table
on page 51.
In terms of the 2010 award, the assessment of the TSR
measures was made independently by NBS who advised
that Sportech’s TSR achieved a three-year TSR which
ranked above the upper quartile and greater than the 15% p.a.
maximum absolute target, thereby triggering full vesting for
each element of this award.
In terms of the 2011 award, the EPS growth over the three-year
period to 31 December 2013 was 9.45% p.a. thereby triggering
47.5% vesting of this element of the award, subject to
Committee approval.
In summary the total number of awards for each Executive
is shown in the table below.
Performance Share Plan – 2013 vesting
Measure
Relative TSR (2010)
Condition
TSR measured against the constituents
of the FTSE Small Cap Index (excluding
investment trusts) over the three years
from date of grant
Threshold
Median
rank (163)
Maximum
Upper
quartile
rank
(41.25)
Actual
TSR 118.1%
rank (38)
Vesting
100%
Absolute TSR (2010) Average annual growth in TSR
6% p.a.
15% p.a.
52.2% p.a.
100%
EPS (2011)
Executive
Ian Penrose
Ian Hogg
Annualised adjusted EPS growth
measured against RPI over three
financial years
RPI + 4% p.a. RPI + 10% p.a.
9.45%
47.5%
Award
2010 (Part A and B)
2011 (Part C)
2010 (Part A and B)
2011 (Part C)
Number of awards granted
941,177
155,136
564,706
75,472
Vesting Number of shares vesting
941,177
100%
73,690
47.5%
564,706
100%
35,849
47.5%
Value of awards *
£752,941
£62,873
£451,764
£30,587
* For 2010 awards this is based on the share price on the date of vesting of 80.00p. For 2011 awards which have yet to vest, the value
is based on a three-month average share price to December 2013 of 85.32p.
Performance Share Plan – 2013 Award
Executive
Ian Penrose
Cliff Baty
Type of award
Performance share
Performance share
Number of awards
granted
377,400
276,000
Basis of award
100% of salary
115% of salary
Share price
on grant
Pence
100
90
Face value *
£377,400
£248,400
Percentage which
vests at threshold
25%
25%
Ian Hogg
Performance share
188,190
75% of salary
100
£188,190
25%
* This is based on the closing share price on the day before the date of grant. In respect of Ian Penrose and Ian Hogg, the date of grant
was 21 March 2013 and, in respect of Cliff Baty, the date of grant was 24 May 2013.
49
BUSINESS OVERVIEW CORPORATE GOVERNANCE STRATEGIC REPORT FINANCIAL STATEMENTSANNUAL REPORT AND ACCOUNTS 2013 SPORTECH PLC Remuneration report continued
for the year ended 31 December 2013
Annual Report on Remuneration continued
LTIP awards granted during 2013
Share option scheme
A share option scheme is in place, the details of which are
described in note 26. The last award under such a scheme
was made in 2005.
The vesting of Part B of each such award will be
dependent on Sportech’s EPS performance over a fixed
three-year period. No portion of Part B will vest unless
Sportech’s EPS growth is at least equal to the Retail Prices
Index (“RPI”) plus 4% per annum; thereafter the following
vesting schedule will apply:
Performance Share Plan (“PSP”)
The PSP was introduced in 2007. Under the rules of the
PSP, awards may normally be granted up to 100% of
salary, other than in exceptional circumstances, when they
may be granted up to 200% of salary.
The Committee had previously approved the introduction
of an annual award policy from 2012 at up to 100% of salary
to Executive Directors. An award was made to Cliff Baty
shortly after appointment at 115% of salary, as an exceptional
award, to reflect remuneration forfeited on leaving his
previous employment.
The award was set after the Committee had considered
the awards that lapsed on leaving his former employer
and the Company’s normal LTIP policy. It was not
considered appropriate to provide any non-performance
related compensation for potential value lost on leaving
his former employer.
2013 awards – targets
In connection with the awards to the Executive Directors,
two distinct performance conditions apply, each in relation
to one-half of each award.
The Company’s EPS growth
At least RPI + 4% p.a.
Between a minimum of RPI + 4% p.a.
and 10% p.a.
At least RPI + 10% p.a.
Extent of vesting of Part B
25%
Pro rata between
25% and 100%
100%
EPS performance will be tested from a base year
ended 31 December 2012 with EPS being calculated
on such adjusted basis as the Remuneration Committee
determines appropriate. Adjusted EPS for such purposes
will be disclosed in due course at the time of vesting in
the Remuneration Report.
Directors’ share-based incentives
Aggregate emoluments disclosed on page 47 do not
include any amounts for the value of share-based
incentives to acquire ordinary shares in the Company
granted to or held by the Directors. The share-based
incentives held by the Directors are as follows:
Sportech Share Option Scheme
For ease of reference such halves are referred to below as
Part A and Part B respectively.
Ian Penrose
The vesting of Part A of each such award will be dependent
on Sportech’s TSR over a fixed three-year period relative
to the TSR of the constituents of the FTSE Small Cap
Index (excluding investment trusts) over the same period
(the comparator group set as at the date of grant).
No portion of Part A will vest unless Sportech’s TSR
performance at least matches the median of the TSR
performance within the comparator group; thereafter the
following vesting schedule will apply:
Details of the option are as follows:
Ian Penrose
505,050
Exercise
price
£0.817
Date
from which
exercisable
27.09.08
Expiry date
26.09.15
Granted on
27.09.05
Exercise of the option is subject to the share price
reaching the following closing prices:
The Company’s TSR rank against the TSR
of the comparator companies
Median
Between median and upper quartile
Upper quartile (or better)
Extent of vesting of Part A
25%
Pro rata between
25% and 100%
100%
Shares
151,515
151,515
101,010
101,010
505,050
Closing price
£1.237
£1.732
£2.227
£2.722
The market price of the ordinary shares at 31 December 2013
was £0.815 and the range during the year was £1.080
to £0.710.
The options were granted at no cost to the Director. Once
awarded, the exercise of the share options is unconditional.
50
As at
1 January and
31 December
2013
Number
505,050
CORPORATE GOVERNANCESPORTECH PLC ANNUAL REPORT AND ACCOUNTS 2013
Annual Report on Remuneration continued
LTIP awards granted during 2013 continued
Directors’ share-based incentives continued
PSP
The following table shows awards outstanding at the start of the year, awarded, vested and lapsed during the year and
remaining outstanding at the end of the year.
Ian Penrose
Total
Cliff Baty
Ian Hogg
Date
of grant
As at
1 January
2013
Number
06.10.10 1 1,411,765
02.12.11 1
465,408
08.03.12 1
751,269
21.03.13 2
Vested
during
the year
Number
Awarded
during
the year
Number
Lapsed
during
the year
Number
— (1,232,941) (178,824)
—
—
—
—
—
— 377,400
As at 31
December
2013
Number
Market
price on
Vested
date of
but not
grant
exercised
Pence
Number
42.50
— 1,232,941
39.75
—
—
51.52
— 100.00
— 465,408
— 751,269
— 377,400
21.03.13 2
06.10.10 1
02.12.11 1
08.03.12 1
21.03.13 2
2,628,442
— 276,000
377,400 (1,232,941) (178,824) 1,594,077 1,232,941
90.00
—
42.50
— 739,765
39.75
—
—
51.52
— 100.00
—
— (739,765) (107,294)
—
—
—
—
—
— 188,190
1,448,093 188,190
847,059
226,415
374,619
— 276,000
Date from
Award
which
expiry
exercisable
date
06.10.13 06.10.14
02.12.14 02.12.15
08.03.15 08.03.16
21.03.16 21.03.17
21.03.16 21.03.17
06.10.13 06.10.14
02.12.14 02.12.15
08.03.15 08.03.16
21.03.16 21.03.17
— 226,415
— 374,619
— 188,190
(739,765) (107,294)
789,224
— (821,960) (119,216)
—
—
—
—
62,893
— 104,061
—
—
— (821,960) (119,216)
166,954
— (149,020) 1,027,450
—
739,765
—
—
—
—
—
42.50
39.75
51.52
06.10.13 06.10.14
02.12.14 02.12.15
08.03.15 08.03.16
42.50
06.10.13
N/A
6,361,135 841,590 (2,794,666) (554,354) 3,853,705 1,972,706
Total
Steve Cunliffe 3 06.10.10 1
02.12.11 1
08.03.12 1
941,176
62,893
104,061
1,108,130
06.10.10 1 1,176,470
Total
Lorne Weil 4
Total PSP
awards
1 2010, 2011 and 2012 awards were subject to relative TSR,
absolute TSR and EPS growth performance targets each
applying to one-third of the awards. The performance targets
for the 2010, 2011 and 2012 awards operated under the same
structure with the specific details outlined on pages 34 and 35
of the 2012 Annual Report.
4 Lorne Weil’s award was a one-off shareholder approved award
made subject to the same performance conditions as set out
in note 1, but also conditional on Lorne Weil investing in and
retaining 2,000,000 ordinary shares in the Company. Summary
details were included in the Directors’ Remuneration Report for
the year ended 31 December 2010.
2 2013 awards were subject to relative TSR and EPS growth
performance targets each applying to one-half of the
awards the structure for which is outlined on page
50 of this report.
The number of ordinary shares that may be issued under
the PSP and any other share plan may not exceed 10%
in any ten-year period. As at 31 December 2013 the
Company’s potential dilution was 6.7%.
3 Steve Cunliffe’s PSP awards will vest on their original vesting
date subject to satisfaction of applicable performance criteria,
with the full amount of his 2010 award under the PSP, one-third
of his 2011 award under the PSP and one-third of his 2012 award
under the PSP being transferred.
Details of the performance conditions for the PSP awards
are on pages 49 and 50 of this Report.
51
BUSINESS OVERVIEW CORPORATE GOVERNANCE STRATEGIC REPORT FINANCIAL STATEMENTSANNUAL REPORT AND ACCOUNTS 2013 SPORTECH PLC
Remuneration report continued
for the year ended 31 December 2013
Payments to former Directors
Details of payments received by Steve Cunliffe in 2013 are
as set out above, such payments being included in the
single total figure.
Brooks Pierce was treated as a good leaver under the rules
of the PSP following a restructuring of the Board, which
resulted in his individual role effectively being made
redundant. As such, subject to satisfaction of applicable
performance criteria, he retained each of his 2010, 2011 and
2012 awards under the PSP pro rated according to his
termination date of 10 May 2012. Further to this, in 2013, he
received a total payment under the 2010 award of £333,000
plus the amount set out in the single total figure for 2012
(on page 47 of this Report) which was also received in 2013.
In addition, in March 2013 he received his bonus in relation
to the year ended 31 December 2012, as set out in the
previous financial year’s Remuneration Report.
Annual Report on Remuneration continued
Payment for loss of office
As explained in last year’s report, pursuant to an
agreement in relation to his departure from the Board,
Steve Cunliffe, whose employment with the Company
terminated on 6 March 2013, received: (i) payment of eight
months’ salary and benefits in lieu of notice; and (ii)
subject to satisfaction of the relevant performance criteria,
a bonus in respect of the year under review, pro rated
to 14 November 2012 (the date notice was served). Steve
Cunliffe was treated as a good leaver under the rules of the
PSP following a restructuring of the Board, which resulted
in his individual role effectively being made redundant
(i.e. different skill sets were required for the future of the
Group). As such, he retained the full amount of his 2010
award under the PSP, one-third of his 2011 award under
the PSP and one-third of his 2012 award under the PSP,
subject to satisfaction of applicable performance criteria.
Payment of salary and benefits in lieu of notice was made
on a monthly basis. The bonus was paid in March 2013. The
PSP awards will vest on their normal vesting date subject
to the relevant performance conditions being achieved.
Director interests and shareholding guidelines
The following table shows Director interests in the Company:
Director
Ian Penrose
Cliff Baty
Ian Hogg
Roger Withers
Peter Williams
John Barnes
David McKeith
Lorne Weil
Total
shareholding at
31 December
2012
500,000
—
197,140
112,079
100,000
110,000
—
2,000,000
Total
shareholding at
31 December
2013
500,000
—
197,140
112,079
100,000
110,000
30,000
2,000,000
Share
option
scheme
vested
151,515
—
—
—
—
—
—
—
Share
option
scheme
unvested
353,535
—
—
—
—
—
—
—
PSP
award held
unvested
1,594,077
276,000
789,224
—
—
—
—
1,027,450
PSP award
vested but not
exercised
1,232,941
—
739,765
—
—
—
—
—
Share
ownership
guideline
expected to
be achieved
by third
anniversary of
employment
100%
100%
100%
N/A
N/A
N/A
N/A
N/A
% of guideline
met by
31 December
2013
100%
0%
64.03%
N/A
N/A
N/A
N/A
N/A
All Executive Directors are expected to hold an investment
of at least 100% of base salary in Company shares. This
requirement can be achieved over a period of time using
50% of net awards which vest under the Company’s LTIPs.
The table above shows shareholdings as at 31 December 2013
and the percentage of the guideline currently met.
Total shareholding which counts towards the
measurement of the guideline is calculated on the basis
of legally owned shares plus vested PSP awards.
The percentage of guideline met is based on the annual
base salary and the higher of the acquisition cost of the
total shareholding or the current market value of the total
shareholding. Once an Executive Director meets the
required holding, the Executive Director is only required to
purchase additional shares equivalent to the value of any
increase in base salary.
52
CORPORATE GOVERNANCESPORTECH PLC ANNUAL REPORT AND ACCOUNTS 2013 Percentage increase in the remuneration of the
Chief Executive (unaudited)
Chief Executive (£000)
– Salary
– Bonus and benefits
Average of Group
full-time employee (£000)
– Salary
– Bonus and benefits
2013
2012
% change
377
198
63
8
370
172
61
7
2.0
15.1
3.3
14.3
The table above shows the percentage movement in the
salary, benefits and annual bonus for the Chief Executive
between the current and previous financial year compared
to that for the average full-time salaried employee.
Relative importance of spend on pay (unaudited)
Staff costs (£m)
Distributions to
shareholders
2013
33.0
Nil
2012
32.4
Nil
% change
1.9
—
Approval
This report was approved by the Remuneration
Committee and signed on its behalf by:
Peter Williams
Senior Independent Non-executive Director
and Chairman of the Remuneration Committee
5 March 2014
Annual Report on Remuneration continued
Performance graph and Chief Executive
five-year pay chart
The following graph demonstrates the value of £100
invested in Sportech PLC as at 31 December 2008
compared with the same investment in a fund mirroring
the make-up of the FTSE Small Cap Index:
)
£
(
l
e
u
a
V
300
250
200
150
100
50
0
31 Dec 08
31 Dec 09
31 Dec 10
31 Dec 11
31 Dec 12
31 Dec 13
Sportech PLC
FTSE Small Cap Index
This graph shows the value, by 31 December 2013, of £100
invested in Sportech plc on 31 December 2008 compared with
the value of £100 invested in the FTSE Small Cap Index. The other
points plotted are the values at intervening financial year ends.
The FTSE Small Cap Index has been chosen as it is the
index most closely aligned to Sportech PLC.
The following table sets out the Chief Executive’s total
remuneration for the current financial year and the
preceding four years:
Remuneration
before LTIPs
(£000)
LTIPs (£000)
Total
remuneration
(£000)
2009
416
—
416
2010
542
—
542
2011
502
—
502
2012
542
2013
575
233
816
775 1,391
Annual bonus (%)
LTIP vesting (%)
33%
—
74%
—
50%
25%
40%
— 62.0% 82.7%
53
BUSINESS OVERVIEW CORPORATE GOVERNANCE STRATEGIC REPORT FINANCIAL STATEMENTSANNUAL REPORT AND ACCOUNTS 2013 SPORTECH PLC
Directors’ report
for the year ended 31 December 2013
The Directors present their report and the audited consolidated financial statements for the year ended 31 December 2013.
General information of the Company can be found in the Accounting Policies on page 66.
The Strategic Report and Corporate Governance Report are set out on pages 10 to 53. This Directors’ Report does not
include information on trading in the year or principal risks as this information is included in the Strategic Report instead
under Section 414C(11) of the Companies Act 2003, on pages 14 and 15.
Directors and their interests in the shares of the Company
The Directors who held office during the year, and up to the date of signing these financial statements (unless otherwise
stated), had beneficial interests in the share capital of the Company as shown below.
Details of share options and performance share plan (“PSP”) awards granted during the year ended 31 December 2013
are set out in the Remuneration Report on pages 49 to 51.
Roger Withers
Ian Penrose
Ian Hogg
Cliff Baty (appointed 14 May 2013)
Steve Cunliffe (resigned 6 March 2013)
Peter Williams
John Barnes (resigned 3 December 2013)
David McKeith
Richard Roberts (appointed 3 December 2013)
Lorne Weil
Mor Weizer (resigned 20 June 2013)
At 5 March 2014
and
31 December
31 December
2013
Number
112,079
500,000
197,140
—
n/a
100,000
n/a
2012
Number
112,079
500,000
197,140
—
85,000
100,000
110,000
30,000
—
2,000,000
n/a
—
—
2,000,000
—
Directors’ third-party indemnity provisions
During the year, qualifying indemnity insurance was provided to the Directors. Such insurance remained in force
throughout the year up to the date of signing the financial statements. No claim was made under these provisions.
Employees
Details of the Company’s policy on equal opportunities for disabled employees and on employee involvement are set out
in the ‘Responsibilities towards employees’ section of the Corporate Social Responsibility Report on page 23.
Substantial shareholdings
Holder
Henderson Global Investments Limited
Scientific Games Corporation Inc.
Newby Manor Limited
AXA S.A.
Aberforth Partners LLP
Schroder Investment Management Limited
Black Rock Investment Management (UK) Limited
Aviva PLC
Total of substantial shareholdings
5 March 2014
31 December 2013
Ordinary
shares
of 50p
43,921,290
—
35,593,010
11,150,306
11,100,885
11,095,332
10,363,537
6,864,718
130,089,078
%
of issued
share capital
21.44
—
17.38
5.44
5.42
5.42
5.06
3.35
63.51
Ordinary
shares
of 50p
<5%
39,742,179
35,593,010
11,150,306
9,998,085
<5%
10,046,295
6,864,718
113,394,593
%
of issued
share capital
n/a
19.40
17.38
5.44
4.88
n/a
4.90
3.35
55.35
54
CORPORATE GOVERNANCESPORTECH PLC ANNUAL REPORT AND ACCOUNTS 2013 Substantial shareholdings continued
On 5 March 2014, interests representing 3% or more of
the issued share capital of the Company had been notified
to the Company as shown on page 54.
The Company and Scientific Games Corporation Inc. (“SGC”)
had entered into a Lock-Up Agreement pursuant to which
SGC agreed not to dispose of any of the shares it acquired
as part of the Sportech Racing acquisition (“Consideration
Shares”) for a period commencing on completion of the
acquisition of Sportech Racing (5 October 2010) up to
and including the third anniversary of completion, which
has now passed. The Lock-Up Agreement did not prohibit
SGC from transferring the Consideration Shares, inter alia,
to its connected persons or from accepting a takeover
offer in respect of the Consideration Shares made under
the City Code. The Lock-Up Agreement could have been
terminated if, inter alia, the Company or its connected
persons enters into certain types of lottery business, the
Company or certain of its affiliated persons are in violation
of the law or the Company breaches certain obligations to
provide information pursuant to the Purchase Agreement.
As at 31 December 2013 there are no restrictions on the
transfer of securities in the Company or on voting rights.
Dividend
No dividend is proposed (2012: £nil) and no dividend
has been paid during the year (2012: £nil).
Environmental matters
The Corporate Social Responsibility Report provides
information with respect to the Group’s impact on
the environment and can be found on page 23.
Corporate governance
The Group’s statement on corporate governance is set out
on pages 28 to 35 and forms part of this Directors’ Report.
Significant agreements
There are a number of agreements that take effect, alter or
potentially terminate upon a change of control of the Company
following a takeover bid, such as commercial contracts and
employees’ share plans. None of these are deemed to be
individually significant in terms of their potential impact
on the day-to-day running of the business of the Group
as a whole, other than as noted below:
the main banking facilities with the three principal lenders,
Bank of Scotland plc, Barclays Bank PLC and Royal Bank
of Scotland plc, have mandatory pre-payment provisions
in respect of a change of control or trade sale, with the
facilities cancelled and all outstanding debt becoming
immediately due and payable if a lender so requires; and
the Group operates under a number of licences in various
territories awarded to it by regulatory bodies. In the event
of a change of control, certain regulatory bodies retain
the right to pre-approve the acquirer in order for a
change of control to be permitted.
There are no clauses in any of the Directors’ contracts
that are triggered by a change of control of the Company.
Takeover Directive
The Company has only one class of ordinary shares and
these shares have equal voting rights. The nature of individual
Director’s holdings and individually significant shareholders are
disclosed on page 52. There are no restrictions on the transfer
of shares following the end of the Lock-Up Agreement with
Scientific Games Corporation Inc. on 5 October 2010 as
described earlier.
