Sportech PLC
Annual Report and
Accounts 2015
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A WORLD LEADER
IN POOL BETTING
Welcome to our
Annual Report 2015
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.
What’s inside this report
Strategic report
01 Highlights of the year
02 Overview
04 Chief Executive’s review
08 KPIs
09 Financial review
14 Principal risks
18 Corporate social
responsibility report
Corporate governance
20 Chairman’s statement
22 Board of Directors
23 Senior management
24 Corporate governance report
32 Report of the Remuneration
Committee
33 Remuneration report
52 Directors’ report
55 Independent Auditors’ report
Financial statements
64 Consolidated income statement
65 Consolidated statement
of comprehensive income/
(expense)
66 Statements of changes in equity
67 Balance sheets
68 Statements of cash flows
69 Accounting policies
78 Notes to the financial statements
114 Shareholder and
corporate information
01
Highlights of the year
Investment in technology drives progress
Group highlights
– Results in line with expectations with EBITDA of £23.1m
(2014: £24.0m)
– Balance sheet strengthened with net debt down by 10%
– Investment in technology delivering new international customers
– Expansion into providing lottery products for professional
sports teams
– Football Pools division nearing completion of modernisation
programme
– Expansion of venues strategy into California
– Disposal of online interests in New Jersey for a pre-tax gain
of £8.1m
– £97m VAT refund appeal to be held in Court of Appeal
on 7/8 April 2016
Divisional highlights
Sportech
Racing and
Digital
– EBITDA growth of £0.5m to £8.6m (2014: £8.1m)
– Continued investment in technology attracting new international
customers and successful installation of new hardware and
software for Betfred (Totepool)
– Opening of office in Asia delivering benefits with new contracts
Sportech
Venues
– EBITDA of £2.8m (2014: £3.2m), affected by the previously
highlighted severe winter weather in Connecticut and year-long
closure for refurbishment of a key Jai Alai venue
– Officially opened on 28 January 2016 the only sports bar,
restaurant and betting venue in San Diego
– Discussions continue regarding expanded gaming (slots)
in Connecticut
Football
Pools
– EBITDA of £15.2m (2014: £16.6m) in line with expectations
– Ongoing improvements in technology platforms
and processes
– The division is now set for stability and growth
Sportech PLC Annual Report and Accounts 2015Strategic reportCorporate governanceFinancial statements 02
Overview
Sportech at a glance
We are starting to see the results of
our technological investments across
the Group, with the modernisation
of the Football Pools division, new
contracts in the US and Asia and the
expansion of customers for Bump
50:50. We look forward to a year
of growth in 2016.
Roger Withers
Chairman
Sportech Racing and Digital
Sportech Venues
Football Pools
Supplier of tote equipment, services
and software both on and off-track
(online and mobile). The division also
includes Bump 50:50, our professional
sports charitable lotteries business.
Operator of betting on racing in venues
and online across Connecticut and the
Netherlands. New venue opened in
California in 2015.
Operator of pools betting predominantly
through subscription and online channels.
Division information The division is the largest supplier of tote
based technology and services to the global
racing industry and has expanded into
sports charitable lotteries
Location
US, Canada, UK and Ireland
The division operates brands Winners
(Connecticut), Striders (California) and
Runnerz (the Netherlands)
300,000 customers playing a range of pools
and instant win games every week
US (Connecticut and California)
and the Netherlands
UK
Customers
Worldwide
Connecticut, California and the Netherlands
Predominantly UK
Divisional
performance
Contribution to
Group revenue
Revenue
£34.6m
EBITDA
£8.6m
Revenue
£32.7m
EBITDA
£2.8m
Revenue
£33.8m
EBITDA
£15.2m
34%
33%
33%
Sportech PLC Annual Report and Accounts 2015 03
Sportech Racing and Digital
Sportech Venues
Football Pools
We are starting to see the results of
our technological investments across
the Group, with the modernisation
of the Football Pools division, new
contracts in the US and Asia and the
expansion of customers for Bump
50:50. We look forward to a year
of growth in 2016.
Roger Withers
Chairman
Supplier of tote equipment, services
and software both on and off-track
(online and mobile). The division also
includes Bump 50:50, our professional
sports charitable lotteries business.
Operator of betting on racing in venues
and online across Connecticut and the
Netherlands. New venue opened in
California in 2015.
Operator of pools betting predominantly
through subscription and online channels.
