A WORLD LEADER
IN POOL BETTING
Sportech PLC
Annual Report and Accounts 2014
Welcome to our
Annual Report 2014
Highlights of the year
Strong strategic progress
01
Sportech is one of the largest pool betting
operators and technology suppliers in the
world, with international reach and a presence
in over 30 countries.
In 2014, we have continued to invest in
developing our strategic position in the
US technology and gaming markets, whilst
modernising our Football Pools business,
positioning us for future growth.
What’s inside this report
Strategic report
01 Highlights of the year
02 Overview
04 Chief Executive’s review
06 Leading the way
08 Driving future opportunities
10 KPIs
11 Financial review
14 Operational overview
20 Principal risks
22 Corporate social
responsibility report
Corporate governance
24 Chairman’s statement
26 Board of Directors and
senior management
28 Corporate governance report
36 Report of the Remuneration
Committee
37 Remuneration report
56 Directors’ report
59 Independent Auditors’ report
Financial statements
66 Consolidated income statement
67 Consolidated statement
of comprehensive (expense)/
income
68 Statements of changes in equity
69 Balance sheets
70 Statements of cash flows
71 Accounting policies
80 Notes to the financial statements
116 Shareholder and
corporate information
Strategic and operational highlights
Sportech
Racing and
Digital
– Agreement with Betfred to provide new systems and digital
technology to Totepool (UK Tote)
– Launched US online gaming services in February 2015 to iconic
Atlantic City-based Resorts Casino Hotel through SNG, our joint
venture with NYX Gaming Group
Sportech
Venues
– Opened 10,000 sq ft sports bar and restaurant at our existing
betting venue in Bradley, Connecticut and launched
Connecticut’s only legal online betting site, MyWinners.com
– Received regulatory approval to open a pipeline of three
new sports bar, restaurant and betting venues in Stamford,
Connecticut and in San Diego and Norco in California
Football
Pools
– Acquired record number of new customers to the Classic
Pools subscription business
– Launched new online platform to support customer
acquisition and facilitate cross-sell opportunities from
core subscription players
Financial highlights
Revenue
£m
EBITDA
£m
2012
2013
2014
2012
2013
2014
107.7
110.3
104.1
25.2
26.0
24.0
Sportech PLC Annual Report and Accounts 2014Strategic reportCorporate governanceFinancial statements 02
03
Overview
Sportech at a glance
In 2014, we strengthened our strategic
position in a widening world betting
and gaming market with technological
advances and progress in key joint
ventures and regulatory relationships.
Roger Withers
Chairman
Sportech Racing and Digital
Sportech Venues
The Football Pools
Supplier of tote equipment, services
and software both on and off-track
(online and mobile)
Exclusive operator of betting on racing
in venues and online across Connecticut
and the Netherlands, with opportunities
to develop in California
Operator of pools betting predominantly
through subscription and online channels
Division information Division includes Bump and iGaming joint
ventures with NYX and Picklive
Division operates brands Winners
(Connecticut) and Runnerz (the Netherlands)
Over 300,000 customers playing a range
of pool games every week
Location
US (Atlanta, New Jersey, California),
UK, Ireland, Germany
US (Connecticut, California), the Netherlands UK
Customers
Worldwide
Connecticut, California and the Netherlands
Predominantly UK
Divisional
performance
Contribution to
Group revenue
Revenue
£34.5m
EBITDA
£8.1m
33%
Find out more
See pages 14 and 15
Revenue
£32.5m
EBITDA
£3.2m
Revenue
£38.0m
EBITDA
£16.6m
31%
See pages 16 and 17
36%
See pages 18 and 19
Sportech PLC Annual Report and Accounts 2014Sportech PLC Annual Report and Accounts 2014Strategic reportCorporate governanceFinancial statements 04
05
Chief Executive’s review
Positioning Sportech as one of the
leaders in the global betting market
Overview
The Group’s strategy is to build a multi-
platform gaming business in the US using the
legal regulated horseracing and greyhound
operations as a base to position the Group
for broader-based gaming opportunities as
regulation develops.
The Group comprises three divisions: Racing
and Digital, Venues and Football Pools, all
of which focus on horseracing and football
markets. The Racing and Digital and Venues
divisions are based in the United States,
where we are licensed by gaming regulators
in 28 states, employing 700 people across
field operations and four corporate offices.
The Football Pools is the oldest football
gaming business in the world and, through
its Classic Pools product together with a
range of pools and casino games, it
generates strong cash flows.
Strategic progress
During 2014, the Group has made further
progress in delivering its strategy. This includes
entry into the New Jersey online gaming
market through SNG Interactive, our joint
venture with NYX. This is an important first
step for the business in the largest US state
to have legalised online gaming to date, and
provides a platform for future growth as online
regulation develops across the US. In our
Venues business, we opened a 10,000 sq ft
sports bar and restaurant in our Bradley venue
which is attracting a younger, more diverse
customer base. In Connecticut, we also
launched the State’s only legal online betting
site, MyWinners.com. The Group obtained
key regulatory approvals for new sports bar,
restaurant and betting venues in Stamford,
Connecticut and San Diego and Norco in
California. Refinement of Venues expansion
plans is ongoing and development is subject
to the Group’s available capital resources.
The Racing and Digital business has secured
a number of new contracts in the year,
including the supply of a new tote system
and digital technology to Totepool in the UK.
However, we have been informed that our
contract with the Californian racing authorities
to process bets across the State will not be
renewed at the end of October 2015.
The Group is confident that it will be able
to substantially mitigate the impact of this
contract loss through cost saving and revenue
generating actions.
This difficult trading environment is
expected to continue in 2015, but we
remain confident in the long-term value
within the Venues business.
During the year the Group strengthened
its capability in online technology with the
appointment of Rich Roberts to head its
Digital operations in the US, including SNG
Interactive and MyWinners.com. Rich has
recruited an experienced team to drive
progress in this important growth area.
2014 performance
Turning to the performance of our three
divisions, our Racing and Digital business
has shown EBITDA growth following the
investments made in technology and products
over recent years. The Football Pools has
made further progress in modernisation of
its systems and development of its customer
offering, and is moving towards stabilisation
of direct channel revenues.
However, Venues profits fell in 2014 due to
reduced wagering revenues combined with
increased content costs and start-up losses
at Bradley. Whilst disappointing, the fall in
Connecticut revenues has been in line with
US industry-wide wagering handle and our
venues have performed better than similar
facilities in the North East of America.
VAT claim
In September, the Upper Tribunal ruled in
favour of Her Majesty’s Revenue & Customs
(“HMRC”) in HMRC’s appeal case relating to
a VAT repayment claim on the “Spot the Ball”
game. This followed the initial ruling last year
of the First-tier Tribunal in Sportech’s favour.
The Group has been granted permission
to appeal to the Court of Appeal which
will be held in the week commencing
2 November 2015.
Outlook
Racing and Digital and Football Pools are
trading in line with expectations. Trading in
our Venues business remains challenging,
with amounts wagered below prior year levels,
as a result of a lack of racing due to the cold
weather in North East USA. The Group
launched operations in its online gaming
joint venture in February. The Board remains
confident in the Group’s prospects for the
full year ahead.
Ian Penrose
Chief Executive
4 March 2015
Core business
Growth investment
Future plans
Strategic
priorities
Modernising core business
to secure cash generation
Using cash from stable core
business for investment
Capitalise on opportunities
as markets regulate
– Stabilise Football Pools
revenues from 2015
– Drive value from exclusive
licences in Connecticut
– Increase Group’s digital
– Invest in innovation and
earning capabilities
new technologies
– Be first to market
and capitalise on
regulatory change
– Continuous leadership in
technology enhancement
Progress in 2014
– Football Pools modernisation
including new web platform
– Opened venue in Bradley,
– Continually monitoring
Connecticut
opportunities for slots in CT
– New Racing and Digital
contracts including Totepool
– Secured regulatory approvals
for new venues in CT and CA
– Foundations laid for iGaming
development in US
Priorities for the future – Stabilise Football Pools
– Finalise plans for Stamford,
– Lobbying in US
revenues and earnings
– Focus on improved margins
via technology enhancement
San Diego and Norco based
on available capital resources
states to position for
regulatory change
– First entry into iGaming with
Resorts in New Jersey
The Group’s strategy is to develop
Sportech’s position as one of the leading
companies in the regulating US and global
betting industry. In 2014, we have continued
to invest in developing our strategic position
in the US technology and gaming markets,
whilst modernising our Football Pools
business, positioning us for future growth.
Business model
Technology
Implement technology
to drive operational
performance
Stabilise
Stabilise and
grow EBITDA
More
contracts
More
contracts
with greater
margins
C
a
s
h
f
l
o
w
f
r
o
m
c
o
r
e
b
u
s
i
n
e
Opportunities
iGaming and sports
betting as regulation
permits
Sportech
Racing
and
Digital
es p o nsibilit
y
R
The
Football
Pools
t
s
u
r
ise T
E
x
pert
Sportech Venues
Continue
venue roll out
Based on licences
in CT and CA
Enhance
profitability
Enhance profitability
from existing and
future ventures
gth of existing relationshi p s a n d
t
r e g u l a
o r y f o
s
s
e
s, stre
n
Opportunities
New venues, online, mobile and slots
s
e
i
t
i
n
u
t
r
o
p
p
o t print drive future o
Opportunities
Grow a trusted brand
Sportech PLC Annual Report and Accounts 2014Sportech PLC Annual Report and Accounts 2014Strategic reportCorporate governanceFinancial statements
06
07
Sportech is the
industry leader
in pool betting
operations and
technology
In 2014, our Racing and Digital
and Football Pools divisions made
great strategic progress against
objectives. Opportunities for
expansion in our Venues division
also received regulatory approvals.
Strategic progress in 2014
– New Racing and Digital
contracts including Betfred/Totepool
– New proprietary Football Pools website,
new product development and record
digital acquisition
$13
billion bets processed in 2014
Priorities for 2015
– Stabilisation of The Football Pools
– Investment in technology to remain
at forefront of the industry
– Expansion of Venues business –
opportunities in Connecticut and
California based on regulatory approvals
Read more on how we are leading the way
in Racing and Digital technology
See pages 14 and 15
LE ADING
THE WAY
Sportech PLC Annual Report and Accounts 2014Sportech PLC Annual Report and Accounts 2014Strategic reportCorporate governanceFinancial statements 08
09
DRIVING
FUTURE
OPPORT UNITIES
Corporate governance
Financial statements
We are capitalising
on opportunities
as North American
markets regulate
Sportech has a unique position in
the US market and is well placed to
capitalise on opportunities as global
markets regulate.
Strategic progress in 2014
– Approval for Stamford venue
in Connecticut
– Received regulatory approval
for California venues
– Online joint venture with Resorts in
New Jersey live in February 2015
– Acquisition of Bump – first entry
into the professional sports market
28
Priorities for 2015
– Drive existing Venues business
– Successful launch of Resorts JV creating
a footprint in the US gaming market
– Stabilisation and modernisation of
The Football Pools to drive future growth
– Slots opportunity in Connecticut venues
Read more on how we are driving future opportunities
in our Venues business
Licences in 28 states with 130 racetrack, online
wagering and casino customers across the US
See pages 16 and 17
Sportech PLC Annual Report and Accounts 2014Sportech PLC Annual Report and Accounts 2014Strategic report 10
11
KPIs
Measuring our performance
Financial review
How we have performed
Financial KPIs
Adjusted profit
before tax
£m
Cash generated
from operations
£m
Capital
expenditure
£m
2012
2013
2014
2012
2013
2014
2012
2013
2014
Non-financial KPIs
CO2 emissions
Metric tonnes
Employees
Number of full
time equivalents
2012
2013
2014
2012
2013
2014
14.9
14.5
14.4
26.6
24.4
20.4
8.3
12.6
10.0
6,655
6,521
6,202
798
795
796
The Group refinanced its borrowings in 2014,
increasing its facility to £80m, reducing its
cost of borrowing and extending the term
to August 2018. This also provided the
Group with increased flexibility and improved
covenant terms.
Summary
– Revenue fell £2.1m to £104.1m on a constant currency basis
– Group EBITDA of £24.0m is a fall of £1.3m at constant currency
– Sportech Racing and Digital EBITDA was up 11% at constant currency
– Sportech Venues EBITDA was down 29% at constant currency
– Football Pools EBITDA was down 5%
– Net debt at 31 December 2014 was £63.8m (2013: £63.4m)
Capital expenditure analysis
(£m)
Football Pools modernisation
programme
Technology enhancement in
Sportech Racing and Digital
Tote services contract renewals
Data centre upgrades
Bradley sports bar
Existing venue investment
Stamford preliminary work
Other
3.0
2.8
1.4
0.8
0.4
0.3
0.2
1.1
Overview
Group revenue from continuing operations
was £6.2m lower than the prior year at
£104.1m (2013: £110.3m). EBITDA from
continuing operations fell by 8% to £24.0m
(2013: £26.0m). Growth in Sportech Racing
and Digital, despite adverse foreign exchange
(“FX”) impacts, was offset by declines in
Football Pools and Sportech Venues, the latter
also impacted by FX. Adjusted profit before
tax was £14.4m (2013: £14.5m), the EBITDA
shortfall and increased depreciation charge
being offset by a lower share option expense
and interest savings, having held £93m of
Spot the Ball VAT repayment monies for five
months. An impairment of £28.1m has been
recorded which reduces the carrying value of
the Football Pools goodwill to £119.5m. Loss
after tax as a result was £21.3m (2013: profit,
£3.4m) with basic loss per share of 10.4p
(2013: earnings, 1.7p) and adjusted earnings
per share of 5.5p (2013: 5.3p). Net debt at
31 December 2014 was £63.8m (2013: £63.4m).
An analysis of Group revenue and EBITDA
performance by business segment is shown
in the table overleaf.
Corporate costs
Corporate costs of £3.9m (2013: £3.9m) have
been managed carefully and again remain
in line with the prior year. In addition, we also
have a non-cash share option expense under
IFRS 2 of £0.6m (2013: £1.5m), reduced as a
result of employees leaving the Group and
a revision of expected likely vesting.
Depreciation, amortisation
and goodwill impairment
The Group’s normal depreciation and
amortisation charge increased in the period
to £6.2m (2013: £5.7m), principally due to the
ongoing capital expenditure in our businesses
in North America. In addition, the Group
incurred a non-cash amortisation charge of
£4.1m (2013: £7.2m) on the intangible assets
acquired with Vernons in 2007, eBet in 2012
and Data Tote in 2013. The Vernons assets
became fully amortised in June 2014, which
resulted in the reduced charge in 2014
compared to 2013. An impairment of £28.1m
was recorded to reduce the carrying value
of The Football Pools goodwill to £119.5m.
This is as a result of revisions to the underlying
cash flow assumptions to reflect the division
achieving ongoing earnings stability.
Sportech PLC Annual Report and Accounts 2014Sportech PLC Annual Report and Accounts 2014Strategic reportCorporate governanceFinancial statements
12
13
Financial review continued
Revenue
Racing and Digital
Venues
Football Pools
FX effect
Trading divisions
Inter-segment
elimination
Total
EBITDA
Racing and Digital
Venues
Football Pools
FX effect
Trading divisions
Corporate costs
and inter-segment
elimination
Total
Adjusted operating profit
Racing and Digital
Venues
Football Pools
FX effect
Trading divisions
Corporate costs
and inter-segment
elimination
Total
2014
£m
34.5
32.5
38.0
—
105.0
(0.9)
104.1
2014
£m
8.1
3.2
16.6
—
27.9
2013*
£m
33.7
32.2
41.3
4.1
111.3
(1.0)
110.3
2013*
£m
7.3
4.5
17.4
0.7
29.9
(3.9)
24.0
(3.9)
26.0
2014
£m
4.6
2.0
15.1
—
21.7
(4.5)
17.2
2013*
£m
4.5
3.2
16.0
0.5
24.2
(5.4)
18.8
* 2013 numbers are at “constant currency”, translated
using 2014 exchange rates
Exceptional costs
The Group has incurred exceptional
administration costs of £2.3m (2013: £2.7m) in
the twelve-month period. These costs include
restructuring and other costs of £1.4m (2013:
£1.3m), costs in relation to the set-up of our
joint venture companies of £0.6m (2013: £nil),
compensation for loss of office of £nil (2013:
£0.3m), costs in relation to the New Jersey
licence of £0.1m (2013: £0.3m), transaction
costs in relation to acquisitions of £0.1m (2013:
£0.2m) and legal costs of £0.2m in connection
with the “Spot the Ball” VAT claim (2013:
£0.5m). A refinancing fee of £1.4m and fair
value movement on ineffective interest rate
hedges of £0.8m are classified as exceptional
and are disclosed in net finance costs.
Net finance costs
The Group has incurred net interest costs in
the period of £2.8m (2013: £4.3m), with the
reduction being primarily due to the savings
made from holding £93m in cash in relation to
the VAT repayment claim from the end of June
to November 2014. In addition, other finance
income amounted to £0.3m (2013: £0.8m),
reflecting a refinancing fee of £1.4m, offsetting
the credit of fair value movement on interest
rate swaps of £0.8m and foreign exchange
gains on intercompany loans of £0.9m.
Net bank debt
In May 2014, the Group refinanced its banking
facilities, increasing the facility to £80m and
extending the term to August 2018, whilst
obtaining increased flexibility and improved
covenant terms. Net bank debt has increased
marginally in the year to £63.8m (2013:
£63.4m), following investment in capital
expenditure and joint ventures of £11.9m.
The Group’s bank leverage ratio for covenant
testing purposes (net bank debt/adjusted
EBITDA) was 2.66x as at 31 December 2014
(31 December 2013: 2.41x). At 31 December
2014, the leverage covenant was 3.00x
(net bank debt/adjusted EBITDA).
Capital expenditure
Capital expenditure was £2.6m lower than
the prior year at £10.0m (2013: £12.6m).
Expenditure included continuing
modernisation of Football Pools technology,
the customer database and online platform,
contract renewals in Sportech Racing and
Digital and completion of the Bradley sports
bar in Sportech Venues.
Acquisitions and investment
in joint ventures
During the year the Group acquired Bump
50:50 Inc. for £0.1m in cash consideration with
a potential further contingent consideration
of up to £5.5m in the event that the business
meets challenging growth performance
targets in the year ended 31 December 2016.
Dan Tanenbaum, the 100% owner and
Chief Executive of Bump has remained
in employment with the Group and as such the
expected contingent consideration payable is
being accrued over the performance period in
exceptional costs. £0.1m has been accrued as
at 31 December 2014. Cash on balance sheet at
the acquisition date was an overdraft of £0.1m.
In December 2014, £0.7m was paid in deferred
consideration for the 2012 acquisition of eBet
Online Inc. Additional maximum potential
consideration is due of £0.9m, based on
EBITDA performance in the year ended
31 December 2015.
The Group has invested £0.6m into its
Californian joint venture to commence the
preliminary construction phase at the Norco
venue, and has invested £0.2m in Picklive USA
and £0.9m in Sportech NYX Gaming (both
joint venture companies). In addition, the
Group continues to support the running costs
of its Indian joint venture at £0.2m per annum.
VAT claim
In September 2014, HMRC were successful
in their appeal to the Upper Tribunal (“UT”)
in respect of the “Spot the Ball” game VAT
repayment claim. This followed the decision
in the Group’s favour by the First-tier Tax
Tribunal (“FTT”) in March 2013. The claim is for
approximately £96m including simple interest
and the Group has been granted permission
to appeal to the Court of Appeal. The appeal
will be heard in the week commencing
2 November 2015.
The Group received £93m from HMRC in
June 2014 in relation to this claim. Following
the reversal of the FTT decision by the UT,
these funds were repaid to HMRC in
November 2014.
Dividend
No dividend is proposed. The Board will
continue to assess when to commence the
payment of a dividend in consideration
of the Group’s financial position, business
performance and future growth opportunities.
Taxation
A tax charge for the period of £1.3m (2013:
£1.9m) has been provided at the weighted
average applicable tax rate for the Group
of 23.0% (2013: 26.8%). The Group has a net
deferred tax asset of £0.8m (2013: £0.7m),
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 £1.3m were made during the
period (2013: £1.7m), principally representing
final payments for prior year tax liabilities and
overseas tax deducted at source.
Shareholders’ funds
During the year 0.4m shares were issued
to settle employee share options, increasing
issued share capital to 205,220,769.
Total shareholders’ equity and the Group’s net
assets have reduced by £19.9m to £119.8m
(2013: £139.7m).