As part of the resolutions approved at the 2013 AGM,
shareholders’ authority was given to the Company’s Directors
for the allotment of up to 66,270,100 ordinary shares of 50p
each if the authority is not utilised in connection with a rights
issue, representing 33.3% of the issued share capital of the
Company as at the date of the 2013 AGM. During the year,
the Directors did not exercise the authorities given to them
(to allot shares). As at 31 December 2013, the Directors have
the power to allot up to 132,540,201 ordinary shares of 50p
each, representing 66.7% of the issued share capital as at
the date of the 2013 AGM in connection with a rights issue,
subject to a reduction of any amount of shares issued
in accordance with the preceding reference.
Certain of the Company’s share incentive schemes contain
provisions that permit awards or options to vest or become
exercisable on a change of control in accordance with the
rules of the schemes.
Going concern
The Group has committed revolving credit banking
facilities totalling £75m in place with Bank of Scotland plc,
Barclays Bank PLC and Royal Bank of Scotland plc until
August 2015. The Group meets its day-to-day working
capital requirements through working capital facilities.
At 31 December 2013, a £2.5m overdraft facility was carved
out of the overall £75m revolving credit facility in the UK
with Bank of Scotland plc. This facility is due for renewal in
July 2014. The Group’s forecasts and projections, which have
been prepared for the period to 30 June 2015 and take into
account reasonably possible changes in performance, show
that the Group will be able to operate within the level of its
current facilities 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.
55
BUSINESS OVERVIEW CORPORATE GOVERNANCE STRATEGIC REPORT FINANCIAL STATEMENTSANNUAL REPORT AND ACCOUNTS 2013 SPORTECH PLC Having taken advice from the Audit Committee, the Directors
consider that the Annual Report, taken as a whole, is fair,
balanced and understandable and provides the information
necessary for shareholders to assess the Company’s
performance, business model and strategy.
Directors’ statement pursuant to the
Disclosure and Transparency Rules
Each of the Directors whose names and functions are listed in
the Board of Directors section on pages 24 and 25 confirm
that, to the best of each person’s knowledge and belief:
the financial statements, prepared in accordance with
IFRSs as adopted by the European Union, give a true
and fair view of the assets, liabilities, financial position
and profit of the Group; and
the Strategic Report and other reports contained in the
Annual Report include a fair review of the development
and performance of the business and the position of the
Group and Company, together with a description of the
principal risks and uncertainties that they face.
Annual General Meeting (“AGM”)
The Notice convening the AGM of the Company on 13 May 2014
is being sent to shareholders with this report.
In accordance with the Articles of Association of the Company,
Roger Withers and Peter Williams retire by rotation and offer
themselves for re-appointment at the AGM. Cliff Baty and
Rich Roberts will retire and offer themselves for re-appointment
as they were appointed to the Board since the last AGM.
Profiles of these Directors appear on pages 24 and 25.
Resolutions will also be proposed at the AGM to receive
the Accounts and the Directors’ and Independent Auditors’
Reports, to approve the Remuneration Report set out on
pages 37 to 53, to re-appoint the auditors and to authorise
the Directors to fix their remuneration.
By order of the Board
Luisa Wright
Company Secretary
5 March 2014
Directors’ report continued
for the year ended 31 December 2013
Disclosure of information to auditors
So far as each Director is aware, at the date of the approval of
the financial statements there is no relevant audit information
of which the Company’s auditors are unaware. Each Director
has taken all the steps that they ought to have taken as a
Director in order to make themselves aware of any relevant
audit information and to establish that the Company’s
auditors are aware of that information.
The auditors, PricewaterhouseCoopers LLP, have indicated
their willingness to continue in office, and a resolution
that they be re-appointed will be proposed at the
Annual General Meeting.
Statement of Directors’ responsibilities
The Directors are responsible for preparing the Annual
Report and the financial statements in accordance
with applicable law and regulations.
Company law requires the Directors to prepare financial
statements for each financial year. Under that law the Directors
have prepared the Group and Parent Company
(the “Company”) financial statements in accordance with
International Financial Reporting Standards (“IFRSs”) as
adopted by the European Union. Under company law the
Directors must not approve the financial statements unless
they are satisfied that they give a true and fair view of the
state of affairs of the Group and the Company and of the
profit or loss of the Group for that period. In preparing
these financial statements, the Directors are required to:
select suitable accounting policies and then apply
them consistently;
make judgements and accounting estimates that
are reasonable and prudent;
state whether applicable IFRSs as adopted by the
European Union have been followed, subject to any
material departures disclosed and explained in the
financial statements; and
prepare the financial statements on the going concern
basis unless it is inappropriate to presume that the Group
and the Company will continue in business.
The Directors are responsible for keeping adequate
accounting records that are sufficient to show and explain
the Company’s transactions and disclose with reasonable
accuracy at any time the financial position of the Company
and the Group and enable them to ensure that the financial
statements and the Remuneration Report comply with the
Companies Act 2006 and, as regards the Group financial
statements, Article 4 of the IAS Regulation. They are also
responsible for safeguarding the assets of the Company
and the Group and hence for taking reasonable steps for
the prevention and detection of fraud and other irregularities.
56
CORPORATE GOVERNANCESPORTECH PLC ANNUAL REPORT AND ACCOUNTS 2013 Independent auditors’ report
to the members of Sportech PLC
Report on the financial statements
Our opinion
In our opinion:
the financial statements, defined below, give a true and fair view of the state of the Group’s and Parent Company’s affairs as
at 31 December 2013 and of the Group’s profit and of the Group’s and Parent Company’s cash flows for the year then ended;
the Group financial statements have been properly prepared in accordance with International Financial Reporting
Standards (IFRSs) as adopted by the European Union;
the Parent Company financial statements have been properly prepared in accordance with IFRSs as adopted by the
European Union and as applied in accordance with the provisions of the Companies Act 2006; and
the financial statements have been prepared in accordance with the requirements of the Companies Act 2006 and,
as regards the Group financial statements, Article 4 of the IAS Regulation.
This opinion is to be read in the context of what we say in the remainder of this report.
What we have audited
The Group financial statements and Parent Company financial statements (the ‘financial statements’), which are prepared
by Sportech Plc (the ‘Parent Company’), comprise:
the Consolidated income statement and Consolidated statement of comprehensive income for the year then ended;
the Group and Parent Company balance sheets as at 31 December 2013;
the Group and Parent Company statements of changes in equity and statements of cash flows for the year then ended; and
the Accounting Policies and the notes to the financial statements which include other explanatory information.
The financial reporting framework that has been applied in their preparation comprises applicable law and IFRSs as
adopted by the European Union and, as regards the Parent Company, as applied in accordance with the provisions of the
Companies Act 2006.
What an audit of financial statements involves
We conducted our audit in accordance with International Standards on Auditing (UK and Ireland) (‘ISAs (UK & Ireland)’).
An audit involves obtaining evidence about the amounts and disclosures in the financial statements sufficient to give
reasonable assurance that the financial statements are free from material misstatement, whether caused by fraud or error.
This includes an assessment of:
whether the accounting policies are appropriate to the Group’s and Parent Company’s circumstances and have been
consistently applied and adequately disclosed;
the reasonableness of significant accounting estimates made by the directors; and
the overall presentation of the financial statements.
In addition, we read all the financial and non-financial information in the Annual Report and Accounts ( the ‘Annual Report’) to
identify material inconsistencies with the audited financial statements and to identify any information that is apparently materially
incorrect based on, or materially inconsistent with, the knowledge acquired by us in the course of performing the audit. If we
become aware of any apparent material misstatements or inconsistencies we consider the implications for our report.
Overview of our audit approach
Materiality
We set certain thresholds for materiality. These helped us to determine the nature, timing and extent of our audit
procedures and to evaluate the effect of misstatements, both individually and on the financial statements as a whole.
Based on our professional judgement, we determined materiality for the Group financial statements as a whole to be
£650,000. This approximates to 2.5% of adjusted EBITDA, which we consider to be the most appropriate benchmark
because it is reflective of the underlying profitability of the business.
We agreed with the Audit Committee that we would report to them misstatements identified during our audit above
£30,000 as well as misstatements below that amount that, in our view, warranted reporting for qualitative reasons
Overview of the scope of our audit
The Group is structured along two principal geographical business lines, being the UK and US. The UK operations and the
UK and group accounting functions are based in Liverpool with the US operations being based in Connecticut and Atlanta.
The Group financial statements are a consolidation of their reporting units, comprising the group’s operating businesses
and centralised functions.
In establishing the overall approach to the Group audit, we determined the type of work that needed to be performed
by us, as the group engagement team, at the reporting units to be able to conclude whether sufficient appropriate audit
evidence had been obtained as a basis for our opinion on the Group financial statements as a whole.
57
BUSINESS OVERVIEW CORPORATE GOVERNANCE STRATEGIC REPORT FINANCIAL STATEMENTSANNUAL REPORT AND ACCOUNTS 2013 SPORTECH PLC Independent auditors’ report continued
to the members of Sportech PLC
Report on the financial statements continued
Overview of our audit approach continued
Overview of the scope of our audit continued
Accordingly, of the group's 27 reporting units, we identified 14 which, in our view, required an audit of their complete financial
information, either due to their size or their risk characteristics. This, together with additional procedures performed at the
Group level, gave us the evidence we needed for our opinion on the Group financial statements as a whole.
Areas of particular audit focus
In preparing the financial statements, the directors made a number of subjective judgements, for example in respect of
significant accounting estimates that involved making assumptions and considering future events that are inherently
uncertain. We primarily focused our work in these areas by assessing the directors’ judgements against available evidence,
forming our own judgements, and evaluating the disclosures in the financial statements.
In our audit, we tested and examined information, using sampling and other auditing techniques, to the extent we
considered necessary to provide a reasonable basis for us to draw conclusions. We obtained audit evidence through
testing the effectiveness of controls, substantive procedures or a combination of both.
We considered the following areas to be those that required particular focus in the current year. This is not a complete list of
all risks or areas of focus identified by our audit. We discussed these areas of focus with the Audit Committee. Their report on
those matters that they considered to be significant issues in relation to the financial statements is set out on pages 32 to 34.
Area of focus
Goodwill Impairment assessment
We focused on this area because the directors’
assessment of the carrying value of goodwill and
intangible assets, and the annual impairment review the
directors are required to perform, involves complex and
subjective judgments about the future results of the
business.
(Refer to note 12 to the financial statements.)
Taxation
The tax affairs of the Group are complicated by the
diversity of its geography and type of operations.
(Refer to note 8 to the financial statements.)
Fraud in revenue recognition
ISAs (UK & Ireland) presume there is a risk of fraud
in revenue recognition because of the pressure
management may feel to achieve the planned results.
We focused on the timing of revenue recognition and
its presentation in the income statement because of the
inherent complexities.
Risk of management override of internal controls
ISAs (UK & Ireland) require that we consider this.
How the scope of our audit addressed the area of focus
We evaluated the directors’ future cash flow forecasts,
including comparing them to the latest Board approved
budgets and challenged the assumptions therein. We
challenged the directors’ key assumptions for discount
and long term growth rates. We also performed sensitivity
analysis around the key drivers (being forecast growth
rates and cost savings) of the cash flow forecasts. Having
ascertained the extent of change in those assumptions that
either individually or collectively would be required for the
asset to be impaired, we considered the likelihood of such
movement in those key assumptions arising.
We assessed the directors’ current and deferred tax
calculations and the assumptions on which they are based,
utilising our knowledge and experience of tax matters in
both the UK and US.
We also assessed the level of provisioning in respect of
potential current tax liabilities, as well as considering the
recoverability of recognised deferred tax assets.
As the foundation of the evidence we obtained regarding
the revenue recognised during the year, we evaluated the
relevant IT systems and tested the internal controls over the
completeness, accuracy and timing of revenue recognised in
the financial statements. We also tested journal entries posted
to revenue accounts to identify unusual or irregular items.
We tested the timing of revenue recognition, taking into
account contractual obligations, and in particular considered
whether the Group appropriately recorded revenue. We also
tested the reconciliations between the revenue systems used
by the Group and its financial ledgers.
We assessed the overall control environment of the Group,
including the arrangements for staff to “whistle-blow”
inappropriate actions, and interviewed senior management
and the Group’s internal audit function. We examined the
significant accounting estimates and judgements relevant to
the financial statements for evidence of bias by the directors
that may represent a risk of material misstatement due to
fraud. We also tested journal entries and transactions which
we identified as being unusual.
The Audit Committee’s consideration of the judgments referred to above is set out on pages 32 to 34.
58
CORPORATE GOVERNANCESPORTECH PLC ANNUAL REPORT AND ACCOUNTS 2013 Report on the financial statements continued
Going Concern
Under the Listing Rules we are required to review the directors’ statement, set out on page 55, in relation to going concern.
We have nothing to report having performed our review.
As noted in the directors’ statement, the directors have concluded that it is appropriate to prepare the Group’s and Parent
Company’s financial statements using the going concern basis of accounting. The going concern basis presumes that the
Group and Parent Company have adequate resources to remain in operation, and that the directors intend them to do so,
for at least one year from the date the financial statements were signed. As part of our audit we have concluded that the
directors’ use of the going concern basis is appropriate.
However, because not all future events or conditions can be predicted, these statements are not a guarantee as to the
Group’s and the Parent Company’s ability to continue as a going concern.
Opinions on matters prescribed by the Companies Act 2006
In our opinion:
the information given in the Strategic Report and the Directors’ Report for the financial year for which the financial
statements are prepared is consistent with the financial statements; and
the part of the Remuneration Report to be audited has been properly prepared in accordance with the Companies Act 2006
Other matters on which we are required to report by exception
Adequacy of accounting records and information and explanations received
Under the Companies Act 2006 we are required to report to you if, in our opinion:
we have not received all the information and explanations we require for our audit; or
adequate accounting records have not been kept by the Parent Company, or returns adequate for our audit have not
been received from branches not visited by us; or
the Parent Company financial statements and the part of the Remuneration Report to be audited are not in agreement
with the accounting records and returns.
We have no exceptions to report arising from this responsibility.
Directors’ remuneration
Under the Companies Act 2006 we are required to report to you if, in our opinion, certain disclosures of directors’
remuneration specified by law have not been made. We have no exceptions to report arising from this responsibility.
Corporate Governance Statement
Under the Listing Rules we are required to review the part of the Corporate Governance Statement relating to the Parent
Company’s compliance with nine provisions of the UK Corporate Governance Code (‘the Code’). We have no exceptions to
report arising from our review.
On page 56 of the Annual Report, as required by the Code Provision C.1.1, the directors state that they consider the Annual
Report taken as a whole to be fair, balanced and understandable and provides the information necessary for members
to assess the Group’s performance, business model and strategy. On page 32, as required by C.3.8 of the Code, the Audit
Committee has set out the significant issues that it considered in relation to the financial statements, and how they were
addressed. Under ISAs (UK & Ireland) we are required to report to you if, in our opinion:
the statement given by the directors is materially inconsistent with our knowledge of the Group acquired in the course
of performing our audit; or
the section of the Annual Report describing the work of the Audit Committee does not appropriately address matters
communicated by us to the Audit Committee.
We have no exceptions to report arising from this responsibility.
59
BUSINESS OVERVIEW CORPORATE GOVERNANCE STRATEGIC REPORT FINANCIAL STATEMENTSANNUAL REPORT AND ACCOUNTS 2013 SPORTECH PLC Independent auditors’ report continued
to the members of Sportech PLC
Other matters on which we are required to report by exception continued
Other information in the Annual Report
Under ISAs (UK & Ireland), we are required to report to you if, in our opinion, information in the Annual Report is:
materially inconsistent with the information in the audited financial statements; or
apparently materially incorrect based on, or materially inconsistent with, our knowledge of the Group and Parent
Company acquired in the course of performing our audit; or
is otherwise misleading.
We have no exceptions to report arising from this responsibility.
Responsibilities for the financial statements and the audit
Our responsibilities and those of the directors
As explained more fully in the Statement of Directors’ Responsibilities set out on page 56, the directors are responsible for
the preparation of the Group and Parent Company financial statements and for being satisfied that they give a true and
fair view.
Our responsibility is to audit and express an opinion on the Group and Parent Company financial statements in accordance
with applicable law and ISAs (UK & Ireland). Those standards require us to comply with the Auditing Practices Board’s
Ethical Standards for Auditors.
This report, including the opinions, has been prepared for and only for the Company’s members as a body in accordance
with Chapter 3 of Part 16 of the Companies Act 2006 and for no other purpose. We do not, in giving these opinions,
accept or assume responsibility for any other purpose or to any other person to whom this report is shown or into whose
hands it may come save where expressly agreed by our prior consent in writing.
Martin Heath (Senior Statutory Auditor)
For and on behalf of PricewaterhouseCoopers LLP
Chartered Accountants and Statutory Auditors
Liverpool
5 March 2014
Notes:
a) The maintenance and integrity of the Sportech plc website is the responsibility of the Directors; the work carried out by the auditors
does not involve consideration of these matters and, accordingly, the auditors accept no responsibility for any changes that may have
occurred to the financial statements since they were initially presented on the website.
b) Legislation in the United Kingdom governing the preparation and dissemination of financial statements may differ from legislation in
other jurisdictions.
60
CORPORATE GOVERNANCESPORTECH PLC ANNUAL REPORT AND ACCOUNTS 2013 Consolidated income statement
for the year ended 31 December 2013
Continuing operations
Revenue
Cost of sales
Gross profit
Distribution costs
Administrative expenses
EBITDA before exceptional costs and share option expense
Share option expense
Depreciation and amortisation (excluding amortisation
of acquired intangibles)
Amortisation of acquired intangibles
Exceptional costs
Operating profit
Finance costs
Other finance income/(charges)
Net finance costs
Share of loss after tax of joint ventures
Profit before taxation
Adjusted profit before taxation *
Taxation
Profit for the year from continuing operations
Profit for the year from discontinued operations
Profit for the year
Earnings per share attributable to owners of the Parent during the year
Basic earnings per share:
From continuing operations
From discontinued operations
From profit for the year
Diluted earnings per share:
From continuing operations
From discontinued operations
From profit for the year
Adjusted earnings from continuing operations per share attributable
to owners of the Parent during the year
Basic
Diluted
Group
2013
£m
Restated
2012
£m
Note
110.3
(61.2)
49.1
(1.1)
(39.1)
26.0
(1.5)
(5.7)
(7.2)
(2.7)
8.9
(4.3)
0.8
(3.5)
(0.2)
5.2
14.5
(1.9)
3.3
0.1
3.4
1.7p
—
1.7p
1.6p
—
1.6p
5.3p
4.9p
107.7
(60.0)
47.7
(1.1)
(36.3)
25.2
(1.4)
(4.8)
(5.9)
(2.8)
10.3
(4.1)
(4.7)
(8.8)
(0.2)
1.3
14.9
(0.8)
0.5
0.8
1.3
0.3p
0.4p
0.7p
0.2p
0.4p
0.6p
5.4p
5.0p
2
4
4
4
17
5
8
15
10
10
10
10
10
10
10
10
* Adjusted profit before taxation is profit from continuing operations before taxation, amortisation of acquired intangibles, exceptional
costs, share of loss after tax of joint ventures and other finance income/(charges).
Comparatives have been restated to exclude the results of discontinued operations.
61
BUSINESS OVERVIEW CORPORATE GOVERNANCE STRATEGIC REPORT FINANCIAL STATEMENTSANNUAL REPORT AND ACCOUNTS 2013 SPORTECH PLC Consolidated statement of comprehensive income
for the year ended 31 December 2013
Profit for the year
Other comprehensive income:
Items that will not be reclassified to profit and loss
Actuarial gain/(loss) on retirement benefit obligations
Deferred tax on movement on retirement benefit obligations
Movement on derivative financial instruments
Deferred tax on movement on derivative financial instruments
Cumulative movement on derivative financial instruments –
reclassification adjustment to the income statement
Deferred tax on cumulative movement on derivative financial instruments –
reclassification adjustment to the income statement
Items that may be subsequently reclassified to profit and loss
Currency translation differences
Other comprehensive (expense)/income for the year, net of tax
Total comprehensive income for the year
Attributable to the owners of the parent arises from:
– Continuing operations
– Discontinued operations
Note
32
20
20
20
Group
2013
£m
3.4
0.3
(0.1)
—
—
—
—
0.2
(0.7)
(0.5)
2.9
2.8
0.1
2.9
2012
£m
1.3
(0.3)
0.1
0.4
(0.1)
3.3
(0.8)
2.6
(1.1)
1.5
2.8
2.0
0.8
2.8
62
FINANCIAL STATEMENTSSPORTECH PLC ANNUAL REPORT AND ACCOUNTS 2013 Statements of changes in equity
for the year ended 31 December 2013
Group
At 1 January 2012
Comprehensive income
Profit for the year
Other comprehensive income
Financial instrument reserve movement * (note 25)
Actuarial loss on retirement benefit obligations *
(note 32)
Currency translation differences
Total other comprehensive (expense)/income
Total comprehensive (expense)/income
Transactions with owners
Share option credit (note 26)
At 31 December 2012
Comprehensive income
Profit for the year
Other comprehensive income
Actuarial gain on retirement benefit obligations *
(note 32)
Currency translation differences
Total other comprehensive income/(expense)
Total comprehensive income/(expense)
Transactions with owners
Share option credit (note 26)
Employment taxes paid on vestings in the year
Shares issued in relation to PSP
At 31 December 2013
* Net of deferred tax.