Division information The division is the largest supplier of tote
based technology and services to the global
racing industry and has expanded into
sports charitable lotteries
Location
US, Canada, UK and Ireland
The division operates brands Winners
(Connecticut), Striders (California) and
Runnerz (the Netherlands)
300,000 customers playing a range of pools
and instant win games every week
US (Connecticut and California)
and the Netherlands
UK
Customers
Worldwide
Connecticut, California and the Netherlands
Predominantly UK
Revenue
£34.6m
EBITDA
£8.6m
Revenue
£32.7m
EBITDA
£2.8m
Revenue
£33.8m
EBITDA
£15.2m
33%
33%
Divisional
performance
Contribution to
Group revenue
34%
Sportech PLC Annual Report and Accounts 2015Strategic reportCorporate governanceFinancial statements 04
Chief Executive’s review
Positioning Sportech as one of the
leaders in the global betting market
Overview
Sportech is one of the world’s leading pool
betting operators and technology suppliers,
focused on highly regulated markets worldwide.
The Group comprises three divisions: Racing
and Digital, Venues and The Football Pools.
Both the Racing and Digital division (which
processes $13bn bets annually) and the
Venues division (which operates legal betting
exclusively and in perpetuity in Connecticut in
venues, online and mobile on horseracing and
greyhounds) are based in the US and Canada
where we employ 630 people across field
operations and four corporate offices. We are
licensed by gaming regulators in 28 US States.
The Football Pools is based in the UK,
and is the oldest football gaming business
in the world.
Group highlights
– Results in line with expectations with EBITDA
of £23.1m (2014: £24.0m)
– Balance sheet strengthened with
net debt down by 10%
– Investment in technology delivering new
international customers
– Expansion into providing lottery products
for professional sports teams
– Football Pools division nearing completion
of modernisation programme
– Expansion of venues strategy into California
– Disposal of online interests in New Jersey
for a pre-tax gain of £8.1m
– £97m VAT refund appeal to be held in
Court of Appeal on 7/8 April 2016
We have invested substantial time into
developing our activities and licensing
position in the US. During the year, we sold
our iGaming interest in New Jersey, realising
a threefold return on our investment after
only three months of operation.
We continue to evaluate opportunities
to deliver the full potential of our divisions
whilst ensuring we maintain prudent financial
ratios. In this regard, over the past twelve
months we have considered approaches for
the Group as well as for The Football Pools.
The Group has reached an important stage
in its development, as our US businesses
make continued progress on many fronts,
and our UK Football Pools business arrives
at the inflection point of expected stability
after years of modernisation.
Business model
Technology
Implement technology
to drive operational
performance
Stabilise
Stabilise and
grow EBITDA
More
contracts
More
contracts
with greater
margins
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Opportunities
iGaming and sports
betting as regulation
permits
Sportech
Racing
and
Digital
es p o nsibilit
y
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The
Football
Pools
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ise T
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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
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o t print drive future o
Opportunities
Grow a trusted brand
Sportech PLC Annual Report and Accounts 2015
05
Despite this, we have remained focused
on our operations and we will continue to
investigate any proposals that recognise
the value of the inherent potential of these
businesses. We look forward to moving into
a year of growth in 2016.
Sportech Racing and Digital
Sportech entered the market in the US five
years ago, and has substantially developed
its technology, gaming products and licensing
position over that time.
In 2015, we have seen the benefits of our
significant investment in improving our
systems with the deployment of new
hardware and software to Betfred’s Totepool
business in the UK (our largest single
customer contract to date). Furthermore,
we have secured several other new customer
contracts in the US, and two new contracts
in Asia (Malaysia and Vietnam), following the
opening of our office in Singapore. However,
we lost our contract with racing in California
to an industry competitor with extensive
interests in racehorse, racetrack, media
and online betting in the State.
Bump 50:50 provides in-stadia electronic
lotteries to professional sports teams.
Since acquiring the business in late 2014,
we have grown the seven contracts the
business had at that time to 21, with new
customers including teams from the NHL,
NBA, NFL, Nascar, MLS and the Canadian
F1 Grand Prix. 2016 has already seen the
launch of the first 50/50 lottery in the State
of Texas and the launch of the first-ever
online raffles, providing fans of the Colorado
Avalanche, Denver Nuggets, Colorado
Mammoth and Colorado Rapids, the chance
to play on PC, tablet and mobile, as well as
in-stadia. Under Sportech’s ownership, Bump
50:50 is forecast to make profits for the first
time in 2016. The acquisition ensures the
name and responsible betting reputation
of Sportech is known in the North American
professional sports market ahead of any
regulation to enable sports betting.