Cliff Baty
Chief Financial Officer
4 March 2015
EBITDA bridge
£m
2013
Football Pools
Sportech Racing and Digital
Sportech Venues
FX effect
2014
Net debt bridge
£m
2013
Cash from operations
Working capital
Interest paid
Tax paid
Exceptional costs
Acquisition and joint venture investment
Capex
2014
(0.7)
24.0
3.6
3.0
1.3
3.7
2.8
26.0
(0.8)
0.8
(1.3)
63.4
(24.0)
10.0
63.8
Sportech PLC Annual Report and Accounts 2014Sportech PLC Annual Report and Accounts 2014Strategic reportCorporate governanceFinancial statements 14
15
Operational overview
Sportech Racing and Digital
President – Sportech Racing and Digital
Andrew Gaughan
Revenue
EBITDA
Key financials
An analysis of revenue
and EBITDA from our
Sportech Racing and
Digital division is set
out as follows:
£34.5m
£8.1m
Tote services
Equipment sales
Digital
FX impact
Total revenue
Payroll
Other costs
FX impact
EBITDA
2014
£m
26.6
4.2
3.7
—
34.5
(12.7)
(13.7)
—
8.1
2013*
£m
26.1
3.9
3.7
2.2
35.9
(13.4)
(13.0)
(1.8)
7.7
* 2013 numbers are at “constant currency”, translated
using 2014 exchange rates
Overview
Sportech Racing and Digital is the largest
international provider of pool betting systems
and services for a global customer base of
licensed racing and betting operators, both
on and off-track. The division’s proprietary
betting hardware and software product
offerings range from agent-operated to
self-service, and include apps that allow
players to use their own smartphones or
tablets to place bets (known as Digital Link™).
Racing and Digital also provide customised
websites and telephone betting systems,
as well as the services that help customers
manage these digital channels.
During the year, the division agreed a ten-year
contract to supply Betfred’s Totepool business
with a comprehensive suite of its betting
technology products, including its mobile and
online betting platform, as well as the core
Quantum tote system. This system will go-live
in 1H 2015. The agreement with Betfred further
highlights the quality of our offer, following the
2013 sales to Danske Spil, the State-owned
Danish gaming operator, and Penn National,
the largest owner and operator of racetracks
and betting facilities in the United States. Both
these prior year sales have been successfully
implemented during 2014.
The division also agreed with Hawthorne
Race Course in Illinois to supply its full suite
of digital and land-based betting technologies,
including the Digital Link™ mobile product,
together with its next generation self-service
wagering terminal. We were also pleased to
have renewed our contract to operate Nassau
OTB network following a tender process.
However, we were disappointed to receive
notice that we were not successful in renewing
our contract to process all bets across the
State of California. Our existing agreement in
California will come to an end in October 2015
resulting in the loss of a significant number of
Sportech staff, together with the withdrawal
of approximately 3,500 betting terminals from
the State. Plans to mitigate the ongoing impact
of this loss from October 2015 are in progress.
For the Racing and Digital division, overall
revenues have declined to £34.5m (2013:
£35.9m) due primarily to foreign exchange.
Within Tote Services and equipment sales, on
a constant currency basis, revenues are £0.8m
ahead of prior year. There was a slight decline
in US domestic revenues due to poor weather
and a weak third quarter (US Industry data
Leading the way
in pool betting technology
Best-in-class technology
platforms laying the
foundations for future
growth
Technologies from Sportech Racing and
Digital will enable us to transform how
we offer pools wagering in the UK, and
extend our services to new markets.
The technologies we’ve selected –
Quantum Tote System, G4 Digital
Platform, and Digital Link™ Mobile –
form a cohesive solution to help Betfred
Totepool lead the way in technological
innovation and racecourse service.
Philip Siers, Chief Commercial Officer,
Betfred Group
shows that thoroughbred wagering handle
declined 2.8% in 2014 versus 2013). Offsetting
this is another solid performance from our
Dominican Republic customer, as well as
the full year of revenues from the Data Tote
acquisition completed in September last year.
Total equipment sales revenues in the period
were £4.2m (2013: £3.9m, constant currency
basis) including £1.7m in relation to the Betfred
system sale.
EBITDA for the division has increased by
£0.4m to £8.1m (2013: £7.7m). On a constant
currency basis, EBITDA in Tote Services and
equipment sales has increased by £0.2m,
driven by cost reductions in the US domestic
business together with a full year contribution
from Data Tote, offset by reductions in Puerto
Rico and Germany.
Within Digital, at constant currency, revenues
are in line with prior year. EBITDA is ahead of
prior year at £1.2m (2013: £0.6m) due to the
recovery of a previously written-off bad debt,
together with specific cost actions including
the closure of the San Diego office.
In February 2015, our joint venture with NYX
Gaming Group, SNG Interactive, launched its
online gaming platform in the New Jersey
market as a supplier to the Atlantic City-based
Resorts Casino Hotel. The Group has invested
£0.9m to date in the set-up and operation of
the joint venture.
During the year the division acquired BUMP
Worldwide Inc. (“Bump”) for £0.1m on
completion, and a contingent earn-out
payment based upon 2016 operating
performance. Bump is a provider of electronic
charitable raffles conducted in-stadia during
professional sporting events, known as “50:50
raffles”, and its customers are the charitable
foundations of US professional sports teams
across the NHL, NBA, NFL, MLS and NASCAR.
The business has significant growth potential
and has recently announced new supply
agreements with the Montreal Canadiens
(NHL) and Cleveland Browns (NFL).
Sportech PLC Annual Report and Accounts 2014Sportech PLC Annual Report and Accounts 2014Strategic reportCorporate governanceFinancial statements 16
17
Operational overview
Sportech Venues
President – Connecticut Venues
Ted Taylor
Revenue
EBITDA
Key financials
A detailed analysis of our
Sportech Venues division
is set out as follows:
£32.5m
£3.2m
Connecticut Venues
Revenue
Tax
Track/tote/
interface fees
Margin
Payroll
Facility costs
Other costs
FX impact
Connecticut EBITDA
Other EBITDA
Total Venues EBITDA
2014
£m
27.0
(3.8)
(7.6)
15.6
(4.9)
(3.5)
(4.2)
—
3.0
0.2
3.2
2013*
£m
26.7
(3.9)
(7.5)
15.3
(4.4)
(3.5)
(3.3)
0.3
4.4
0.4
4.8
* 2013 numbers are at “constant currency”, translated
using 2014 exchange rates
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.
Overall revenues have increased by £0.4m
compared to prior year at constant currency,
driven by food and beverage sales. Betting
revenues have declined 3.0% impacted by
some severe weather at the start of 2014,
which caused a significant number of race
cancellations together with a reduction in
amounts wagered by certain VIP customers.
Internet revenues were £1.0m (2013: £0.4m)
following the launch of the MyWinners.com
website in the year. This site is the only legal
betting website in Connecticut, although it
currently faces considerable competition from
other online operators who pay no state taxes.
The Connecticut authorities have issued formal
cease and desist letters to these operators.
During 2014, food and beverage revenues
increased by £1.3m due to the opening of
Bobby V’s sports bar and restaurant in
Bradley, in February 2014. This facility has
received positive customer feedback and is
growing its local reputation as the best local
destination to watch big sporting events.
Start-up losses of £0.3m were incurred in
the year.
EBITDA at constant currency has declined
by £1.1m, with £0.5m due to the reduced
wagering, £0.3m due to increase in content
costs following an increase in rates charged by
suppliers, together with the £0.3m of start-up
losses at Bobby V’s.
We have received regulatory approval to build
and open a flagship sports bar, restaurant
and betting venue in downtown Stamford.
Stamford has no existing betting venue and
has a population of more than 120,000,
including a thriving financial district. Detailed
construction plans are being prepared with
build-out to commence subject to the Group’s
available capital resources. The Group remains
committed to development of this exciting
new location.
Leading the way
in venue development
In 2014, we launched our
flagship sports bar and
wagering venue in Bradley,
Connecticut
Bobby V’s Restaurant and Sports Bar
is a magnificent facility. Working with
the team at Sportech to turn this new
concept in sports entertainment into
a reality has truly been a pleasure. I am
proud to put my name on the front door
of such an amazing facility and look
forward to expanding my relationship
with Sportech.
Bobby Valentine, former professional
baseball player, manager and restaurant
entrepreneur
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 2016 and we continue to work
closely with the Government, the regulator
and the horseracing industry regarding the
future regulatory plans. Netherlands revenues
were £5.1m (2013: £5.3m) with EBITDA of
£0.3m (2013: £0.2m), comparatives at
constant currency.
Other Venues
Revenue for Other Venues was £5.5m (2013:
£5.6m) with EBITDA of £0.2m (2013: £0.4m),
comparatives at constant currency.
The Group has an agreement to develop up
to ten new sports bar, restaurant and betting
venues across Southern California under the
brand name “Striders”. Local approvals have
been received at two locations; in the town
of Norco and in the heart of downtown
San Diego, with both being developed in
partnership with local partner, the Silky Sullivan
Group. Preliminary work at the Norco site has
been undertaken with full construction work
at both developments planned to commence
subject to the availability of finance.
The Group currently supplies betting services
to eight locations in Southern California.
Amounts wagered at these locations grew
58% following the opening of three additional
facilities in the year, generating total revenues
of £0.4m (2013: £0.3m).
Sportech PLC Annual Report and Accounts 2014Sportech PLC Annual Report and Accounts 2014Strategic reportCorporate governanceFinancial statements 18
19
Operational overview
Football Pools
Managing Director – Football Pools
Conleth Byrne
Revenue
EBITDA
Key financials
The key performance
indicators of our Football
Pools division are set out
as follows:
£38.0m
£16.6m
Revenue (£m)
EBITDA (£m)
Classic Pools
customer numbers
(‘000)
Weekly revenue per
customer (£)
2014
38.0
16.6
286
2.81
2013
41.3
17.4
324
2.67
Overview
The strategy of The Football Pools business
is to stabilise then grow revenues through
improved customer retention, increased
spend per head from core customers, and
recruitment of new players to Direct Debit
and online channels. As part of our ongoing
modernisation project we have consolidated
over 100,000 customers onto our proprietary
“Turnstile” platform. In October, we integrated
the NYX gaming platform into this platform
and relaunched footballpools.com. This new
site enables new customers and our direct
channel customers to manage their accounts
online, facilitating cross-sell opportunities to
a wide range of pools and casino games.
Revenues for the period were £38.0m (2013:
£43.1m), the reduction driven primarily by
a £2.1m decrease in the collector and overseas
channels following the closure of a number
of collector regions in the year, together with
forecast decline. Direct revenues showed
continued resilience in the year at £27.0m
(2013: £27.5m), and are expected to stabilise
in the coming year. Classic Pools average
weekly customer spend has increased to
£2.81 (2013: £2.67) driven by additional games
added in 2013, together with a reduction
in discounted entries following the migration
to the new Turnstile platform. EBITDA fell
by £0.8m to £16.6m (2013: £17.4m) with cost
efficiencies offset by increased marketing
spend to drive player recruitment.
Leading the way
in football pool betting
In 2014, we launched a new
online platform and acquired
record new customer numbers
The Pools has been one of the world’s
favourite gaming companies for over
90 years. It’s inspiring to be able to work
with The Football Pools and provide
a fully integrated offering for the UK
market. The Football Pools now have
a great product with which to gain online
market share in the UK.
David Flynn, EVP Business Development,
NYX Gaming Group
Over 23,000 new customers were recruited,
compared to 15,000 in 2013, through a
combination of online and telemarketing
leading to a reduction in the rate of decline
of overall players. In December 2014,
Classic Pools had 240,000 direct customers
compared to 248,000 customers in the prior
year, a net reduction of 8,000 players, which
compares to a net reduction of 17,000 players
in 2013, with approximately half playing via
Direct Debit.
Our new footballpools.com website offers
a wide range of innovative content, including
Premier 10, Jackpot 12 pools games, together
with MatchXtra, which offers fixed-odds style
betting opportunities on Premier League
and televised football matches. This is
complemented by a wide variety of slots
including branded titles such as Judge Dredd,
together with fixed odds games such as
Lucky Clover.
Sportech PLC Annual Report and Accounts 2014Sportech PLC Annual Report and Accounts 2014Strategic reportCorporate governanceFinancial statements
20
21
Principal risks
Effective risk management
Appropriate risk
management aids
effective decision
making and helps to
ensure the risks the
business takes are
adequately assessed
and challenged.
Risk description
Regulatory
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.
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.
Mitigating activities
Change
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;
– 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.
Level
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.
Mitigating activities
Change
Risk description
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.
Operational
– Technology
A significant proportion of the
Group’s annual income is dependent
on technology-led products.
Financial
The Group has historically been
relatively highly leveraged and
dependent on the provision
of debt financing.
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 and Digital) 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.
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.
The Group:
– 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.
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 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
World economies
in which the Group
operates continue to
steadily recover from
the recent economic
downturns. However
the horseracing
industry worldwide,
from which the Group
derives a significant
proportion of its
revenues, has seen
declining handle
which has impacted
financial performance.
Reducing
The Group has
continued to
invest significantly
during the period
in upgrading
technology thus
continuing to
reduce this risk.
Increasing
In the event that
performance
materially worsens
from 2014 level, the
risk of breaching
banking covenants
will increase.
Level
There have been
no changes in the
Group’s operations
and thus no change
in the level of the risk.
Sportech PLC Annual Report and Accounts 2014Sportech PLC Annual Report and Accounts 2014Strategic reportCorporate governanceFinancial statements
22
23
Corporate social
responsibility report
Operating responsibly
Customers
The Group’s divisions hold licences to
permit the provision of business-to-business
services for pari-mutuel betting on horse and
greyhound racing in over 30 jurisdictions
in the Americas and Europe. Licences for
business-to-consumer activity for the same
products are held in Connecticut and the
Netherlands, and for a wider range of
gambling products in the UK. 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
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.
Society
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.
In 2013, The Football Pools partnered
charity StreetGames in a two-year funding
arrangement worth £1.7m, to create
“StreetGames Football Pools Fives”.
In 2014, The Football Pools worked closely with
StreetGames to enhance the lives of young
people in disadvantaged areas and promote
change for good in local communities across
the UK. Former England player and current
England under-21 manager, Gareth Southgate
took a role as ambassador for the programme.
Environment
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, 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
the Group is reporting on greenhouse gas
emissions (see table opposite). 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. As well as providing
a summary of the Scope 1 and Scope 2 CO2
emissions produced, an intensity ratio using
Group revenue at constant currency is also
included, showing a reduction in intensity of
6.1% over the base year (2012) performance.
Employees
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 and meetings.
Working with Sportech has allowed us to
take a national programme of grassroots
football to communities that need it most.
In just two years, our partnership has
reached over 28,000 young people, seen
participation opportunities across the UK
and taken disadvantaged young people
from their doorstep to the National
Football Centre!
Jane Ashworth, CEO StreetGames
Employee representatives are consulted
regularly on a wide range of matters affecting
their interests. The Group’s Investors 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. Information on gender diversity
is contained in the Corporate governance
report on page 34.
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.
Human rights
Following a review, the Board considers that
it is not necessary for the Group to operate
a specific human rights policy at present.
Our policies operate within a framework to
comply with relevant laws, to behave in an
ethical manner and to respect the human
rights of our employees and other
stakeholders in the business.
On behalf of the Board
Cliff Baty
Director
4 March 2015
CO2 (metric tonnes)
Group revenues, at constant currency (£m)
Intensity ratio
Reduction (%)
2014
6,202
104.1
59.6
6.1
2013
6,521
106.2
61.4
3.2
2012
6,655
104.9
63.4
—
Sportech PLC Annual Report and Accounts 2014Sportech PLC Annual Report and Accounts 2014Strategic reportCorporate governanceFinancial statements
24
25
Chairman’s statement
Delivering value for our shareholders
Dear Shareholder
It has been an extremely busy year for
the Group. We have faced many challenges
which have impacted our annual results
but have made progress towards our
long-term strategic goals.
Performance
Our Sportech Racing and Digital division
has grown EBITDA through delivery of a
new system and software to Danske Spil,
the Danish state monopoly, together with
the commencement of delivery of a new
system for Totepool, a deal worth £9.0m
in revenue over ten years. Sportech Venues
in Connecticut had a difficult year as a result
of the severe East Coast weather and the
loss of higher staking player revenues.
The amounts wagered across the entire US
thoroughbred horseracing market declined
by more than 2.5% over the year showing the
tough operating environment faced by these
businesses. We opened a flagship sports bar
and restaurant within our existing facility at
Bradley. This venue has received excellent
customer feedback and revenues and
profitability is improving. The Football
Pools had a solid year, continuing with
its modernisation of systems, successfully
launching a new online platform and increasing
the number of new customers. Following a
revision to the underlying assumptions, to
reflect a stable earnings profile, an impairment
was applied to The Football Pools goodwill
during the year.
Other strategic achievements included:
securing a contract with Resorts Casino in New
Jersey, through our joint venture with NYX
Gaming Group, to supply the online casino
platform and support services; and securing
approvals to build a betting venue, restaurant
and sports bar in Stamford, Connecticut as
well as two betting venues and sports bars
in California. The difficulty in obtaining such
approvals should not be underestimated and,
as such, the value of these assets to the Group.
The Board and Executive management are
focused on expanding our US footprint and
maximising the potential opportunities.
Shareholder value
Our task is to deliver value to our shareholders
and we hold this goal in mind in all our
deliberations. Our earnings have been
impacted this year by factors I describe above,
but strategic progress has also been made
towards achieving the Company’s long-term
goals which will deliver enhanced value to
our shareholders.
As the Board continues to implement its
strategy of growing the Group’s presence and
opportunities in the US, resources are being
diverted to this goal. As such, no dividend is
proposed for the year to 31 December 2014.
The Board continues to assess the appropriate
time to commence dividend payments.
VAT claim
It was disappointing that the Upper Tribunal
upheld HMRC’s appeal in September 2014,
in relation to the £96m VAT repayment claim
regarding the Spot the Ball game, following
the First-tier Tax Tribunal finding in the
Group’s favour in March 2013. The Group has
now been granted permission to appeal to
the Court of Appeal and the hearing will take
place in November this year.
Governance
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.
This Annual Report as a whole is considered
by the Board to be “fair, balanced and
understandable” as is required by the
Combined Code.
Board and employees
Rich Roberts was appointed President:
Sportech Digital on 14 July 2014, after
being with the Group seven months as an
Independent Non-executive Director. Rich
brings with him extremely valuable industry
experience, having been CEO of Slingo Inc.,
the New Jersey-based gaming and mobile
social gaming business. Rich lives in New
Jersey, and has many years’ experience
developing businesses in the digital, mobile,
social and iGaming markets in the US. In April
2014, Lorne Weil stepped down from the
Board following three and a half years with
the Group. Lorne’s contribution to the Board
since the acquisition of the racing division
of Scientific Games Inc. has been invaluable
and I thank him for his support and insight.
Ian Hogg resigned from the Board in
September 2014 after four years as a Board
member. I wish him well for the future and
thank him for his contribution to the Group.
Sportech is a geographically diverse business
which places significant demands upon
Executives and employees, and the Board
would like to thank them for their continued
dedication and commitment to the business.
Outlook
It has been a challenging year but looking
ahead, I believe the Group can make
significant progress towards achieving its
long-term objectives during 2015 and I look
forward to working with the Board and
Executive team to deliver the valuable returns
the opportunities present.
Corporate governance report
The following report is intended to outline
the Group’s corporate governance structure,
policies and procedures and inform
shareholders of the activities of the Board
and its Committees during the year to
31 December 2014. I trust the report is
informative and insightful for shareholders
and demonstrates the Board’s commitment to
high standards of governance and I welcome
any feedback or comment from shareholders
or other stakeholders.
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.
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. We use our time together
as a Board, and our communications with
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. This ensures the
composition of the Board delivers an
effective governing body for Sportech.
Roger Withers
Non-executive Chairman
4 March 2015
Sportech PLC Annual Report and Accounts 2014Sportech PLC Annual Report and Accounts 2014Strategic reportCorporate governanceFinancial statements 26
27
Board of Directors
Senior management
Sportech PLC
The Football
Pools
Sportech Racing
and Digital
Sportech Venues
Roger Withers (72)
Non-executive Chairman
Date of appointment:
February 2011
Board Committees: N
Roger was appointed Chairman in February
2011. Roger has over 40 years’ experience
in the leisure and gaming industries. He was
appointed as Non-executive Chairman of
AIM listed Safecharge International Group
Limited in March 2014 and has previously
held a number of non-executive Directorships,
including Chairman of Playtech Ltd, Chairman
of Arena Leisure PLC and Executive Chairman
of Bass Leisure South Africa. Roger has also
held senior management and board 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 Penrose (49)
Chief Executive
Date of appointment:
October 2005
Cliff Baty (44)
Chief Financial Officer
Date of appointment:
May 2013
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, whom 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.
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.