Company
At 1 January 2012
Comprehensive income
Loss for the year
Other comprehensive income
Financial instrument reserve movement * (note 25)
Total other comprehensive income
Total comprehensive income/(expense)
Transactions with owners
Share option credit (note 26)
At 31 December 2012
Comprehensive expense
Loss for the year
Total comprehensive expense
Transactions with owners
Share option credit (note 26)
Employment taxes paid on vestings in the year
Shares issued in relation to PSP and reserve transfer
At 31 December 2013
* Net of deferred tax.
Other reserves
Ordinary
shares
£m
99.4
Share
option
reserve
£m
2.4
Pension
reserve
£m
Currency
translation
reserve
£m
Financial
instrument
reserve
£m
Retained
earnings
£m
Total
£m
(0.3)
0.3
(2.8)
32.2
131.2
—
1.3
—
—
—
—
—
—
—
99.4
—
—
—
—
—
—
—
3.0
102.4
—
—
—
—
—
—
1.4
3.8
—
—
—
—
—
1.5
(0.1)
(3.0)
2.2
—
—
(0.2)
—
(0.2)
(0.2)
—
(0.5)
—
—
—
(1.1)
(1.1)
(1.1)
—
(0.8)
—
—
0.2
—
0.2
0.2
—
—
—
—
(0.7)
(0.7)
(0.7)
—
—
—
(0.3)
(1.5)
1.3
2.8
(0.2)
(1.1)
1.5
2.8
1.4
—
—
—
—
1.3
—
33.5
135.4
3.4
3.4
—
—
—
3.4
—
—
—
0.2
(0.7)
(0.5)
2.9
1.5
(0.1)
—
36.9
139.7
2.8
—
—
2.8
2.8
—
—
—
—
—
—
—
—
—
—
—
Ordinary
shares
£m
Other reserve –
share option reserve
£m
Financial instrument
reserve
£m
Retained
earnings
£m
Total
£m
99.4
2.4
(2.8)
31.2
130.2
—
—
—
—
—
99.4
—
—
—
—
3.0
102.4
—
—
—
—
1.4
3.8
—
—
1.5
(0.1)
(3.0)
2.2
—
(3.9)
(3.9)
2.8
2.8
2.8
—
—
—
—
—
—
—
—
—
—
2.8
2.8
(3.9)
(1.1)
—
27.3
1.4
130.5
(10.9)
(10.9)
(10.9)
(10.9)
—
—
3.0
19.4
1.5
(0.1)
3.0
124.0
63
BUSINESS OVERVIEW CORPORATE GOVERNANCE STRATEGIC REPORT FINANCIAL STATEMENTSANNUAL REPORT AND ACCOUNTS 2013 SPORTECH PLC
Balance sheets
at 31 December 2013
ASSETS
Non-current assets
Goodwill
Intangible fixed assets
Property, plant and equipment
Investments in subsidiaries
Net investment in joint ventures
Trade and other receivables
Deferred tax assets
Current assets
Trade and other receivables
Inventories
Cash and cash equivalents
TOTAL ASSETS
LIABILITIES
Current liabilities
Overdraft
Derivative financial instruments
Financial liabilities
Trade and other payables
Provisions
Current tax liabilities
Net current liabilities
Non-current liabilities
Financial liabilities
Retirement benefit liability
Provisions
Deferred tax liabilities
TOTAL LIABILITIES
NET ASSETS
EQUITY
Ordinary shares
Other reserves
Retained earnings
TOTAL EQUITY
Group
Company
Note
2013
£m
11
12
13
14
17
18
20
18
19
21
21
25
24
22
23
24
32
23
20
26
Restated
2012
£m
153.1
47.4
16.1
—
0.5
—
1.3
2013
£m
2012
£m
—
13.1
0.1
203.7
—
—
1.0
—
13.9
0.1
201.2
—
—
1.3
153.1
42.7
21.6
—
0.5
0.3
1.8
220.0
218.4
217.9
216.5
9.0
1.5
2.6
13.1
233.1
—
(1.3)
(0.7)
(21.1)
(0.2)
(0.7)
(24.0)
(10.9)
(66.6)
(1.3)
(0.4)
(1.1)
(69.4)
(93.4)
139.7
102.4
0.4
36.9
139.7
8.0
1.6
2.9
12.5
230.9
—
(2.7)
(6.3)
(22.3)
(0.3)
(0.6)
(32.2)
(19.7)
(61.2)
(1.6)
(0.5)
—
(63.3)
(95.5)
135.4
99.4
2.5
33.5
135.4
15.3
—
0.2
15.5
233.4
—
(1.3)
—
(42.1)
—
—
(43.4)
(27.9)
9.6
—
—
9.6
226.1
(5.2)
(2.7)
(6.1)
(21.6)
—
—
(35.6)
(26.0)
(66.0)
(60.0)
—
—
—
(66.0)
(109.4)
124.0
102.4
2.2
19.4
124.0
—
—
—
(60.0)
(95.6)
130.5
99.4
3.8
27.3
130.5
Comparatives have been restated for the revision of the estimated contingent consideration payable for eBet Online Inc.
The financial statements on pages 61 to 108 were approved and authorised for issue by the Board of Directors on 5 March 2014
and were signed on its behalf by:
Ian Penrose
Chief Executive
Company Registration Number: SC69140
Cliff Baty
Chief Financial Officer
64
FINANCIAL STATEMENTSSPORTECH PLC ANNUAL REPORT AND ACCOUNTS 2013
Statements of cash flows
for the year ended 31 December 2013
Cash flows from operating activities
Cash generated from operations
Interest paid
Tax paid
Net cash generated from operating activities
before cash exceptional costs
Cash exceptional costs
Net cash generated from operating activities
Cash flows from investing activities
Investment in joint venture
Capital contribution
Acquisition of eBet Online Inc. net
of cash acquired
Acquisition of Datatote (England) Limited
net of cash acquired
Payment of deferred consideration
for Sportech Racing
Payment of deferred consideration for
eBet Online Inc.
Purchase of intangible fixed assets
Purchase of property, plant and equipment
Net cash used in investing activities
Cash flows from financing activities
Refinancing fee paid – exceptional cost
Net cash inflow/(outflow) from
drawdown/(repayment)
of borrowings
Net cash from/(used in) financing activities
Net (decrease)/increase in cash and cash
equivalents
Cash and cash equivalents at the beginning
of the year
Cash and cash equivalents at the end
of the year
Reconciliation of net bank debt
Decrease in cash in the year
Net cash (inflow)/outflow from (drawdown)/
repayment of borrowings
Movement in net bank debt for the year
At 1 January
At 31 December
Net bank debt comprises:
Cash and cash equivalents
Loans repayable after one year
At 31 December
Note
27
17
14
16
16
12
13
4
24
21
21
24
Group
2013
£m
24.4
(4.3)
(1.7)
18.4
(2.7)
15.7
(0.2)
—
—
(2.4)
(6.5)
(0.3)
(3.8)
(8.8)
(22.0)
—
6.0
6.0
(0.3)
2.9
2.6
(0.3)
(6.0)
(6.3)
(57.1)
(63.4)
2.6
(66.0)
(63.4)
2012
£m
26.6
(4.1)
(2.0)
20.5
(2.0)
18.5
(0.3)
—
(5.7)
—
—
—
(3.2)
(5.1)
(14.3)
(2.1)
(2.5)
(4.6)
(0.4)
3.3
2.9
(0.4)
2.5
2.1
(59.2)
(57.1)
2.9
(60.0)
(57.1)
Company
2013
£m
14.5
(4.3)
(0.2)
10.0
(1.4)
8.6
—
(2.5)
—
—
(6.5)
—
(0.2)
—
(9.2)
—
6.0
6.0
5.4
(5.2)
0.2
2012
£m
9.5
(4.1)
—
5.4
(0.5)
4.9
—
(5.7)
—
—
—
—
(0.1)
—
(5.8)
(2.1)
(2.5)
(4.6)
(5.5)
0.3
(5.2)
65
BUSINESS OVERVIEW CORPORATE GOVERNANCE STRATEGIC REPORT FINANCIAL STATEMENTSANNUAL REPORT AND ACCOUNTS 2013 SPORTECH PLC
Accounting policies
for the year ended 31 December 2013
General information
Sportech PLC (the “Company”) is a company domiciled and incorporated in the UK and listed on the London Stock
Exchange. The Company’s registered office is Collins House, Rutland Square, Edinburgh, Midlothian, Scotland EH1 2AA.
The consolidated financial statements of the Company as at and for the year ended 31 December 2013 comprise the
Company, its subsidiaries and joint ventures (together referred to as the “Group”). The principal activities of the Group
are sports betting entertainment and provision of wagering technology solutions.
Going concern
The Group has committed revolving credit banking facilities totalling £75m in place with Bank of Scotland plc,
Barclays Bank PLC and Royal Bank of Scotland plc until August 2015. The Group’s forecasts and projections, which have
been prepared for the period to 30 June 2015 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 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.
Basis of accounting
These financial statements have been prepared in accordance with International Financial Reporting Standards (“IFRSs”)
and International Financial Reporting Interpretation Committee (“IFRIC”) interpretations as adopted by the European
Union (“IFRSs as adopted by the European Union”) and with those parts of the Companies Act 2006 applicable to
companies reporting under IFRSs. The financial statements have been prepared under the historical cost convention,
as modified by the revaluation of certain financial assets and financial liabilities (including derivative instruments) at fair
value through profit or loss.
Comparatives have been restated to exclude the results of discontinued operations and also for the revision of the estimated
contingent consideration payable for eBet Online Inc. and the resultant decrease in goodwill recognised.
The Group’s accounting policies have been set by management, approved by the Audit Committee and consistently
applied. The preparation of financial statements in conformity with IFRSs requires the use of estimates and assumptions
that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts
of revenues and expenses during the reporting period. Although these estimates are based on management’s best
knowledge of the amount, event or actions, actual results ultimately may differ from those estimates.
(a) Critical judgements
Critical judgements have been made in the following areas:
Carrying value of goodwill and acquired intangible fixed assets
For the purposes of determining whether an impairment of goodwill and intangibles from the Littlewoods, Vernons
and eBet Online Inc. acquisitions has occurred, and the extent of any impairment or its reversal, the key assumptions the
Group uses in estimating future cash flows for value-in-use measures are spend per player, impact of the introduction of
new distribution routes and extra pool games, revenue from customer contracts, and cost reductions from ongoing cost
reviews. These assumptions and the judgements of management that are based on them are subject to change as new
information becomes available. Changes in economic conditions and government policy can also affect the rate used to
discount future cash flow estimates. The discount rate applied is reviewed annually. Changes in assumptions could affect
the carrying amounts of assets and impairment charges and reversals will affect income. Further details are disclosed
within notes 11 and 12.
Value of other intangible fixed assets
Intangible assets recognised on the Group’s balance sheet include software assets and licences. Management is required
to assess the carrying value of assets with an indefinite life at least annually and other assets when an indication of
impairment arises. The key assumptions used in estimating the future cash flows for value-in-use measures include
estimating capital expenditure and projected revenue levels. For fair value measures, external market information of resale
valuations is used to estimate recoverable amount. Management uses its judgement and industry knowledge as well as
external indicators in the assessments of carrying value of intangible fixed assets. Changes in assumptions could affect
the carrying amounts of assets. Further details are disclosed within note 12.
Fair value of assets acquired and liabilities assumed on acquisition of subsidiaries
The Group is required to recognise assets acquired and liabilities assumed at fair value at the date of acquisition under
IFRS 3 ‘Business Combinations’ (revised). Management takes into account where required independent valuation of
assets or where market valuations are not available, the future discounted cash flows expected to be generated by the
assets acquired. Where further information arises in the twelve months post acquisition, relevant to the fair value of assets
acquired and liabilities assumed, those valuations are revised and restated in the prior year comparative amounts.
During the year, the Group acquired Datatote (England) Limited (“Data Tote”); further details of the fair value of assets
acquired and liabilities assumed, together with the judgements made, are disclosed within note 16.
66
FINANCIAL STATEMENTSSPORTECH PLC ANNUAL REPORT AND ACCOUNTS 2013 Basis of accounting continued
(a) Critical judgements continued
Share options
The fair value of employee options awarded under the Sportech Share Option Scheme is calculated using the Black-Scholes
model. The fair value of employee PSP awards is valued using a stochastic (Monte Carlo) valuation model. In accordance
with IFRS 2, the resulting cost is charged to the income statement over the vesting period of the options/awards. At each
balance sheet date, management uses its judgement to revise its estimates of the number of options that are expected
to vest. It recognises the impact of the revision to original estimates in the income statement, with a corresponding
adjustment to equity.
Taxation
Tax provisions are recognised when it is considered probable (more likely than not) that there will be a future outflow
of funds to a taxing authority. In such cases, provision is made for the amount that is expected to be settled, where this
can be reasonably estimated. This requires the application of judgement as to the ultimate outcome, which can change
over time depending on facts and circumstances. A change in estimate of the likelihood of a future outflow and/or in
the expected amount to be settled would be recognised in income in the period in which the change occurs. Deferred
tax assets are recognised only to the extent it is considered probable that those assets will be recoverable. This involves
an assessment of when those deferred tax assets are likely to reverse, and a judgement as to whether or not there will
be sufficient taxable profits available to offset the tax assets when they do reverse. This requires assumptions regarding
future profitability and is therefore inherently uncertain. To the extent assumptions regarding future profitability change,
there can be an increase or decrease in the amounts recognised in respect of deferred tax assets as well as the amounts
recognised in income in the period in which the change occurs. Tax provisions are based on enacted or substantively
enacted laws. Changes in those laws could affect amounts recognised in income both in the period of change, which
would include any impact on cumulative provisions, and in future periods. Note 20 contains information on tax charges,
on the deferred tax assets that are recognised, including periodic movements, and on the losses on which deferred tax
is not currently recognised.
A summary of the more important Group accounting policies is set out on pages 66 to 74. These policies have been
applied consistently to all the years presented.
(b) Basis of consolidation
The consolidated financial statements include the accounts of the Company and its subsidiaries, together with a
share of the results, assets and liabilities of its joint ventures using the equity method of accounting, all of which have
consistent reporting dates with the Company. The Company’s accounting reference date is 31 December. Consistent with the
normal monthly reporting process, the actual date to which the balance sheet has been drawn up is to 5 January 2014
(2012: 30 December 2012). For ease of reference in these financial statements, all references to the results for the year
are for the year ended 31 December 2013 (2012: 31 December 2012) and the financial position at 31 December 2013
(2012: 31 December 2012).
(c) Subsidiaries
Subsidiaries are all entities over which the Group has the power to govern the financial and operating policies generally
accompanying a shareholding of more than one-half of the voting rights. The existence and effect of potential voting rights
that are currently exercisable or convertible are considered when assessing whether the Group controls another entity.
Subsidiaries are fully consolidated from the date on which control is transferred to the Group. They are de-consolidated from
the date that control ceases.
The purchase method of accounting is used to account for the acquisition of subsidiaries by the Group. The consideration
transferred for the acquisition of a subsidiary is the fair value of the assets given, equity instruments issued and liabilities
incurred or assumed at the date of exchange. The consideration transferred includes the fair value of any asset or liability
resulting from a contingent consideration arrangement. Contingent consideration is recognised at fair value at the acquisition
date and re-measured at each balance sheet date until settlement. The revaluation amount is debited/credited to the income
statement in the period in which the estimated fair value is increased/decreased. Acquisition related costs are expensed as
incurred. Identifiable assets acquired and liabilities and contingent liabilities assumed in a business combination are measured
initially at their fair values at the acquisition date. The excess of the cost of acquisition over the fair value of the Group’s share
of the identifiable net assets acquired is recorded as goodwill. If the cost of acquisition is less than the fair value of the net
assets of the subsidiary acquired, the difference is recognised directly in the income statement.
Inter-company transactions, balances and unrealised gains on transactions between Group companies are eliminated.
Unrealised losses are also eliminated but considered an impairment indicator of the asset transferred. Accounting policies
of subsidiaries have been changed where necessary to ensure consistency with the policies adopted by the Group.
67
BUSINESS OVERVIEW CORPORATE GOVERNANCE STRATEGIC REPORT FINANCIAL STATEMENTSANNUAL REPORT AND ACCOUNTS 2013 SPORTECH PLC Accounting policies continued
for the year ended 31 December 2013
Basis of accounting continued
(d) Joint ventures
A joint venture is an entity in which the Group holds an interest on a long term basis and which is jointly controlled
by the Group and one or more venturers under a contractual agreement. The Group’s share of its joint ventures’ post
acquisition profits and losses is recognised in the income statement and its share of post acquisition movements in other
comprehensive income is recognised in other comprehensive income. The cumulative post acquisition movements are
adjusted against the carrying amount of the investment. When the Group’s share of losses in a joint venture equals or
exceeds its interest in the joint venture, including any other unsecured receivables, the Group does not recognise further
losses, unless it has incurred obligations or made payments on behalf of the joint venture.
Unrealised gains on transactions between the Group and its joint venture are eliminated to the extent of the Group’s
interest in the joint venture. Unrealised losses are also eliminated unless the transaction provides evidence of an
impairment of the asset transferred. The accounting policies of the joint venture have been changed where necessary
to ensure consistency with the policies adopted by the Group.
(e) Revenue
Revenue from external customers, net of VAT, excise duties, returns, rebates and discounts and after eliminating sales
within the Group, represents:
the value of entry fees, net of winnings paid, receivable in respect of Football Pools recognised on the date of the event;
e-Gaming revenues, being the net amount receivable from various contracted third parties after certain deductions
for outsourced e-Gaming activities and gains and losses from wagering activity in the period where the Group is the 'bet
taker' and gaming licence holder. As well as gains and losses from positions that have closed, revenue from online poker
reflects the net income (“rake”) earned from poker games and various poker tournament fees completed by the period end;
the value of bets, net of winnings paid, received in relation to fixed-odds betting activities recognised on the date
of the event;
the value of goods and services sold to external customers, including management fees to registered charities for
the management of charity lotteries, is recognised when the goods and services are consumed;
sale of terminals and systems, recognised when significant risks and rewards of ownership have been transferred,
which is when title passes to the customer, generally being at the point of customer acceptance; and
the value of services delivered under service contracts generally based on either a percentage of amounts wagered
or on a predetermined fixed amount depending on contract terms.
Although the value of entry fees net of winnings paid and the value of bets net of winnings paid is reported as revenue,
both meet the definition of a gain under IAS 39 ‘Financial Instruments: Recognition and Measurement’. Under multiple
element arrangements, revenue is allocated to the various elements based on fair value determined by the price charged
when the same element is sold separately.
(f) Accruals and deferred income
Accruals and deferred income includes the value of stakes placed prior to the end of the financial period in respect
of competitions and sporting events held subsequent to the end of the financial period and income received in advance
of a service or product being delivered.
(g) 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, which makes strategic and operational decisions.
The Group has identified its business segments as outlined below:
Football Pools – Football Pools and associated games through traditional channels such as mail, telephone, agent-based
collection, retail outlets, third-party licensed betting offices, and through online and digital channels;
Sportech Racing and Digital – provision of pari-mutuel wagering services and systems worldwide principally to the
horseracing industry;
Sportech Venues – off-track betting venue management; and
corporate costs – central costs relating to the Company in its capacity as the PLC holding company of the Group.
68
FINANCIAL STATEMENTSSPORTECH PLC ANNUAL REPORT AND ACCOUNTS 2013 Basis of accounting continued
(h) Taxation
The current income tax charge is calculated on the basis of the tax laws enacted or substantively enacted at the balance
sheet date in the countries where the Company and its subsidiaries operate and generate taxable income. Management
periodically evaluates positions taken in tax returns with respect to situations in which applicable tax regulation is subject
to interpretation and establishes provisions where appropriate on the basis of amounts expected to be paid to the
tax authorities.
Tax is recognised in the income statement, except to the extent that it relates to items recognised in other comprehensive income
or directly in equity. In this case, the tax is also recognised in other comprehensive income or directly in equity, respectively.
Deferred income tax is provided in full, using the liability method, on temporary differences arising between the tax bases
of assets and liabilities and their carrying amounts in the consolidated financial statements. However, the deferred income
tax is not accounted for if it arises from initial recognition of an asset or liability in a transaction other than a business
combination that, at the time of the transaction, affects neither accounting nor taxable profit or loss. Deferred income tax
is determined using tax rates (and laws) that have been enacted or substantially enacted by the balance sheet date and
are expected to apply when the related deferred income tax asset is realised or the deferred income tax liability is settled.
Deferred income tax assets are recognised to the extent that it is probable that future taxable profit will be available
against which the temporary differences can be utilised.
Deferred income tax is provided on temporary differences arising on investments in subsidiaries, except where the timing
of the reversal of the temporary difference is controlled by the Group and it is probable that the temporary difference will
not reverse in the foreseeable future.