Strategic
priorities
Leadership in core markets
through ongoing investment
Using cash from stable core
business for investment
Capitalising on opportunities
as markets regulate
– Stabilise Football Pools
revenues and earnings
– Drive value from exclusive
licences and US position
– Capitalise on
regulatory change
– Increase the Group’s
earning capabilities
– Invest in innovation and
– Continuing leadership in
new technologies to open
new markets and
opportunities
technology
Progress in 2015
– Football Pools modernisation
– Expansion of Venues into CA
and rationalisation
– New Racing and Digital
contracts including PNG and
new contracts in Asia
– Investment driving new
contracts in US, Europe
and Asia
– Launch of iGaming in
New Jersey
– Continually monitoring
opportunities for sports
betting, slots and iGaming
– Strong growth in sports
lottery business
Priorities for the future – Complete modernisation of
– Finalise plans for Stamford
– Delivery of strategic value
Football Pools
and Norco
for our shareholders
– Stabilise Football Pools
revenues and earnings
– Focus on improved margins
via technology enhancement
– Drive value from regulatory
position in the US and
internationally
Sportech PLC Annual Report and Accounts 2015Strategic reportCorporate governanceFinancial statements 06
Chief Executive’s review continued
We were pleased to demonstrate the value
of our licensed position when we sold our
iGaming interests in New Jersey only three
months into its operation. The sale generated
a net profit on disposal before tax of £8.1m
and consideration of £10.9m, including 2.2m
shares in the Canadian-listed NYX Gaming
Group (“NYX”) and £1.1m in contingent
consideration (which, due to the expected
introduction of iGaming in North America
later this decade, we expect to receive).
The Group continues to hold a 4% stake in
NYX (whose shares traded at CAD $2.72 each
at 31 December) as a result of this transaction.
The Group’s existing Indian joint venture with
Playwin, India’s largest lottery provider, has
agreed to supply technology and services to
an Indian company which has been engaged
by a Sikkim licence holder to support the
operation of pool games. These operations
commenced in February 2016.
To further develop our US positioning,
in September we entered the daily fantasy
sports market through the acquisition (for
zero cash consideration and for effecting a
number of customer introductions) of a 39.2%
stake in DraftDay Gaming Group, whose
largest shareholder is the NASDAQ listed
DraftDay Fantasy Sports, Inc.
Sportech Venues
In the State of Connecticut, Sportech
Venues operates all betting on horseracing,
greyhound racing and Jai Alai under an
exclusive and in perpetuity licence for retail,
telephone, internet and mobile. The business,
which is operated with close consultation and
oversight from the State, is the only legally
permitted betting operator in Connecticut.
In time, we would hope to be in a position
to offer betting on sports and slots.
Further to this, we remain involved in
the ongoing debate and discussions
concerning the expansion of machine slots.
Our involvement is based on the potential
opportunity for the business, but also acts
as a defensive move to counter the expected
loss of taxation revenues for, and employment
in, the State through the expected opening
of new casinos in neighbouring states.
We continue to develop our retail estate
under our exclusive licence, and have full
approvals for the development of a $7m
flagship sports bar, restaurant and betting
venue in downtown Stamford. As with our
sports bar and betting facility in Bradley,
this will be done in partnership with Bobby
Valentine, who will relocate his existing
renowned sports bar and restaurant into
the new facility. An additional venue is
progressing through the planning stage.
We have appointed the land and property
consultant, CBRE, to market and sell surplus
property and land assets we own in New
Haven, Connecticut. This is expected to realise
capital capable of funding the majority of
our venues build out strategy up to 2018.
We previously announced that our
Connecticut venues business was impacted
by the severe winter weather at the beginning
of 2015 which caused significant race
cancellations, together with the absence
of popular betting content due to the
temporary closure of a Jai Alai venue
throughout the year. Despite this and
competition faced from unlicensed illegal
internet operators who continue to take bets
(together with tax and jobs) from Connecticut
residents, despite the issue of cease and desist
letters, a 50% growth in internet betting was
achieved. We anticipate support from the
State to protect the terms of our licence,
and to grow jobs and State tax revenues.
We have extended our business strategy
from Connecticut into California, where 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”. The first of these had
its launch on 28 January 2016, having had
its soft launch in late 2015. This venue has
been developed as a joint venture with local
operator, Silky Sullivan Group. The Group
also has approval to construct a second site
in the town of Norco.
Sportech PLC Annual Report and Accounts 2015 07
Corporate activity
During the year the Group received an
indicative proposal from Contagious Gaming,
Inc. but this did not result in a formal offer
being made. In December, following receipt
of a number of indicative proposals in respect
of the Football Pools division, the Board
invited interested parties to submit their best
offers in early 2016, and the Board continues
with this process.
Outlook
We have started the year well and, for the
first two months of the year, are trading in
line with expectations.
Sportech has established a unique position
in the regulated gaming market worldwide,
most notably with our licensed gaming
businesses in the US. Following a number
of years of significant investment in our
technology and licensing, we are now in
the position to grow our business, dispose
of surplus property assets, benefit from
regulatory change and deliver earnings
stability and then growth within the
Football Pools division.