Luisa Wright
Group General Counsel
and Company Secretary
Conleth Byrne
Managing Director
Andrew Gaughan
President
Ted Taylor
President –
Connecticut Venues
Mickey Kalifa
Corporate
Development Director
Carl Lynn
Finance Director
Bob Mercer
Finance Director
Phil Balderamos
Managing Director –
California Venues
Rich Roberts (50)
President: Sportech Digital
Date of appointment:
July 2014
Rich was appointed as President of Digital in
July 2014. He has over 20 years of game and
gaming experience across senior business
development and C-level positions. As Chief
Executive Officer 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 was
responsible for the Slingo Studio and Global
Storefront businesses. Prior to that, Rich was
VP (Chief Revenue Officer) of Playfirst, Inc,
and previously led Hasbro Interactive/Atari
into the digital game industry.
Peter Williams (61)
Senior Independent
Non-executive Director
Date of appointment:
February 2011
Board Committees: R, A, N, ID
Peter was appointed Senior Independent
Non-executive Director in February 2011.
Peter is Chairman of boohoo.com plc, Jaeger
and Mister Spex, an online retailer based in
Berlin. He is also a non-executive Director of
Rightmove plc and Cineworld Group plc; 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 McKeith (63)
Independent Non-executive Director
Date of appointment:
August 2011
Board Committees: R, A, N, ID
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.
R Remuneration Committee
A Audit Committee
N Nomination Committee
ID
Independent Directors Committee
Note:
Red icon indicates Chairman of committee
Richard Boardley
Director of
Corporate Affairs
Nick Mounteer
Director of Marketing
and Operations
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
Executive Vice President
and General Counsel
Paul Klomp
Managing Director –
Netherlands Venues
and Online
Sportech PLC Annual Report and Accounts 2014Sportech PLC Annual Report and Accounts 2014Strategic reportCorporate governanceFinancial statements 28
29
Corporate governance report
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 2014 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 36 to 55, 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 and two Independent
Non-executive Directors as follows:
Roger Withers Non-executive Chairman
Ian Penrose
Chief Executive
Cliff Baty
Chief Financial Officer
Rich Roberts President: Sportech Digital
Peter Williams Senior Independent Non-executive
Director
David McKeith Independent Non-executive Director
On 28 April 2014, and 25 September 2014, Lorne Weil
and Ian Hogg respectively resigned from the Board.
Rich Roberts was appointed to the Board on 3 December
2013 as an Independent Non-executive Director, and was
subsequently appointed as an Executive Director on
14 July 2014.
Biographies of the Board members appear on page 26.
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 and David McKeith 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 was retained as an industry
adviser through to September 2014) and his capacity as
a 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.
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 or 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.
Board composition
Chairman
Executive Directors
Independent Non-executive
Directors
17%
50%
33%
Length of service
Up to two years
Two to six years
More than six years
2
3
1
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/investors/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 2015, the Board will engage and retain various
advisers in order to continue to receive counsel where
and when this is 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.
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 Committee, 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. During the year, Roger Withers
was appointed as Non-executive Chairman of AIM listed
Safecharge International Group Limited. Roger maintains
attendance at Sportech PLC Board and Committee
meetings, and continues to have regular discussions
with Executive management and Company stakeholders.
This additional commitment of the Chairman with an
external party is therefore not thought to impact his
ability to effectively discharge his duties as Chairman
of Sportech PLC.
Full-scale Board and Committee review processes are
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 February 2015 was discussed with the Board at the
March 2015 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.
Sportech PLC Annual Report and Accounts 2014Sportech PLC Annual Report and Accounts 2014Strategic reportCorporate governanceFinancial statements 30
31
Corporate governance report continued
Board meetings
The Board meets at least six 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 2014
Number of meetings held in year
Executive Directors
Ian Penrose
Ian Hogg (resigned 25 September 2014)
Cliff Baty
Rich Roberts (appointed 14 July 2014)
Non-executive Directors
Roger Withers
Peter Williams
Rich Roberts (resigned 14 July 2014)
Lorne Weil (resigned 28 April 2014)
David McKeith
Main
Board
7
Audit
Committee
3
Remuneration
Committee
3
Nomination
Committee
1
Independent
Directors
Committee
—
7
5 (6)
7
3 (3)
7
7
4 (4)
0 (3)
7
—
—
—
—
—
3
1 (1)
—
3
—
—
—
—
—
3
1 (1)
—
3
—
—
—
—
1
1
—
—
1
—
—
—
—
—
—
—
—
—
The figures in brackets indicate the number of meetings held in the period in which the individual was a Board member.
There are six scheduled Board meetings for 2015.
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
Peter Williams
David McKeith
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/
investors/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.
– 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.
During the year, the Committee received presentations
from the Finance Directors of the Racing and Digital,
Connecticut Venues and Football Pools divisions on
the control environment of their respective businesses.
The Committee also considered internal reports from the
Chief Financial Officer and the Group Financial Controller,
together with the external Auditors report in their half-year
review and annual audit, in reviewing the Group’s financial
reporting function.
The primary areas of judgement considered by the
Committee in relation to the 2014 financial statements were:
– the assumptions underlying impairment testing of
the Group’s goodwill and intangible assets, particularly
in relation to the Football Pools goodwill, Sportech
Venues perpetual licence and eBet goodwill and
acquired intangibles;
– revenue recognition for significant contracts; and
– the assessment and disclosure of the going
concern concept.
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;
– detailed review of significant contracts;
– stressing of assumptions to understand impacts; and
– scenario analysis.
Chairman and financial expert
David McKeith
The Audit Committee
Members
Peter Williams, Rich Roberts (from 27 January 2014
to 14 July 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 26.
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.
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;
Sportech PLC Annual Report and Accounts 2014Sportech PLC Annual Report and Accounts 2014Strategic reportCorporate governanceFinancial statements 32
33
Corporate governance report continued
In testing assets for impairment, the key assumptions
underpinning their value-in-use are discount rates and
growth rates applied to projected earnings. These
assumptions are inherently judgemental. The Committee
considers those judgements in light of regular updates
received on business plans and performance 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 2014 relates to
work undertaken in respect of ongoing issues in relation
to indirect taxes, advice on accounting and tax treatment
of the Spot the Ball VAT claim and other advisory
services. 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.
During 2014, the Group conducted a tender
process for the US tax compliance work which
PricewaterhouseCoopers LLP have carried out since
the acquisition of the US businesses in October 2010.
A thorough process was carried out by the Chief Financial
Officer, Group Financial Controller and Vice President of
Finance in Connecticut which resulted in KPMG LLP being
appointed tax compliance advisors for the US businesses.
The Committee was kept informed of the process and
tender bids and approved the appointment following
briefings from the Chief Financial Officer.
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 2014 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 has time with the external Auditors
without management present at each meeting to provide
additional opportunity for open dialogue and feedback.
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 reappointment
The Committee considers the reappointment 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,
Nigel Reynolds, replaced Martin Heath during the
financial year following Martin’s tenure as lead audit
partner of four years.
PricewaterhouseCoopers LLP have been the Company’s
external Auditors since 1998, 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 2014. 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
reappointment of PricewaterhouseCoopers LLP as
external Auditors for the year ending 31 December 2015
and as a result, in accordance with Section 489 of the
Companies Act 2006, a resolution proposing the
reappointment of PricewaterhouseCoopers LLP as
our Auditors will be put to the shareholders at the 2015
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.
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 20 and 21 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 Indian
joint venture. Similarly, as and when the operations of the
Group’s newly formed US-based 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 is regularly 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 2014 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 engaged Grant
Thornton LLP to perform a review over IT security and
controls at the Group’s data centre in New Jersey. Grant
Thornton LLP reported their findings to the Committee
with no significant weaknesses identified. The Committee
will continue to assess the need for specific internal audit
reviews and 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. No instances
of serious wrongdoing have been reported to the Audit
Committee during the period.
David McKeith
Chairman of the Audit Committee
4 March 2015
Sportech PLC Annual Report and Accounts 2014Sportech PLC Annual Report and Accounts 2014Strategic reportCorporate governanceFinancial statements 34
35
Corporate governance report continued
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,
42% are female and out of 15 members of senior
management 13% 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.
The Remuneration Committee
The Remuneration Committee of the Board comprised
the three Independent Non-executive Directors, until
the resignation of Rich Roberts on 14 July 2014 and his
appointment as an Executive Director, and is chaired
by Peter Williams. Biographies of the members of
the Remuneration Committee appear on page 26.
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 36 to 55.
The Nomination Committee
The Nomination Committee comprised the two
Independent Non-executive Directors and the Chairman
of the Board, who also chairs this Committee. Biographies
of the members of the Nomination Committee appear
on page 26.
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 Board recognises the withholding of votes to
resolutions 2 and 5 at the 2014 AGM, (approval of
Directors’ Remuneration report and reappointment
of Roger Withers respectively). The relevant Board
Committees continue to review the appropriateness
of the Group’s remuneration policy and Board nominations
taking into account feedback from shareholders
as appropriate.
The appointment of PricewaterhouseCoopers LLP
as external Auditors is also subject to regular review by
the Audit Committee. It is the belief of the Committee,
as stated in the Audit Committee report, that the
effectiveness, independence and value for money
of PricewaterhouseCoopers LLP as external Auditors
remains appropriate.
On behalf of the Board
Cliff Baty
Director
4 March 2015
The Independent Directors Committee
The Independent Directors Committee comprised
the two Independent Non-executive Directors 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 did not meet formally during the year, and
only meets when circumstances of conflicts of interest
are considered to have arisen that require review.
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 2014 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.
Sportech PLC Annual Report and Accounts 2014Sportech PLC Annual Report and Accounts 2014Strategic reportCorporate governanceFinancial statements 36
37
Report of the Remuneration Committee
Letter from the Remuneration Committee Chairman
Remuneration report
for the year ended 31 December 2014
Dear shareholder
I am pleased to present the Remuneration report
(the “Report”) for the year ended 31 December 2014.
This Report sets out the remuneration paid to Directors
over the year under review and details the remuneration
policy for the forthcoming year.
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 2014 it achieved an appropriate balance in this
regard. More generally, the Committee believes that the
policy outlined in this Report continues to achieve its
overriding objective of establishing a stable remuneration
platform, 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 2015 have increased by 1%,
with no increases taking place in the other elements
of remuneration vis-à-vis 2014.
Performance and reward in relation
to 2014
As set out in detail in the Strategic report, the Company
delivered against a number of strategically important
objectives during the year under review in its three
divisions (e.g. reaching agreement with Betfred to provide
new systems and digital technology to Totepool and the
launch of Connecticut’s only legal online betting site) and
delivered EBITDA of £24.0m. As a result of the above,
bonuses of between 5.0% and 21.25% of salary were
achieved based on delivery against personal and strategic
objectives, with bonus of 0% of salary earned based on
performance against EBITDA targets. Overall bonuses
earned were between 5.0% and 21.25% of salary.
Two-thirds of the Performance Share Plan (“PSP”) awards
granted in 2011 were eligible to vest subject to two
independent performance conditions. The relative TSR
performance condition had a performance period ending
in December 2014 and vested at 0%. The three-year TSR
to the end of the period of 35% resulted in the Company
being ranked below the median ranking position on a
relative basis. As a result there was no vesting of this part
of the award. The absolute TSR performance condition
had a performance period ending December 2014 and
the formulaic calculation of the highest TSR over the last
year of the performance period would have resulted in
full vesting of this element of the award. However, the
Committee was mindful of financial performance over
the three-year period and determined that the absolute
TSR award vesting should be scaled back by 23% to reflect
this. The remaining one-third of the PSP awards vested
based on EPS growth over the three-year period ending
31 December 2013 with this element of the awards vesting
at 47.5% of the maximum based on EPS growth of 9.45%
p.a. over three financial years.
One-third of the PSP awards granted in 2012 is eligible to
vest subject to an earnings per share (“EPS”) performance
measure ending 31 December 2014. This part of the award
will not meet the performance requirements given EPS
decline of 1.26% p.a. over the performance period. The
remaining two-thirds of the 2012 awards vest based on
relative and absolute TSR performance which will be
measured over a three-year period ending in March 2015.
The Committee has reviewed the variable incentive
payouts based on the financial period ended 31 December
2014 and is satisfied that having used its discretion to scale
back the absolute TSR element of the PSP award, the
overall reward reflects the performance delivered.
Policy for 2015
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 2015 and beyond.
Shareholder feedback
The Committee has not proposed any significant changes
to the remuneration policy for 2014 or 2015 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
4 March 2015
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 2013 was
subject to a binding shareholder vote at the 2014 AGM
with an effective date of 13 May 2014, with the intention
being that the policy is applied for the three-year period
to 13 May 2017. It is re-presented in this report for
information purposes only, with some minor changes to
page references, updating references to former/new
Directors where necessary and the graph illustrating pay
scenarios removed. The full original report can be viewed
at www.sportechplc.com/investors/results/2013. Of the
votes cast on approval of the Directors’ Remuneration
Policy at the 2014 AGM, 99.43% were in favour of the
policy. Less than 1% of the total votes available on this
resolution were withheld. The 2013 Directors’ remuneration
report was approved by 98.63% of the votes cast, with
6.7% of the total votes available being withheld.
The policy detailed in the 2013 report and repeated
within this report, has operated for the entire current
financial year. The Annual Report on Remuneration will be
subject to an advisory shareholder vote at the 2015 AGM.
This report is intended to be in full compliance with the
requirements of the Regulations and the UK Corporate
Governance Code 2014 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 2015” section of the
Annual report on remuneration, which starts on page 46.
Sportech PLC Annual Report and Accounts 2014Sportech PLC Annual Report and Accounts 2014Strategic reportCorporate governanceFinancial statements 38
39
Remuneration report continued
for the year ended 31 December 2014
Policy table
Remuneration element and purpose
Base salary
To attract and retain key individuals.
Reflects the relevant skills and experience in role.
Operation
Opportunity
Performance metrics
– 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.
– The current salaries are set out in the Annual report
on remuneration on page 48.
A broad-based assessment of individual and Company
performance is considered as part of any salary review.
– 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.
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 UK Executive Directors. Only basic
Not applicable.
annual salary is pensionable.
Benefits
To provide cost-effective, yet market competitive, benefits.
– A car allowance for certain UK 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.
– Car allowance of £16,000 for the Chief Executive.
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 2014 annual
bonus and those proposed for 2015 are described in the
Annual report on remuneration starting on page 45.
Sportech PLC Annual Report and Accounts 2014Sportech PLC Annual Report and Accounts 2014Strategic reportCorporate governanceFinancial statements 40
41
Remuneration report continued
for the year ended 31 December 2014
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 on
– 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.
To encourage greater shareholder alignment by rewarding
TSR outperformance.
vested awards.
To facilitate share ownership.
– 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 2014 PSP award
and those proposed for the 2015 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
– Monthly savings limits are based on HMRC rules which
Not applicable.
invited periodically to participate in a Company
Sharesave plan.
currently limit monthly savings towards share purchases
under three-year savings contracts to £500.
Executive share ownership
To align Executive Directors’ and shareholders’ interests.
– 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.
– 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.
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.
– 100% of salary for all Executive Directors.
Not applicable.
– The Non-executive Chairman’s fee and Non-executive
fees are set out in the Annual report on remuneration
on page 48.
Not applicable.
– 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.
Sportech PLC Annual Report and Accounts 2014Sportech PLC Annual Report and Accounts 2014Strategic reportCorporate governanceFinancial statements 42
43
Remuneration report continued
for the year ended 31 December 2014
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
on pages 38 to 41), 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.
Variable remuneration
The maximum level of variable remuneration which may
be granted to the Executive Directors, based on salaries
applying from 1 January 2015, is £1,444,000.
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 pages 50 to 53.
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*
Rich Roberts**
Peter Williams
David McKeith
Lorne Weil***
Date of
Notice
appointment
period
07.02.11
3 months
01.10.05 12 months
14.05.13 12 months
05.10.10 12 months
14.07.14 12 months
3 months
07.02.11
25.08.11
3 months
05.10.10 3 months
*
Ian Hogg resigned on 24 September 2014. On this date he held
285,911 shares in the Company.
** Rich Roberts had been appointed a Non-executive Director
on 3 December 2013 and was subsequently appointed as an
Executive Director on 14 July 2014.
*** Lorne Weil resigned on 28 April 2014. On this date, he held
3,027,450 shares in the Company.
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 1% to 2% for 2015, 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 1% 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.
Sportech PLC Annual Report and Accounts 2014Sportech PLC Annual Report and Accounts 2014Strategic reportCorporate governanceFinancial statements 44
45
Remuneration report continued
for the year ended 31 December 2014
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
Base salary
Policy
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.
Pension
Annual bonus
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.
Long term
incentives
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.
Buy-out awards
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.
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/investors/
corporate-governance.
The Committee met three 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;
– in March 2015, approval of bonus awards, paid out in line
with the 2014 bonus policy and approval of bonus policy
for 2015;
– review of base salaries for the Executive team;
– approval of vesting of 2011 PSP awards; and
– review and approval of terms of employment for
Rich Roberts.
The Committee’s recommendations in 2014 and early 2015
were all accepted and implemented by the Board.
Compliance with best practice
During 2014, 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
During the year the Committee consisted of Peter Williams
(Chairman), David McKeith and until his appointment as an
Executive Director on 14 July 2014, Rich Roberts. Peter and
David are both Independent Non-executive Directors.
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.
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 or their nominee acts as secretary
to the Committee.
The Committee retains independent remuneration
consultants, NBS, to advise on 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 £35,000.
The Committee reviews its relationships with external
advisers on a regular basis and believes that no conflicts
of interest exist.
Sportech PLC Annual Report and Accounts 2014Sportech PLC Annual Report and Accounts 2014Strategic reportCorporate governanceFinancial statements 46
47
Remuneration report continued
for the year ended 31 December 2014
Detailed remuneration policy for 2015
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 1%, which is consistent with the general pay
award for all UK-based employees. He is paid a salary
of £389,000 per annum with effect from 1 January 2015.
– Cliff Baty, Chief Financial Officer, is paid a salary of
£247,000 per annum with effect from 1 January 2015,
an increase of 1%, which is consistent with the general
pay award for all UK-based employees.
– Rich Roberts, President: Sportech Digital, is paid a salary
of $303,000 per annum with effect from 1 January 2015,
an increase of 1% from the salary set on appointment.
Performance related bonus
The maximum bonus potential for the Chief Executive for
2015 is 100% of basic salary, for the Chief Financial Officer,
75% of basic salary and for the President, Sportech Digital
is 50% 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
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 consensus 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. In addition, the
Company matches the contribution into a 401(k) pension
scheme for Rich Roberts being $6,750 per annum.
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 UK Executive Directors – 25 working days’
holiday per annum in addition to normal bank and
public holidays. US-based Directors are entitled to
20 working days’ holiday per annum in addition to
normal US public holidays;
– a car allowance of £16,000 for the Chief Executive;
– private health insurance for themselves, their spouse
and children; and
– life insurance of four times salary (UK Directors only).
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 2015
at 100% of salary to the Chief Executive and 75% of salary
to the other Directors. The targets to apply to the 2015
awards will be the same as those applied to the 2014
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 2014 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 53.
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.
The fees set for 1 January 2015 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 2014 are given in the table on page 48.
Directors’ remuneration for the year ended
31 December 2014
Basic annual salary
– Ian Penrose, Chief Executive, £385,000 per annum,
with effect from 1 January 2014.
– Cliff Baty, Chief Financial Officer, £245,000 per annum
with effect from 1 January 2014.
– Ian Hogg, Chief Operating Officer, Consumer Facing
Business, £256,000 per annum with effect from
1 January 2014.
– Rich Roberts, President: Sportech Digital, $300,000 per
annum with effect from the date of his appointment as
an Executive Director, 14 July 2014.
Sportech PLC Annual Report and Accounts 2014Sportech PLC Annual Report and Accounts 2014Strategic reportCorporate governanceFinancial statements 48
49
Remuneration report continued
for the year ended 31 December 2014
Directors’ remuneration for 2014 (audited)
Year of
appointment
Fees/salary
£000
Taxable
benefits1
£000
Pension
£000
Bonuses
£000
Long term
incentives
£000
2014
Total
£000
Executive Directors
Ian Penrose
Cliff Baty
Ian Hogg
(resigned 25 September 2014)2
Rich Roberts
(appointed 14 July 2014)
Non-executive Directors
Roger Withers
Peter Williams
David McKeith
Lorne Weil
(resigned 28 April 2014)
Rich Roberts
(resigned 14 July 2014)
Aggregate emoluments
2005
2013
2010
2014
2011
2011
2011
2010
2013
385
245
256
78
120
58
58
20
37
1,257
17
1
14
5
—
—
—
—
—
37
31
20
20
1
—
—
—
—
—
72
82
25
14
5
—
—
—
—
—
126
158
—
32
—
—
—
—
—
673
291
336
89
120
58
58
20
—
190
37
1,682
1 Taxable benefits comprise various medical insurance policies and car allowances.
2 Ian Hogg resigned from the Board on 25 September 2014, however his full salary for the year to 31 December 2014 is included in the
above table, see section with regard to payments for loss of office in this report on page 53.