Deferred income tax assets and liabilities are offset when there is a legally enforceable right to offset current tax assets
against current tax liabilities and when the deferred income tax assets and liabilities relate to income taxes levied by the
same taxation authority, on either the same or different taxable entities, where there is an intention to settle the balances
on a net basis.
(i) Foreign currencies
Functional and presentation currency
Items included in the financial statements of each of the Group’s entities are measured using the currency of the primary
economic environment in which the entity operates (the “functional currency”). The consolidated financial statements are
presented in Sterling (£), which is the Company’s functional currency and the Group’s presentation currency.
Transactions and balances
Transactions in foreign currencies are translated into the functional currency at the rate of exchange ruling at the date of
the transaction. Monetary assets and liabilities in foreign currencies are translated at the rates of exchange ruling at the
balance sheet date. Foreign exchange gains and losses, resulting from the settlement of such transactions and from the
translation at year end exchange rates of monetary assets and liabilities denominated in foreign currencies, are recognised
in the income statement, except where deferred in other comprehensive income as qualifying cash flow hedges.
Foreign exchange gains and losses that relate to borrowings and cash and cash equivalents are presented in the income
statement within finance income or costs. All other foreign exchange gains and losses are presented in the income
statement within operating profit.
Group companies
The results and financial position of all the Group entities (none of which has the currency of a hyperinflationary economy)
that have a functional currency different from the presentation currency are translated into the presentation currency as follows:
assets and liabilities for each balance sheet presented are translated at the closing rate at the date of that balance sheet;
income and expenses for each income statement are translated at average exchange rates (unless this average is not a
reasonable approximation of the cumulative effect of the rates prevailing on the transaction dates, in which case income
and expenses are translated at the rate on the dates of the transactions); and
all resulting exchange differences are recognised in other comprehensive income.
Goodwill and fair value adjustments arising on the acquisition of a foreign entity are treated as assets and liabilities of the
foreign entity and translated at the closing rate.
69
BUSINESS OVERVIEW CORPORATE GOVERNANCE STRATEGIC REPORT FINANCIAL STATEMENTSANNUAL REPORT AND ACCOUNTS 2013 SPORTECH PLC Accounting policies continued
for the year ended 31 December 2013
Basis of accounting continued
(j) Property, plant and equipment
Property, plant and equipment are carried at historical cost less accumulated depreciation and any impairment. Cost
includes the original purchase price of the asset and the costs attributable in bringing the asset to its working condition
for its intended use and any associated borrowing costs. Assets in the course of construction are not depreciated until
the asset is completed. Subsequent costs are included in the asset’s carrying amount or recognised as a separate asset,
as appropriate, only when it is probable that future economic benefits associated with the item will flow to the Group and
the cost of the item can be measured reliably. The carrying amount of the replaced part is derecognised. All other repairs
and maintenance are charged to the income statement during the financial period in which they are incurred.
Gains and losses on disposals are determined by comparing the proceeds with the carrying amount and are recognised
within administrative expenses in the income statement.
Assets in the course of construction are capitalised when first brought into use and depreciated from this date.
(k) Depreciation
Depreciation is provided on a straight-line basis to write off the cost of property, plant and equipment down to residual
value over their anticipated useful lives at the following annual rates:
Long leasehold and owned land
Not depreciated
Long leasehold and owned buildings
4.0%–5.0%
Short leasehold land and buildings
Over the period of the lease
Plant, equipment and other fixtures and fittings
10.0%–33.3%
The assets’ residual values and useful lives are reviewed, and adjusted if appropriate, at each balance sheet date.
(l) Goodwill
Goodwill arising on consolidation represents the excess of the fair value of consideration given over the fair value of
the separately identifiable net assets acquired. Goodwill arising on acquisitions before the date of transition to IFRSs
(4 January 2005) has been frozen at the previous UK GAAP net book value at the date of transition, subject to being
tested for impairment annually at the year end date.
Goodwill is allocated to cash-generating units (“CGU”) for the purpose of impairment testing. The allocation is made
to the CGU that is expected to benefit from the business combination in which the goodwill arose.
Goodwill is carried at cost less accumulated impairment losses.
(m) Intangible fixed assets
Intangible fixed assets are held at cost less accumulated amortisation and impairment. Amortisation is charged on a
straight-line basis over the estimated useful life of the intangible fixed asset.
Customer contracts and relationships
Intangible customer contracts and relationship assets relate to the acquisition of Vernons, eBet Online Inc. and Datatote
(England) Limited. Customer contracts and relationships are capitalised in accordance with IFRS 3 ‘Business Combinations’
(revised) and on the basis of a value-in-use calculation using an income-based approach. Amortisation is calculated using
the straight-line method over their estimated useful lives as follows:
Vernons
five years from 1 July 2009
eBet Online Inc.
four years from 19 December 2012
Datatote (England) Limited
four years from 27 September 2013
70
FINANCIAL STATEMENTSSPORTECH PLC ANNUAL REPORT AND ACCOUNTS 2013
Basis of accounting continued
(m) Intangible fixed assets continued
Software
Externally acquired computer software licences are capitalised on the basis of the costs incurred to acquire and bring to
use the specific software. These costs are amortised over their estimated useful lives or contractual period if shorter (six to
ten years).
Development costs that are directly attributable to the design and testing of identifiable and unique software products
controlled by the Group are recognised as intangible assets when the following criteria are met:
it is technically feasible to complete the software product so that it will be available for use;
management intends to complete the software product;
it can be demonstrated how the software product will generate probable future economic benefits;
adequate technical, financial and other resources to complete the development and to use or sell the software product
are available; and
the expenditure attributable to the software product during its development can be reliably measured.
Directly attributable costs that are capitalised as part of the software product include the software development employee
costs and an appropriate proportion of relevant overhead. Other development expenditure that does not meet these
criteria are recognised as an expense as incurred. Development costs previously recognised as an expense are not
recognised as an asset in a subsequent period.
Software development costs are amortised over their estimated useful lives, which do not exceed 15 years.
Other intangibles
Other intangible assets include intangible assets acquired as part of the Vernons acquisition which include distribution
agreement assets. These assets are amortised over their contractual period (five years). Also included within other
intangibles are separately acquired licences recognised at historical cost. Licences acquired in a business combination are
recognised at fair value at the acquisition date. Licences that have a finite useful life are carried at cost less accumulated
amortisation. Amortisation is calculated using the straight-line method to allocate cost of licences over their estimated
useful lives of 15 to 20 years. Licences with an infinite life (licences granted in perpetuity) are held at cost or fair value at
acquisition date and tested annually for impairment.
During 2012, the Group acquired eBet Online Inc., giving rise to the recognition of licences, trade names and a non-compete
agreement. The trade name fair value has been determined through a relief from royalty method and is amortised over two
years from 19 December 2012. The non-compete agreement fair value was derived from a comparative income differential
method and is amortised over the life of the agreement being three years.
(n) Investments in subsidiaries
Investments in subsidiaries are carried at historic cost less any impairment. Annual impairment reviews are performed.
(o) Impairment reviews
Assets that are subject to amortisation or depreciation are reviewed for impairment whenever events or changes in
circumstances indicate that the carrying amount may not be recoverable. Goodwill and intangible assets with indefinite
lives are subject to an annual review for impairment in accordance with IAS 36 ‘Impairment of Assets’. The recoverable
amount is the higher of an asset’s fair value less costs to sell and value in use. For the purpose of assessing impairments,
assets are grouped at the lowest levels at which there are separately identifiable cash flows. Any impairment losses are
recognised in the income statement in the year in which they occur. Any impairment loss recognised on goodwill is
not reversed.
All other individual assets are tested for impairment whenever events or changes in circumstances indicate that the
carrying amount may not be recoverable. With the exception of goodwill, all assets are subsequently reassessed for
indications that an impairment loss previously recognised may no longer exist at each reporting date.
(p) Pension obligation
The Group operates various pension schemes. The schemes are generally funded through payments to insurance
companies or Trustee administered funds, determined by periodic actuarial calculations. The Group has both defined
benefit and defined contribution plans. A defined contribution plan is a pension plan under which the Group pays fixed
contributions into a separate entity. The Group has no legal or constructive obligations to pay further contributions if
the fund does not hold sufficient assets to pay all employees the benefits relating to employee service in the current and
prior periods. A defined benefit plan is a pension plan that is not a defined contribution plan. Typically, defined benefit
plans define an amount of pension benefit that an employee will receive on retirement, usually dependent on one or more
factors such as age, years of service and compensation.
71
BUSINESS OVERVIEW CORPORATE GOVERNANCE STRATEGIC REPORT FINANCIAL STATEMENTSANNUAL REPORT AND ACCOUNTS 2013 SPORTECH PLC Accounting policies continued
for the year ended 31 December 2013
Basis of accounting continued
(p) Pension obligation continued
The asset or liability recognised in the balance sheet in respect of the defined benefit pension plan is the fair value of plan
assets less the present value of the defined benefit obligation at the balance sheet date. The defined benefit obligation
is calculated annually by independent actuaries using the projected unit credit method. The present value of the defined
benefit obligation is determined by discounting the estimated future cash outflows using interest rates of high quality
corporate bonds that are denominated in the currency in which the benefits will be paid and that have terms to maturity
approximating to the terms of the related pension liability.
Actuarial gains and losses arising from experience adjustments and changes in actuarial assumptions are charged or
credited to equity in other comprehensive income in the period in which they arise.
Past service costs are recognised immediately in income.
For defined contribution plans, the Group pays contributions to privately administered pension insurance plans on a
mandatory, contractual or voluntary basis. The Group has no further payment obligations once the contributions have
been paid. The contributions are recognised as an employee benefit expense when they are due. Prepaid contributions
are recognised as an asset to the extent that a cash refund or a reduction in future payments is available.
(q) Financial instruments
The Group uses derivative financial instruments to reduce exposure to interest rate and exchange rate movements. The
Group does not hold or issue derivative financial instruments for speculative purposes. Financial assets and liabilities are
recognised on the Group’s balance sheet initially at fair value when the Group becomes party to the contractual provisions
of the instrument. Subsequent measurement depends on the designation of the instrument in accordance with IAS 39
‘Financial Instruments: Recognition and Measurement’.
Derivative financial instruments and hedging activities
Derivatives are initially recognised at fair value on the date a derivative contract is entered into and are subsequently
re-measured at their fair value. The method of recognising the resulting gain or loss depends on whether the derivative
is designated as a hedging instrument and, if so, the nature of the item being hedged. The Group designates certain
derivatives as hedges of the variability of cash flows (cash flow hedge).
The Group documents, at the inception of the transaction, the relationship between hedging instruments and hedged
items as well as its risk management objective and strategy for undertaking various hedge transactions. The Group also
documents its assessment, both at hedge inception and on an ongoing basis, of whether the derivatives that are used in
hedging transactions are highly effective in offsetting changes in the cash flows of the hedged items.
Cash flow hedges
The effective portion of changes in the fair value of derivatives that are designated and qualify as cash flow hedges is
recognised in other comprehensive income. The gain or loss relating to the ineffective portion is recognised immediately
in the income statement.
Amounts accumulated in equity are recycled in the income statement in the periods when the hedged item will affect
profit or loss (for example, when the forecast transaction that is hedged takes place). However, when the forecast
transaction that is hedged results in the recognition of a non-financial asset or a liability, the gains and losses previously
deferred in equity are transferred from equity and included in the initial measurement of the cost of the asset or liability.
When a hedging instrument expires or is sold, or when a hedge no longer meets the criteria for hedge accounting, any
cumulative gain or loss existing in equity at that time remains in equity and is recognised when the forecast transaction is
ultimately recognised in the income statement. When a forecast transaction is no longer expected to occur, the cumulative
gain or loss that was reported in equity is immediately transferred to the income statement.
(r) Share-based payments
The fair value of employee options awarded under the Sportech Share Option Scheme is calculated using the Black-Scholes
model. The fair value of employee PSP awards is valued using a stochastic (Monte Carlo) valuation model. In accordance
with IFRS 2, the resulting cost is charged to the income statement over the vesting period of the options/awards. The total
amount to be expensed is determined by reference to the fair value of the options/awards granted including any market
performance conditions, which are those that are based on Sportech PLC’s share price, and excluding the impact of any
service and non-market performance vesting conditions, being profitability and remaining an employee over a specified
time period. At each balance sheet date, the Company revises its estimates of the number of options that are expected to
vest. It recognises the impact of the revision to original estimates, if any, in the income statement, with a corresponding
adjustment to equity.
The charge in relation to employees who provide services to subsidiary companies is recharged to those subsidiaries.
Where the charge is not required to be settled in cash, the Company’s investment in that subsidiary is increased by the
value of the charge and a corresponding increase in equity is recognised in the subsidiary.
72
FINANCIAL STATEMENTSSPORTECH PLC ANNUAL REPORT AND ACCOUNTS 2013 Basis of accounting continued
(s) Cash and cash equivalents
For the purposes of the cash flow statement, cash and cash equivalents represent cash in hand, operational cash held at
trading venues and cash held in current accounts with banks, including overdrafts. Cash and cash equivalents shown on
the balance sheet represent cash in hand, cash in vaults and cash held in current accounts; bank overdrafts are shown
within current liabilities.
(t) Borrowings
Borrowings are recognised initially at fair value, net of transaction costs incurred. Borrowings are subsequently stated at
amortised cost; any difference between the proceeds (net of transaction costs) and the redemption value is recognised in
the income statement over the period of the borrowings using the effective interest method. Borrowings are classified as
current liabilities unless the Group has an unconditional right to defer settlement of the liability for at least twelve months
after the balance sheet date.
(u) Exceptional items
The Group defines exceptional items as those items which, by their nature or size, would distort the comparability of the
Group’s results from year to year.
(v) Trade receivables
Trade receivables are recognised initially at fair value and subsequently measured at amortised cost using the effective
interest method, less provision for impairment being the difference between the assets’ carrying amounts and the
present value of the estimated future cash flows, discounted at the original effective interest rate. Individually significant
receivables are considered for impairment when they are past due or when other objective evidence is received that a
specific customer will default or delinquency in payment will arise. Any subsequent recovery of amounts written off is
credited to the income statement.
(w) Trade payables
Trade payables are recognised initially at fair value and subsequently measured at amortised cost using the effective
interest method.
(x) Inventories
Inventories are stated at the lower of cost and net realisable value. Cost is determined using the first in, first out method.
Net realisable value is the estimated selling price in the ordinary course of business.
(y) Provisions
Provisions for onerous contracts, onerous leases, restructuring costs, legal claims and dilapidations are recognised
when the Group has a present legal or constructive obligation as a result of past events; it is probable that an outflow
of resources will be required to settle the obligation; and the amount has been reliably estimated. Provisions are not
recognised for future operating losses where the Group has no contractual obligation to deliver the service or product.
(z) Leases
Leases in which a significant portion of the risks and rewards of ownership are retained by the lessor are classified as
operating leases. Payments made under operating leases (net of any incentives received from the lessor) are charged to
the income statement on a straight-line basis over the period of the lease.
(aa) Share capital
Ordinary shares are classed as equity. Incremental costs directly attributable to the value of new shares or options are
shown in equity as a deduction from the proceeds in the share premium account where the shares were issued at a
premium or, where issued at par or where the issue costs exceed the premium on the issue, to retained earnings.
(ab) Discontinued operations
Cash flows and operations that relate to a major component of the business that has been sold or is classified as held for
sale are shown separately from continuing operations. Finance income or costs are included in discontinued operations
only in respect of financial assets or liabilities classified as held for sale or derecognised on sale.
73
BUSINESS OVERVIEW CORPORATE GOVERNANCE STRATEGIC REPORT FINANCIAL STATEMENTSANNUAL REPORT AND ACCOUNTS 2013 SPORTECH PLC Accounting policies continued
for the year ended 31 December 2013
Basis of accounting continued
(ac) New standards, amendments and interpretations adopted by the Group
The following new standards and amendments to standards or interpretations are mandatory for the first time for the
financial year beginning 1 January 2013 and have been adopted by the Group.
Standard or interpretation
IAS 19R (revised 2011)
Amendments to IFRS 1
Amendment to IFRS 7
IFRS 10, 11 and 12
IFRS 13
Amendment to IAS 1
Amendment to IAS 12
Content
Employee Benefits
First-time Adoption, on government loans, fixed dates
and hyperinflation
Applicable for
financial years
beginning
on or after
1 January 2013
1 January 2013
Financial Instruments Assets and Liabilities Offsetting
1 January 2013
Consolidation for Investment Entities
Fair Value Measurement
Financial Statement Presentation
Income Taxes
1 January 2013
1 January 2013
1 July 2012
1 January 2013
1 January 2013
Annual improvements to IFRSs 2011
Various
Under IAS 19R the interest cost on the defined benefit obligation, and the expected rate of return on plan assets, has
been replaced with a net interest charge that is calculated by applying the discount rate to the net defined benefit liability.
In addition, administration expenses must be charged to the income statement.
The prior period income statement and statement of comprehensive income for the year ended 31 December 2012 have
not been restated, as the impacts to profit and other comprehensive income are not material to the Group.
The Group has adopted IFRS 13 ‘Fair Value Measurement’. It establishes a single source of guidance for fair value
measurements. The standard defines fair value, establishes a framework for measuring fair value, and requires disclosures
about fair value measurements. In general, the disclosure requirements in IFRS 13 are more extensive than those required in
the current standards. The adoption of this standard did not have a significant impact on the results or financial position of
the Group; however, additional disclosures to reflect the requirements of the standard have been included in these financial
statements for the year ended 31 December 2013.
(ad) New standards, amendments and interpretations not yet effective and not adopted by
the Group
The following standards, amendments and interpretations are not yet effective and have not been adopted early by the Group.
Applicable for
financial years
beginning
on or after
1 January 2015
1 January 2014
1 January 2014
1 January 2014
1 January 2014
1 January 2014
1 January 2014
1 January 2014
Standard or interpretation
Content
Amendments to IFRS 9
Amendments to IAS 27
Amendments to IFRS 10
Amendments to IAS 32
Amendments to IFRS 12
Amendments to IAS 36
IAS 27R (revised 2011)
IAS 28R (revised 2011)
Amendments to IAS 39
IFRIC 21
Annual improvements 2012 and 2013
Financial Instruments
Separate Financial Statements
Consolidated Financial Statements
Financial Instruments – Presentation
Disclosure of Interests in Other Entities
Impairment of Assets
Separate Financial Statements
Associates and Joint Ventures
Financial Instruments: Recognition and Measurement
1 January 2014
Levies
Various
1 January 2014
1 January 2014
None of the above are expected to have a material impact on the financial statements of the Group or Parent Company.
74
FINANCIAL STATEMENTSSPORTECH PLC ANNUAL REPORT AND ACCOUNTS 2013 Notes to the financial statements
for the year ended 31 December 2013
1. Segmental reporting
The Executive Committee assesses the performance of the operating segments based on a measure of adjusted EBITDA
which excludes the effects of non-recurring expenditure such as restructuring costs and impairments of assets. The share
option expense is also excluded. Interest is not allocated to segments as the Group’s cash position is controlled by the
central finance team. Sales between segments are at arm’s length.