We will take the actions that are required
to deliver value to our shareholders.
Ian Penrose
Chief Executive
3 March 2016
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 is in place until December
2016 and we continue to work closely with
the Government, the regulator and the
horseracing industry regarding the future
regulatory plans.
Football Pools
Several years ago, we set out a clear strategy
for the Football Pools division, forecasting
EBITDA of £15.0m in 2015, followed by
earnings stability and growth thereafter.
To achieve that position, the business needed
to improve customer retention, increase spend
per head from core customers, recruit new
players and convert existing paper players into
direct debit and online channels. To support
delivery of this strategy, the business needed
to modernise its operations and consolidate
its customers into a single database, enabling
greater cross-sell opportunities with a lower,
more agile operating cost base.
We are pleased, therefore, that the 2015
Football Pools EBITDA was £15.2m. Ongoing
improvements in technology platforms will
provide a basis for stability and subsequently
growth in future years.
VAT claim
Following the Upper Tribunal’s decision
in September 2014 to uphold the appeal
from HMRC in relation to the £97m VAT
repayment claim regarding Spot the Ball,
the Group was granted permission to appeal
to the Court of Appeal and were advised that
the hearing would take place in November
2015. Due to a lack of judicial availability, this
hearing did not take place. We have now
been advised that the hearing will take
place on 7/8 April 2016.
Sportech PLC Annual Report and Accounts 2015Strategic reportCorporate governanceFinancial statements 08
KPIs
Measuring our performance
Financial KPIs
Revenue
£m
EBITDA
£m
Profit
before tax
£m
2013
2014
2015
2013
2014
2015
(20.0)
2014
2013
5.2
2015
9.7
Adjusted profit
before tax
£m
Net debt
£m
Capital
expenditure
£m
2013
2014
2015
2013
2014
2015
2013
2014
2015
Non-financial KPI
Employees
Number of full-
time equivalents
2013
2014
2015
110.3
26.0
104.1
100.2
24.0
23.1
11.8
57.7
14.5
14.4
63.4
63.8
12.6
10.0
8.4
795
796
749
Sportech PLC Annual Report and Accounts 2015 Financial review
How we have performed
Summary
– EBITDA at £23.1m (2014: £24.0m) in line with expectations
– The Group’s balance sheet strengthened with net debt reducing
by 10% (£6.1m) to £57.7m
– Statutory profit before tax increased to £9.7m (2014: loss of £20.0m,
primarily due to non-cash impairment of the Football Pools goodwill)
– On a constant currency basis, revenue declined by 6% and EBITDA
declined by 5%. 2014 revenue and EBITDA were £106.4m and
£24.3m respectively at constant currency
Net debt bridge
.
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2014*
£m
35.2
34.2
38.0
(2.3)
105.1
(1.0)
104.1
2014*
£m
8.2
3.4
16.6
(0.3)
27.9
Group financial overview
Revenue
2015
£m
34.6
32.7
33.8
—
101.1
(0.9)
100.2
2015
£m
8.6
2.8
15.2
—
26.6
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
(3.5)
23.1
(3.9)
24.0
* 2014 numbers are at “constant currency”, translated
using 2015 exchange rates
Group revenue was £100.2m (2014: £104.1m
and £106.4m at constant currency) with
the £3.9m reduction due primarily to the
expected fall in revenues from the Football
Pools collector channel. EBITDA reduced
by 4% to £23.1m (2014: £24.0m and £24.3m
at constant currency). Adjusted profit
before tax was £11.8m (2014: £14.4m), the
EBITDA shortfall and increased depreciation
and interest costs being offset by a lower
share-based payment charge. Profit before
tax was £9.7m (2014: loss £20.0m) with basic
earnings per share of 3.3p (2014: loss of 10.4p)
and adjusted earnings per share of 4.4p
(2014: 5.5p). The Group’s balance sheet has
been strengthened, with net debt reducing
by 10% (£6.1m) to £57.7m.
Sportech PLC Annual Report and Accounts 2015Strategic reportCorporate governanceFinancial statements
10
Financial review continued
December of our two new customers in Asia,
Royal Sabah Turf Club of Malaysia and Sports
Network Limited, a reseller to Vietnamese
tracks, mark our first steps into Asia, further
expanding our global presence.