Directors’ remuneration for 2013 (audited)
Year of
appointment
Fees/salary
£000
Taxable
benefits1
£000
Pension
£000
Bonuses
£000
Long term
incentives
£000
Compensation
for loss of
office
£000
2013
Total
£000
Executive Directors
Ian Penrose
Cliff Baty
Ian Hogg (resigned
25 September 2014)
Steve Cunliffe
(resigned 6 March 2013)
Non-executive Directors
Roger Withers
Peter Williams
David McKeith
Lorne Weil (resigned
28 April 2014)
John Barnes (resigned
3 December 2013)
Mor Weizer (resigned
20 June 2013)2
Rich Roberts (appointed
3 December 2013)
Aggregate emoluments
2005
2013
2010
2006
2011
2011
2011
2010
2005
2011
2013
377
154
251
38
65
45
45
35
45
—
5
1,060
17
—
14
—
—
—
—
—
—
—
—
31
30
10
20
—
—
—
—
—
—
—
—
60
151
63
40
—
—
—
—
—
—
—
836
—
497
527
—
—
—
663
—
—
—
254
—
2,523
—
—
—
141
—
—
—
—
—
—
—
141
1,411
227
822
706
65
45
45
698
45
—
5
4,069
1 Taxable benefits comprise various medical insurance policies and car allowances.
2 Mor Weizer did not receive any remuneration in his role as a Non-executive Director as he sat on the Board as a representative
of Playtech Limited.
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 the President: Sportech Digital, the maximum bonus potential was 50% of basic salary.
For each Executive Director their performance related bonus was based on (i) the EBITDA performance of the Group
and (ii) strategic objectives aligned with Group strategic goals.
EBITDA performance
The Committee considered the Group’s EBITDA performance for these purposes and in this respect, achievement was
determined to be 0% out of a maximum target of 70% of potential bonus.
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 and delivering a successful contract win for the Racing
and Digital division. These were considered to have been largely met, resulting in an award of 21.25% out of a maximum
target of 30% of potential bonus. The strategic targets relating to the Chief Financial Officer were in relation to securing
financing to meet the Group’s strategy plans, supporting the achievement of wider Group strategic objectives and
implementing new system and process developments. These targets were considered to have been partially met,
resulting in an award of 13.75% out of a maximum target of 30% of potential bonus. The strategic targets of the
President: Sportech Digital related to the Connecticut online business, the NYX joint venture plans in New Jersey and
progressing fantasy sports initiatives. The targets relating to these objectives were considered to have been partially
met, resulting in an award of 10.00% out of a maximum target of 30% of potential bonus. The award was then reduced
by 50% as the role commenced at the half year. The strategic targets for the Chief Operating Officer, Consumer Facing
Business related to the Connecticut online business and supporting the NYX joint venture plans. The targets relating to
these objectives were considered to have been partially met, resulting in an award of 7.50% out of a maximum target of
30% of potential bonus.
The table below summarises the overall bonus result.
Individual
Chief Executive
Chief Financial Officer
President: Sportech Digital
Chief Operating Officer, Consumer Facing Business
Total bonus: % Maximum (% salary payable)
21.25% of maximum (21.25% of salary payable)
13.75% of maximum (10.31% of salary payable)
10.00% of maximum (5.00% of salary payable)
7.50% of maximum (5.63% of salary payable)
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 UK-based Executive Directors at a rate of 8%.
Only basic annual salary was pensionable. Three Directors (2013: four 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 48. The Company pays a maximum of $6,750 per annum into a defined contribution scheme for Rich Roberts.
Sportech PLC Annual Report and Accounts 2014Sportech PLC Annual Report and Accounts 2014Strategic reportCorporate governanceFinancial statements 50
51
Remuneration report continued
for the year ended 31 December 2014
Long Term Incentive Plans (“LTIPs”)
Awards vested in relation to performance ending 2014
Part of the awards granted in 2011 and 2012 reached the end of their performance periods or were substantially
complete in the year under review. This includes the two-thirds of the 2011 award and 2012 award subject to relative
TSR and absolute TSR (performance period ended 1 December 2014) and one-third of the 2012 award subject to EPS
(performance period ended 31 December 2014). Summary details of the full conditions applying to the 2011 and 2012
awards are included as a footnote to the PSP table on page 52.
In terms of the 2011 and 2012 award, the assessment of the TSR measures was made independently by NBS who
advised that Sportech’s absolute TSR achieved a maximum TSR growth of 126% (as measured during the final year of
the performance period) for the 2011 award and 83% for the 2012 award which was greater than the 15% p.a. maximum
absolute target, thereby indicating full vesting for this element of these awards. In addition, this element of the award is
subject to the Committee being satisfied that the level of vesting indicated is reflective of the Company’s underlying
financial performance over the performance period. When considering this underpin the Committee reviewed various
financial performance metrics over the performance period, and concluded that the 100% vesting result for this element
of the award should be scaled back. The Committee considered that the VAT claim had resulted in the underlying
financial performance not being reflected in the share price prior to 16 September 2014. As a consequence, the scale
back reflected the highest six week average performance remaining in the period after 16 September 2014 as this was
felt to be more reflective of the underlying financial performance of the Company. Based on these deliberations the
Committee determined that this element of the 2011 award should be scaled back by 23% whilst the 2012 is scaled back
by 33%. The relative TSR performance measured to the end of the three-year period was 35% for the 2011 award and
33% for the 2012 award which resulted in the Company being ranked below the median ranking position on a relative
basis for both awards. As a result there was no vesting of this part of the awards.
In terms of the 2012 award, the EPS decline over the three-year period to 31 December 2014 was 1.26% p.a. thereby
triggering 0% vesting of this element of the award.
LTIP awards granted during 2014
Share option scheme
A share option scheme is in place, the details of which are described in note 25. The last award under such a scheme was
made in 2005.
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.
Performance Share Plan – 2014 Award
Executive
Ian Penrose
Cliff Baty
Rich Roberts
Type of award
Performance share
Performance share
Performance share
Number
of awards
Basis of award
granted
100% of salary
432,525
206,292
75% of salary
349,650 150%** of salary
Share price
on grant
Pence
89
89
78
Face value*
£384,947
£183,600
£272,727
Percentage
which vests
at threshold
25%
25%
25%
*
This is based on the closing share price on the day before the date of grant. In respect of Ian Penrose and Cliff Baty, the date of grant was
7 March 2014 and, in respect of Rich Roberts, the date of grant was 4 September 2014.
** Rich Roberts was granted an exceptional award on his appointment as an Executive Director in part to reflect the lower bonus opportunity
of 50% of salary.
2014 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.
In summary the total number of awards for each Executive is shown in the table below.
For ease of reference such halves are referred to below as Part A and Part B respectively.
Performance Share Plan – 2014 Vesting
Measure
Relative TSR (2011)
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
(77)
Maximum
Upper
quartile
rank
(38.75)
Absolute TSR (2011) Average annual growth in TSR
6% p.a.
15% p.a.
Relative TSR (2012)
TSR measured against the constituents
of the FTSE Small Cap Index (excluding
investment trusts) over the three years
from date of grant
Absolute TSR (2012) Average annual growth in TSR
Median
rank
(75.5)
6% p.a.
Upper
quartile
rank
(32.75)
15% p.a.
Actual
TSR
35%
rank
(96.1)
126%
TSR
35%
rank
(85.7)
83%
EPS (2012)
Annualised adjusted EPS growth measured
against RPI over three financial years
RPI
+ 4% p.a.
RPI
+ 10% p.a.
(1.26)%
Vesting
0%
100%
Scaled back
by Committee
to 77.3%
0%
100%
Scaled back
by Committee
to 77.3%
0%
Executive
Ian Penrose
Ian Hogg
Award
2011 (Part A and B)
2012 (Part C)
2011 (Part A and B)
Number
of awards
granted
310,272
250,423
150,943
Number
of shares
vesting
119,920
—
58,340
Vesting
38.6%
0%
38.6%
Value of
awards*
65,716
—
31,970
* For Ian Penrose and Ian Hogg, as the 2011 awards have not yet vested due to the Company being in a close period, the value of the awards is
based on the three-month average share price to 31 December 2014 of 54.8p. For 2012 awards which have yet to vest, the value is also based
on a three-month average share price to 31 December 2014 of 54.8p.
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.
Sportech PLC Annual Report and Accounts 2014Sportech PLC Annual Report and Accounts 2014Strategic reportCorporate governanceFinancial statements 52
53
Remuneration report continued
for the year ended 31 December 2014
Directors’ share-based incentives
Aggregate emoluments disclosed on page 48 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
Ian Penrose
Details of the option are as follows:
Ian Penrose
505,050
As at 1 January and
31 December 2014
Number
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:
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 2014 was £0.670 and the range during the year was £0.480
to £0.923.
The options were granted at no cost to the Director. Once awarded, the exercise of the share options is unconditional.
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
Date of
grant
As at
1 January
2014
Number
02.12.111 465,408
751,269
08.03.121
21.03.132 377,400
07.03.142
As at
31 December
2014
Number
Vested
during
the year
Number
Awarded
during
the year
Number
Lapsed
during
the year
Number
— (193,610) (271,798)
—
—
—
—
—
— 432,525
1,594,077 432,525
—
— 206,292
276,000 206,292
— 349,650
— 751,269
— 377,400
— 432,525
(193,610) (271,798) 1,561,194
— 276,000
— 206,292
— 482,292
— 349,650
21.03.132 276,000
07.03.142
—
—
—
—
— (94,189) (132,226)
— (374,619)
—
—
— (188,190)
— (94,189) (695,035)
Vested
but not
exercised
Number
— 193,610
—
—
—
193,610
—
—
—
—
— 94,189
—
—
—
—
— 94,189
Date
from which
exercisable
02.12.14
Market price
on date
Award
of grant
expiry date
Pence
39.75
02.12.15
51.52 08.03.15 08.03.16
21.03.16
21.03.17
07.03.17 07.03.18
100.00
89.00
90.00
89.00
21.03.17
21.03.16
07.03.17 07.03.18
78.00 04.09.17 04.09.18
39.75
02.12.15
02.12.14
51.52 08.03.15 08.03.16
21.03.17
21.03.16
100.00
Total
Rich Roberts 04.09.142
Ian Hogg
08.03.121
21.03.132
02.12.111 226,415
374,619
188,190
789,224
Total
Total PSP
awards
2,659,301 988,467 (287,799) (966,833) 2,393,136 287,799
1 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 2011 and 2012 awards operated under the same structure with the specific details outlined on
pages 108 and 109.
2 2013 and 2014 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 51.
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 2014 the Company’s potential dilution was 4.2%.
Recruitment Terms
On 14 July 2014, Rich Roberts was appointed as President: Sportech Digital. His remuneration terms were set in
accordance with the approved policy and included a salary set at $300,000, benefits in line with those provided to other
US-based employees, a pension contribution of $6,750 per annum, a maximum bonus opportunity of 50% of salary and
a performance shares award (made shortly after appointment) of $450,000 being 150% of salary. The performance
share award made on appointment was above the ongoing policy to reflect that a lower than normal bonus opportunity
(i.e. 50% of salary rather than 75% of salary) was set for Rich Roberts. Annual performance share awards from 2015
onwards will be in line with other Executive Directors at a maximum of 75% of salary.
Payments for loss of office
Ian Hogg tendered his notice of resignation as COO, International Consumer Facing Division, to the Company on
4 March 2014 and resigned from the Sportech PLC Board on 25 September 2014. He was subject to a twelve-month
contractual notice period, however, by agreement with the Company, his employment terminated on 31 December 2014
and he forgave any payment in lieu of the remainder of his notice period. From 25 September 2014 to 31 December 2014,
Ian Hogg continued to receive his normal salary and contractual benefits. He is eligible for a bonus in respect of the 2014
financial year at 7.5% of his maximum entitlement of 75% of base salary being a total bonus payment of £14,000, this is
in line with treatments of “good leavers” and is partly compensatory for waiving his remaining contractual notice. The
bonus will be paid on the normal bonus payment date in 2015. Long-term incentive awards granted in 2011 have, where
the relevant performance periods have completed, vested at the normal vesting date. Awards granted in 2012, 2013 and
2014 lapsed in full at cessation. No payments for loss of office have been made to Ian Hogg.
Payments to past directors
Details of payments received by Ian Hogg in 2014 are as set out above, such payments being included in the single
total figure.
Steve Cunliffe and Brooks Pierce were treated as good leavers under the rules of the PSP following restructurings
of the Board, which resulted in their roles effectively being made redundant. As such, subject to satisfaction of applicable
performance criteria, they retained each of their 2010, 2011 and 2012 awards under the PSP (for Brooks, pro rated
according to his termination date of 10 May 2012 and for Steve, 100% of the 2010 award and one-third of each of the
2011 and 2012 awards). Further to this, in early 2015, Brooks received a total payment under the 2011 award of £6,000
and Steve received a total payment under the 2011 award of £17,000. No other payments were made in 2014 to
past Directors.
Director interests and shareholding guidelines
The following table shows Director interests in the Company:
Total
shareholding
at
31 December
2013
500,000
—
197,140
—
112,079
100,000
30,000
Total
shareholding
at
31 December
2014
850,000
33,000
285,911
—
112,079
100,000
30,000
2,000,000 3,027,450
Share
option
scheme
vested
151,515
—
—
—
—
—
—
—
Share
option
scheme
unvested
353,535
—
—
—
—
—
—
—
PSP
award held
unvested
1,561,194
482,292
—
349,650
—
—
—
—
PSP
award vested
but not
exercised
193,610
—
—
—
—
—
—
—
Director
Ian Penrose
Cliff Baty
Ian Hogg*
Rich Roberts
Roger Withers
Peter Williams
David McKeith
Lorne Weil**
*
Ian Hogg resigned on 25 September 2014 and the number of shares for 2014 are as at the date of resignation.
** Lorne Weil resigned on 28 April 2014 and the number of shares for 2014 are as at the date of resignation.
Share
ownership
guideline
expected to
be achieved
by third
anniversary of
employment
100%
100%
—
100%
N/A
N/A
N/A
N/A
% of
guideline
met by
31 December
2014
100%
12%
—
0%
N/A
N/A
N/A
N/A
Sportech PLC Annual Report and Accounts 2014Sportech PLC Annual Report and Accounts 2014Strategic reportCorporate governanceFinancial statements 54
55
Remuneration report continued
for the year ended 31 December 2014
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 on page 53 shows shareholdings as at 31 December 2014 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.
Performance graph and Chief Executive six-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:
250
200
150
100
50
Dec 08
Sportech
Dec 09
Dec 10
Dec 11
Dec 12
Dec 13
Dec 14
FTSE Small Cap
This graph shows the value, by 31 December 2014, 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
five years:
Remuneration before LTIPs (£000)
LTIPs (£000)
Total remuneration (£000)
Annual bonus (%)
LTIP vesting (%)
2009
416
—
416
33%
—
2010
542
—
542
74%
—
2011
502
—
502
50%
—
2012
542
233
775
25%
62.0%
2013
575
836
1,411
40%
82.7%
2014
515
158
673
21.25%
29.7%
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
2014
2013
% change
385
99
72
2
377
168
63
2
2.0%
(41.1)%
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
2014
31.0
Nil
2013
33.0
Nil
% change
(6.1)%
—
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
4 March 2015
Sportech PLC Annual Report and Accounts 2014Sportech PLC Annual Report and Accounts 2014Strategic reportCorporate governanceFinancial statements 56
57
Directors’ report
for the year ended 31 December 2014
The Directors present their report and the audited consolidated financial statements for the year ended 31 December
2014. General information of the Company can be found in the Accounting Policies on page 71.
The Strategic report and Corporate governance report are set out on pages 2 to 35. 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 2006, on pages 20 and 21.
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 2014
are set out in the Remuneration report on pages 36 to 55.
Roger Withers
Ian Penrose
Ian Hogg (resigned 25 September 2014)
Cliff Baty
Peter Williams
David McKeith
Rich Roberts
Lorne Weil (resigned 28 April 2014)
* Shares held at date of resignation.
At 4 March
2015 and
31 December
2014
Number
112,079
850,000
285,911*
33,000
100,000
30,000
—
31 December
2013
Number
112,079
500,000
197,140
—
100,000
30,000
—
3,027,450* 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 22.
Substantial shareholdings
Holder
Henderson Global Investments Limited
Newby Manor Limited
Richard Griffiths and Controlled Undertakings
AXA S.A.
Schroder Investment Management Limited
Aviva PLC
Total of substantial shareholdings
4 March 2015
31 December 2014
Ordinary
shares
of 50p
57,508,224
35,593,010
14,421,350
11,150,306
11,095,332
10,815,102
140,583,324
% of
issued share
capital
28.02
17.34
7.03
5.43
5.41
5.27
68.50
Ordinary
shares
of 50p
53,643,460
35,593,010
14,421,350
11,150,306
11,095,332
10,815,102
136,718,560
% of
issued share
capital
26.14
17.34
7.03
5.43
5.41
5.27
66.62
On 4 March 2015, interests representing 3% or more of the issued share capital of the Company had been notified
to the Company as shown above.
As at 31 December 2014 there are no restrictions on the transfer of securities in the Company or on voting rights.
Dividend
No dividend is proposed (2013: £nil) and no dividend has
been paid during the year (2013: £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 22. Greenhouse
gas emissions are monitored closely by management, and
disclosure of those emissions can be found in the Strategic
report 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 56. 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 2013 as described in the
prior year Directors’ report.
As part of the resolutions approved at the 2014 AGM,
shareholders’ authority was given to the Company’s
Directors for the allotment of up to 68,303,704 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 2014 AGM. During the year, the Directors did not
exercise the authorities given to them (to allot shares).
As at 31 December 2014, the Directors have the power
to allot up to 136,567,410 ordinary shares of 50p each,
representing 66.7% of the issued share capital as at the
date of the 2014 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 £80m in place with Bank of Scotland plc,
Barclays Bank PLC and Royal Bank of Scotland plc until
August 2018. The Group’s forecasts and projections,
which have been prepared for the period to 30 June 2016
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. Sensitivities were applied to the
Group’s forecasts which resulted, in total for a reasonable
downside scenario, in a fall in EBITDA (assumed to directly
affect net debt) of 14%. Even at this level of performance
the forecasts showed that the Group would stay in
compliance with its most sensitive covenant, being
leverage, at all testing dates in the period under review.
The sensitivities applied included affects of changes to
player acquisition assumptions in Football Pools, handle
levels in Venues and system sales achieved in Racing
and Digital.
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.
Financial risk management
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 in note 24.
Sportech PLC Annual Report and Accounts 2014Sportech PLC Annual Report and Accounts 2014Strategic reportCorporate governanceFinancial statements 58
59
Directors’ report continued
for the year ended 31 December 2014
Independent Auditors’ report
to the members of 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.
The Directors are responsible for the maintenance and
integrity of the Company’s website. Legislation in the
United Kingdom governing the preparation and
dissemination of financial statements may differ from
legislation in other jurisdictions.
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 page 26 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
12 May 2015 is being sent to shareholders with this report.
In accordance with the Articles of Association of the
Company, Ian Penrose and David McKeith retire by rotation
and offer themselves for reappointment at the AGM.
Profiles of these Directors appear on page 26.
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 36 to 55, to reappoint the Auditors and to
authorise the Directors to fix their remuneration.
On behalf of the Board
Cliff Baty
Director
4 March 2015
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 reappointed 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.
Report on the financial statements
Our opinion
In our opinion:
– Sportech PLC’s Group financial statements and Parent Company financial statements (the “financial statements”) give
a true and fair view of the state of the Group’s and of the Parent Company’s affairs as at 31 December 2014 and of the
Group’s loss and the Group’s and the 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 International Financial
Reporting Standards (“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.
What we have audited
Sportech PLC’s financial statements comprise:
– the balance sheets as at 31 December 2014;
– the consolidated income statement and consolidated statement of comprehensive income for the year then ended;
– the statements of changes in equity for the year then ended;
– the statements of cash flows for the year then ended; and
– the notes to the financial statements, which include a summary of significant accounting policies and other explanatory
information.
Certain required disclosures have been presented elsewhere in the Annual Report and Accounts (the “Annual Report”),
rather than in the notes to the financial statements. These are cross-referenced from the financial statements and are
identified as audited.
The financial reporting framework that has been applied in the preparation of the financial statements is applicable law
and IFRSs as adopted by the European Union and, as regards the Parent Company financial statements, as applied in
accordance with the provisions of the Companies Act 2006.
Our audit approach
Overview
Materiality
Overall Group materiality: £592,000 which represents 2.5% of adjusted EBITDA
(as de fined on page 63).