Revenue from sale of goods
Revenue from rendering of services
Total revenue
EBITDA before exceptional costs and share
option expense
Share option expense
Depreciation and amortisation (excluding amortisation
of acquired intangibles)
Segment result before amortisation of acquired
intangibles and exceptional costs
Amortisation of acquired intangibles
Exceptional costs
Operating profit/(loss)
Net finance costs
Share of loss after tax of joint ventures
Profit before taxation
Taxation
Profit for the year from continuing operations
Profit for the year from discontinued operations
Profit for the year
Segment assets
Segment liabilities
Other segment items
Capital expenditure (intangible fixed assets
and property, plant and equipment)
Depreciation
Amortisation of intangible assets (including
acquired intangibles)
Discontinued activities:
Loss on disposal of tangible and intangible assets
2013
Sportech
Racing
and
Digital
£m
Football
Pools
£m
Sportech
Venues
£m
Corporate
costs
£m
Inter-
segment
elimination
£m
41.3
—
41.3
17.4
—
4.1
31.8
35.9
7.7
—
—
34.1
34.1
4.8
—
—
—
—
(3.8)
(1.5)
(1.4)
(2.9)
(1.4)
—
(0.1)
(0.9)
(1.0)
(0.1)
—
—
Group
£m
45.3
65.0
110.3
26.0
(1.5)
(5.7)
16.0
(5.9)
(0.4)
9.7
4.8
(1.3)
(0.6)
2.9
3.4
—
(0.3)
3.1
(5.3)
(0.1)
18.8
—
(1.4)
(6.7)
—
—
(0.1)
(7.2)
(2.7)
8.9
(3.5)
(0.2)
5.2
(1.9)
3.3
0.1
3.4
193.4
(13.4)
39.0
(9.7)
29.2
22.9
(51.4)
233.1
(19.0)
(102.4)
51.1
(93.4)
2.4
0.3
7.0
0.4
6.4
1.7
2.5
—
3.6
1.2
0.2
—
0.2
—
—
—
—
—
—
—
12.6
3.2
9.7
0.4
75
BUSINESS OVERVIEW CORPORATE GOVERNANCE STRATEGIC REPORT FINANCIAL STATEMENTSANNUAL REPORT AND ACCOUNTS 2013 SPORTECH PLC
Notes to the financial statements continued
for the year ended 31 December 2013
1. Segmental reporting continued
Revenue from sale of goods
Revenue from rendering of services
Total revenue
EBITDA before exceptional costs and share
option expense
Share option expense
Depreciation and amortisation (excluding amortisation
of acquired intangibles)
Segment result before amortisation of acquired
intangibles and exceptional costs
Amortisation of acquired intangibles
Exceptional costs
Operating profit/(loss)
Net finance costs
Share of loss after tax of joint venture
Profit before taxation
Taxation
Profit for the year from continuing operations
Profit for the year from discontinued operations
Profit for the year
Segment assets
Segment liabilities
Other segment items
Capital expenditure (intangible fixed assets
and property, plant and equipment)
Depreciation
Amortisation of intangible assets (including
acquired intangibles)
Discontinued activities:
Amortisation of intangible assets
Information by geographical area
United Kingdom
North America
Europe
Other
Total
2012 (Restated)
Sportech
Racing
and
Digital
£m
Football
Pools
£m
Sportech
Venues
£m
Corporate
costs
£m
Inter-
segment
elimination
£m
42.9
—
42.9
18.8
—
4.3
27.4
31.7
5.5
—
—
33.7
33.7
4.7
—
—
—
—
(3.7)
(1.4)
(0.2)
(0.4)
(0.6)
(0.1)
—
Group
£m
47.0
60.7
107.7
25.2
(1.4)
(1.3)
(2.2)
(1.4)
—
0.1
(4.8)
17.5
(5.9)
(0.7)
10.9
3.3
—
(1.3)
2.0
3.3
—
(0.1)
3.2
(5.1)
—
(0.7)
(5.8)
—
—
—
—
19.0
(5.9)
(2.8)
10.3
(8.8)
(0.2)
1.3
(0.8)
0.5
0.8
1.3
186.4
29.0
(9.5)
(14.4)
28.9
(9.4)
14.6
(90.0)
(28.0)
230.9
27.8
(95.5)
2.7
0.4
6.8
0.4
4.4
0.9
1.3
—
1.1
1.4
—
—
0.1
—
—
—
—
(0.1)
—
—
8.3
2.6
8.1
0.4
Revenues from external customers
Non-current assets
2013
£m
43.6
54.0
11.8
0.9
110.3
Restated
2012
£m
43.0
50.9
11.1
2.7
107.7
2013
£m
173.7
43.6
2.7
—
220.0
2012
£m
178.9
37.8
1.7
—
218.4
Revenue is allocated to the country in which the customer is located and the service is performed or product is delivered.
Comparatives have been restated to exclude the results of discontinued operations and also for the revision of the estimated
contingent consideration payable for eBet Online Inc. and the resultant decrease in goodwill recognised. See note 16b.
76
FINANCIAL STATEMENTSSPORTECH PLC ANNUAL REPORT AND ACCOUNTS 2013
2. Exceptional costs
Exceptional charges of £2.7m (2012: £2.8m) are included within administrative expenses and exceptional income of £1.4m
(2012: charge of £4.9m) is included within net finance costs in the income statement. Exceptional costs by type are as follows:
2013
£m
2012
£m
Included in administrative expenses:
Redundancy and restructuring costs in respect of the rationalisation
and modernisation of the business
Compensation for loss of office
Costs and fees in relation to Spot the Ball VAT claim
Transaction costs in respect of the acquisition of subsidiaries
Licensing costs in New Jersey in respect of the acquisition of Sportech Racing
IFRS 3 employment costs in relation to eBet Online Inc. and Datatote (England) Limited
Other exceptional costs
Included in net finance costs:
Refinancing fee
Fair value of derivative financial instruments reclassified to the income statement
Movement on derivative financial instruments post designation as ineffective
Total exceptional costs
3. Expenses by nature
Continuing operations:
Selling commissions
Betting and gaming duties
Track and tote fees
Marketing, printing and postage costs
Employment costs (note 6)
Share option expense (note 6)
Depreciation and amortisation (notes 12 and 13)
Distribution costs
IT and telecommunications costs
Cost of inventories recognised as an expense (note 19)
Exceptional costs excluding redundancy and restructuring costs and compensation
for loss of office (note 2)
Property related costs
Other costs
Total expenses of continuing operations
Expenses of discontinued operations (note 15)
Total expenses
Included in the above table are exceptional costs of £2.7m (2012: £2.8m).
1.0
0.3
0.5
0.2
0.3
0.1
0.3
2.7
—
—
(1.4)
(1.4)
1.3
2013
£m
3.2
6.9
15.7
6.4
31.5
1.5
12.9
1.1
3.7
2.7
1.4
5.3
9.1
101.4
5.3
106.7
0.9
0.3
0.2
0.6
0.4
—
0.4
2.8
2.1
3.3
(0.5)
4.9
7.7
Restated
2012
£m
3.6
7.1
15.3
6.0
31.0
1.4
10.7
1.1
3.7
3.4
1.6
5.2
7.3
97.4
3.5
100.9
77
BUSINESS OVERVIEW CORPORATE GOVERNANCE STRATEGIC REPORT FINANCIAL STATEMENTSANNUAL REPORT AND ACCOUNTS 2013 SPORTECH PLC
Notes to the financial statements continued
for the year ended 31 December 2013
4. Net finance costs
Interest payable on bank loans, derivative financial instruments and overdrafts
Refinancing fee
Fair value of derivative financial instruments reclassified to the income statement
Movement on derivative financial instruments post designation as ineffective
Non-cash finance charges/(income) *
Foreign exchange loss/(gain) on financial assets and liabilities denominated in foreign currency
Net finance costs
2013
£m
4.3
—
—
(1.4)
0.4
0.2
3.5
2012
£m
4.1
2.1
3.3
(0.5)
(0.1)
(0.1)
8.8
* Non-cash finance charges/(income) are in respect of the deferred consideration payable on the acquisition of Sportech Racing in
October 2010.
The refinancing fee, the fair value movements on derivative financial instruments, the foreign exchange loss/(gain)
on financial assets and liabilities denominated in foreign currency and the non-cash finance charges/(income) are all
together shown as other finance income/(charges) in the income statement. Included in the above table is exceptional
income of £1.4m (2012: costs of £4.9m).
5. Profit before taxation
Profit before taxation is stated after charging:
Employment costs
Depreciation of property, plant and equipment
Amortisation of acquired intangibles
Amortisation of other intangibles
Note
6
13
12
12
2013
£m
33.0
3.2
7.2
2.5
2012
£m
32.4
2.6
5.9
2.2
The fees of the auditors in relation to their audit of the Company and consolidated accounts are £38,000 (2012: £38,000).
Fees paid to auditors for other services comprise:
Audit of the Group’s subsidiaries
Taxation compliance and advisory services
Corporate advisory costs
Total fees
2013
£m
0.2
0.5
—
0.7
2012
£m
0.2
0.2
0.1
0.5
78
FINANCIAL STATEMENTSSPORTECH PLC ANNUAL REPORT AND ACCOUNTS 2013 6. Employment costs
Average number of monthly employees including Executive Directors comprised:
Sales and marketing
Operations and distribution
Administration
Total employees
Their aggregate remuneration comprised:
Wages and salaries
Social security costs
Pension costs – defined contribution scheme (note 32)
Pension costs – defined benefit scheme (note 32)
Share option expense (note 26)
Total remuneration
7. Directors and key management remuneration
Directors
Short term employee benefits
Share-based payments
Termination benefits
Post employment benefits
Total remuneration
2013
Number
2012
Number
105
567
123
795
2013
£m
28.6
2.0
0.7
0.2
1.5
33.0
2013
£000
1,345
1,505
141
60
3,051
112
595
91
798
Restated
2012
£m
26.9
3.2
0.7
0.2
1.4
32.4
2012
£000
1,461
1,381
254
68
3,164
Details of individual Directors’ remuneration and share-based incentives granted are given in the Remuneration Report on
pages 37 to 53. This information forms part of the financial statements. No Director exercised share options in the year
(2012: none).
Key management compensation
Short term employee benefits
Termination benefits
Post employment benefits
Share-based payments
Total
2013
£000
1,780
141
66
831
2012
£000
1,813
254
74
942
2,818
3,083
Key management is considered to be the Directors of the Company (Executive and Non-executive) and senior Executives.
79
BUSINESS OVERVIEW CORPORATE GOVERNANCE STRATEGIC REPORT FINANCIAL STATEMENTSANNUAL REPORT AND ACCOUNTS 2013 SPORTECH PLC Notes to the financial statements continued
for the year ended 31 December 2013
8. Taxation
Current tax:
Current tax on profit for the year
Adjustments in respect of prior years
Total current tax
Deferred tax:
Origination and reversal of temporary differences
Effect of changes in tax rates
Total deferred tax
Total taxation charge
2013
£m
1.8
—
1.8
(0.1)
0.2
0.1
1.9
2012
£m
1.1
(0.1)
1.0
(0.4)
0.2
(0.2)
0.8
The taxation on the Group’s profit before taxation 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:
Profit before taxation
Add share of loss after tax of joint ventures
Profit before taxation and share of loss after tax of joint ventures
Tax calculated at domestic tax rates applicable to profits/(losses)
in the respective countries
Tax effects of:
– permanent differences
– deferred tax not previously provided
– effect of changes in tax rates
– adjustments in respect of prior years
Total taxation charge
2013
£m
5.2
0.2
5.4
1.5
0.3
(0.1)
0.2
—
1.9
2012
£m
1.3
0.2
1.5
0.8
(0.1)
—
0.2
(0.1)
0.8
The weighted average applicable tax rate was 26.8% (2012: 36.5%). The decrease is as a result of a change in mix of profits
in jurisdictions with varying tax rates.
For UK taxation, as the Group’s year end is after the substantive enactment date (2 July 2013) of the Finance Act 2013 and
after the substantive enactment date of the March 2013 UK Budget Statement changes, these financial statements account
for the change in UK corporation tax rate from 24% to 23% with effect from 1 April 2013, the change in tax rate from 23%
to 21% with effect from 1 April 2014 and the change in tax rate from 21% to 20% with effect from 1 April 2015 and therefore
the rate at which deferred tax is calculated has changed. Deferred tax in the UK is provided at 21%, a blended rate of 21.5%
or at 20%, depending on when the deferred tax is expected to unwind.
9. Loss of holding company
Of the profit for the year, a loss of £10.9m (2012: £3.9m) is dealt with in the accounts of Sportech PLC and the statement
of changes in equity. The Directors have taken advantage of the exemption available under Section 408 of the Companies
Act 2006 and have not presented an income statement and statement of comprehensive income for the Company alone.
The individual income statement of Sportech PLC was approved by the Board on 5 March 2014.
80
FINANCIAL STATEMENTSSPORTECH PLC ANNUAL REPORT AND ACCOUNTS 2013 10. Earnings per share
a) Basic
Basic earnings per share is calculated by dividing the profit attributable to equity holders of the Company by the weighted
average number of ordinary shares in issue during the year.
Profit from continuing operations attributable to the owners of the Parent
Profit from discontinued operations attributable to the owners of the Parent
Total
2013
£m
3.3
0.1
3.4
2012
£m
0.5
0.8
1.3
Weighted average number of ordinary shares in issue (‘000)
200,227
198,810
b) Diluted
Diluted earnings per share is calculated by adjusting the weighted average number of ordinary shares outstanding
to assume conversion of all dilutive potential ordinary shares. Certain employee options (707,070 in number; 2012: 707,070)
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 weighted average number of shares that have a dilutive
effect on adjusted EPS is 13,161,000 (2012: 13,742,000). Diluted basic EPS is 1.6p (2012: 0.6p) and diluted adjusted EPS
is 4.9p (2012: 5.0p).
c) Basic adjusted
The calculations of adjusted EPS are based on the following profits attributable to ordinary shareholders, the weighted
average number of shares and an estimated adjusted tax charge of 27.7% (2012: 28.2%):
Operating profit before amortisation of acquired
intangibles and exceptional costs
Net finance costs (excluding other finance income/(charges))
Adjusted profit before taxation
Tax at 27.7% (2012: 28.2%)
Adjusted basic EPS
11. Goodwill
Group
Cost
At 1 January 2013
Business combination (note 16)
At 31 December 2013
Accumulated impairment charges
At 1 January 2013 and 31 December 2013
Opening net book amount
Closing net book amount
2013
Weighted
average
number
of shares
'000
Profit
£m
18.8 200,227
(4.3) 200,227
14.5 200,227
(4.0) 200,227
10.5 200,227
Per
share
amount
Pence
9.4
(2.1)
7.3
(2.0)
5.3
Restated
2012
Weighted
average
number
of shares
'000
Profit
£m
19.0 198,810
(4.1) 198,810
14.9 198,810
(4.2) 198,810
10.7 198,810
2013
£m
171.0
—
171.0
(17.9)
153.1
153.1
Per
share
amount
Pence
9.6
(2.1)
7.5
(2.1)
5.4
Restated
2012
£m
165.5
5.5
171.0
(17.9)
147.6
153.1
The goodwill brought forward in the accounts relates to the acquisition of Littlewoods Leisure, including the Littlewoods
Football Pools business, in September 2000 amounting to £145.2m, the goodwill arising on the acquisition of Vernons
Football Pools in December 2007 amounting to £20.3m, and the goodwill arising on the acquisition of eBet Online Inc.
Goodwill has been restated by £0.3m as a result of changes to fair value assumptions as detailed within note 16. During
the year the Group carried out its annual impairment review of the carrying value of its goodwill. The goodwill from the
Littlewoods Leisure and Vernons acquisitions is attributed to the Football Pools segment. The goodwill from the eBet
Online Inc. acquisition is attributed to the Sportech Racing and Digital segment.
81
BUSINESS OVERVIEW CORPORATE GOVERNANCE STRATEGIC REPORT FINANCIAL STATEMENTSANNUAL REPORT AND ACCOUNTS 2013 SPORTECH PLC Notes to the financial statements continued
for the year ended 31 December 2013
11. Goodwill continued
For the purpose of the annual impairment review of the Football Pools goodwill, the recoverable amounts are measured based
on value in use, calculated using discounted future cash flows. The key assumptions in the value-in-use calculations were:
the cash flow forecasts used are based upon the budget approved by the Board for 2014 and on cash flow projections
for 2015 to 2018 also approved by the Board, with a terminal value at 2018 calculated in accordance with IAS 36;
revenue forecasts for the core Football Pools business reflect the improvement in spend per player from core customer
numbers within the last four years, the introduction of new customers and acquisition activities and additional
distribution routes, the improvement in technology following the continued investment through 2013, additional
investment in the Football Pools online presence and the increase to 104 pool games, the impact all of which the Board
believes will lead to a stabilisation of revenues within the core Football Pools business;
the terminal value is based on a nil growth rate given the expected stabilisation of profit streams;
cash flows have been discounted at 8.3% (2012: 8.3%), reflecting the weighted average cost of capital for the Group; and
there are no material adverse changes in legislation.
For the purpose of the annual impairment review of the eBet Online Inc. goodwill, the recoverable amounts are measured based
on value in use, calculated using discounted future cash flows. The key assumptions in the value-in-use calculations were:
the cash flow forecasts used are based upon the budget approved by the Board for 2014 and on cash flow projections
for 2015 to 2018 also approved by the Board, with a terminal value at 2018 calculated in accordance with IAS 36;
the terminal value is based on a nil growth rate given the expected maturity of the business by 2018;
cash flows have been discounted at 8.3% (2012: 8.3%), reflecting the weighted average cost of capital for the Group; and
there are no material adverse changes in legislation.
Following the impairment review an impairment of £nil was charged to the income statement (2012: £nil). Various
sensitivity tests were performed on the calculation of value in use. These indicated that changes to the revenue forecasts
generated the greatest sensitivity and in certain scenarios an impairment may arise. The Football Pools goodwill impairment
test cash flows are taken from the Group's strategic plans and rely on the objectives being achieved. If these do not come
to fruition then an impairment may also arise. If the WACC were to increase to above 9.3% an impairment in The Football
Pools goodwill would result. However, a reasonably possible combination of changes in assumptions did not result in an
impairment for either The Football Pools or eBet Online Inc. goodwill.
12. Intangible fixed assets
Group
Cost
At 1 January 2013
Business combination (note 16)
Disposals
Reclassification
Additions
At 31 December 2013
Accumulated amortisation
At 1 January 2013
Charged during the year
At 31 December 2013
Exchange differences
Net book amount at 31 December 2013
Customer
contracts and
relationships
£m
Software
£m
34.5
1.9
—
—
—
36.4
24.2
6.9
31.1
—
5.3
33.4
—
(0.3)
0.8
3.6
37.5
15.0
2.5
17.5
—
20.0
Other
£m
21.8
—
—
(0.8)
0.2
21.2
2.8
0.3
3.1
(0.7)
17.4
Total
£m
89.7
1.9
(0.3)
—
3.8
95.1
42.0
9.7
51.7
(0.7)
42.7
Customer contracts and relationships
Customer contracts and relationships as at 1 January 2013 are in relation to the acquisition of Vernons, which have a useful
life of five years from 1 July 2009, and to eBet Online Inc., which have a useful life of four years from 19 December 2012.
During the year, the Group acquired Datatote (England) Limited giving rise to the further recognition of customer
contracts and relationships. The useful life is four years and eight months from 27 September 2013.
82
FINANCIAL STATEMENTSSPORTECH PLC ANNUAL REPORT AND ACCOUNTS 2013 12. Intangible fixed assets continued
Software
Included in software are assets under construction with a cost of £1.0m (2012: £1.9m). Accordingly, these assets are not
currently amortised.
Other intangibles
The Group holds a licence in perpetuity to offer pari-mutuel off-track betting in the state of Connecticut in the USA. Given
this licence is in perpetuity, the book value of the asset amounting to £15.2m (2012: £15.5m) is not amortised and the useful
economic life allocated to the asset is indefinite. The movement in net book value is as a result of movement in exchange
rates given the asset is denominated in US Dollars. As required by IAS 36 ‘Impairment of Assets’ an impairment test has
been carried out as at 31 December 2013.
The recoverable amount of the asset has been determined based on a value-in-use calculation and is allocated to the
Sportech Racing CGU. The calculation used post tax cash flow projections based on financial budgets and forecasts
approved by management covering a five-year period. The following assumptions were made in determining the
recoverable amount:
the CGU was determined to be the assets which require the licence in order to provide off-track betting to the public.
Only the cash flows expected to be generated from these assets were included in the calculation;
EBITDA forecasts are in line with the approved 2014 budget and 2015 to 2018 strategic plans;
capital expenditure was included in the cash flows at management’s best estimate of industry norm for re-investment
in retail outlets of the kind under review;
cash flows beyond the fifth year were extrapolated using a nil growth rate given the expected stabilisation of cash flows
over time; and
a post tax discount rate of 8.3% was used representing the weighted average cost of capital of the Group. The CGU
operates in a highly regulated market, equivalent to the majority of the Group’s activities and therefore the use of the
Group’s weighted average cost of capital (“WACC”) in the value-in-use calculation is considered to be appropriate.
The impairment test showed significant headroom over the book value of the asset and various sensitivity tests were
performed showing that no reasonably possible change to a key assumption would cause the CGU’s carrying amount
to exceed the recoverable amount.
Company
Cost
At 1 January 2013
Additions
At 31 December 2013
Accumulated amortisation
At 1 January 2013
Charged during the year
At 31 December 2013
Net book amount at 31 December 2013
Software
£m
Other
£m
15.7
—
15.7
2.4
1.0
3.4
12.3
0.6
0.2
0.8
—
—
—
0.8
Total
£m
16.3
0.2
16.5
2.4
1.0
3.4
13.1
The software provides pari-mutuel services to customers in North America. Management has estimated the useful economic
life of the asset to be 15 years. The net book amount at 31 December 2013 was £12.3m and the remaining life was eleven
years and nine months (2012: net book amount of £13.3m and the remaining life was twelve years and nine months).
83
BUSINESS OVERVIEW CORPORATE GOVERNANCE STRATEGIC REPORT FINANCIAL STATEMENTSANNUAL REPORT AND ACCOUNTS 2013 SPORTECH PLC Notes to the financial statements continued
for the year ended 31 December 2013
12. Intangible fixed assets continued
Other intangibles continued
Group
Cost
At 1 January 2012
Business combination (note 16)
Additions
At 31 December 2012
Accumulated amortisation
At 1 January 2012
Charged during the year
At 31 December 2012
Exchange differences
Net book amount at 31 December 2012
Company
Cost
At 1 January 2012
Additions
At 31 December 2012
Accumulated amortisation
At 1 January 2012
Charged during the year
At 31 December 2012
Net book amount at 31 December 2012
Amortisation has been included within administrative expenses.