We lost two significant Digital customers earlier
in the year, one of whom ceased all racing
operations in April 2015. Cost actions, including
a management restructure, have helped
mitigate the EBITDA impact, although EBITDA
has fallen to £0.6m (2014: £1.2m, constant
currency basis). However, since then we have
secured new customers, including Hawthorne
racecourse in Chicago and a contract with
Penn National Gaming Inc. to deliver new
internet and mobile solutions, providing the
G4 internet betting platform and Digital Link
mobile betting app, together with associated
services, including telephone betting, customer
services and technical support.
The exit from our contract to operate betting
for the California racing industry in October
incurred exceptional costs of £0.6m relating
to staff restructuring and terminal transport.
We have reallocated a number of betting
terminals from the California business to new
and existing contracts, with the remaining
book value of those terminals and associated
software of £2.4m being written off. To drive
further efficiencies, we also decided to exit
our loss-making contract with German racing
at the end of the year. As a result, we have
consolidated our data and operations centre
activities into New Jersey, and therefore
closed the German-based operations centre.
Restructuring costs of £0.8m were incurred
as part of these actions.
Sportech Racing and Digital
Key financials
An analysis of revenue and EBITDA from our Sportech
Racing and Digital division is set out as follows:
Tote services
Equipment sales
Digital
FX impact
Total revenue
Payroll
Other costs
FX impact
EBITDA
2015
£m
27.3
4.8
2.5
—
34.6
(12.7)
(13.3)
—
8.6
2014*
£m
27.8
3.4
4.0
(0.7)
34.5
(13.1)
(13.9)
0.6
8.1
* 2014 numbers are at “constant currency”, translated
using 2015 exchange rates
For the Racing and Digital division, overall
revenues have increased to £34.6m (2014:
£34.5m) with a foreign exchange benefit
of £0.7m, and EBITDA for the division has
increased by £0.5m to £8.6m (2014: £8.1m)
with a foreign exchange benefit of £0.1m.
Within tote services and equipment sales,
on a constant currency basis, revenues are
£0.9m ahead of prior year. Overall revenues
from the US and Dominican Republic were
in line with prior year with growth from Bump
50:50. Total equipment sales revenues in the
period were £4.8m (2014: £3.4m, constant
currency basis).
Strong EBITDA performance in tote services
was driven by the new contract with Betfred
(Totepool), increased maintenance revenues
from new customers and cost efficiencies.
In addition to the successful implementation
of our Quantum Tote system, together with
supporting software and hardware to Betfred,
Sportech Racing has signed new long-term
contracts in the US with Remington Park and
Lonestar Park to supply on-track technology,
including the recently launched Digital Link
mobile betting app. The announcement in
Sportech PLC Annual Report and Accounts 2015 11
Sportech Venues
Key financials
A detailed analysis of our Sportech Venues division
is set out as follows:
Connecticut Venues
Revenue
Tax
Track/tote/
interface fees
Margin
Payroll
Facility costs
Other costs
Connecticut EBITDA
Other EBITDA
FX impact
Total Venues EBITDA
2015
£m
27.6
(3.8)
(8.0)
15.8
(4.9)
(3.7)
(4.6)
2.6
0.2
—
2.8
2014*
£m
29.2
(4.1)
(8.3)
16.8
(5.3)
(3.7)
(4.5)
3.3
0.1
(0.2)
3.2
* 2014 numbers are at “constant currency”, translated
using 2015 exchange rates
Overall revenues have increased to £32.7m
(2014: £32.6m), which includes a £1.6m benefit
from foreign exchange, whilst EBITDA has
fallen to £2.8m (2014: £3.2m), again with
a £0.2m benefit from foreign exchange.
The impact of the previously mentioned
extreme weather in Connecticut and the
temporary Jai Alai venue closure for
refurbishment accounted for 6% reduction
in betting volumes in the year and we
anticipate a recovery in betting volumes
in 2016, and indeed the Jai Alai venue has
now reopened. The reduction in betting
revenues has contributed to revenues and
EBITDA in Connecticut declining by £1.6m
and £0.7m respectively, compared to prior
year at constant currency.
In the Netherlands our business performed
in line with last year, with revenues stable at
£4.6m (2014: £4.6m) and EBITDA marginally
up to £0.2m (2014: £0.1m), comparatives at
constant currency.
In addition to our recently opened Striders
venue, in California, we also supply technology
services to eight independently-owned sports
bar locations in the south of the State.
Amounts wagered at these locations
generated revenues of £0.5m (2014: £0.4m).
Football Pools
Key financials
The key performance indicators of our Football Pools
division are set out as follows:
Revenue (£m)
EBITDA (£m)
Weekly revenue
per subscription
customer (£)
2015
33.8
15.2
2014
38.0
16.6
2.95
2.88
The financial results for the Football Pools
division were as expected and in line with
the strategic plan. Revenues for the period
were £33.8m (2014: £38.0m), with 70%
of the reduction due to the decrease in
the number of customers who play by the
collector channel. As mentioned, EBITDA
was £15.2m (2014: £16.6m).