Audit scope
The Group consists of 39 statutory entities (excluding dormant entities). Our audit
focused on the most significant of these entities in terms of materiality to the Group
financial statements. The components within the scope of our work accounted for
79% of Group revenue and 76% of Group adjusted EBITDA.
– Goodwill and intangible asset impairment.
Areas of
focus
– Revenue recognition on complex multiple element arrangements.
– Going concern – financial covenants on banking facilities of the Group.
Sportech PLC Annual Report and Accounts 2014Sportech PLC Annual Report and Accounts 2014Strategic reportCorporate governanceFinancial statements 60
61
Independent Auditors’ report continued
to the members of Sportech PLC
The scope of our audit and our areas of focus
We conducted our audit in accordance with International Standards on Auditing (UK and Ireland) (“ISAs (UK & Ireland)”).
We designed our audit by determining materiality and assessing the risks of material misstatement in the financial
statements. In particular, we looked at where the Directors made subjective judgements, for example in respect of
significant accounting estimates that involved making assumptions and considering future events that are inherently
uncertain. As in all of our audits, we also addressed the risk of management override of internal controls, including
evaluating whether there was evidence of bias by the Directors that represented a risk of material misstatement due
to fraud.
The risks of material misstatement that had the greatest effect on our audit, including the allocation of our resources
and effort, are identified as “areas of focus” in the table below. We have also set out how we tailored our audit to address
these specific areas in order to provide an opinion on the financial statements as a whole, and any comments we make
on the results of our procedures should be read in this context. This is not a complete list of all risks identified by
our audit.
Area of focus
How our audit addressed the area of focus
Goodwill and intangible asset impairment
Refer to page 31 (Audit Committee report), page 76
(Accounting policies) and pages 88 to 91 (Notes).
The Group has goodwill and intangible fixed assets with
carrying value of £167.1m on the Group balance sheet as
at 31 December 2014. Our work focused on the following
balances, where there was a higher level of judgement
involved because of key assumptions made by the
Directors in assessing their carrying values:
– Goodwill in relation to The Football Pools Limited has
a carrying value of £119.5m, following an impairment that
has been recognised in the year of £28.1m (see note 11).
In arriving at the remaining carrying value the Directors
have assumed that the business will arrest its prolonged
declining profitability, and that EBITDA will stabilise, and
remain flat, from the end of the next financial year
onwards. The Directors believe this will be achieved
through the stabilisation of revenue, primarily as a result
of the expected continued improvement in spend per
player from core customers and the introduction of new
online customers.
We have focused on the Directors’ assumptions
regarding EBITDA growth given the ongoing downturn
in profitability.
– Goodwill arising on the acquisition of eBet has a carrying
value of £5.5m. In assessing the carrying value of this
asset, the Directors have assumed that there will be 3%
growth in profitability levels over the course of the next
five years, in spite of the fact that in the current year
underlying profitability fell. We therefore have focused on
the Directors’ assumptions regarding growth of profits.
– Intangible assets associated with the gaming licence held
within Sportech Venues Inc. (“Venues”) have a carrying
value of £16.3m.
We evaluated and challenged the Directors’ future
cash flow forecasts, and the process by which they
were drawn up, and tested the underlying value–in-use
calculations. We noted no material inconsistencies
between the forecasts and our understanding of the
Board’s approved future plans for the business gained
from other areas of our audit.
We performed the following to address the specific
risks in each of the areas:
In respect of The Football Pools Limited goodwill we
assessed the reasonableness of the Directors’ estimate
for future EBITDA levels through comparison of forecast
revenue against the run rate within the current year.
Further we have performed a detailed assessment on
the historical accuracy of the Directors’ forecasts against
actual outturn. Based on this work we found that the
assumptions used within the forecasts appear within
a range which we consider to be reasonable.
In respect of the eBet goodwill we evaluated the key
assumption of expected growth in profitability over
the next five years. This has been achieved through
understanding and assessing the causes of the current
year performance, and critically assessing, through
comparison trends in their market, the likelihood of a
return to growth occurring in the future. We found the
assumptions used to be supportable based on our
audit work.
In respect of the Venues gaming licence we evaluated
the key assumptions surrounding the improvement
in net handle at each venue in future years when
compared with the current year by comparing the
recent historic performance of the underlying trade
prior to the current year, and a critical assessment of
the likelihood of the forecast increases in net handle
occurring, through reference to events in the current
year. Management’s assumptions are supported by
information currently available.
Area of focus
How our audit addressed the area of focus
In assessing the carrying value of the Venues licence
the Directors have assumed that the level of net handle
(the total amount of bets taken) at each venue will
improve by 3.5% on the current year, and then remain at
those levels into perpetuity, such that forecast EBITDA
levels can be met. We have focused on the Directors’
assumptions around the growth of these levels in the next
financial year and the feasibility of maintaining these levels
in future periods.
– Software development intangible assets in relation to
the Group’s Indian joint venture, have a carrying value
of £0.5m. The venture will not commence trading until
a gaming licence is granted by the Sikkim government
to the Group’s joint venture partner. Currently this licence
is still pending, and we have therefore focused on the
Directors’ assumption as to the likelihood that it will
be granted.
The Directors’ projections in relation to impairment of
goodwill and intangibles balances are also dependent on
a range of other judgemental assumptions. We focused on
the discount rate in particular given the significant amount
of judgement involved in establishing an appropriate rate
and the material sensitivity of the carrying values to small
changes in this assumption.
The likelihood of the Sikkim government approving the
licence application is the key assumption in respect of the
software development intangible asset. Our work noted that
the level of successful applications to the Sikkim government
for licences by similar businesses did not contradict the
Directors’ assumptions regarding the likelihood of the
Group’s joint venture partner being granted its licence.
In addition we have evaluated the discount rate utilised
within the above impairment reviews to assess whether it
was appropriate. This was done primarily via comparison
of the cost of capital of the Group with other comparable
companies within the same industry or with a similar
business model. The discount rate used is supportable.
While inherent uncertainty exists around many of the
key assumptions used by the Directors in the above
impairment reviews, our procedures indicated that the
key assumptions were supportable and reasonable within
the context of the evidence we obtained and we did not
identify any material inconsistencies in the Directors’
estimation technique and forecasting in these areas.
Furthermore, we performed sensitivity analysis around
all of the above assumptions to assess the extent of
change in those assumptions that either individually
or collectively would be required for the goodwill and
intangibles to be impaired. We determined that, while
the Directors’ assumptions are not inappropriate,
reasonably possible changes in the key assumptions
would be likely to lead to a material impairment, and
hence have determined that the Directors’ disclosures
(see notes 11 and 12) appropriately reflected this fact and are
consistent with the requirements of accounting standards.
Revenue recognition on complex multiple element
arrangements
Refer to page 31 (Audit Committee report) and page 73
(Accounting policies).
The Group has entered into long-term sales contracts, in
relation to its Tote software, for which revenue accounting
is complex because of the following:
– the contracts contain multiple elements, and the
allocation of consideration to the different elements
involves significant judgement and complexity, particularly
when assessing the fair value of these elements; and
– revenue is recognised on a percentage of completion
basis over the life of the contracts. Percentage of
completion can be a complex judgement and can lead to
revenue being recorded in the wrong accounting period.
We evaluated the Directors’ allocation of total
consideration between the different elements of the
relevant contracts and challenged the fair value
assessment of each element within the contracts through
benchmarking the assigned fair values with other similar
contracts agreed with third parties.
We found that the Directors’ assessments in respect of
the Tote software contracts were consistent with those
in respect of other sales contracts.
We tested the appropriateness of the estimate of the
percentage of completion on these contracts as at
31 December 2014 through testing of costs incurred to
date to purchase invoice, and testing of forecast costs to
complete to project managers’ schedules, purchase orders,
and the use of look back tests on similar projects to obtain
evidence over management’s forecasting ability.
Sportech PLC Annual Report and Accounts 2014Sportech PLC Annual Report and Accounts 2014Strategic reportCorporate governanceFinancial statements 62
63
Independent Auditors’ report continued
to the members of Sportech PLC
Area of focus
How our audit addressed the area of focus
Accordingly, our audit work focused on:
– the Directors’ fair value assessment of the consideration
attributable to the separable elements within the
contract; and
– the Directors’ estimates for percentage of completion
on such contracts as at 31 December 2014.
Going concern – financial covenants on banking
facilities of the Group
Refer to page 31 (Audit Committee report) and page 71
(Accounting policies).
The Directors have concluded that it is appropriate for
them to prepare the financial statements using the going
concern basis of accounting. The going concern basis
presumes that the Group has adequate resources to
remain in operation, and that Directors intend it to do so,
for at least one year from the date the financial statements
were signed.
In adopting this basis, the Directors have assumed that
the Group will continue to comply with a variety of
financial and non-financial covenants over its £80m
revolving credit banking facilities. As at 31 December 2014,
a total of £70.1m was drawn down from these facilities,
which expire in August 2018.
The financial covenants attached to the borrowings are
leverage (being the ratio of EBITDA to net bank debt)
and interest cover (being the ratio of EBITDA to senior
finance charges).
The Directors monitor their cash flow and profit forecasts
against these covenants regularly to assess the likelihood
of a breach, and establish mitigating actions should a
potential breach be identified. While the Group’s forecasts
and projections, which have been prepared for the period
to 30 June 2016, show that it will be able to operate within
the level of its current facilities and comply with its banking
covenants, the level of headroom against those covenants,
when reasonable downside sensitivities are applied,
remains relatively low.
As such, we identified a heightened risk in this area
and focused our work on the Directors’ cash flow
and profit forecasts, in particular on the assumptions
around projected EBITDA, net bank debt and senior
finance charges.
Based on our audit work we found that the Directors’
recognition practices were in line with the requirements
of IAS 18 “Revenue” in respect of both allocation of
consideration to the respective elements, and the
percentage of completion revenue recognition estimate.
We evaluated the Directors’ conclusion around going
concern and critically assessed the Group’s short-term
future cash flow forecasts, to assess the likely availability
of funds to meet liabilities as they fall due, and its profit
forecasts to assess the likelihood of a breach of covenants.
We obtained and read the Group’s finance agreements
to understand the financial and non-financial covenants
contained therein and assess whether they had been
considered in the Directors’ forecasts.
We tested the mathematical accuracy of the forecasts
and the process by which they were drawn up, and agreed
the covenant ratio calculations to the definitions in the
finance agreements.
Where the Directors’ cash flow assumptions were not
consistent with current performance, we challenged
whether these differences were appropriate by comparing
to growth rates seen in the current year, and by assessing
the historic accuracy of the Directors’ forecasts against
actual outturn. We found that inconsistencies were
supported by current growth trends and borne out
by the Directors’ history of forecasting.
We challenged the Directors on sensitivities applied
to their forecasts to test the level of headroom against
covenants by applying our own further sensitivities and
discussing the impact of alternative assumptions.
We also assessed the mitigating actions proposed by
the Directors should it appear that the Group may breach
its covenants, and found them to be reasonable.
Finally we compared the relevant disclosures with the
financial statements to our testing in this area and found
that they appropriately reflected the future plans of the
Company and Group and any uncertainties arising.
Our conclusions in relation to going concern are set out
in the Going concern section on page 63.
How we tailored the audit scope
We tailored the scope of our audit to ensure that we performed enough work to be able to give an opinion on the
financial statements as a whole, taking into account the structure of the Group, the accounting processes and controls,
and the industry in which the Group operates.
The Group is managed divisionally, with the three operating divisions being Racing and Digital, Venues and Football
Pools, with the head office function incurring certain central costs on behalf of the Group. The Group’s accounting
process is structured around a local finance function in each of these divisions. These functions maintain their own
localised accounting records and controls, distinct from those at the head office level.
While the Directors operate the Group divisionally we have scoped our audit at a statutory entity level. We performed
full scope audits over four statutory entities, which we regarded as being financially significant components of the
Group, and performed work in another six statutory entities on specific balances that we regarded to be significant to
the financial statements. We have performed sufficient testing over divisional and head office finance functions to obtain
evidence over the components in scope for our Group audit. Furthermore, we have performed procedures over the
Group’s consolidation of these entities and significant consolidation entries.
The entities, specific balances and entries that were subject to audit work accounted for 79% of Group revenue and 76%
of Group adjusted EBITDA.
Materiality
The scope of our audit was influenced by our application of materiality. We set certain quantitative thresholds for
materiality. These, together with qualitative considerations, helped us to determine the scope of our audit and 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 financial statements as a whole as follows:
Overall Group materiality
How we determined it
Rationale for benchmark applied
£592,000 (2013: £650,000).
2.5% of adjusted EBITDA (as defined below).
We believe that earnings before interest, tax, depreciation
and amortisation, adjusted also for exceptional items,
goodwill impairment and share option charges (“Adjusted
EBITDA”), provides us with a consistent year on year basis
for determining materiality based on the underlying trading
performance of the Group but eliminating one-off, non-
recurring and non-cash items.
We agreed with the Audit Committee that we would report to them misstatements identified during our audit above
£30,000 (2013: £30,000) as well as misstatements below that amount that, in our view, warranted reporting for
qualitative reasons.
Going concern
Under the Listing Rules we are required to review the Directors’ statement, set out on page 57, 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 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 Parent Company’s ability to continue as a going concern.
Sportech PLC Annual Report and Accounts 2014Sportech PLC Annual Report and Accounts 2014Strategic reportCorporate governanceFinancial statements 64
65
Independent Auditors’ report continued
to the members of Sportech PLC
Other required reporting
Consistency of other information
Companies Act 2006 opinion
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.
ISAs (UK & Ireland) reporting
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
– otherwise misleading.
The statement given by the Directors on page 58, in accordance with provision C.1.1
of the UK Corporate Governance Code (the “Code”), 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 and Parent Company’s
performance, business model and strategy is materially inconsistent with our
knowledge of the Group and Parent Company acquired in the course of performing
our audit.
We have no exceptions to report
arising from this responsibility.
We have no exceptions to report
arising from this responsibility.
The section of the Annual Report on page 31, as required by provision C.3.8 of the
Code, 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.
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
Directors’ remuneration report – Companies Act 2006 opinion
In our opinion, the part of the Directors’ remuneration report to be audited has been properly prepared in accordance
with the Companies Act 2006.
Other Companies Act 2006 reporting
Under the Companies Act 2006 we are required to report to you if, in our opinion, certain disclosures of Directors’
remuneration specified by law are not 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 report relating to the Parent
Company’s compliance with ten provisions of the UK Corporate Governance Code. We have nothing to report having
performed our review.
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 58, the Directors are responsible
for the preparation of the 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 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 Parent 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.
What an audit of financial statements involves
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 the 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.
We primarily focus 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.
We test and examine information, using sampling and other auditing techniques, to the extent we consider necessary
to provide a reasonable basis for us to draw conclusions. We obtain audit evidence through testing the effectiveness
of controls, substantive procedures or a combination of both.
In addition, we read all the financial and non-financial information in 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.
Nigel Reynolds (Senior Statutory Auditor)
for and on behalf of PricewaterhouseCoopers LLP
Chartered Accountants and Statutory Auditors
London
4 March 2015
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.
Sportech PLC Annual Report and Accounts 2014Sportech PLC Annual Report and Accounts 2014Strategic reportCorporate governanceFinancial statements Consolidated statement of
comprehensive (expense)/income
for the year ended 31 December 2014
(Loss)/profit for the year
Other comprehensive (expense)/income:
Items that will not be reclassified to profit and loss
Actuarial (loss)/gain on retirement benefit liability
Deferred tax on movement on retirement benefit liability
Items that may be subsequently reclassified to profit and loss
Currency translation differences
Other comprehensive income/(expense) for the year, net of tax
Total comprehensive (expense)/income for the year
Attributable to the owners of the parent arises from:
– Continuing operations
– Discontinued operations
Note
31
19
Group
2014
£m
(21.3)
(0.4)
0.1
(0.3)
1.4
1.1
(20.2)
(20.2)
—
(20.2)
67
2013
£m
3.4
0.3
(0.1)
0.2
(0.7)
(0.5)
2.9
2.8
0.1
2.9
66
Consolidated income statement
for the year ended 31 December 2014
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 and impairment of goodwill
Exceptional costs
Operating (loss)/profit
Finance costs
Other finance income
Net finance costs
Share of loss after tax of joint ventures
(Loss)/profit before taxation
Adjusted profit before taxation*
Taxation
(Loss)/profit for the year from continuing operations
Profit for the year from discontinued operations**
(Loss)/profit for the year
(Loss)/earnings per share from continuing operations attributable to owners of
the Parent during the year
Basic
Diluted
Adjusted earnings from continuing operations per share attributable to owners
of the Parent during the year
Basic
Diluted
Group
2014
£m
104.1
(58.1)
46.0
(0.9)
(62.4)
24.0
(0.6)
(6.2)
(32.2)
(2.3)
(17.3)
(2.8)
0.3
(2.5)
(0.2)
(20.0)
14.4
(1.3)
(21.3)
—
(21.3)
(10.4)p
(9.9)p
5.5p
5.2p
2013
£m
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
1.6p
5.3p
4.9p
Note
2
4
4
4
16
5
8
10
10
10
10
*
Adjusted profit before taxation is profit from continuing operations before taxation, amortisation of acquired intangibles and impairment
of goodwill, exceptional costs, share of loss after tax of joint ventures and other finance income.
** Discontinued operations reported in 2013 relate to the e-Gaming division which was disposed of in October 2013. There were no
discontinued operations in 2014.
Sportech PLC Annual Report and Accounts 2014Sportech PLC Annual Report and Accounts 2014Strategic reportCorporate governanceFinancial statements 68
69
Statements of changes in equity
for the year ended 31 December 2014
Balance sheets
at 31 December 2014
Group
At 1 January 2013
Comprehensive income
Profit for the year
Other comprehensive income
Actuarial gain on retirement benefit liability* (note 31)
Currency translation differences
Total other comprehensive income/(expense)
Total comprehensive income/(expense)
Transactions with owners
Share option credit (note 6)
Employment taxes paid on vestings in the year
Shares issued in relation to PSP
At 31 December 2013
Comprehensive income
Loss for the year
Other comprehensive income
Actuarial loss on retirement benefit liability* (note 31)
Currency translation differences
Total other comprehensive (expense)/income
Total comprehensive (expense)/income
Transactions with owners
Share option credit (note 6)
Employment taxes paid on vestings in the year
Shares issued in relation to PSP
At 31 December 2014
* Net of deferred tax (note 19).
Company
At 1 January 2013
Comprehensive expense
Loss for the year
Total comprehensive expense
Transactions with owners
Share option credit
Employment taxes paid on vestings in the year
Shares issued in relation to PSP and reserve transfer
At 31 December 2013
Comprehensive expense
Loss for the year
Total comprehensive expense
Transactions with owners
Share option credit
Employment taxes paid on vestings in the year
Shares issued in relation to PSP and reserve transfer
At 31 December 2014
* Net of deferred tax (note 19).