Customer
contracts and
relationships
£m
Software
£m
32.7
1.8
—
34.5
18.3
5.9
24.2
—
10.3
31.6
0.3
1.5
33.4
12.5
2.5
15.0
—
18.4
Other
£m
19.2
0.9
1.7
21.8
2.7
0.1
2.8
(0.3)
18.7
Software
£m
Other
£m
15.7
—
15.7
1.3
1.1
2.4
13.3
0.5
0.1
0.6
—
—
—
0.6
Total
£m
83.5
3.0
3.2
89.7
33.5
8.5
42.0
(0.3)
47.4
Total
£m
16.2
0.1
16.3
1.3
1.1
2.4
13.9
84
FINANCIAL STATEMENTSSPORTECH PLC ANNUAL REPORT AND ACCOUNTS 2013
13. Property, plant and equipment
Group
Cost
At 1 January 2013
Additions
Acquired with subsidiary
Disposals
Transfer
At 31 December 2013
Accumulated depreciation
At 1 January 2013
Disposals
Charged during the year
At 31 December 2013
Exchange differences
Net book amount at 31 December 2013
Company
Cost
At 1 January and 31 December 2013
Accumulated depreciation
At 1 January and 31 December 2013
Net book amount at 31 December 2013
Group
Cost
At 1 January 2012
Additions
Disposals
Transfer
At 31 December 2012
Accumulated depreciation
At 1 January 2012
Disposals
Charged during the year
At 31 December 2012
Exchange differences
Net book amount at 31 December 2012
Short
leasehold
land and
buildings
£m
Long
leasehold
and owned
land and
buildings
£m
Plant and
machinery
£m
Fixtures
and
fittings
£m
Assets
in the
course of
construction
£m
0.1
—
—
—
—
0.1
0.1
—
—
0.1
—
—
9.0
0.1
0.1
—
0.3
9.5
2.8
—
0.7
3.5
(0.4)
5.6
10.4
0.5
0.3
(1.1)
2.6
12.7
5.6
(1.0)
2.3
6.9
(0.1)
5.7
0.8
0.1
—
—
0.1
1.0
0.1
—
0.2
0.3
4.9
8.1
—
—
(3.0)
10.0
—
—
—
—
(0.1)
0.6
(0.3)
9.7
Short
leasehold
land and
buildings
£m
Plant and
machinery
£m
0.1
0.1
—
0.2
0.1
0.1
Short
leasehold
land and
buildings
£m
Long
leasehold
and owned
land and
buildings
£m
Plant and
machinery
£m
Fixtures
and
fittings
£m
0.1
—
—
—
0.1
0.1
—
—
0.1
—
—
8.9
0.2
(0.2)
0.1
9.0
2.3
(0.2)
0.7
2.8
(0.2)
6.0
8.1
0.7
(1.0)
2.6
10.4
4.8
(1.0)
1.8
5.6
(0.1)
4.7
0.6
0.1
(0.1)
0.2
0.8
0.1
(0.1)
0.1
0.1
(0.1)
0.6
Assets
in the
course of
construction
£m
3.7
4.1
—
(2.9)
4.9
—
—
—
—
(0.1)
4.8
Total
£m
25.2
8.8
0.4
(1.1)
—
33.3
8.6
(1.0)
3.2
10.8
(0.9)
21.6
Total
£m
0.3
0.2
0.1
Total
£m
21.4
5.1
(1.3)
—
25.2
7.3
(1.3)
2.6
8.6
(0.5)
16.1
85
BUSINESS OVERVIEW CORPORATE GOVERNANCE STRATEGIC REPORT FINANCIAL STATEMENTSANNUAL REPORT AND ACCOUNTS 2013 SPORTECH PLC
Notes to the financial statements continued
for the year ended 31 December 2013
13. Property, plant and equipment continued
Company
Cost
At 1 January and 31 December 2012
Accumulated depreciation
At 1 January and 31 December 2012
Net book amount at 31 December 2012
14. Investments in subsidiaries
Investments in Group companies
At 1 January
Capital contribution
At 31 December
Short
leasehold
land and
buildings
£m
0.1
0.1
—
Plant and
machinery
£m
0.2
0.1
0.1
Group
Company
2013
£m
—
—
—
2012
£m
—
—
—
2013
£m
201.2
2.5
203.7
Total
£m
0.3
0.2
0.1
2012
£m
195.5
5.7
201.2
Investments in Group companies are stated at cost which is the fair value of the consideration paid.
86
FINANCIAL STATEMENTSSPORTECH PLC ANNUAL REPORT AND ACCOUNTS 2013 14. Investments in subsidiaries continued
The Company is the holding company of the Group. The following table shows details of the Company’s principal
subsidiaries and joint venture investments:
Name of company
Proportion
of voting
rights
Holding
Country of incorporation
Sportech Gaming Limited *
Ordinary shares
100% England and Wales
Nature of business
Holding company
The Football Pools Limited
Ordinary shares
100% England and Wales
Pools betting and gaming
UK Lottery Management Limited
Ordinary shares
100% England and Wales Management of charity lotteries
Football Pools 1923 Limited
Ordinary shares
100% England and Wales
Asset hiring
Football Pools Games Limited
(previously Vernons Games Limited) Ordinary shares
100% England and Wales
Gaming
TFPL Financial Services Limited
(previously Vernons Financial
Services Limited)
Ordinary shares
100% England and Wales
Database income
Sportech Alderney Limited
Ordinary shares
100%
Alderney,
Channel Islands
Gaming
Datatote (England) Limited
Ordinary shares
100% England and Wales
Betting systems provision
Sportshub Private Limited
Sportech Racing GmbH
Sportech Racing GmbH
Sportech France SAS
Sportech Racing BV
Ordinary shares
Ordinary shares
Ordinary shares
Ordinary shares
Ordinary shares
Racing Technology Ireland Limited
Ordinary shares
Sportech Racing Limited
Sportech Inc.
Ordinary shares
Ordinary shares
Sportech Racing Panama Inc.
Ordinary shares
Sportech Racing LLC
Trackplay LLC
Ordinary shares
Ordinary shares
Sportech – NYX Gaming LLC
Ordinary shares
Sportech Racing Canada Inc.
Ordinary shares
Sportech Venues Inc.
Ordinary shares
50%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
50%
100%
100%
India
Sport entertainment
Germany
Pari-mutuel systems provision
Austria
France
Pari-mutuel systems provision
Pari-mutuel systems provision
Netherlands
Ireland
Turkey
USA
Off-track betting and venues
management
Pari-mutuel systems provision
Pari-mutuel systems provision
Holding company
Panama
Pari-mutuel systems provision
USA
USA
USA
Pari-mutuel systems provision
Pari-mutuel systems provision
Gaming software and services
Canada
Pari-mutuel systems provision
USA
Off-track betting and venues
management
S&S Venues California LLC
Ordinary shares
50%
USA
Sports bar owner and operator
eBet Technologies Inc.
Ordinary shares
100%
USA Online pari-mutuel systems and
services provision
Picklive USA LLC
Ordinary shares
51%
USA
Social gaming
* Ownership is directly held by the Company, Sportech PLC.
All of these companies have been included in the consolidated financial statements. A full list of Group subsidiaries can
be found in the Company’s annual return available from Companies House.
The Directors believe that the carrying value of investments is supported by their underlying net assets. An impairment
test has been carried out in relation to the investment held by Sportech PLC in Sportech Gaming Limited (carrying value
of £167.1m) which specifically related to the onward investment in The Football Pools Limited, following an indication of
a potential impairment. The recoverable amount was determined based on value-in-use calculations. The calculations used
post tax cash flow projections based on financial budgets approved by management covering a five-year period. Cash flows
beyond the five-year period are extrapolated using an estimated growth rate of nil%. The headroom in the impairment
calculation is tight. Relatively small changes in the discount rate or cash flows would lead to an impairment. While the
Directors are confident that there is no impairment, they continue to monitor the position closely.
87
BUSINESS OVERVIEW CORPORATE GOVERNANCE STRATEGIC REPORT FINANCIAL STATEMENTSANNUAL REPORT AND ACCOUNTS 2013 SPORTECH PLC Notes to the financial statements continued
for the year ended 31 December 2013
15. Discontinued activities and disposal
On 31 October 2013, the Group disposed of the trade and assets of its UK-facing e-Gaming division to NetPlay TV Group
Limited for total cash consideration of £3.0m.
Group
Operating cash flows
Investing cash flows
Total cash flows
Analysis of the results of the discontinued operation is as follows:
Revenue
Expenses
(Loss)/profit after tax of discontinued operations
The table below analyses the net gain on disposal of the e-Gaming division:
Group
Proceeds from sale
Impairment of assets
Redundancy and other closure costs
Other costs of disposal
Loss after tax for the year from discontinued activities
Net profit after tax on disposal
2013
£m
(0.5)
(0.3)
(0.8)
2013
£m
3.9
(5.3)
(1.4)
2012
£m
0.5
—
0.5
2012
£m
4.3
(3.5)
0.8
£m
3.0
(0.4)
(0.3)
(0.8)
(1.4)
0.1
88
FINANCIAL STATEMENTSSPORTECH PLC ANNUAL REPORT AND ACCOUNTS 2013 16. Business combinations
a) Datatote (England) Limited
On 27 September 2013, the Group acquired 100% of the issued share capital of Datatote (England) Limited ("Data Tote"),
a leading UK betting operator and technology and services provider focused on the European greyhound and horseracing
betting market.
The acquisition of Data Tote further reinforces Sportech's position as one of the largest operators and providers of betting
technologies and services in the world. Data Tote brings an incremental customer base with strong year-on-year revenue
growth that will broaden Sportech's share of the European betting market.
Goodwill arising on the acquisition amounted to £nil.
The following table summarises the fair value of consideration paid for Data Tote and the amounts of the assets acquired
and liabilities assumed recognised at acquisition date.
Provisional fair value of consideration at 27 September 2013
Cash
Deferred contingent consideration
Total fair value of consideration transferred
Recognised provisional fair value amounts of identifiable assets acquired and liabilities assumed
Cash
Intangible assets – customer contracts and relationships (note 12)
Property, plant and equipment (note 13)
Trade and other receivables
Inventories
Trade and other payables
Deferred tax liability (note 20)
Total identifiable net assets
Goodwill
Total fair value of consideration transferred
£m
3.1
0.1
3.2
£m
0.7
1.9
0.4
0.6
0.1
(0.1)
(0.4)
3.2
—
3.2
Deferred contingent consideration
There is potential for contingent consideration of up to £1.0m to be payable if the Data Tote business’ EBITDA for the
period from 1 July 2013 to 30 June 2016 reaches the following:
less than £2.0m – the contingent consideration payable will equal £nil; and
equal or greater than £2.0m – the contingent consideration payable will equal £0.5m plus £1.00 for every £1.00 that the
Data Tote business exceeds £2.0m by, up to a maximum amount payable of £1.0m.
The amount payable is due five business days after the date on which the calculation of the earn out EBITDA becomes
final and binding.
The Directors have reviewed the potential consideration payable based on the above performance requirements and
accordingly recognised a fair value of £0.1m, representing the present value of the Group’s estimate of the probability
weighted cash outflow (discounted at 8.3%). An additional £0.9m of potential consideration payable has been treated as
employment costs under IFRS 3 ‘Business Combinations’ (revised) and will accordingly be accrued on a time apportioned
basis to 30 June 2016. This expectation will be reviewed annually in accordance with IFRS 3 ‘Business Combinations’ (revised).
Acquisition costs
Acquisition related costs amounting to £0.2m have been recognised as an expense in the consolidated income statement
as an exceptional item.
Provisional fair value amounts of identifiable assets acquired and liabilities assumed
The fair values of the identifiable assets acquired and liabilities assumed are considered provisional in nature due to the
business combination occurring close to the year end. Management will continue to monitor the provisional values during
the year ended 31 December 2014 to ensure any fair value amendments are identified as a hindsight adjustment.
The fair value of trade and other receivables is £0.6m. The gross contractual amount for trade receivables due is £0.6m,
of which £nil is expected to be uncollectable.
No contingent liabilities have been recognised as at the acquisition date.
89
BUSINESS OVERVIEW CORPORATE GOVERNANCE STRATEGIC REPORT FINANCIAL STATEMENTSANNUAL REPORT AND ACCOUNTS 2013 SPORTECH PLC Notes to the financial statements continued
for the year ended 31 December 2013
16. Business combinations continued
a) Datatote (England) Limited continued
Data Tote contribution to the Group results
Data Tote has contributed £0.3m and £nil to the Group’s revenues and profit, respectively, from the acquisition date to
31 December 2013. Had the acquisition occurred on 1 January 2013, the Group’s revenue for the period ended 31 December 2013
would have been £112.5m and the Group’s profit for the year would have been £3.7m. These amounts have been determined by
applying the Group’s accounting policies and adjusting the results of Data Tote to reflect additional depreciation and amortisation
that would have been charged, assuming the fair value adjustments to property, plant and equipment and intangible assets had
been applied from 1 January 2013, together with their consequential tax effects.
b) eBet Online Inc.
On 19 December 2012, the Group acquired 100% of the issued share capital of eBet Online Inc. ("eBet"). There were no
changes to the fair value assumptions applied by management at acquisition during the hindsight period in relation to net
assets acquired and consideration paid other than in relation to the contingent deferred consideration expected to be paid
in early 2016. EBITDA estimates for the combined Interactive Products and Services business have been revised down and
as a result the estimate of deferred contingent consideration expected to be paid have been revised down from £0.8m
($1.3m) to £0.5m ($0.9m). Given the reassessment was within the hindsight period, the prior year accounting for the
acquisition has been restated as follows:
Fair value of consideration at 19 December 2012
Cash
Deferred consideration
Deferred contingent consideration
Total fair value of consideration transferred
Recognised provisional fair value amounts of identifiable assets acquired and liabilities assumed
Cash
Intangible assets – customer contracts and relationships
Intangible assets – software
Intangible assets – other
Trade and other receivables
Trade and other payables
Income tax liability
Deferred tax liability (note 20)
Total identifiable net assets
Goodwill
Total fair value of consideration transferred
Final
£m
5.8
0.9
0.5
7.2
0.1
1.8
0.3
0.9
0.3
(0.5)
(0.1)
(1.1)
1.7
5.5
7.2
Provisional
£m
5.8
0.9
0.8
7.5
0.1
1.8
0.3
0.9
0.3
(0.5)
(0.1)
(1.1)
1.7
5.8
7.5
c) 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 Inc.
The performance period for the contingent consideration targets ended on 31 December 2013 and it has been confirmed
that no contingent consideration is payable due to failure to meet minimum EBITDA targets. No liability was recognised
in the consolidated financial statements in relation to this potential liability and as a result there has been no effect on the
2013 income statement.
90
FINANCIAL STATEMENTSSPORTECH PLC ANNUAL REPORT AND ACCOUNTS 2013 17. Investment in joint ventures
The Group has the following investments in joint ventures:
Description
Country of
Incorporation
Year of
investment
% holding
Group
Sportshub Private Limited
Picklive USA LLC
Sportech – NYX Gaming LLC
Provides a suite of prediction and fantasy games
centred on cricket, football and Formula One
Distribution of Picklive’s live fantasy sports game
across the US
Provides online products and services in the US
for social and pay-to-play gaming
S&S Venues California LLC
Sports bars with wagering facilities in
California, USA
Group
At 1 January
Additions
Direct investment in joint ventures
Share of loss after tax
At 31 December
India
2008
USA
USA
USA
2013
2013
2013
2013
£m
0.5
0.2
—
(0.2)
0.5
The Group’s share of the results in its joint ventures, which are unlisted, and its share of the aggregated assets and
liabilities are as follows:
Non-current assets
Current assets
Total assets
Current liabilities
Net assets/(liabilities)
Total revenue
Expenses
The Group’s share of capital commitments amounted to £nil (2012: £nil).
18. Trade and other receivables
2013
£m
0.1
0.1
0.2
—
0.2
—
(0.2)
Trade receivables
Less provision for impairment of receivables
Trade receivables – net
Amounts owed by Group companies
Other receivables
Accrued income
Prepayments
Total
Group
Company
2013
£m
5.2
(0.3)
4.9
—
1.1
1.0
2.0
9.0
2012
£m
5.5
(0.3)
5.2
—
1.1
—
1.7
8.0
2013
£m
—
—
—
14.6
0.2
—
0.5
15.3
50
51
50
50
2012
£m
0.3
0.3
0.1
(0.2)
0.5
2012
£m
0.1
—
0.1
(0.3)
(0.2)
—
(0.2)
2012
£m
—
—
—
9.0
0.3
—
0.3
9.6
Other classes of trade and other receivables are not impaired. Non-current trade receivables of £0.3m (2012: £nil) relate
to accrued income due after more than twelve months.
The fair value of trade and other receivables is not considered to be different from the carrying value recorded above for
either the Group or the Company.
Trade receivables that are less than three months past due are not considered impaired as management considers the
amounts to be fully recoverable. As at 31 December 2013, £0.1m (2012: £0.2m) of trade receivables were past due and not
impaired. Management also considers that these receivables are recoverable in full due to good credit quality.
As at 31 December 2013, trade receivables of £0.3m (2012: £0.3m) were impaired and fully provided for.
91
BUSINESS OVERVIEW CORPORATE GOVERNANCE STRATEGIC REPORT FINANCIAL STATEMENTSANNUAL REPORT AND ACCOUNTS 2013 SPORTECH PLC Notes to the financial statements continued
for the year ended 31 December 2013
18. Trade and other receivables continued
Movements on the Group provision for impairment of trade receivables were as follows:
At 1 January
Provided for during the year
At 31 December
Group
2013
£m
0.3
—
0.3
2012
£m
0.2
0.1
0.3
The carrying amounts of trade and other receivables, current and non-current, are denominated in the following currencies:
Group
Company
Sterling
US Dollar
Euro
Other
Total
19. Inventories
Work in progress
Spare parts
Finished goods
Total
2013
£m
1.5
5.3
1.2
1.3
9.3
2012
£m
1.9
4.5
1.1
0.5
8.0
2013
£m
6.3
8.2
0.8
—
15.3
Group
2013
£m
0.1
1.2
0.2
1.5
The cost of inventories recognised as an expense and included in cost of sales amounted to £2.7m (2012: £3.4m).
Provisions for obsolescence held against inventories at 31 December 2013 amounted to £nil (2012: £nil).
20. Deferred tax
The movement on the deferred tax account is as follows:
Net deferred tax asset at 1 January
Income statement (charge)/credit
Business combination (note 16)
Tax charged directly to equity
Net deferred tax asset at 31 December
Group
Company
2013
£m
1.3
(0.1)
(0.4)
(0.1)
0.7
2012
£m
3.0
0.2
(1.1)
(0.8)
1.3
2013
£m
1.3
(0.3)
—
—
1.0
2012
£m
5.7
3.8
0.1
—
9.6
2012
£m
0.2
1.2
0.2
1.6
2012
£m
0.8
1.4
—
(0.9)
1.3
The tax charged directly to equity is the deferred tax on the retirement benefit obligations; in the prior year it also related to the
derivative financial instruments.
92
FINANCIAL STATEMENTSSPORTECH PLC ANNUAL REPORT AND ACCOUNTS 2013 20. Deferred tax continued
Deferred tax assets have been recognised in respect of trading losses and all other temporary differences, where it is
probable that these assets will be recovered. Deferred tax assets and liabilities are only offset where there is a legally
enforceable right of offset and there is an intention to settle the liabilities net. The movements in deferred tax assets and
liabilities during the year are shown below:
Deferred tax assets
Group
At 1 January 2012
Income statement (charge)/credit
Business combination (note 16)
Tax credited/(charged) directly to equity
At 31 December 2012
Income statement (charge)/credit
Tax charged directly to equity
At 31 December 2013
Pension
£m
Capital
allowances
£m
0.6
(0.2)
—
0.1
0.5
—
(0.1)
0.4
0.3
(1.5)
—
—
(1.2)
(1.0)
—
(2.2)
Losses
£m
1.3
(0.2)
—
—
1.1
0.6
—
1.7
Temporary
differences
£m
0.8
2.1
(1.1)
(0.9)
0.9
1.0
—
1.9
Total
£m
3.0
0.2
(1.1)
(0.8)
1.3
0.6
(0.1)
1.8
Deferred tax of £nil is expected to be recovered within twelve months (2012: £nil) with £1.8m expected to be recovered
after more than twelve months (2012: £1.3m).
The deferred tax asset in the Company consists of temporary differences of £0.8m and capital allowances of £0.2m
(2012: timing differences of £1.3m).
The losses in the Company have been fully surrendered as Group relief. In addition to the deferred tax asset which has
been recognised, the Group has not recognised further deferred tax assets of £3.1m (2012: £2.8m) arising from unutilised
trading losses. The Directors do not consider there will be sufficient future profits against which these losses can be offset
due to the low level of trading in these particular business units.
Expiry of these losses is as follows:
Gross losses
In more than four years
2013
Provided
£m
1.0
Unprovided
£m
14.0
2012
Provided
£m
3.1
Unprovided
£m
11.1
Deferred tax assets are recognised on losses carried forward when it is probable that future taxable profits will be
generated against which the losses can be utilised.