The continued focus on the subscription
channel revenues saw weekly spend per
customer increasing 2.4% to £2.95
(2014: £2.88), offsetting some of the
reduction in customer numbers. Subscription
revenues showed increasing signs of a move
towards stability at £27.3m (2014: £28.1m).
Our venue at Bradley made a contribution
of $1.0m, before central costs, and it was
pleasing that the food and beverage at this
venue (Bobby V’s sports bar and restaurant)
moved to break-even in 2015 and in 2016 is
currently more than 30% up compared to the
same period last year.
In December 2015, our main Classic Pools
game had 221,000 subscription customers
(2014: 240,000). Encouragingly, over 60%
of our customers are now playing by direct
debit. 18,000 new subscription customers
were recruited (2014: 23,000), with 9,300
from digital channels (2014: 8,900).
Sportech PLC Annual Report and Accounts 2015Strategic reportCorporate governanceFinancial statements 12
Financial review continued
Exceptional income
During the period, the Group completed
the sale of its iGaming interest in New Jersey,
generating a profit of £8.1m on disposal.
We sold our 50% stake in Sportech-NYX
Gaming, LLC (“SNG”) to our joint venture
partner, NYX Gaming Group Limited (“NYX”),
for a total consideration of up to CAD $22.1m
(£11.3m), comprising £5.1m cash, 2.2 million
NYX ordinary shares equating to an aggregate
value of CAD $9.1m (£4.7m) at a price of CAD
$4.15 per share and up to a maximum of CAD
$3.0m (£1.5m) in contingent consideration.
This contingent consideration is discounted
at disposal date to £1.1m to give a fair value
of total consideration recognised of £10.9m.
Exceptional costs
The Group has incurred exceptional
administration costs of £2.6m (2014: £2.3m)
in the twelve-month period. These costs
include restructuring and other costs of £1.0m
(2014: £1.4m) of which £0.8m relate to the
closure of our loss-making German
operations. Costs of £0.6m (2014: £nil)
comprising restructuring, terminal transport
and storage were incurred following the loss
of the Californian contract in the Racing and
Digital division. We incurred costs of £0.2m
(2014: £nil) in relation to potential corporate
activity; costs in relation to the set-up of
our joint venture companies of £0.2m
(2014: £0.6m); costs in relation to the
granting of our New Jersey licence of £0.3m
(2014: £0.1m) and transaction costs in relation
to acquisitions of £0.1m (2014: £0.1m). Realised
fair value losses on the NYX ordinary shares
held by the Group of £0.2m have also been
incurred in the year (2014: £nil), representing
movement in the NYX share price from the
disposal date to the date the shares were
received. The costs disclosed as exceptional
are consistent with the type of cost disclosed
as exceptional in prior periods.
In the second half of 2015, footballpools.com
released a newly configured version of the
website. The latest code offers flexibility to
create new game formats and features, such
as new payment types, and also gives the
opportunity for improved analysis of players’
online behaviour. These developments also
provided the launch pad for the development
of an iOS App, giving the Football Pools the
opportunity to reach more mobile users
and raise engagement levels.
These developments have put us in the
position to drive online revenue growth,
and our average weekly gross win in the
first six weeks of 2016 is 59% higher than
the same period in 2015.
We anticipate exceptional costs for
modernisation of up to £3.0m this year.
Corporate costs
Corporate costs of £3.5m (2014: £3.9m)
have been reduced by 10% and remain
tightly controlled. In addition, we also have
a non-cash share option expense under
IFRS 2 of £0.5m (2014: £0.6m).
Depreciation, amortisation
and impairment of assets
The Group’s normal depreciation and
amortisation charge increased in the period
to £7.6m (2014: £6.2m), principally due to the
ongoing capital expenditure in our businesses
in North America.
The Group incurred a non-cash amortisation
charge of £1.2m (2014: £1.4m) on the
intangible assets acquired with eBet in 2012,
Datatote in 2013 and Bump in 2014. The prior
year also included amortisation of intangibles
acquired with Vernons in 2007 of £2.7m,
which became fully amortised in June 2014.
A non-cash impairment charge of £3.7m has
been charged against the goodwill recognised
on the original acquisition of eBet in 2012.
Impairment charges against fixed assets
previously deployed in California (£2.4m)
have also been recognised in the year. In 2014,
an impairment of £28.1m was recorded to
reduce the carrying value of the Football
Pools goodwill to £119.5m.