Other reserves
Ordinary
shares
£m
99.4
Share
option
reserve
£m
3.8
Pension
reserve
£m
(0.5)
Currency
translation
reserve
£m
(0.8)
Retained
earnings
£m
33.5
—
—
—
—
—
—
—
—
—
—
—
—
3.0
102.4
1.5
(0.1)
(3.0)
2.2
—
—
—
—
—
—
—
—
—
—
—
—
0.2
102.6
0.6
(0.3)
(0.2)
2.3
—
0.2
—
0.2
0.2
—
—
—
(0.3)
—
(0.3)
—
(0.3)
(0.3)
—
—
—
(0.6)
—
—
(0.7)
(0.7)
(0.7)
—
—
—
(1.5)
—
—
1.4
1.4
1.4
—
—
—
(0.1)
Total
£m
135.4
3.4
0.2
(0.7)
(0.5)
2.9
1.5
(0.1)
—
139.7
3.4
—
—
—
3.4
—
—
—
36.9
(21.3)
(21.3)
—
—
—
(21.3)
—
—
—
15.6
(0.3)
1.4
1.1
(20.2)
0.6
(0.3)
—
119.8
Ordinary
shares
£m
99.4
Other reserve –
share option reserve
£m
3.8
Retained
earnings
£m
27.3
Total
£m
130.5
—
—
—
—
3.0
102.4
—
—
—
—
0.2
102.6
—
—
1.5
(0.1)
(3.0)
2.2
—
—
0.6
(0.3)
(0.2)
2.3
(10.9)
(10.9)
(10.9)
(10.9)
—
—
3.0
19.4
1.5
(0.1)
3.0
124.0
(6.5)
(6.5)
(6.5)
(6.5)
—
—
0.2
13.1
0.6
(0.3)
0.2
118.0
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
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
2014
£m
2013
£m
Company
2014
£m
2013
£m
Note
11
12
13
14
16
17
19
17
18
20
24
23
21
22
23
31
22
19
25
125.0
42.1
24.9
—
2.2
1.2
1.4
196.8
10.4
1.5
6.3
18.2
215.0
(0.5)
—
(20.5)
(0.2)
(0.8)
(22.0)
(3.8)
(70.6)
(1.6)
(0.4)
(0.6)
(73.2)
(95.2)
119.8
102.6
1.6
15.6
119.8
153.1
42.7
21.6
—
0.5
0.3
1.8
220.0
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
—
11.8
0.1
203.7
—
—
0.2
215.8
20.6
—
0.1
20.7
236.5
(0.5)
—
(47.9)
—
—
(48.4)
(27.7)
(70.1)
—
—
—
(70.1)
(118.5)
118.0
102.6
2.3
13.1
118.0
—
13.1
0.1
203.7
—
—
1.0
217.9
15.3
—
0.2
15.5
233.4
(1.3)
—
(42.1)
—
—
(43.4)
(27.9)
(66.0)
—
—
—
(66.0)
(109.4)
124.0
102.4
2.2
19.4
124.0
The financial statements on pages 66 to 115 were approved and authorised for issue by the Board of Directors on
4 March 2015 and were signed on its behalf by:
Ian Penrose
Chief Executive
Cliff Baty
Chief Financial Officer
Company Registration Number: SC69140
Sportech PLC Annual Report and Accounts 2014Sportech PLC Annual Report and Accounts 2014Strategic reportCorporate governanceFinancial statements
70
71
Statements of cash flows
for the year ended 31 December 2014
Accounting policies
for the year ended 31 December 2014
Cash flows from operating activities
Cash generated from operations, before exceptional items
Interest paid
Tax paid
Net cash generated from/(used in) operating activities
before cash exceptional costs
Cash exceptional costs
Net cash generated from/(used in) operating activities
Cash flows from investing activities
Investment in joint ventures
Capital contribution
Acquisition of Bump Worldwide Inc. inclusive
of overdraft 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 from drawdown of borrowings
Net cash from financing activities
Net increase/(decrease) 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
Increase/(decrease) in cash in the year
Net cash inflow from drawdown 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
26
16
14
15
12
13
4
23
20
20
23
Group
2014
£m
20.4
(3.0)
(1.3)
16.1
(2.3)
13.8
(1.9)
—
2013
£m
24.4
(4.3)
(1.7)
18.4
(2.7)
15.7
(0.2)
—
(0.2)
—
—
—
(0.7)
(5.1)
(4.9)
(12.8)
(1.4)
4.1
2.7
3.7
2.6
6.3
3.7
(4.1)
(0.4)
(63.4)
(63.8)
6.3
(70.1)
(63.8)
(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)
Company
2014
£m
1.1
(3.0)
—
(1.9)
(0.8)
(2.7)
—
—
—
—
—
—
(0.1)
—
(0.1)
(1.4)
4.1
2.7
(0.1)
0.2
0.1
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
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 2014
comprise the Company, its subsidiaries and joint ventures
(together referred to as the “Group”). The principal
activities of the Group are pools betting, both B2B and
B2C, and supply of wagering technology solutions.
Going concern
The Group has committed revolving credit banking
facilities totalling £80m in place with Bank of Scotland plc,
Barclays Bank PLC and Royal Bank of Scotland plc until
August 2018. The Group’s forecasts and projections, which
have been prepared for the period to 30 June 2016 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. Sensitivities were applied to the
Group’s forecasts which resulted, in total for a reasonable
downside scenario, in a fall in EBITDA (assumed to directly
affect net debt) of 14%. Even at this level of performance
the forecasts showed that the Group would stay in
compliance with its most sensitive covenant, being
leverage, at all testing dates in the period under review.
The sensitivities applied included effects of changes to
player acquisition assumptions in Football Pools, handle
levels in Venues and system sales achieved in Racing
and Digital.
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.
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.
Amounts presented in the financial statements have been
rounded to the nearest £100,000.
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,
the impact of the introduction of new distribution routes
in 2014, particularly the investment in online technologies
and the cross sell opportunities this brings, 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.
Sportech PLC Annual Report and Accounts 2014Sportech PLC Annual Report and Accounts 2014Strategic reportCorporate governanceFinancial statements
72
73
Accounting policies continued
for the year ended 31 December 2014
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 Bump Worldwide Inc.
(“Bump”). Further details of the fair value of assets
acquired and liabilities assumed, together with the
judgements made, are disclosed within note 15.
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.
Recognition of revenue of multi-element contract,
including long-term contract accounting
The Group enters into material contracts to sell the
Group’s intellectual property (“IP”), Tote software,
and customise the IP to the customer’s preferences and
requirements as well as selling hardware and ongoing
services, all typically within one agreement. Such a
sale, involving multiple component parts recognised by
the customer as separate elements to the contract, is
accounted for as a multi-element contract in accordance
with IAS 18 “Revenue”. The fair value of the revenue of
each part is estimated based on the price which is
regularly charged when that item is sold separately,
or a value which is considered to be the fair value of
that part. There is inherent judgement involved in
allocating fair values to the elements of a multi-element
contract. In addition, contract elements which span a
long period of time are are accounted for on a percentage
of completion basis per IAS 11 “Construction Contracts”.
Management uses judgement, its industry knowledge
and past experience of similar sales to allocate fair
values, determine the stage of completion, and record
revenue accordingly.
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 19 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.
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 4 January 2015 (2013: 5 January 2014). For ease of
reference in these financial statements, all references to
the results for the year are for the year ended 31 December
2014 (2013: 31 December 2013) and the financial position
at 31 December 2014 (2013: 31 December 2013).
Accounting policies
A summary of more important Group accounting policies
follows. These policies have been applied consistently to
all the years presented.
(a) 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
remeasured 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.
Transactions between subsidiaries are performed on an
arm’s-length basis. 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.
(b) 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.
(c) 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;
– the value of stakes, 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;
Sportech PLC Annual Report and Accounts 2014Sportech PLC Annual Report and Accounts 2014Strategic reportCorporate governanceFinancial statements 74
75
Accounting policies continued
for the year ended 31 December 2014
(c) Revenue (continued)
– 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.
Sales which involve significant customisation are
recognised on a percentage of completion basis in
accordance with IAS 11; 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.
(d) 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.
(e) 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 holding company of the Group.
(f) 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.
(h) 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.
(i) 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% to 5.0%
Short leasehold land and buildings
Over the period of the lease
Plant, equipment and other fixtures and fittings
10.0% to 33.3%
The assets’ residual values and useful lives are reviewed,
and adjusted if appropriate, at each balance sheet date.
(g) 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 liabilities
of the foreign entity and translated at the closing rate.
Sportech PLC Annual Report and Accounts 2014Sportech PLC Annual Report and Accounts 2014Strategic reportCorporate governanceFinancial statements 76
77
Accounting policies continued
for the year ended 31 December 2014
– 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
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 and a non-compete
agreement. 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.
(l) Investments in subsidiaries
Investments in subsidiaries are carried at historic cost less
any impairment. Annual impairment reviews are performed.
(j) 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.
(k) 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 eBet Online Inc., Datatote
(England) Limited, and Bump Worldwide Inc. 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:
– eBet Online Inc.
four years from 19 December 2012
– Datatote (England) Limited
four years from 27 September 2013
– Bump Worldwide Inc.
two years from 12 June 2014
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;
(m) 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.
(n) 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.
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.
(o) 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.
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 remeasured 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.
Sportech PLC Annual Report and Accounts 2014Sportech PLC Annual Report and Accounts 2014Strategic reportCorporate governanceFinancial statements 78
79
Accounting policies continued
for the year ended 31 December 2014
(o) Financial instruments (continued)
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.
(p) 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 the individual 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.
(q) 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.
(r) 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.
(s) 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.
(t) 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.
(u) Trade payables
Trade payables are recognised initially at fair value and
subsequently measured at amortised cost using the
effective interest method.
(v) 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.
(w) 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.
(x) 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.
(y) 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.
(z) 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 2014 and have been adopted by the Group.
Standard or interpretation
IFRS 10
IFRS 11
IFRS 12
Amendment to IAS 32
Amendments to IAS 36
Annual improvements to IFRSs 2012 and 2013 Various
Content
Consolidated financial statements
Joint arrangements
Disclosures of interests in other entities
Financial instruments: Presentation
Impairment of assets
Applicable for financial
years beginning on or after
1 January 2014
1 January 2014
1 January 2014
1 January 2014
1 January 2014
1 January 2014
(aa) 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.
Standard or interpretation
Amendments to IFRS 9
IFRS 15
Annual improvements 2014
Content
Financial instruments
Revenue from contracts with customers
Various
Applicable for financial
years beginning on or after
1 January 2018
1 January 2017
1 January 2016
None of the above are expected to have a material impact on the financial statements of the Group or Parent Company.
Sportech PLC Annual Report and Accounts 2014Sportech PLC Annual Report and Accounts 2014Strategic reportCorporate governanceFinancial statements 80
Notes to the financial statements
for the year ended 31 December 2014
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 and
impairment of goodwill)
Segment result before amortisation of
acquired intangibles, impairment of goodwill
and exceptional costs
Amortisation of acquired intangibles and
impairment of goodwill
Exceptional costs
Operating (loss)/profit
Net finance costs
Share of loss after tax of joint ventures
Loss before taxation
Taxation
Loss for the year
Segment assets
Segment liabilities
Other segment items
Capital expenditure (notes 12 and 13)
Depreciation (note 13)
Amortisation of intangible assets (including
acquired intangibles) (note 12)
Sportech
Racing
and
Digital
£m
4.2
30.3
34.5
2014
Sportech
Venues
£m
—
32.5
32.5
Corporate
costs
£m
—
—
—
Inter-
segment
elimination
£m
—
(0.9)
(0.9)
8.1
—
3.2
—
(3.9)
(0.6)
Football
Pools
£m
38.0
—
38.0
16.6
—
(1.5)
(3.5)
(1.2)
—
15.1
(30.7)
(1.4)
(17.0)
4.6
(1.5)
—
3.1
2.0
(4.5)
—
(0.1)
1.9
—
(0.8)
(5.3)
—
—
—
—
—
—
—
179.6
(16.1)
78.2
(64.0)
35.2
(7.3)
34.2
(120.0)
(112.2)
112.2
3.0
0.3
3.8
5.7
1.7
3.3
1.3
1.0
0.2
—
—
—
—
—
—
Group
£m
42.2
61.9
104.1
24.0
(0.6)
(6.2)
17.2
(32.2)
(2.3)
(17.3)
(2.5)
(0.2)
(20.0)
(1.3)
(21.3)
215.0
(95.2)
10.0
3.0
7.3
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 (notes 12 and 13)
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 (notes 12 and 13)
Depreciation (note 13)
Amortisation of intangible assets (including
acquired intangibles) (note 12)
Discontinued activities:
Loss on disposal of tangible and
intangible assets
Football
Pools
£m
41.3
—
41.3
17.4
—
(1.4)
16.0
(5.9)
(0.4)
9.7
Sportech
Racing
and
Digital
£m
4.1
31.8
35.9
7.7
—
(2.9)
4.8
(1.3)
(0.6)
2.9
2013
Sportech
Venues
£m
—
34.1
34.1
Corporate
costs
£m
—
—
—
Inter-
segment
elimination
£m
(0.1)
(0.9)
(1.0)
4.8
—
(1.4)
3.4
—
(0.3)
3.1
(3.8)
(1.5)
—
(5.3)
—
(1.4)
(6.7)
(0.1)
—
—
(0.1)
—
—
(0.1)
193.4
(13.4)
39.0
(9.7)
29.2
(19.0)
22.9
(102.4)
(51.4)
51.1
2.4
0.3
7.0
6.4
1.7
2.5
3.6
1.2
0.2
0.4
—
—
0.2
—
—
—
—
—
—
—
81
Group
£m
45.3
65.0
110.3
26.0
(1.5)
(5.7)
18.8
(7.2)
(2.7)
8.9
(3.5)
(0.2)
5.2
(1.9)
3.3
0.1
3.4
233.1
(93.4)
12.6
3.2
9.7
0.4
Sportech PLC Annual Report and Accounts 2014Sportech PLC Annual Report and Accounts 2014Strategic reportCorporate governanceFinancial statements 82
Notes to the financial statements continued
for the year ended 31 December 2014
1. Segmental reporting continued
Information by geographical area
United Kingdom
North America
Europe
Other
Total
Revenues from
external customers
Non-current assets
2014
£m
41.1
50.7
11.3
1.0
104.1
2013
£m
43.6
54.0
11.8
0.9
110.3
2014
£m
142.2
51.5
3.1
—
196.8
2013
£m
173.7
43.6
2.7
—
220.0
Revenue is allocated to the country in which the customer is located and the service is performed or product is delivered.
2. Exceptional costs
Exceptional charges of £2.3m (2013: £2.7m) are included within administrative expenses and exceptional charges of
£0.6m (2013: income of £1.4m) are included within net finance costs in the income statement. Exceptional costs by type
are as follows:
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
Costs in relation to the set up of US joint ventures
IFRS 3 employment costs in relation to Datatote (England) Limited and Bump Worldwide Inc.
Release of contingent consideration accrued for eBet Online Inc.
Other exceptional costs
Included in net finance costs:
Refinancing fee
Movement on derivative financial instruments post designation as ineffective
Total exceptional costs
2014
£m
2013
£m
1.1
—
0.2
0.1
0.1
0.6
0.4
(0.5)
0.3
2.3
1.4
(0.8)
0.6
2.9
1.0
0.3
0.5
0.2
0.3
—
0.1
—
0.3
2.7
—
(1.4)
(1.4)
1.3
83
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
2013
£m
4.3
—
(1.4)
0.4
0.2
3.5
2014
£m
2.6
6.4
14.4
6.0
30.4
0.6
10.3
28.1
0.9
2.5
3.5
1.2
5.4
9.1
121.4
—
121.4
2014
£m
2.8
1.4
(0.8)
—
(0.9)
2.5
3. Expenses by nature
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)
Impairment of goodwill (note 11)
Distribution costs
IT and telecommunications costs
Cost of inventories recognised as an expense (note 18)
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
Total expenses
Included in the above table are exceptional costs of £2.3m (2013: £2.7m).
4. Net finance costs
Interest payable on bank loans, derivative financial instruments and overdrafts
Refinancing fee
Movement on derivative financial instruments post designation as ineffective
Non-cash finance charges*
Foreign exchange (gain)/loss on financial assets and liabilities denominated in foreign currency
Net finance costs
* Non-cash finance charges 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 non-cash finance charges and
the foreign exchange (gain)/loss on financial assets and liabilities denominated in foreign currency are all together
shown as other finance income in the income statement. Included in the above table are exceptional charges of £0.6m
(2013: income of £1.4m).
Sportech PLC Annual Report and Accounts 2014Sportech PLC Annual Report and Accounts 2014Strategic reportCorporate governanceFinancial statements 84
85
Notes to the financial statements continued
for the year ended 31 December 2014
5. (Loss)/profit before taxation
(Loss)/profit before taxation is stated after charging:
Employment costs
Depreciation of property, plant and equipment
Impairment of goodwill
Amortisation of acquired intangibles
Amortisation of other intangibles
7. Directors and key management remuneration
Directors
Note
6
13
11
12
12
2014
£m
31.0
3.0
28.1
4.1
3.2
2013
£m
33.0
3.2
—
7.2
2.5
Short-term employee benefits
Share-based payments
Termination benefits
Post-employment benefits
Total remuneration
2014
£000
1,420
304
—
72
1,796
2013
£000
1,345
1,505
141
60
3,051
The fees of the Auditors in relation to their audit of the Company and consolidated accounts are £38,000 (2013: £38,000).
Fees paid to Auditors for other services comprise:
Audit of the Group’s subsidiaries
Taxation compliance
Taxation advisory services
Other assurance services
Total fees
2014
£m
0.2
0.1
0.2
0.1
0.6
6. Employment costs
Average number of monthly employees (full-time equivalents) 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 31)
Pension costs – defined benefit scheme (note 31)
Share option expense
Total remuneration
2014
Number
103
583
110
796
2014
£m
25.6
3.9
0.7
0.2
0.6
31.0
2013
£m
0.2
0.5
—
—
0.7
2013
Number
105
567
123
795
2013
£m
26.8
3.8
0.7
0.2
1.5
33.0
Details of individual Directors’ remuneration and share-based incentives granted are given in the Remuneration
report on pages 36 to 55. This information forms part of the financial statements. Retirement benefits are accruing
under defined benefit pension schemes for nil Directors (2013: nil). Three Directors exercised share options in the year
(2013: nil).
Key management compensation
Short-term employee benefits
Termination benefits
Post-employment benefits
Share-based payments
Total
2014
£000
1,803
—
83
386
2,272
2013
£000
1,780
141
66
831
2,818
Key management is considered to be the Directors of the Company (Executive and Non-executive) and senior Executives.
8. Taxation
Current tax:
Current tax on (loss)/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
2014
£m
1.5
(0.2)
1.3
0.1
(0.1)
—
1.3
2013
£m
1.8
—
1.8
(0.1)
0.2
0.1
1.9
Sportech PLC Annual Report and Accounts 2014Sportech PLC Annual Report and Accounts 2014Strategic reportCorporate governanceFinancial statements 86
87
Notes to the financial statements continued
for the year ended 31 December 2014
8. Taxation continued
The taxation on the Group’s (loss)/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:
(Loss)/profit before taxation
Add share of loss after tax of joint ventures
(Loss)/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
2014
£m
(20.0)
0.2
(19.8)
(4.6)
6.2
—
(0.1)
(0.2)
1.3
2013
£m
5.2
0.2
5.4
1.5
0.3
(0.1)
0.2
—
1.9
The weighted average applicable tax rate was 23.0% (2013: 26.8%). The decrease is as a result of a change in mix of
profits/(losses) in jurisdictions with varying tax rates.
Included within permanent differences is the tax effect at 21.5% of the £28.1m impairment of goodwill in the Football
Pools segment for which no tax relief is received.
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 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. Therefore the rate at which deferred tax is calculated has changed. Deferred tax in
the UK is provided at a blended rate of 20.25% or at 20%, depending on when the deferred tax is expected to unwind.
9. Loss of holding company
Of the Group’s loss for the year, a loss of £6.5m (2013: £10.9m) 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 4 March 2015.
10. Earnings per share
(a) Basic
Basic earnings per share is calculated by dividing the (loss)/profit attributable to equity holders of the Company by the
weighted average number of ordinary shares in issue during the year.
(Loss)/profit from continuing operations attributable to the owners of the Parent
Profit from discontinued operations attributable to the owners of the Parent
Total
Weighted average number of ordinary shares in issue (’000)
Basic (loss)/earnings per share
2014
£m
(21.3)
—
(21.3)
204,986
(10.4)p
2013
£m
3.3
0.1
3.4
200,227
1.7p
(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; 2013: 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 9,005,000 (2013: 13,161,000). Diluted basic loss per share is 9.9p (2013: earnings per share 1.6p)
and diluted adjusted EPS is 5.2p (2013: 4.9p).
(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 22.3% (2013: 27.7%). The adjusted tax charge is
based on adjusted profit before tax which excludes exceptional items, other finance income and share option charges.
Therefore the tax effect of these items is excluded.
Operating profit before amortisation of
acquired intangibles, impairment of goodwill
and exceptional costs
Net finance costs (excluding other finance
income)
Adjusted profit before taxation
Tax at 22.3% (2013: 27.7%)
Adjusted basic EPS
2014
Weighted
average
number of
shares
’000
Profit
£m
Per share
amount
Pence
Profit
£m
2013
Weighted
average
number of
shares
’000
Per share
amount
Pence
17.2
204,986
8.4
18.8
200,227
9.4
(2.8) 204,986
14.4
204,986
(3.2) 204,986
204,986
11.2
(1.4)
7.0
(1.5)
5.5
(4.3)
14.5
(4.0)
10.5
200,227
200,227
200,227
200,227
(2.1)
7.3
(2.0)
5.3
Sportech PLC Annual Report and Accounts 2014Sportech PLC Annual Report and Accounts 2014Strategic reportCorporate governanceFinancial statements 88
89
Notes to the financial statements continued
for the year ended 31 December 2014
11. Goodwill
Group
Cost
At 1 January and at 31 December
Accumulated impairment charges
At 1 January
Impairment charge
At 31 December
Opening net book amount
Closing net book amount
2014
£m
2013
£m
171.0
171.0
(17.9)
(28.1)
(46.0)
153.1
125.0
(17.9)
—
(17.9)
153.1
153.1
Goodwill arose on three historic acquisitions made by the Group: the acquisition of Littlewoods Leisure, including the
Littlewoods Football Pools business, in September 2000 amounting to £145.2m; the acquisition of Vernons Football
Pools in December 2007 amounting to £20.3m; and the acquisition of eBet Online Inc. in December 2012 of £5.5m.