Deferred tax liabilities
Group
At 1 January 2011, 2012 and 2013
Business combination (note 16)
Income statement charge
At 31 December 2013
21. Cash and cash equivalents
Cash balances
Overdrafts
Total
Temporary
differences
£m
—
(0.4)
(0.7)
(1.1)
2012
£m
—
(5.2)
(5.2)
Group
Company
2013
£m
2.6
—
2.6
2012
£m
2.9
—
2.9
2013
£m
0.2
—
0.2
The fair value of cash and cash equivalents is not considered to be different from the carrying value recorded above for
either the Group or the Company.
Cash balances of £2.1m (2012: £0.8m) are held on behalf of customers in respect of certain e-Gaming online and telephone
betting activities and on behalf of registered charities relating to the sale of charity scratchcards and lotto products. These
balances are excluded from Group cash and are netted against a corresponding payable within accruals and deferred
income (note 22).
93
BUSINESS OVERVIEW CORPORATE GOVERNANCE STRATEGIC REPORT FINANCIAL STATEMENTSANNUAL REPORT AND ACCOUNTS 2013 SPORTECH PLC Notes to the financial statements continued
for the year ended 31 December 2013
22. Trade and other payables
Trade payables
Amounts owed to Group companies
Other taxes and social security costs
Accruals and deferred income
Total
Group
Company
2013
£m
7.6
—
0.8
12.7
21.1
2012
£m
6.1
—
0.8
15.4
22.3
2013
£m
0.5
40.4
—
1.2
42.1
2012
£m
0.5
19.8
—
1.3
21.6
There is no difference between book values and fair values of trade and other payables. All amounts are due within one year.
23. Provisions
Group
At 1 January 2012
Utilised during the year
At 31 December 2012
Utilised during the year
At 31 December 2013
Onerous
contracts
£m
Other
provisions
£m
0.6
(0.2)
0.4
(0.1)
0.3
0.4
—
0.4
(0.1)
0.3
Total
£m
1.0
(0.2)
0.8
(0.2)
0.6
Provisions have been recognised where the Group has contractual obligations to provide services where the estimated
unavoidable costs to carry out the obligation exceed the expected future economic benefits to be received. Other provisions
include provisions for obligations to reinstate property to its original condition at the start of the lease term. Of the provisions
included in the above table, £0.2m is expected to be utilised within twelve months (2012: £0.3m) and £0.4m is expected
to be utilised after twelve months (2012: £0.5m).
24. Financial liabilities
Current
Deferred consideration due within one year
Total current financial liabilities
Non-current
Drawn revolving credit facility due after one year
Deferred consideration due after one year
Total non-current financial liabilities
Group
Company
2013
£m
0.7
0.7
2012
£m
6.3
6.3
2013
£m
—
—
Group
Company
2013
£m
66.0
0.6
66.6
Restated
2012
£m
60.0
1.2
61.2
2013
£m
66.0
—
66.0
2012
£m
6.1
6.1
2012
£m
60.0
—
60.0
94
FINANCIAL STATEMENTSSPORTECH PLC ANNUAL REPORT AND ACCOUNTS 2013 24. Financial liabilities continued
Bank loans and revolving credit facility
On 18 July 2012, the Group entered a senior facility agreement which made available a multi-currency, revolving credit
facility of £75.0m including up to £5.0m of ancillary facilities bearing interest of LIBOR plus a bank margin dependent on
leverage levels, initially 3.5% to 31 December 2012. The borrowings are secured by a composite debenture incorporating
fixed and floating charges over all assets (excluding monies standing to credit of trust accounts) and undertakings
of Sportech PLC, all UK trading companies, UK holding companies of overseas entities, Sportech Mauritius Limited
and Racing Technology Ireland Limited. In addition, share charges have been entered into in respect of shares in
Racing Technology Ireland Limited, Sportech Racing BV (a Netherlands company), Sportech Inc., Sportech Venues Inc.,
Sportech Venues CA Holdco LLC, Sportech Venues California LLC, Sportech Games Holdco LLC, Sportech Racing LLC,
Trackplay LLC (all seven are US companies) and Sportech Mauritius Limited. Furthermore, a Guernsey law security
interest agreement has been entered into by Sportech Alderney Limited.
During the year ended 31 December 2013, the Group obtained proceeds from borrowings of £6.0m.
Covenants on the Group’s borrowings include a leverage covenant (being the ratio of EBITDA to net bank debt) and an interest
cover covenant (being the ratio of EBITDA to senior finance charges). None of the covenants were breached during the period.
Deferred and deferred contingent consideration
Deferred consideration of £6.5m in relation to the acquisition of Sportech Racing in October 2010 was paid on
30 September 2013. Interest was charged at the average daily Bank of England base rate plus 1% for the period
5 October 2010 (inclusive) to 30 September 2013 (inclusive).
Deferred and deferred contingent consideration of £1.8m and £1.0m in relation to the acquisitions of eBet Online Inc.
and Datatote (England) Limited respectively is payable or potentially payable as outlined in note 16.
25. Financial instruments
Financial risk management policies and objectives
The Group’s activities expose it to a variety of financial risks: fair value and cash flow interest rate risk; liquidity risk;
credit risk; and foreign exchange risk. Where appropriate the Group uses derivative financial instruments to hedge
certain risk exposures.
The policy for each of the above risks is described in more detail below:
Fair value and cash flow interest rate risk
As the Group has no significant interest-bearing assets, the Group’s income and operating cash flows are substantially
independent of changes in market interest rates.
The Group’s interest rate risk arises from its long term bank borrowings. Borrowings issued at variable interest rates expose the
Group to cash flow interest rate risk. Borrowings issued at fixed rates expose the Group to fair value interest rate risk. The Group’s
bank borrowings are a multi-currency, revolving credit facility with Bank of Scotland plc, Barclays Bank PLC and Royal Bank of
Scotland plc until August 2015 and at variable interest rates (a debt margin payable of between 250 and 375 basis points per
annum) dependent on leverage ratio. The Group’s policy is to hedge interest rate risk where appropriate using interest rate swaps
at contract lengths consistent with the expected levels of the long term bank borrowings. This policy is a cash flow hedge and is
approved by the Board and the Board receives updates on a regular basis in respect of the hedging position.
The Group has entered into a number of swap agreements with terms remaining of between one month and two years, on
a total of £30.0m, at an average swap rate before any lending margin of 4.80%. The hedges comprise three £10.0m hedges
with expiry dates ranging from 2014 to 2016. The contracts are not designated effective hedges and, as a result, gains
and losses are recognised in the income statement within finance costs.
As at 31 December 2013 the fair value of these interest rate swaps was a liability of £1.3m (2012: £2.6m).
At 31 December 2013, if interest rates on borrowings had been 50 basis points higher/lower with all variables held constant, post
tax profit for the year would have been £0.2m (2012: £0.1m) higher/lower as a result of higher/lower interest expense on unhedged
variable rate borrowings. This sensitivity is considered a reasonable assumption based on current economic conditions.
Liquidity risk
Cash flow forecasting is performed on a regular basis in the operating entities of the Group and is aggregated by Group
Finance. Group Finance monitors rolling forecasts of the Group’s liquidity requirements to ensure each operating entity
has sufficient cash to meet operational needs while maintaining sufficient headroom on its undrawn committed borrowing
facilities at all times so that the Group does not breach borrowing limits or covenants on any of its borrowing facilities.
The Group’s borrowing facilities are with Bank of Scotland plc, Barclays Bank PLC and Royal Bank of Scotland plc. Group
Finance monitors the level of excess cash over and above that required for working capital management and ensures the
excess is loaned to the UK to minimise the facility required to be drawn. Bank facilities have been agreed at appropriate
levels having regard to the Group’s operating cash flows and future development plans.
95
BUSINESS OVERVIEW CORPORATE GOVERNANCE STRATEGIC REPORT FINANCIAL STATEMENTSANNUAL REPORT AND ACCOUNTS 2013 SPORTECH PLC Notes to the financial statements continued
for the year ended 31 December 2013
25. Financial instruments continued
Financial risk management policies and objectives continued
Credit risk
The Group’s UK operation has limited exposure to credit risk. Transactions within the Football Pools segment are
predominantly either weekly cash receipts in advance or multiple weeks in advance by credit card, debit card or direct
debit. Credit exposure is limited to overseas collection agencies on short credit terms, managed centrally by the UK
finance function. The Group’s main exposure to credit risk is in accounts receivable in the Sportech Racing and Digital
segment. Credit risk in these entities is managed locally by assessing the creditworthiness of each new customer before
agreeing payment and delivery terms. The Group does not hold significant amounts of deposits with banks and financial
institutions. Amounts held in cash for the Sportech Venue division are held in highly secure environments.
Foreign exchange risk
The Group operates internationally and is exposed to foreign exchange risk arising from various currency exposures,
primarily with respect to the Euro and US Dollar. Foreign exchange risk arises from transactions undertaken in foreign
currencies, the translation of foreign currency monetary assets and liabilities and from the translation into Sterling of
the results and net assets of overseas operations.
The Group continually monitors the foreign currency risk and takes steps, where practical, to ensure that the net exposure
is kept to an acceptable level, inter alia, by using foreign exchange forward contracts designed to fix the economic impact
of forecasted profitability. At 31 December 2013, the notional principal amounts of foreign exchange forward contracts
outstanding were $2.0m (2012: $10.5m). The contracts are not designated effective hedges and, as a result, gains and
losses are recognised in the income statement within finance costs. At 31 December 2013, the fair value of these forward
contracts was £nil (2012: £0.1m). No charge or credit has thus been recognised in profit and loss arising from fair value
movement (2012: debit from fair value movement of £0.1m).
The average rate of the US Dollar during the year was 1.56 and the Euro was 1.18; if the USD had averaged at 1.65 and the
Euro at 1.25, profit after tax would have been £3.2m and net assets would have been £139.7m at 31 December 2013.
Current liabilities
Interest rate swaps – cash flows hedges
Forward foreign exchange contracts – cash flow hedges
Total
Group
Company
2013
£m
1.3
—
1.3
2012
£m
2.6
0.1
2.7
2013
£m
1.3
—
1.3
2012
£m
2.6
0.1
2.7
The above financial instruments are carried at fair value. The level 2 valuation method is used; the valuation methods are
summarised as follows:
level 1 – quoted prices (adjusted) in active markets for identical assets or liabilities;
level 2 – inputs other than quoted prices included within level 1 that are observable for the asset or liability, either directly
(that is, as prices) or indirectly (that is, derived from prices); and
level 3 – inputs for the assets or liabilities that are not based on observable market data (that is, unobservable inputs).
The fair value of financial instruments that are not traded in an active market (for example, over-the-counter derivatives)
is determined by using valuation techniques. These valuation techniques maximise the use of observable market data
where it is available and rely as little as possible on entity specific estimates. If all significant inputs required to fair value
an instrument are observable, the instrument is included in level 2. If one or more of the significant inputs is not based
on observable market data, the instrument is included in level 3.
The fair value of interest rate swaps is calculated as the present value of the estimated future cash flows based on
observable yield curves. Note that all of the resulting fair value estimates are included in level 2.
96
FINANCIAL STATEMENTSSPORTECH PLC ANNUAL REPORT AND ACCOUNTS 2013 25. Financial instruments continued
Financial risk management policies and objectives continued
Capital risk management
The Group’s objectives when managing capital are to safeguard the Group’s ability to continue as a going concern in order
to provide returns for shareholders, benefits for other stakeholders and to achieve an efficient capital structure to minimise
the cost of capital.
In order to maintain or adjust the capital structure, the Group may adjust the amount of dividends paid to shareholders,
return capital to shareholders, issue new shares or sell assets to reduce debt.
The Group monitors capital on the basis of the gearing ratio. This ratio is calculated as net debt divided by total capital.
Net debt is calculated as total financial liabilities (including current and non-current), as shown in the Consolidated Balance
Sheet, less cash and cash equivalents. Total capital is calculated as equity, as shown in the Consolidated Balance Sheet,
plus net debt.
The Group’s strategy has been to target a reasonable level of gearing for a group of Sportech's size and industry presence.
The Board considers gearing of between 20% and 40% to be appropriate. During 2013, net debt (including deferred
consideration) was increased by £0.1m (0.2%) (2012: reduced by £0.4m (0.6%)). Gearing has remained static principally
due to the cash generated by the Group from operations during the year offset by cash used to purchase tangible and
intangible assets and to acquire Data Tote. The total net debt and gearing ratios at 31 December 2013 and 2012 were
as follows:
Total financial liabilities
Less cash and cash equivalents
Net debt
Total equity
Total capital
Gearing ratio
Fair value of non-current borrowings
As at 31 December 2013
Bank borrowings due after one year
As at 31 December 2012
Bank borrowings due after one year
Note
24
21
2013
£m
67.3
(2.6)
64.7
139.7
204.4
32%
Group
Company
Book
value
£m
66.0
Group
Book
value
£m
60.0
Fair
value
£m
65.7
Fair
value
£m
53.8
Book
value
£m
66.0
Company
Book
value
£m
60.0
Restated
2012
£m
67.5
(2.9)
64.6
135.4
200.0
32%
Fair
value
£m
65.7
Fair
value
£m
53.8
The fair values are based on cash flows discounted at a rate of 8.3% (2012: 8.3%) and are within level 2 of the fair value
hierarchy. Future interest payments are £3.0m payable within one year (2012: £2.7m), £2.0m payable between one and two
years (2012: £2.7m) and £nil payable between two and five years (2012: £1.8m).
Maturity of bank borrowings
Bank borrowings are repayable as follows:
Contractual undiscounted amount
Between one and two years
Between two and five years
Total
Group
Company
2013
£m
66.0
—
66.0
2012
£m
—
60.0
60.0
2013
£m
66.0
—
66.0
2012
£m
—
60.0
60.0
97
BUSINESS OVERVIEW CORPORATE GOVERNANCE STRATEGIC REPORT FINANCIAL STATEMENTSANNUAL REPORT AND ACCOUNTS 2013 SPORTECH PLC Notes to the financial statements continued
for the year ended 31 December 2013
25. Financial instruments continued
Financial risk management policies and objectives continued
Maturity of bank borrowings continued
The maturity analysis of derivative financial liabilities is as follows:
Contractual undiscounted amount
Within one year
Between one and two years
Between two and five years
Total
The maturity analysis of non-derivative financial liabilities is as follows:
Group
Company
2013
£m
3.0
0.5
—
3.5
2012
£m
9.2
1.8
0.4
11.4
2013
£m
3.0
0.5
—
3.5
Group
Company
Contractual undiscounted amount
Within one year
Between one and two years
Between two and five years
Total
2013
£m
23.1
0.4
68.1
91.6
2012
£m
29.5
1.2
62.1
92.8
Borrowing facilities
The Group had the following undrawn committed borrowing facilities available as follows:
Floating rate:
– expiring within one year
– expiring beyond one year
Total
Financial asset and liabilities
The Group had the following categories:
Loans and receivables
Financial liabilities at fair value through profit or loss:
– designated post refinancing
– designated upon initial recognition
Financial liabilities measured at amortised cost
2013
£m
42.1
—
66.0
108.1
2013
£m
—
9.0
9.0
2013
£m
7.0
1.3
—
67.3
2012
£m
9.2
1.8
0.4
11.4
2012
£m
32.9
—
60.0
92.9
2012
£m
—
15.0
15.0
Restated
2012
£m
6.3
2.6
0.1
67.5
98
FINANCIAL STATEMENTSSPORTECH PLC ANNUAL REPORT AND ACCOUNTS 2013 26. Ordinary shares
Authorised, issued and fully paid
Ordinary shares of 50p each (2012: 50p)
At 1 January
New shares issued to satisfy PSP vesting
At 31 December
2013
'000
198,810
6,041
204,851
£m
99.4
3.0
102.4
2012
'000
198,810
—
198,810
£m
99.4
—
99.4
Potential issue of ordinary shares
Sportech share option schemes
Certain Directors and Senior Executives hold options to subscribe for shares in the Company at prices ranging from £0.817
to £1.064 (2012: £0.817 to £1.064) under Sportech share option schemes approved by the shareholders. Share options at
the end of the period had a weighted average exercise price of £0.888 (2012: £0.888). The number of shares subject to
options, the periods in which they were granted and the periods in which they may be exercised are given below. There
were no movements in the year.
Year of grant
2005 (September)
2006 (March)
Total
Exercise price
Exercise period
£0.817
£1.064
2008–2015
2009–2016
Outstanding at
31 December
2013 and
2012
Number
505,050
202,020
707,070
The options are exercisable at any time during the seven-year period commencing three years from the date of the grant.
The Company has no legal or constructive obligation to settle the options in cash. The weighted average remaining
contractual life of outstanding share options under the Sportech Share Option Scheme at 31 December 2013 was one year
and eleven months (31 December 2012: two years and eleven months).
Exercise of the 2005 options is subject to the share price reaching the following closing prices at any time during the
exercise period:
Shares
151,515
151,515
101,010
101,010
505,050
Closing
price
£1.237
£1.732
£2.227
£2.722
Exercise of the 2006 options is subject to the share price reaching the following closing prices at any time during the
exercise period:
Shares
50,505
75,757
75,758
202,020
Closing
price
£1.732
£2.227
£2.722
The market price of the ordinary shares at 31 December 2013 was £0.815 (2012: £0.705) and the range during the year was
£1.080 to £0.690 (2012: £0.428 to £0.710).
99
BUSINESS OVERVIEW CORPORATE GOVERNANCE STRATEGIC REPORT FINANCIAL STATEMENTSANNUAL REPORT AND ACCOUNTS 2013 SPORTECH PLC
Notes to the financial statements continued
for the year ended 31 December 2013
26. Ordinary shares continued
Potential issue of ordinary shares continued
Sportech share option schemes continued
Options are granted with a fixed exercise price equal to the market price of the shares under option at the date of the
grant. Options were valued using the Black-Scholes option pricing model. No performance conditions are included in the
fair value calculation. The fair value per option granted and the assumptions used in the calculations are as follows:
Risk-free interest rate
Vesting period
Option life
Expected life of options
Expected share price volatility
Dividend growth
Fair value of option
2005
4.18%
3 years
10 years
5 years
66.29%
—
2006
4.40%
3 years
10 years
5 years
48.61%
—
£0.556
£0.601
The expected volatility is based on historical volatility over the last three years. The expected life is the average expected
period to exercise. The risk-free rate is based on Bank of England bonds of a term consistent with the assumed option life.
Dividend growth is based on historical dividends over the last three years.
The Performance Share Plan (“PSP”)
Certain Executive Directors and Senior Executives have been awarded grants to acquire shares in the Company under
the PSP, subject to performance conditions. During the year ended 31 December 2013, 2,406,000 shares have been awarded
(2012: 4,123,000), 1,649,000 awards lapsed due to failure to meet the performance conditions (2012: nil), 674,000 awards
lapsed due to employees ceasing to be employed by the Group (2012: 1,662,000) and no awards were cancelled during the
year (2012: nil). 6,041,000 shares vested during the period of which 4,072,000 remain unexercised as at 31 December 2013.
8,608,000 (2012: 13,563,000) share awards remained outstanding (unvested) at 31 December 2013.
Performance conditions
The Remuneration Committee can set different performance conditions from those described below for future awards
provided that, in the reasonable opinion of the Remuneration Committee, the new targets are not materially less
challenging in the circumstances than those described below. The Remuneration Committee determines the comparator
group for each award.
The Remuneration Committee may also vary the performance conditions applying to existing awards if an event has
occurred that causes the Remuneration Committee to consider that it would be appropriate to amend the performance
conditions, provided that the Remuneration Committee considers the varied conditions are fair and reasonable and not
materially less challenging than the original conditions would have been but for the event in question.
The awards are at nil cost to the employee. Awards will normally vest on the third anniversary of the date of grant subject
to the participants’ continued employment within the Group and the satisfaction of the performance conditions noted below.
2013 grants
The vesting of one-half of the award (“Part A”) will be dependent on the Company’s Total Shareholder Return (“TSR”) over
a fixed three-year period beginning on the date of grant relative to that of the FTSE Small Cap Index (excluding investment
trusts). For the purpose of calculating TSR, the base figure is averaged over the six weeks preceding the start of the
performance period and the end figure is averaged over the last six weeks of the performance period.
No portion of Part A will vest unless the Company’s TSR performance at least matches that of the index. Thereafter, a
vesting schedule no less demanding than the following will apply:
The Company’s TSR performance over the performance period relative to comparator index
Extent of vesting of Part A
Equal to the index
25%
Between equal to the index and upper quartile
Pro rata between 25% and 100%
Upper quartile or better
100%
100
FINANCIAL STATEMENTSSPORTECH PLC ANNUAL REPORT AND ACCOUNTS 2013 26. Ordinary shares continued
Potential issue of ordinary shares continued
The Performance Share Plan (“PSP”) continued
2013 grants continued
The vesting of the second half of the award is dependent on an EPS performance criterion (“Part B”); the average annual
percentage growth in the Company’s EPS in excess of the UK Retail Prices Index (“RPI”) over the EPS performance period
must at least equal 4%. Vesting is determined by the following schedule:
The Company’s average annual growth in EPS in excess of RPI during the performance period
Extent of vesting of Part B
Less than 4% per annum
4% per annum
Between 4% and 10% per annum
10% or better
0%
25%
Pro rata between 25% and 100%
100%
2012, 2011 and 2010 grants
The vesting of one-third of the award (“Part A”) will be dependent on the Company’s Total Shareholder Return (“TSR”) over
a fixed three-year period beginning on the date of grant relative to that of the FTSE Small Cap Index (excluding investment
trusts). For the purpose of calculating TSR, the base figure is averaged over the six weeks preceding the start of the
performance period and the end figure is averaged over the last six weeks of the performance period.