Sportech PLC Annual Report and Accounts 2015 13
Net finance costs
The Group has incurred net interest costs
in the period of £3.2m (2014: £2.8m), with
the increase over prior year due to the savings
made in 2014 from holding £93m in cash in
relation to the VAT repayment claim from the
end of June to November 2014, when it was
repaid. In addition, other finance income
amounted to £0.6m (2014: £0.3m), reflecting
the credit of fair value movement on interest
rate swaps of £0.5m and foreign exchange
gains on inter-company loans of £0.4m, net
of £0.3m exceptional finance costs (2014: £nil)
in relation to banking facility amendments.
Taxation
A tax charge for the period of £3.0m
(2014: £1.3m) has been provided at the
weighted average applicable tax rate for
the Group of 17.0% (2014: 23.0%) together
with the tax effects of permanent differences
and other adjustments. The Group has a net
deferred tax asset of £0.5m (2014: £0.8m),
representing primarily foreign taxes withheld,
which can be utilised against future profits.
Tax payments of £2.3m were made during the
period (2014: £1.3m), principally representing
final payments for prior-year tax liabilities
and overseas tax deducted at source.
Net bank debt
The Group continues to operate comfortably
within its covenant test ratios. We amended
the terms of our revolving credit facility during
the year, reducing the facility to £75m whilst
obtaining improved covenant terms. The
facility is in place until August 2018 with a
banking syndicate of Royal Bank of Scotland
plc, Barclays Bank PLC and Bank of Scotland
plc. Net bank debt has decreased by £6.1m
(10%) in the year to £57.7m (31 December
2014: £63.8m). The Group’s bank leverage
ratio for covenant testing purposes (adjusted
net bank debt/adjusted EBITDA) has
improved to 2.50x as at 31 December 2015
(31 December 2014: 2.66x), comfortably
satisfying the bank leverage covenant test of
3.00x. Under the revised terms of the facility,
this leverage covenant decreases to 2.75x at
December 2016 and 2.50x at June 2017.
Capital expenditure
Sportech Racing
and Digital
Sportech Venues
Football Pools
Corporate costs
2015
£m
2014
£m
Change
£m
4.5
1.1
2.5
0.3
8.4
5.7
1.3
3.0
—
10.0
(1.2)
(0.2)
(0.5)
0.3
(1.6)
The Group is starting to see the benefit of its
previous heavy technological investment and
is now able to reduce its capital expenditure
levels accordingly. As the Group has continued
to develop its divisional technology offering,
capital expenditure reduced 16% (£1.6m) in the
period to £8.4m (2014: £10.0m).
Investment in joint ventures
and associates
The Group has invested £1.1m into its
Californian joint venture for build-out and
start-up costs in relation to its San Diego
venue. The Group had also invested £2.1m in
our iGaming interests in New Jersey, prior to its
profitable disposal and we continue to support
the running costs of our Indian joint venture at
£0.2m per annum.
During the year the Group acquired a 39.2%
share in DraftDay for nil cash consideration.
The Group has recorded an asset and
corresponding liability in respect of the
management time and customer contacts
that will be provided.
Dividend
No dividend is proposed. The Board will
continue to assess when to commence the
payment of dividends.
Shareholders’ funds
Total equity and the Group’s net assets at
31 December 2015 have increased to £126.2m
(2014: £119.8m).
Cliff Baty
Chief Financial Officer
3 March 2016
Sportech PLC Annual Report and Accounts 2015Strategic reportCorporate governanceFinancial statements 14
Principal risks
Effective risk management
Appropriate risk management aids
effective decision making and helps
to ensure that the risks the business
takes are adequately assessed
and challenged.
Measuring risk
Our risk management strategy is to consider risks
arising from each area of the business through a
top-down and bottom-up approach. This is achieved
by the communication through the Group of a risk
appetite statement and the activities of the Group’s
Risk Committee, as further explained below.
The Board has established and approved a risk appetite
statement, which has been distributed to the Executive
Boards of the three main business units. This statement,
which will be reviewed on at least an annual basis, provides
guidance on the Group’s appetite for risk across business
areas and supports the Executive Boards in determining
the appropriate balance of risk and return within their
businesses. For example, the statement outlines the
Group’s view on regulatory risk as highly cautious.
The Group‘s Risk Committee, which is led by the Chief
Financial Officer, meets quarterly with the Executive Boards
of each of the three main business units to assess risk on an
ongoing basis and formally update their business-specific
risk registers. The Risk Committee reports to the Board
which in turn regularly reviews the overall risks associated
with the Group’s activities and strategy. The Board formally
reviews a Group principal risk register annually. In reviewing
such register, 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 a mitigated basis following
the assessment of the controls and processes put in place
to reduce the impact of the risk.