The accumulated impairment charges brought forward relate to the goodwill in the Football Pools segment.
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 recoverable
amount of The Football Pools goodwill was estimated to be £119.5m and as a result an impairment charge of £28.1m
has been expensed to the income statement in administration expenses.
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 2015 and on cash flow projections
for 2016 to 2019 also approved by the Board, with a terminal value at 2019 calculated in accordance with IAS 36.
Forecasts assume stabilisation of cash flows in 2015 from 2014 levels and zero growth thereafter through to 2019;
– revenue forecasts for the core Football Pools business reflect the continued improvement in spend per player from
core customer numbers; the introduction of new customers and acquisition activities; the improvement in technology
following the continued investment in 2014; and the benefits from operating the whole business from a new single
customer facing, fully integrated platform. The Board believes that the impact of all of those factors 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% (2013: 8.3%), reflecting a market-based weighted average cost of capital
appropriate for the Football Pools CGU; and
– there are no material adverse changes in legislation.
Management consider that the calculated recoverable amount is most sensitive to changes in the following assumptions
and notes that the changes to the assumptions below, all other variables held constant, would cause the indicated
further impairments:
Revenue decline of 2% from 2015 budgeted levels and no growth in online revenues from 2014 levels
WACC of 10% rather than 8.3%
Resulting
impairment
£m
14.3
20.9
The goodwill from the eBet Online Inc. acquisition is attributed to the Sportech Racing and Digital segment and the
recoverable amount is estimated to be £6.4m.
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:
– EBITDA forecasts are in line with the approved 2015 budget and strategic plans which include a 3% growth rate
per annum between 2016 and 2019;
– the terminal value is based on a nil growth rate given the expected maturity of the business by 2019;
– cash flows have been discounted at 8.3% (2013: 8.3%), reflecting a market-based weighted average cost of capital
appropriate for the CGU; and
– there are no material adverse changes in legislation.
Management consider that the calculated recoverable amount is most sensitive to changes in the following
assumptions and notes that the changes to the assumptions below, all other variables held constant, would cause
the indicated impairments:
Negative growth in cash flows of 5% per annum into perpetuity
WACC of 10% rather than 8.3%
Following the impairment review an impairment of £nil was charged to the income statement (2013: £nil).
12. Intangible fixed assets
Group
Cost
At 1 January 2014
Business combination
Additions
At 31 December 2014
Accumulated amortisation
At 1 January 2014
Charged during the year
At 31 December 2014
Cumulative exchange differences
Net book amount at 31 December 2014
Customer
contracts and
relationships
£m
Software
£m
Other
£m
36.4
0.1
—
36.5
31.1
3.9
35.0
—
1.5
37.5
0.2
4.4
42.1
17.5
3.2
20.7
0.2
21.6
21.2
—
0.7
21.9
3.1
0.2
3.3
0.4
19.0
Resulting
impairment
£m
5.4
0.5
Total
£m
95.1
0.3
5.1
100.5
51.7
7.3
59.0
0.6
42.1
Customer contracts and relationships
Customer contracts and relationships as at 1 January 2014 are in relation to the acquisition of Vernons, which have a
useful life of five years from 1 July 2009; to eBet Online Inc., which have a useful life of four years from 19 December 2012,
and to Datatote (England) Limited, which have a useful life of four years and eight months from 27 September 2013.
During the year, the Group acquired Bump Worldwide Inc., giving rise to the further recognition of customer contracts
and relationships. The useful life is two years from 12 June 2014.
Software
Included in software are assets under construction with a cost of £1.7m (2013: £1.0m). 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 £16.3m (2013: £15.2m) is not amortised and
the useful economic life allocated to the asset is indefinite. The asset is allocated to the Sportech Venues segment and
has a estimated recoverable amount of £18.7m. The movement in net book value is as a result of movement in exchange
rates given the asset value is denominated in US Dollars. As required by IAS 36 “Impairment of Assets” an impairment
test has been carried out as at 31 December 2014.
Sportech PLC Annual Report and Accounts 2014Sportech PLC Annual Report and Accounts 2014Strategic reportCorporate governanceFinancial statements 90
91
Notes to the financial statements continued
for the year ended 31 December 2014
12. Intangible fixed assets continued
The recoverable amount of the asset has been determined based on a value-in-use calculation. 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 2015 budget and 2016 to 2019 strategic plans which assume nil growth
from the 2015 budget. The main assumptions include level of handle at each venue and content and take-out fee
percentages;
– 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 a market-based weighted average cost of capital appropriate
for the Sportech Venues CGU.
Management consider that the calculated recoverable amount is most sensitive to changes in the following assumptions
and notes that the changes to the assumptions below, all other variables held constant, would cause the indicated
impairments:
Handle decline in 2016 to 2019 of 2% per annum
WACC of 10% rather than 8.3%
Resulting
impairment
£m
4.1
2.4
Following the impairment review, an impairment of £nil was charged to the income statement (2013: £nil).
The remaining net book value of other intangible assets is predominantly spend on the proprietary Football Pools
customer database and system, which has a remaining useful economic life of six years.
Company
Cost
At 1 January 2014
Additions
At 31 December 2014
Accumulated amortisation
At 1 January 2014
Charged during the year
At 31 December 2014
Net book amount at 31 December 2014
Software
£m
Other
£m
15.7
—
15.7
3.4
1.0
4.4
11.3
0.8
0.1
0.9
—
0.4
0.4
0.5
Total
£m
16.5
0.1
16.6
3.4
1.4
4.8
11.8
The software held by the Company 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 2014 was £11.3m
and the remaining life was ten years and nine months (2013: net book amount of £12.3m and the remaining life was
eleven years and nine months).
Group
Cost
At 1 January 2013
Business combination
Disposals
Reclassification
Additions
At 31 December 2013
Accumulated amortisation
At 1 January 2013
Charged during the year
At 31 December 2013
Cumulative exchange differences
Net book amount at 31 December 2013
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
Amortisation has been included within administrative expenses.
Customer
contracts and
relationships
£m
Software
£m
Other
£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
21.8
—
—
(0.8)
0.2
21.2
2.8
0.3
3.1
(0.7)
17.4
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
89.7
1.9
(0.3)
—
3.8
95.1
42.0
9.7
51.7
(0.7)
42.7
Total
£m
16.3
0.2
16.5
2.4
1.0
3.4
13.1
Sportech PLC Annual Report and Accounts 2014Sportech PLC Annual Report and Accounts 2014Strategic reportCorporate governanceFinancial statements 92
Notes to the financial statements continued
for the year ended 31 December 2014
13. Property, plant and equipment
Group
Cost
At 1 January 2014
Additions
Disposals
Transfer
At 31 December 2014
Accumulated depreciation
At 1 January 2014
Charged during the year
Disposals
At 31 December 2014
Cumulative exchange differences
Net book amount at 31 December 2014
Company
Cost
At 1 January and 31 December 2014
Accumulated depreciation
At 1 January and 31 December 2014
Net book amount at 31 December 2014
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
0.2
0.1
—
—
0.1
—
0.1
9.5
—
(0.1)
2.0
11.4
3.5
0.6
(0.1)
4.0
—
7.4
12.7
0.9
(0.8)
7.5
20.3
6.9
2.2
(0.8)
8.3
0.1
12.1
1.0
—
(0.4)
0.2
0.8
0.3
0.2
(0.4)
0.1
(0.1)
0.6
10.0
4.0
—
(9.8)
4.2
—
—
—
—
0.5
4.7
Short
leasehold
land and
buildings
£m
Plant and
machinery
£m
0.1
0.1
—
0.2
0.1
0.1
Total
£m
33.3
4.9
(1.3)
—
36.9
10.8
3.0
(1.3)
12.5
0.5
24.9
Total
£m
0.3
0.2
0.1
93
Total
£m
25.2
8.8
0.4
(1.1)
—
33.3
8.6
3.2
(1.0)
10.8
(0.9)
21.6
Total
£m
0.3
0.2
0.1
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
2.3
(1.0)
6.9
(0.1)
5.7
0.8
0.1
—
—
0.1
1.0
0.1
0.2
—
0.3
(0.1)
0.6
4.9
8.1
—
—
(3.0)
10.0
—
—
—
—
(0.3)
9.7
Short
leasehold
land and
buildings
£m
Plant and
machinery
£m
0.1
0.1
—
0.2
0.1
0.1
Group
Company
2014
£m
—
—
—
2013
£m
—
—
—
2014
£m
203.7
—
203.7
2013
£m
201.2
2.5
203.7
Group
Cost
At 1 January 2013
Additions
Acquired with subsidiary
Disposals
Transfer
At 31 December 2013
Accumulated depreciation
At 1 January 2013
Charged during the year
Disposals
At 31 December 2013
Cumulative 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
14. Investments in subsidiaries
Investments in Group companies
At 1 January
Capital contribution
At 31 December
Investments in Group companies are stated at cost which is the fair value of the consideration paid.
Sportech PLC Annual Report and Accounts 2014Sportech PLC Annual Report and Accounts 2014Strategic reportCorporate governanceFinancial statements 94
95
Notes to the financial statements continued
for the year ended 31 December 2014
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
Sportech Gaming Limited*
The Football Pools Limited
Holding
Ordinary shares
Ordinary shares
Proportion
of voting
rights
100%
100%
UK Lottery Management Limited
Ordinary shares
100%
Football Pools 1923 Limited
Football Pools Games Limited
Ordinary shares
Ordinary shares
100%
100%
Datatote (England) Limited
Ordinary shares
100%
Sports Hub Private Limited
Ordinary shares
50%
Sportech Racing GmbH
Ordinary shares
100%
Sportech Racing B.V.
Ordinary shares
100%
Racing Technology (Ireland) Limited
Ordinary shares
100%
Sportech Racing Limited
Ordinary shares
100%
Sportech, Inc.
Ordinary shares
100%
Sportech Racing Panama, Inc.
Ordinary shares
100%
Sportech Racing, LLC
Ordinary shares
100%
Trackplay, LLC
Ordinary shares
100%
Sportech – NYX Gaming, LLC
Ordinary shares
50%
Sportech Racing Canada, Inc.
Ordinary shares
100%
Sportech Venues, Inc.
Ordinary shares
100%
S&S Venues California, LLC
Ordinary shares
50%
eBet Technologies, Inc.
Ordinary shares
100%
Picklive USA, LLC
Bump Worldwide, Inc.
Ordinary shares
Ordinary shares
51%
100%
Country of incorporation
England and Wales
England and Wales
England and Wales
England and Wales
England and Wales
England and Wales
USA
India
Turkey
Ireland
Germany
Nature of business
Holding company
Pools, betting and
gaming services
Management
of charity lotteries
Asset hiring
Pools, betting
and gaming services
Pari-mutuel wagering
totalisator services
Fantasy sports
games services
Pari-mutuel
systems provision
Netherlands Off-track betting and
venues management
Pari-mutuel
systems provision
Pari-mutuel
systems provision
Intermediate
holding company
Pari-mutuel
systems provision
Pari-mutuel
systems provision
Pari-mutuel
systems provision
Gaming software
and services
Pari-mutuel
systems provision
USA Off-track betting and
venues management
Sports bar owner
and operator
Online pari-mutuel
systems and
services provision
Social gaming
Provision of
software and
services for
50:50 raffles
USA
Canada
Panama
Canada
USA
USA
USA
USA
USA
* 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.
15. Business combinations
(a) Bump Worldwide Inc.
On 12 June 2014, the Group acquired 100% of the issued share capital of Bump Worldwide Inc. (“Bump”), a provider
of electronic charitable raffles conducted during professional sporting events, known as “50:50 raffles”.
The customers of Bump are the charitable foundations of US professional sports teams across the NHL, NBA, NFL,
MLS and NASCAR. It is a growing business that will benefit from the greater sales and technology resources available
following its acquisition by Sportech.
Goodwill arising on the acquisition amounted to £nil.
The following table summarises the fair value of consideration paid for Bump and the amounts of the assets acquired
and liabilities assumed recognised at acquisition date.
Provisional fair value of consideration at 12 June 2014
Cash
Total fair value of consideration transferred
Recognised provisional fair value amounts of identifiable assets acquired and liabilities assumed
Intangible assets – software (note 12)
Intangible assets – customer contracts and relationships (note 12)
Bank overdraft
Trade and other payables
Total identifiable net assets
Goodwill
Total fair value of consideration transferred
£m
0.1
0.1
£m
0.2
0.1
(0.1)
(0.1)
0.1
—
0.1
Contingent consideration
There is potential for contingent consideration of up to £5.5m to be payable dependant on the Bump business’
EBITDA for the period 1 January 2016 to 31 December 2016. This is split between the following two elements:
– an amount equivalent to the 2016 EBITDA earned by Bump, up to a maximum consideration payable of £4.7m; and
– if 2016 EBITDA earned by Bump exceeds £0.8m, an additional contingent consideration will be payable equivalent
to that excess, up to a maximum of £0.8m.
The amount payable is due subsequent to the finalisation of the 2016 financial statements.
The Directors have reviewed the potential consideration payable on the above performance requirements.
The expectation is that a sum of £0.3m will be payable in respect of these performance targets. This is treated
as employment costs under IFRS 3 “Business Combinations” (revised) and will accordingly be accrued on a time
apportioned basis to 31 December 2016. This expectation will be reviewed annually in accordance with IFRS 3
“Business Combinations” (revised).
Acquisition costs
Acquisition related costs amounting to £0.1m have been recognised as an expense in the consolidated income
statement as an exceptional item (see note 2).
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 just six months prior to the year end. Management will continue to monitor the
provisional values during the year ended 31 December 2015 to ensure any fair value amendments are identified as
a hindsight adjustment.
No contingent liabilities have been recognised as at the acquisition date.
Sportech PLC Annual Report and Accounts 2014Sportech PLC Annual Report and Accounts 2014Strategic reportCorporate governanceFinancial statements 96
Notes to the financial statements continued
for the year ended 31 December 2014
15. Business combinations continued
Bump contribution to the Group results
Bump has contributed revenues of £0.2m and a loss of £0.2m to the Group results from the acquisition date
to 31 December 2014. Had the acquisition occurred on 1 January 2014, the Group’s revenue for the period ended
31 December 2014 would have been £104.3m and the Group’s loss for the year would have been £21.5m. These
amounts have been determined by applying the Group’s accounting policies and adjusting the results of Bump to
reflect additional depreciation and amortisation that would have been charged, assuming the fair value adjustments
to intangible assets had been applied from 1 January 2014.
(b) Datatote (England) Limited
On 27 September 2013, the Group acquired 100% of the issued share capital of Datatote (England) Limited (“Data Tote”).
There were no changes to the fair value assumptions applied by management at acquisition during the hindsight period
in relation to net assets acquired or consideration paid. EBITDA estimates for the business still indicate that the maximum
payment of the contingent consideration will be due and payable in August 2016 and is being accrued accordingly.
(c) eBet Online Inc.
Management estimates that EBITDA targets required to be achieved for any contingent consideration to be paid on
the acquisition of eBet Online Inc. to be remote, and as such the accrual recognised in the balance sheet at 31 December
2013 has been released in full (see note 2).
16. Investment in joint ventures
The Group has the following investments in joint ventures:
Group
Sportshub Private Limited
Picklive USA, LLC
Sportech – NYX Gaming, LLC
S&S Venues California, LLC
Description
Provides a suite of prediction and fantasy
games centred on cricket, football and
Formula 1
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
Sports bars with wagering facilities in
California, USA
Group
At 1 January
Additions
Share of loss after tax
At 31 December
Country of
incorporation
India
Year of
investment
2008
%
holding
50
USA
USA
USA
2013
2013
2013
2014
£m
0.5
1.9
(0.2)
2.2
51
50
50
2013
£m
0.5
0.2
(0.2)
0.5
Despite the Group’s 51% ownership in Picklive USA LLC, the entity is considered to be jointly controlled. Therefore the
investment is treated as that of a joint venture, and its results have been equity accounted in accordance with IFRS 11.
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
Revenue
Expenses
The Group’s share of capital commitments amounted to £nil (2013: £nil).
17. Trade and other receivables
Trade receivables
Less provision for impairment of receivables
Trade receivables – net
Amounts owed by Group companies
Other receivables
Accrued income
Prepayments
Total
2014
£m
1.5
0.9
2.4
(0.2)
2.2
—
(0.2)
Group
Company
2014
£m
6.8
(0.3)
6.5
—
0.7
1.3
1.9
10.4
2013
£m
5.2
(0.3)
4.9
—
1.1
1.0
2.0
9.0
2014
£m
—
—
—
20.2
0.1
—
0.3
20.6
97
2013
£m
0.1
0.4
0.5
—
0.5
—
(0.2)
2013
£m
—
—
—
14.6
0.2
—
0.5
15.3
Other classes of trade and other receivables are not impaired. Non-current trade receivables of £1.2m (2013: £0.3m)
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 2014, £0.1m (2013: £0.1m) 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 2014, trade receivables of £0.3m (2013: £0.3m) were impaired and fully provided for.
Sportech PLC Annual Report and Accounts 2014Sportech PLC Annual Report and Accounts 2014Strategic reportCorporate governanceFinancial statements 98
99
Notes to the financial statements continued
for the year ended 31 December 2014
17. Trade and other receivables continued
There was no movement on the Group provision for impairment of trade receivables (2013: no movement).
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
18. Inventories
Work in progress
Spare parts
Finished goods
Total
2014
£m
2.8
5.8
0.7
2.3
11.6
2013
£m
1.5
5.3
1.2
1.3
9.3
2014
£m
3.1
16.4
1.1
—
20.6
Group
2014
£m
0.2
1.1
0.2
1.5
2013
£m
6.3
8.2
0.8
—
15.3
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 £3.5m (2013: £2.7m).
Provisions for obsolescence held against inventories at 31 December 2014 amounted to £0.1m (2013: £nil).
19. Deferred tax
The movement on the deferred tax account is as follows:
Net deferred tax asset at 1 January
Income statement charge
Business combination
Tax credited/(charged) directly to equity
Net deferred tax asset at 31 December
Group
Company
2014
£m
0.7
—
—
0.1
0.8
2013
£m
1.3
(0.1)
(0.4)
(0.1)
0.7
2014
£m
1.0
(0.8)
—
—
0.2
2013
£m
1.3
(0.3)
—
—
1.0
The tax credited/(charged) directly to equity is the deferred tax on the retirement benefit liabilities.
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 2013
Income statement (charge)/credit
Tax charged directly to equity
At 31 December 2013
Income statement (charge)/credit
Tax credited directly to equity
At 31 December 2014
Pension
£m
0.5
—
(0.1)
0.4
—
0.1
0.5
Capital
allowances
£m
(1.2)
(1.0)
—
(2.2)
(2.6)
—
(4.8)
Losses and
foreign tax
credits
£m
1.1
0.6
—
1.7
3.5
—
5.2
Temporary
differences
£m
0.9
1.0
—
1.9
(1.4)
—
0.5
Total
£m
1.3
0.6
(0.1)
1.8
(0.5)
0.1
1.4
Deferred tax of £nil is expected to be recovered within twelve months (2013: £nil) with £1.4m expected to be recovered
after more than twelve months (2013: £1.8m).
The deferred tax asset in the Company consists of temporary differences of £0.2m and capital allowances of £nil
(2013: temporary differences of £0.8m and capital allowances of £0.2m).
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 £3.0m (2013: £3.1m) 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
2014
2013
Provided
£m
15.0
Unprovided
£m
13.3
Provided
£m
1.0
Unprovided
£m
14.0
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 2013
Business combination
Income statement charge
At 31 December 2013
Income statement credit
At 31 December 2014
Temporary
differences
£m
—
(0.4)
(0.7)
(1.1)
0.5
(0.6)
Sportech PLC Annual Report and Accounts 2014Sportech PLC Annual Report and Accounts 2014Strategic reportCorporate governanceFinancial statements 100
101
Notes to the financial statements continued
for the year ended 31 December 2014
20. Cash and cash equivalents
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 £2.3m (2013: £2.1m) are held on behalf of customers in respect of certain 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 21).
23. Financial liabilities
Current
Deferred consideration due within one year
21. Trade and other payables
Trade payables
Amounts owed to Group companies
Other taxes and social security costs
Accruals and deferred income
Total
Group
Company
2014
£m
6.6
—
0.6
13.3
20.5
2013
£m
7.6
—
0.8
12.7
21.1
2014
£m
0.3
46.7
—
0.9
47.9
2013
£m
0.5
40.4
—
1.2
42.1
There is no difference between book values and fair values of trade and other payables. All amounts are due within
one year.