No portion of Part A will vest unless the Company’s TSR performance at least matches that of the index. Thereafter,
a vesting schedule no less demanding than the following will apply:
The Company’s TSR performance over the performance period relative to comparator index
Extent of vesting of Part A
Equal to the index
25%
Between equal to the index and upper quartile
Pro rata between 25% and 100%
Upper quartile or better
100%
The vesting of the second one-third of the award (“Part B”) will be dependent on the Company’s absolute TSR over the
same performance period as for Part A; the TSR calculation is the same as that for Part A with the exception that the final
figure for the purpose of calculating TSR is the highest six-week average over the final year of the performance period.
Vesting is determined by the following schedule:
The Company’s compound annual TSR during the performance period
At least 6%
Between 6% and 15%
15% or better
Extent of vesting of Part B
25%
Pro rata between 25% and 100%
100%
The vesting of the final third of the award is dependent on an EPS performance criterion (“Part C”); the average annual
percentage growth in the Company’s EPS in excess of the UK Retail Prices Index (“RPI”) over the EPS performance period
must at least equal 4%. Vesting is determined by the following schedule:
The Company’s average annual growth in EPS in excess of RPI during the performance period
Extent of vesting of Part C
Less than 4% per annum
4% per annum
Between 4% and 10% per annum
10% or better
0%
25%
Pro rata between 25% and 100%
100%
For employees who are responsible for the management of Sportech Racing the above performance criteria are applicable
in the following fractions:
Part A – two-ninths
Part B – two-ninths
Part C – two-ninths
101
BUSINESS OVERVIEW CORPORATE GOVERNANCE STRATEGIC REPORT FINANCIAL STATEMENTSANNUAL REPORT AND ACCOUNTS 2013 SPORTECH PLC
Notes to the financial statements continued
for the year ended 31 December 2013
26. Ordinary shares continued
Potential issue of ordinary shares continued
The Performance Share Plan (“PSP”) continued
2012, 2011 and 2010 grants continued
A further performance criteria is applicable for the final third of the award (“Part D”), being the average annual percentage
growth in Sportech Racing’s EBITDA over the performance period must equal at least 10%. Vesting is determined by the
following schedule:
Sportech Racing’s average annual growth in EBITDA during the performance period
Extent of vesting of Part D
Less than 10% per annum
10% per annum
Between 10% and 20% per annum
20% or better
0%
25%
Pro rata between 25% and 100%
100%
All PSP grants
Awards are valued using a stochastic (Monte Carlo) valuation model. The fair value per award granted and the assumptions
used in the calculations are as follows:
Grant date
Exercise price
Number of employees issued awards
Share price at award date
Expected term (fixed)
Expected volatility
Dividend yield
Fair value of award
May
2013
£nil
1
March
2013
£nil
70
March
2012
December
2011
February
2011
October
2010
£nil
47
£nil
22
£nil
3
£nil
51
£0.900
£1.000
£0.513
£0.399
£0.425
£0.425
3 years
3 years
3 years
3 years
3 years
3 years
29.6%
29.6%
33.1%
33.9%
39.5%
39.5%
0%
0%
0%
0%
0%
0%
£0.844
£0.844
£0.407
£0.301
£0.346
£0.346
The weighted average remaining contractual life of outstanding awards under the PSP at 31 December 2013 was one year
and five months (2012: one year and four months). The weighted average exercise price of awards granted during the
period was £nil (2012: £nil).
PSP awards are not affected by the risk-free rate input since no payment is required by the recipient and therefore no
interest could be earned elsewhere.
The expected volatility is based on movements in the historical return index (share price with dividends re-invested) for
the three years prior to the award date. The dividend yield does not affect the fair value of the award as the rules of the
PSP entitle a participant to receive cash equal in value to the dividends that would have been paid on the vested shares
in respect of dividends paid during the vesting period and is therefore assumed to be 0%.
See note 6 and note 7 for the total expense recognised in the income statement for share options granted and PSP awards
made to Directors and employees respectively.
102
FINANCIAL STATEMENTSSPORTECH PLC ANNUAL REPORT AND ACCOUNTS 2013 27. Cash flow from operating activities
Reconciliation of profit/(loss) before taxation to cash flows from operating activities
Note
2
17
13
12
12
4
4
6
32
23
13
12
Profit/(loss) before taxation including profit
from discontinued operations
Adjustments for:
Exceptional costs
Share of loss after tax of joint ventures
Depreciation
Amortisation of acquired intangibles
Amortisation of other intangibles
Net finance costs
Other finance (income)/charges
Share option expense
Movement in retirement benefit obligation
Movement in provisions
Loss on disposal of property, plant and equipment
Loss on disposal of intangible assets
Gift of shares to EBT
Changes in working capital:
(Increase)/decrease in trade and other
receivables
Decrease in inventories
(Decrease)/increase in trade and other payables
Cash flows from operating activities
Group
2013
£m
5.3
2.7
0.2
3.2
7.2
2.5
4.3
(0.8)
1.5
0.2
(0.2)
0.1
0.3
—
(0.4)
0.2
(1.9)
24.4
2012
£m
2.1
2.8
0.2
2.6
5.9
2.6
4.1
4.7
1.4
—
(0.2)
—
—
—
1.0
1.0
(1.6)
26.6
Company
2013
£m
(11.9)
1.4
—
—
—
1.0
4.9
(0.8)
1.5
—
—
—
—
3.0
(5.7)
—
21.1
14.5
2012
£m
(7.6)
0.7
—
—
—
1.1
4.0
4.7
1.4
—
—
—
—
—
12.1
—
(6.9)
9.5
Non-cash transactions
There were no significant non-cash transactions during the year (2012: nil).
28. Contingent assets and liabilities
Contingent assets
The Board has previously announced that the Group had submitted a claim for in excess of £40.0m 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 successful, given the timeframe of the claim, could increase the sum claimed to approximately £95.0m. The
Group was informed on 7 March 2013 that the First-tier Tax Tribunal had found in favour of the Group. HMRC has been given
leave to appeal and the case will be heard at the Upper Tribunal on 29 and 30 April 2014. Accordingly, the claim has not been
recognised in the Group’s financial statements.
Contingent liabilities
The Group has contingent liabilities in respect of legal claims in the ordinary course of business; it is not considered that
any material liabilities will arise from these.
In respect of the acquisition of eBet Online Inc. on 19 December 2012, additional consideration is payable under certain
circumstances as outlined in note 16.
In addition, additional consideration is payable under certain circumstances as outlined in note 16 in respect of the
acquisition of Datatote (England) Limited on 27 September 2013.
103
BUSINESS OVERVIEW CORPORATE GOVERNANCE STRATEGIC REPORT FINANCIAL STATEMENTSANNUAL REPORT AND ACCOUNTS 2013 SPORTECH PLC Notes to the financial statements continued
for the year ended 31 December 2013
29. Commitments
Capital commitments
The Group had no contracts placed for capital expenditure that were not provided for in the financial statements in the
current or prior year.
Operating lease commitments
The Group leases various OTB venues and other operating sites under non-cancellable operating lease arrangements.
The lease terms are generally between three and five years and are renewable at the end of the lease period at market
rates. The expenditure charged to the income statement was £2.0m (2012: £2.3m).
The future aggregate minimum lease payments under non-cancellable operating leases are as follows:
No later than one year
Later than one year and no later than five years
Later than five years
Total
Group
Company
2013
£m
1.9
4.1
0.2
6.2
2012
£m
1.5
3.1
1.9
6.5
2013
£m
0.1
0.7
0.1
0.9
2012
£m
0.1
0.3
—
0.4
30. Other financial commitments
In December 1996, an incentive scheme to reward Football Pools collectors was established by a subsidiary company.
Under the terms of the scheme, the collectors earn points on the basis of their sales. These points can be converted into
vouchers to purchase items from high street shops. On the basis of similar schemes, a redemption rate attributable to
these points has been established and an appropriate charge made in these accounts. The potential liability in respect
of these points not provided for in these financial statements is £0.4m (2012: £0.4m). This liability has not been provided
for as it is the judgement of management that it will never crystallise.
The Group was required to enter into a performance guarantee bond in October 2010, which is reviewed annually, for 15%
of the contract value, being $190,000 at 31 December 2013, in relation to a contract to provide and maintain pari-mutuel
betting terminals to a customer in Turkey.
31. Related party transactions
The extent of transactions with related parties of Sportech PLC and the nature of the relationships with them are
summarised below:
a. Key management compensation is disclosed in note 7.
b. The Company had the following transactions with subsidiaries during the year:
Management charges received
Royalty income received
Management charges paid
Interest received on inter-company loan balances
Interest paid on inter-company loan balances
2013
£m
1.3
1.6
0.1
0.2
1.0
2012
£m
1.3
1.6
0.1
0.3
0.1
The amount outstanding in relation to management charges at the balance sheet date was £0.1m (2012: £0.1m) and the net
amount outstanding for interest receivable on inter-company loan balances was £0.2m (2012: £2.0m). All inter-company
transactions are on an arm's length basis.
c. The Company had no transactions with the joint ventures during the year (2012: no transactions). The Group invested £0.2m
cash into its Indian joint venture and contributed £nil to capital expenditure (2012: invested £0.3m and contributed £0.1m).
d. Scientific Games Corporation (“SGC”) was a 19.99% shareholder in Sportech PLC throughout the period and until the
disposal of 100% of its holding on 9 January 2014. SGC is therefore considered to be a related party for the whole of the
period and as at 31 December 2013. Lorne Weil, Non-executive Director and shareholder (see Directors’ Report on pages
54 to 56), was Chairman and Chief Executive Officer of SGC until his resignation in December 2013.
104
FINANCIAL STATEMENTSSPORTECH PLC ANNUAL REPORT AND ACCOUNTS 2013 31. Related party transactions continued
During the year there have been a number of transactions and at the year end there remain outstanding balances
between the Company and SGC as detailed below:
deferred consideration of $nil (£nil discounted) is due to SGC (2012: $10.0m (£6.1m discounted) paid in September 2013);
£0.2m (2012: £0.3m) is due to the Company from SGC for the settlement of an under-funded pension liability as
at 5 October 2010, payable in five equal annual instalments which commenced September 2011;
Sportech Racing LLC has ongoing service agreements with a subsidiary of SGC, Global Draw, to provide Global Draw
with employees to operate and supervise gaming systems in Puerto Rico. During the year £0.5m (2012: £0.4m) was
charged to SGC for these services;
Sportech Racing LLC purchases ticket paper from SGC under the terms of the supply agreement entered into upon
acquisition of Sportech Racing LLC by Sportech PLC from SGC. Total purchases of ticket paper during the year ended
31 December 2013 amounted to £1.2m (2012: £1.2m). Sportech Racing LLC also purchased spare parts for terminals from
SGC amounting to £0.1m during the year ended 31 December 2013 (2012: £0.1m);
Racing Technology Ireland Limited purchased spare parts for terminals from SGC amounting to £0.1m during the year
ended 31 December 2013 (2012: £0.3m), and incurred commission on sales of £0.2m (2012: £nil); and
at 31 December 2013 the following amounts were due to/from SGC from Sportech PLC Group companies:
Sportech Group company
Sportech PLC
Sportech Racing LLC
Racing Technology Ireland Limited
Total
2013
Due
to SGC
£m
Due
from SGC
£m
2012
Due
to SGC
£m
Due
from SGC
£m
—
0.9
0.1
1.0
0.2
0.6
—
0.8
6.4
0.2
—
6.6
0.3
0.1
—
0.4
The amount owed by Sportech PLC in 2012, being deferred consideration, and the amount owed from SGC to Sportech PLC,
being for deferred pension settlement, are both as referred to above.
e. Playtech Limited was a 10% shareholder in Sportech PLC until the disposal of 100% of its holding in June 2013. Roger Withers,
Chairman, was also Chairman of Playtech Limited and Mor Weizer, former Non-executive Director until his resignation
in June 2013, is Chief Executive of Playtech Limited (see Directors’ Report on pages 54 to 56). Playtech Limited is therefore
considered to be a related party up until the resignation of Roger Withers as Chairman of Playtech in October 2013.
Playtech Limited provided e-Gaming services to the Group comprising the platform, including the gaming software, for
casino, poker, bingo and side game offerings. These services commenced in early August 2011 when Playtech became the
Group’s principal e-Gaming provider and ceased in the disposal of the e-Gaming division by the Group in September 2013.
During the year ended 31 December 2013 the Group had all security deposits with Playtech Limited returned.
Operating expenses for customer relationship management services and royalties paid to Playtech Limited during the
year amounted to £1.3m (2012: £1.0m).
At 31 December 2013, the Group owed Playtech Limited £nil (2012: £0.3m) in relation to services rendered and royalties due.
The Company did not have any other transactions with Playtech Limited during the year (2012: no transactions).
105
BUSINESS OVERVIEW CORPORATE GOVERNANCE STRATEGIC REPORT FINANCIAL STATEMENTSANNUAL REPORT AND ACCOUNTS 2013 SPORTECH PLC Notes to the financial statements continued
for the year ended 31 December 2013
32. Pension schemes
The Group operates two pension schemes in the UK: one is a defined contribution scheme and the other is a funded
defined benefit scheme. The Group operates a further funded defined benefit scheme in the USA, two defined contribution
schemes in the USA, a defined contribution scheme in the Netherlands and a defined contribution scheme in Ireland.
Summary of pension contributions paid
Defined contribution scheme contributions
Defined benefit scheme contributions
Total pension contributions
2013
£m
0.7
0.2
0.9
2012
£m
0.7
0.2
0.9
Defined contribution schemes
Those employees who joined the Group consequent to the acquisition of Littlewoods Gaming (formerly Littlewoods Leisure)
and who were aged under 50 on 4 September 2000 and all other UK employees of Sportech can join either a stakeholder
pension scheme established on 6 April 2001 or alternate defined contribution arrangements. The contributions are made
at a maximum rate of 8% of pensionable salaries.
A defined contribution scheme for non-unionised employees is operated in the USA, into which the Group contributes
37.5% of the first 6% of participant contributions. A further defined contribution scheme is available for unionised employees;
the Group does not make contributions into this scheme. The pension scheme in the Netherlands provides benefits
to employees on a percentage of salary basis. The Group contributes 7.5% of salary less state pension allowance, which
is currently €12,000 (2012: €12,000) per annum, into a defined contribution scheme for employees in Ireland.
Defined benefit schemes
Pursuant to the sale agreement between Littlewoods plc and Sportech PLC, a defined benefit scheme was set up for those
employees who joined the Group consequent to the acquisition of Littlewoods Gaming (formerly Littlewoods Leisure) and
who were aged 50 or over on 4 September 2000, the date of the acquisition. The scheme was formed on 6 April 2001
and is governed by a Definitive Trust Deed and Rules. It is a Registered Pension Scheme under Chapter 2 of Part 4 of the
Finance Act 2004. The scheme is contracted out of the State Second Pension Scheme. The scheme is currently not open
to new members.
The US defined benefit scheme is administered by an insurance company in the USA and provides retirement benefits to
employees who are members of a collective bargaining unit represented by the International Brotherhood of Electrical
Workers. Benefits are based on value times credited service.
The amounts recognised in the balance sheet were as follows:
At
31 December
2013
£m
At
31 December
2012
£m
1.8
2.5
4.3
(5.6)
(1.3)
(1.3)
1.7
2.6
4.3
(5.9)
(1.6)
(1.6)
Fair value of plan assets:
– UK
– USA
Total fair value of assets
Present value of the schemes’ liabilities
Deficit in the schemes
Included in:
– non-current liabilities
106
FINANCIAL STATEMENTSSPORTECH PLC ANNUAL REPORT AND ACCOUNTS 2013 32. Pension schemes continued
Defined benefit schemes continued
The figures below have been determined by qualified actuaries at the balance sheet date using the following assumptions:
Discount rate
Rate of increase in salaries
Rate of increase in pensions in payment:
– 5% LPI
– rate of inflation
– mortality table
USA
At 31 December
2013
UK
At 31 December
2013
USA
At 31 December
2012
UK
At 31 December
2012
4.5%
N/A
N/A
N/A
4.4%
5.0%
3.5%
3.5%
3.5%
N/A
N/A
N/A
4.1%
4.3%
2.8%
2.8%
2013 IRS
Static
Mortality
Table
S1NxA
CMI 2012
projections
1.5% per
annum long
term rate of
improvement
2012 IRS
Static
Mortality
Table
S1NxA
CMI 2009
projections
1.5% per
annum long
term rate of
improvement
For the UK, under the adopted mortality tables, if the future life expectancy were to be plus/minus one year the liabilities
would increase/decrease by £60,000.
For the USA scheme, under the adopted mortality tables, if the future life expectancy were to be plus/minus one year the
liabilities would increase/decrease by £6,000.
For the UK, if the discount rate were +4.65% the liabilities would decrease by £70,000. For the US, if the discount rate were
5% the liabilities would decrease by £154,000.
The movement in the defined benefit obligation over the year is as follows:
At 1 January 2012
Current service cost
Interest expense/(income)
Income statement expense/(income)
Re-measurements:
– Loss from change in actuarial assumptions
Contributions:
– Employers
Payments from plans:
– Benefit payments
At 31 December 2012
Present value
of obligation
£m
Fair value
of plan asset
£m
5.6
0.2
0.2
0.4
0.3
0.3
—
(0.4)
5.9
(4.3)
—
(0.2)
(0.2)
—
—
(0.2)
0.4
(4.3)
Total
£m
1.3
0.2
—
0.2
0.3
0.3
(0.2)
—
1.6
107
BUSINESS OVERVIEW CORPORATE GOVERNANCE STRATEGIC REPORT FINANCIAL STATEMENTSANNUAL REPORT AND ACCOUNTS 2013 SPORTECH PLC Notes to the financial statements continued
for the year ended 31 December 2013
32. Pension schemes continued
Defined benefit schemes continued
At 1 January 2013
Current service cost
Interest expense/(income)
Income statement expense/(income)
Remeasurements:
Currency exchange movements
– Gain from change in actuarial assumptions
Contributions:
– Employers
Payments from plans:
– Benefit payments
At 31 December 2013
Present value
of obligation
£m
Fair value
of plan asset
£m
5.9
0.2
0.2
0.4
(0.1)
(0.3)
(0.4)
—
(0.3)
5.6
(4.3)
—
(0.2)
(0.2)
—
—
—
(0.1)
0.3
(4.3)
Total
£m
1.6
0.2
—
0.2
(0.1)
(0.3)
(0.4)
(0.1)
—
1.3
Effect of change of assumptions on liability values
Changes in the financial assumptions used would have the following approximate effect on the schemes’ liabilities and
hence the deficit at the end of the year:
Change
Increase inflation and salary growth assumption by 0.25% (2012: 0.5%)
Increase salary growth assumption by 0.5% (2012: 0.1%)
2013
Increases/
(decreases)
liability
by £m
0.1
—
2012
Increases/
(decreases)
liability
by £m
0.1
—
The assets of the UK scheme are held in an independent Trustee administered fund. The Trustee of the scheme is Sportech
Trustees Limited. The Directors of Sportech Trustees Limited include Carl Lynn, a Sportech employee, who also acts
as Chair of the Trustee company. The assets of the US scheme are held by an insurance company.
The actuarial method for calculating the liabilities of the scheme is the projected unit method.
The expected employer annual contributions to the schemes for the financial year ending 31 December 2014 amounted
to £0.4m (year ended 31 December 2013: £0.2m).
Estimated future benefit payments for the next ten fiscal years for the US Scheme are:
At 31 December 2013
Pension benefits
Less than
a year
£m
0.2
Between
1 and 2 years
£m
Between
2 and 5 years
£m
0.2
0.7
Over
5 years
£m
6.9
Total
£m
8.0
The UK Company is required to agree a schedule of contributions with the Trustee of the Scheme following an actuarial
valuation which must be carried out at least once every three years. A valuation of the Scheme is currently in progress with
an effective date of 31 December 2012, but is yet to be completed. This valuation must be finalised by 31 March 2014. Based
on current discussions the Company expects to pay contributions of around £118,000 into the Scheme in the year ending
31 December 2014, but this is subject to change.
The weighted average duration of the UK Scheme obligation is approximately twelve years.
108
FINANCIAL STATEMENTSSPORTECH PLC ANNUAL REPORT AND ACCOUNTS 2013 S
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B R A N D G U I D E L I N E S
June 2010 version 1.2
Sportech PLC
101 Wigmore Street
London W1U 1QU
www.sportechplc.com
Our Iconic Brands
The Football Pools • Sportech Racing and Digital
Sportech Venues • MyWinners.com • Datatote • Runnerz
Our Offices and Operational Centres
London • Liverpool • Connecticut • Atlanta • California
New Jersey • Bristol • Dublin • The Hague • Essen
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