22. Provisions
Group
At 1 January 2013
Utilised during the year
At 31 December 2013
Utilised during the year
At 31 December 2014
Onerous
contracts
£m
0.4
(0.1)
0.3
—
0.3
Other
provisions
£m
0.4
(0.1)
0.3
—
0.3
Total
£m
0.8
(0.2)
0.6
—
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 (2013: £0.2m) and
£0.4m is expected to be utilised after twelve months (2013: £0.4m).
Group
Company
2014
£m
—
2013
£m
0.7
2014
£m
—
Group
Company
2014
£m
70.1
0.5
70.6
2013
£m
66.0
0.6
66.6
2014
£m
70.1
—
70.1
2013
£m
—
2013
£m
66.0
—
66.0
Non-current
Drawn revolving credit facility due after one year
Deferred consideration due after one year
Total non-current financial liabilities
Bank loans and revolving credit facility
On 12 May 2014, the Group refinanced its multi-currency, revolving credit facility of £75.0m to an £80.0m revolving
credit facility bearing interest of LIBOR plus a bank margin dependent on leverage levels, initially 3.0%. 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, and Racing Technology Ireland Limited. In addition, share charges have been entered
into in respect of shares in Sportech Inc., Sportech Venues Inc., Sportech Racing LLC, Trackplay LLC and eBet
Technologies Inc. (all are US companies).
During the year ended 31 December 2014, the Group obtained proceeds from borrowings of £4.1m.
Covenants on the Group’s borrowings include a leverage covenant (being the ratio of adjusted EBITDA to adjusted
net bank debt) and an interest cover covenant (being the ratio of adjusted EBITA to senior finance charges). None of
the covenants were breached during the period.
Deferred consideration and contingent consideration
Deferred consideration and contingent consideration totalling £1.1m (2013: £1.8m), £1.0m (2013: £1.0m) and £5.5m
(2013: £nil) in relation to the acquisitions of eBet Online Inc. Datatote (England) Limited, and Bump Worldwide Inc.
respectively represent the maximum amounts payable in acquiring these entities. The amounts disclosed as due after
one year of £0.5m represent management’s best estimate of the consideration that is likely to be paid in acquiring
those entities, recognising the known contractual amounts outlined in note 15, and the amounts accrued to date
as employment costs under IFRS 3 “Business Combinations” (revised).
Sportech PLC Annual Report and Accounts 2014Sportech PLC Annual Report and Accounts 2014Strategic reportCorporate governanceFinancial statements 102
103
Notes to the financial statements continued
for the year ended 31 December 2014
24. 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 2018 and at variable interest rates (a debt margin payable of
between 200 and 350 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 £20.0m, at an average swap rate before any lending margin of 4.80%. The hedges comprise two £10.0m
hedges with expiry dates on January 2015 and January 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 2014 the fair value of these interest rate swaps was a liability of £0.5m (2013: £1.3m).
At 31 December 2014, if interest rates on borrowings had been 50 basis points higher/lower with all variables held
constant, post tax loss for the year would have been £0.1m (2013: £0.2m) 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 weekly basis in the operating entities of the Group and is aggregated by Group
Finance. This weekly forecasting recognises committed short-term payables of the Group which are monitored and
managed through regular discussions with suppliers. 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. 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. The Group’s derivative financial instruments are managed by Group Finance, and the risks of
loss on those instruments are mitigated through review and regular discussions with external advisors.
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 Venues 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 2014, the notional principal amounts of foreign exchange
forward contracts outstanding were $nil (2013: $2.0m). At 31 December 2014, the fair value of these forward contracts
was £nil (2013: £nil). No charge or credit has thus been recognised in profit and loss arising from fair value movement
(2013: £nil).
The average rate of the US Dollar during the year was 1.65 and the Euro was 1.24; if the US Dollar had averaged at 1.6
and the Euro at 1.2, loss after tax would have been £21.2m and net assets would have been £113.6m at 31 December 2014.
Hedging instruments
Current liabilities
Interest rate swaps – cash flow hedges
Group
Company
2014
£m
0.5
2013
£m
1.3
2014
£m
0.5
2013
£m
1.3
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.
Sportech PLC Annual Report and Accounts 2014Sportech PLC Annual Report and Accounts 2014Strategic reportCorporate governanceFinancial statements 104
Notes to the financial statements continued
for the year ended 31 December 2014
24. Financial instruments 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 2014, net debt (including
deferred consideration) reduced by £0.4m (0.6%) (2013: increased by £0.1m (0.2%)). Gearing has remained relatively
static as the cash generated by the Group from operations during the year has been offset by cash used to purchase
tangible and intangible assets, invest in joint ventures, and to fund the costs incurred in refinancing the Group’s
borrowings. The total net debt and gearing ratios at 31 December 2014 and 2013 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 2014
Bank borrowings due after one year
As at 31 December 2013
Bank borrowings due after one year
Note
23
20
2014
£m
70.6
(6.3)
64.3
119.8
184.1
35%
2013
£m
67.3
(2.6)
64.7
139.7
204.4
32%
Group
Company
Book value
£m
70.1
Fair value
£m
65.0
Book value
£m
70.1
Fair value
£m
65.0
Group
Company
Book value
£m
66.0
Fair value
£m
65.7
Book value
£m
66.0
Fair value
£m
65.7
The fair values are based on cash flows discounted at a rate of 8.3% (2013: 8.3%) and are within level 2 of the fair value
hierarchy. Future interest payments are £3.0m payable within one year (2013: £3.0m), £3.0m payable between one and
two years (2013: £2.0m) and £5.0m payable between two and five years (2013: £nil).
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
2014
£m
—
70.1
70.1
2013
£m
66.0
—
66.0
2014
£m
—
70.1
70.1
2013
£m
66.0
—
66.0
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
2014
£m
0.9
—
—
0.9
2013
£m
3.0
0.5
—
3.5
2014
£m
0.9
—
—
0.9
Group
Company
Contractual undiscounted amount
Within one year
Between one and two years
Between two and five years
Total
2014
£m
23.8
0.8
70.1
94.7
2013
£m
23.1
0.4
68.1
91.6
Borrowing facilities
The Group had the following undrawn committed borrowing facilities available as follows:
Floating rate:
– 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
Financial liabilities measured at amortised cost
2014
£m
47.9
—
70.1
118.0
2014
£m
9.9
9.9
2014
£m
8.5
0.5
70.6
105
2013
£m
3.0
0.5
—
3.5
2013
£m
42.1
—
66.0
108.1
2013
£m
9.0
9.0
2013
£m
7.0
1.3
67.3
Sportech PLC Annual Report and Accounts 2014Sportech PLC Annual Report and Accounts 2014Strategic reportCorporate governanceFinancial statements 106
107
Notes to the financial statements continued
for the year ended 31 December 2014
25. Ordinary shares
Authorised, issued and fully paid
Ordinary shares of 50p each (2013: 50p)
At 1 January
New shares issued to satisfy PSP vesting
At 31 December
2014
2013
’000
204,851
370
205,221
£m
102.4
0.2
102.6
’000
198,810
6,041
204,851
£m
99.4
3.0
102.4
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 (2013: £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 (2013: £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
£0.817
£1.064
Exercise
period
2008–2015
2009–2016
Outstanding at
31 December
2014 and 2013
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 2014
was eleven months (31 December 2013: one year 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 2014 was £0.670 (2013: £0.815) and the range during the year
was £0.923 to £0.480 (2013: £1.080 to £0.690).
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%
—
£0.556
2006
4.40%
3 years
10 years
5 years
48.61%
—
£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 2014, 2,329,000 shares have been
awarded (2013: 2,406,000), 1,095,000 awards lapsed due to failure to meet the performance conditions (2013:
1,649,000), 732,000 awards lapsed due to employees ceasing to be employed by the Group (2013: 674,000) and no
awards were cancelled during the year (2013: nil). 811,000 shares vested during the period of which 583,000 remain
unexercised as at 31 December 2014. 7,229,000 (2013: 8,608,000) share awards remained outstanding (unvested) at
31 December 2014.
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.
Sportech PLC Annual Report and Accounts 2014Sportech PLC Annual Report and Accounts 2014Strategic reportCorporate governanceFinancial statements
108
109
Notes to the financial statements continued
for the year ended 31 December 2014
25. Ordinary shares continued
2014 and 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
Equal to the index
Between equal to the index and upper quartile
Upper quartile or better
Extent of vesting of Part A
25%
Pro rata between 25% and 100%
100%
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
Less than 4% per annum
4% per annum
Between 4% and 10% per annum
10% or better
Extent of vesting of Part B
0%
25%
Pro rata between 25% and 100%
100%
2012 and 2011 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
Equal to the index
Between equal to the index and upper quartile
Upper quartile or better
Extent of vesting of Part A
25%
Pro rata between 25% and 100%
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
Less than 4% per annum
4% per annum
Between 4% and 10% per annum
10% or better
Extent of vesting of Part C
0%
25%
Pro rata between 25% and 100%
100%
For employees who are responsible for the management of “Sportech Racing” (Sportech Racing and Digital, and
Sportech Venues) the above performance criteria are applicable in the following fractions:
Part A – two-ninths
Part B – two-ninths
Part C – two-ninths
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
Less than 10% per annum
10% per annum
Between 10% and 20% per annum
20% or better
Extent of vesting of Part D
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
Sep
2014
£nil
1
£0.780
3 years
28.2%
0%
£0.704
Mar
2014
£nil
23
£0.888
3 years
28.2%
0%
£0.704
May
2013
£nil
1
£0.900
3 years
29.6%
0%
£0.844
March
2013
£nil
70
£1.000
3 years
29.6%
0%
£0.844
March
2012
£nil
December
2011
£nil
47
£0.513
3 years
33.1%
0%
£0.407
22
£0.399
3 years
33.9%
0%
£0.301
February
2011
£nil
3
£0.425
3 years
39.5%
0%
£0.346
The weighted average remaining contractual life of outstanding awards under the PSP at 31 December 2014 was one
year and one month (2013: one year and five months). The weighted average exercise price of awards granted during
the period was £nil (2013: £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 reinvested)
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 notes 6 and 7 for the total expense recognised in the income statement for share options granted and PSP awards
made to Directors and employees respectively.
Sportech PLC Annual Report and Accounts 2014Sportech PLC Annual Report and Accounts 2014Strategic reportCorporate governanceFinancial statements 110
111
Notes to the financial statements continued
for the year ended 31 December 2014
26. Cash generated from operations
Reconciliation of (loss)/profit before taxation to cash generated from operations, before exceptional costs:
Company
Group
(Loss)/profit before taxation
Adjustments for:
Exceptional costs
Share of loss after tax of joint ventures
Depreciation
Amortisation of acquired intangibles and impairment
of goodwill
Amortisation of other intangibles
Net finance costs
Other finance income
Share option expense
Movement in retirement benefit liability
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 in trade and other receivables
Decrease in inventories
(Decrease)/increase in trade and other payables
Cash flows from operating activities, before
exceptional costs
Note
2
16
13
11, 12
12
4
4
6
31
22
13
12
2014
£m
(20.0)
2.3
0.2
3.0
32.2
3.2
2.8
(0.3)
0.6
(0.2)
—
—
—
—
(2.1)
—
(1.3)
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)
2014
£m
(7.5)
0.8
—
—
—
1.4
3.9
(0.3)
0.6
—
—
—
—
0.2
(5.3)
—
7.3
2013*
£m
(11.9)
1.4
—
—
—
1.0
4.9
(0.8)
1.5
—
—
—
—
3.0
(5.7)
—
21.1
20.4
24.4
1.1
14.5
* 2013 balances include cash flows attributable to discontinued operations.
Non-cash transactions
There were no significant non-cash transactions during the year (2013: £nil).
27. 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 £96.0m. Following a successful outcome at the First-tier Tax Tribunal an appeal by HMRC was heard
at the Upper Tribunal in April 2014 and the Group was informed in September 2014 that HMRC’s appeal had been
successful. The Group has appealed this verdict and the appeal will be heard at the Court of Appeal in the week
commencing 2 November 2015. 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 acquisitions of eBet Online Inc. on 19 December 2012, Datatote (England) Limited on 27 September
2013, and Bump Worldwide Inc. on 12 June 2014, additional consideration is payable under certain circumstances as
outlined in note 15.
28. Commitments
Capital commitments
The Group had no contracts placed for capital expenditure that were not provided for in the financial statements
at the current or prior year end dates.
Operating lease commitments
The Group leases various off-track betting 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 (2013: £2.0m).
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
2014
£m
2.0
4.6
6.5
13.1
2013
£m
1.9
4.1
0.2
6.2
2014
£m
0.1
0.7
—
0.8
2013
£m
0.1
0.7
0.1
0.9
29. 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 £0.2m (2013: £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 $180,000 at 31 December 2014, in relation to a contract to provide and maintain
pari-mutuel betting terminals to a customer in Turkey.
Sportech PLC Annual Report and Accounts 2014Sportech PLC Annual Report and Accounts 2014Strategic reportCorporate governanceFinancial statements 112
113
Notes to the financial statements continued
for the year ended 31 December 2014
30. 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
2014
£m
1.4
1.5
0.1
0.4
1.6
2013
£m
1.3
1.6
0.1
0.2
1.0
The amount outstanding in relation to management charges at the balance sheet date was £0.1m (2013: £0.1m) and
the net amount outstanding for interest receivable on inter-company loan balances was £0.7m (2013: £0.2m). All inter-
company transactions are on an arm’s-length basis.
c.
The Company had no transactions during the year and therefore no amounts outstanding at year end with any of
its joint ventures (2013: £nil and £nil respectively). The Group invested the following amounts into each of its joint
ventures during the year:
Sports Hub Private Limited
Sportech – NYX Gaming LLC
S&S Venues California LLC
Picklive USA LLC
Total invested in joint ventures (note 16)
2014
£m
0.2
0.9
0.6
0.2
1.9
2013
£m
0.2
–
–
–
0.2
d.
Scientific Games Corporation (“SGC”) was a 19.99% shareholder in Sportech PLC until the disposal of 100% of
its holding on 9 January 2014. SGC is therefore considered to be a related party until this date. There were no
transactions with SGC from the previous year end date to the date of disposal.
31. Pension schemes
The Group operates four pension schemes in the UK: for employees other than those employed by Data Tote, a defined
contribution scheme, a funded defined benefit scheme and, from April 2014, an auto-enrolment scheme for qualifying
employees who are not members of the first two schemes. Data Tote operates a defined contribution 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
2014
£m
0.7
0.3
1.0
2013
£m
0.7
0.2
0.9
Defined contribution schemes
In the UK, 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 PLC
(apart from Data Tote – see below) can join either a stakeholder pension scheme established on 6 April 2001 or alternate
defined contribution arrangements, or the auto-enrolment scheme. Group contributions are made at a maximum rate of
8% of pensionable salaries. Data Tote contributions are made at a maximum rate of 6% of pensionable salaries.
A defined contribution scheme for non-unionised employees, including eBet, 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.
A Registered Retirement Savings Plan (“RRSP”) exists for employees in Canada. The Group matches to a limit of 50%
of the first 6% of participant contributions.
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 per annum, into a defined
contribution scheme for employees in Ireland.
In Germany, the approach adopted resembles life insurance cover rather than pension provision. Gross salary is reduced
by a specified amount which is transferred to the insurance provider. This is tax-efficient for the employee.
For employees in France and Turkey, all pensions cover is provided through employer and employee social security
contributions.
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:
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
2014
£m
2.0
2.8
4.8
(6.4)
(1.6)
2013
£m
1.8
2.5
4.3
(5.6)
(1.3)
(1.6)
(1.3)
Sportech PLC Annual Report and Accounts 2014Sportech PLC Annual Report and Accounts 2014Strategic reportCorporate governanceFinancial statements 114
Notes to the financial statements continued
for the year ended 31 December 2014
31. Pension 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
2014
3.75%
N/A
N/A
N/A
2014 IRS
Static
Mortality
Table
UK
2014
3.4%
0%
3.15%
3.15%
S1NxA
CMI 2012
projections
1.5% per
annum
long-term
rate of
improvement
USA
2013
4.5%
N/A
N/A
N/A
2013 IRS
Static
Mortality
Table
UK
2013
4.4%
5.0%
3.5%
3.5%
S1NxA
CMI 2012
projections
1.5% per
annum
long-term
rate of
improvement
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 £15,000.
For the UK, under the adopted mortality tables, if the long-term rate of mortality improvement were to be 1.25%, the
liabilities would decrease by £30,000.
The movement in the defined benefit obligation over the year is as follows:
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:
– Employer’s
Payments from plans:
– Benefit payments
At 31 December 2013
Present value
of obligation
£m
5.9
Fair value of
plan asset
£m
(4.3)
0.2
0.2
0.4
(0.1)
(0.3)
(0.4)
—
(0.2)
(0.2)
—
—
—
Total
£m
1.6
0.2
—
0.2
(0.1)
(0.3)
(0.4)
—
(0.1)
(0.1)
Present value
of obligation
£m
5.6
Fair value of
plan asset
£m
(4.3)
—
(0.2)
(0.2)
(0.2)
—
(0.2)
0.2
0.2
0.4
0.2
0.4
0.6
—
(0.3)
(0.3)
(0.2)
6.4
0.2
(4.8)
—
1.6
2014
Increases
liability by
£m
0.1
2013
Increases
liability by
£m
0.1
115
Total
£m
1.3
0.2
—
0.2
—
0.4
0.4
Total
£m
5.9
Total
£m
0.4
At 1 January 2014
Current service cost
Interest expense/(income)
Income statement expense/(income)
Remeasurements:
– Currency exchange movements
– Loss from change in actuarial assumptions
Contributions:
– Employer’s
Payments from plans:
– Benefit payments
At 31 December 2014
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:
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 2015 amount to
£0.2m (year ended 31 December 2014: £0.4m).
Estimated future benefit payments for the next ten fiscal years for the US Scheme are:
At 31 December 2014
Pension benefits
Less than
a year
£m
0.1
Between
1 and 2 years
£m
0.3
Between
2 and 5 years
£m
0.7
Over 5 years
£m
4.8
The weighted average duration of the US scheme obligation is approximately twelve years.
Estimated future benefit payments for the next ten fiscal years for the UK Scheme are:
(0.3)
5.6
0.3
(4.3)
—
1.3
At 31 December 2014
Pension benefits
Less than
a year
£m
0.1
Between
1 and 2 years
£m
0.1
Between
2 and 5 years
£m
0.2
Over 5 years
£m
—
The weighted average duration of the UK Scheme obligation is approximately twelve years.
For the UK, if the discount rate were to be increased to 3.65% the liabilities would decrease by £70,000. For the US, if
the discount rate were to be increased to 4.25% the liabilities would decrease by £191,000.
Change
Increase inflation by 0.25% (2013: 0.25%)
Sportech PLC Annual Report and Accounts 2014Sportech PLC Annual Report and Accounts 2014Strategic reportCorporate governanceFinancial statements 116
Shareholder and
corporate information
Head Office
Sportech PLC
101 Wigmore Street
London W1U 1QU
Company registration number
SC069140
Company Secretaries
Luisa Wright
Cliff Baty
UK Operational Centre
The Football Pools
Walton House
Charnock Road
Liverpool L67 1AA
USA Operational Centres
Sportech Inc.
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 EH1 2AA
Financial advisers and joint stockbroker
Investec Bank (UK) Ltd
2 Gresham Street
London EC2V 7QP
Joint stockbroker
Peel Hunt LLP
Moor House
120 London Wall
London EC2Y 5ET
Principal bankers
Bank of Scotland plc
10 Gresham Street
London EC2V 7AE
Barclays Bank PLC
1 Churchill Place
London E14 5HP
Royal Bank of Scotland plc
280 Bishopsgate
London EC2M 4RB
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
1 Embankment Place
London WC2N 6RH
Registrars
Capita Registrars Ltd
The Registry
34 Beckenham Road
Beckenham
Kent BR3 4TU
Internet
The Group operates a website which can be found at
www.sportechplc.com. This site is regularly updated to
provide information about the Group. In particular all of
the Group’s press releases and announcements can be
found on the site.
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
Investor relations
Requests for further copies of the Annual Report and
Accounts, or other investor relations enquiries, should
be addressed to the UK Head Office.
Tel: 020 7268 2400
E-mail: ir@sportechplc.com
Designed and produced
by MerchantCantos
www.merchantcantos.com
Sportech PLC Annual Report and Accounts 2014 Sportech PLC
101 Wigmore Street
London W1U 1QU
www.sportechplc.com
Our Iconic Brands
Sportech Racing and Digital • Sportech Venues
The Football Pools • Winners • Runnerz
Our Offices and Operational Centres
London • Liverpool • Connecticut • Atlanta • Toronto
New Jersey • Bristol • Dublin • The Hague • Essen
S
p
o
r
t
e
c
h
P
L
C
A
n
n
u
a
l
R
e
p
o
r
t
a
n
d
A
c
c
o
u
n
t
s
2
0
1
4