The table below shows the most significant risks to Sportech
PLC as a Group, the potential impact of such risks and the
mitigating activities that the Group carries out to reduce the
likelihood and impact of such risks. The movement in the
level of the risk in the Board’s opinion is also indicated.
Risk description
Regulatory
The Group operates under numerous
licences worldwide, 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.
Mitigating activities
Change
Level
The Group continues
to operate in the
same jurisdictions
and monitors the
changing gaming
environment.
There have been
no detrimental
changes of note
during the period.
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 associated risks 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;
– the Group monitors 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 who
oversees regulatory and legal compliance worldwide 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 and specialist local advice is
available as may be required;
– 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 are
required to adhere;
– where commercially realistic insurance policies are available,
they are purchased;
– all Directors (including Non-executive Directors) have
clauses in their contracts requiring them to provide whatever
information is required by appropriate regulatory authorities
to ensure Sportech PLC and its subsidiaries remain licensed
in all jurisdictions;
– as regulatory compliance can require disclosure from Sportech
PLC’s shareholders, a resolution was agreed at the 2011 AGM
to ensure that, if required, shareholders provide the necessary
information to ensure Sportech PLC and its subsidiaries remain
fully licensed.
Sportech PLC Annual Report and Accounts 2015 Risk description
Financial
The Group has historically been
relatively highly leveraged and
dependent on the provision of
debt financing.
The Group’s existing financing
facilities expire in August 2018 and
we expect to be able to refinance
this facility prior to maturity.
The Group is therefore exposed to
the risk of changing credit markets
which may reduce the availability
and increase the cost of finance.
The Group is also exposed to foreign
exchange movements which can
impact its reported results.
The Group’s leverage covenant
within its existing banking facility
is based on net debt to EBITDA
ratio. This covenant level is currently
3.0x and reduces to 2.75x at
31 December 2016 and 2.5x at
30 June 2017. As at 31 December
2015 the Group’s leverage was 2.5x
net debt to EBITDA.
Product
A significant proportion of the
Group’s annual income is derived
from the traditional football pools
betting product together with pools
betting on US horseracing in both
Venues and Racing and Digital
divisions. In recent years, both
products have experienced
challenges in the recruitment of
customers, leading to an ageing
player base. Our objective is to
modernise our business to address
these challenges. In the US, certain
horseracing, greyhound and Jai Alai
venues that provide the Group’s
betting content operate under tight
financial conditions.
15
Mitigating activities
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;
– keeps foreign exchange rates under review and if appropriate,
seeks to mitigate their impact through hedging instruments; and
– monitors its performance against covenants on a regular basis.
Change
Level
In the event that
performance
materially worsens
from 2015 levels, the
risk of breaching
existing banking
covenants will increase.
Management has taken, and continues to take, mitigating actions
to protect the Group from the impact of decline in the popularity
of products offered as follows:
– the Football Pools division continues to recruit new players to the
products on offer and retention and marketing resources are
being increased;
– the Football Pools is changing its distribution methods to online
and direct relationships with customers rather than through
commission agents;
– the Group is investing in its venues in Connecticut and California
with a sports bar concept to attract younger, new customers to
bet on horseracing;
– the Group invests significant amounts in developing new and
innovative products;
– 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, including the
diversification into electronic raffle products for professional
sports teams in North America;
– where possible, fixed income or minimum guaranteed income
contracts (in respect of Sportech Racing and Digital) have been
entered into with our customers, limiting downside risk; and
– management reviews of performance against budget take
place on a regular basis and would highlight the need to
implement change.
Level
If the recruitment
and retention of
younger players to
the Group’s products
is not successful there
is an increase in the
risk that the current
products will decline
in popularity. In the
US, there remains the
risk of certain racing
tracks closing.
However, whilst
amounts wagered
on thoroughbred
horses declined
between 2008 and
2011, in 2015 amounts
wagered showed
a 1% increase
over 2014.
Sportech PLC Annual Report and Accounts 2015Strategic reportCorporate governanceFinancial statements 16
Principal risks
Effective risk management continued
Mitigating activities
Change
Management ensures that the risks posed by technology are
mitigated where possible as follows:
– the Group has invested heavily in up-to-date server and storage
infrastructure in its principal data centre and continues to invest
in improving its applications to ensure compliance with best
practice and customer needs;
– the Group employs skilled and experienced system developers
and operators to ensure that its applications run without material
error or interruption;
– the Group invests significant amounts in developing new
and innovative products such as Digital Link;
– the Group is upgrading its finance software in 2016 and
outsourcing the hosting of the software to minimise risk of
failure/downtime;
– Group systems, principally in the US , UK 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
– 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.
Level
The Group
continues to invest
in upgrading and
enhancing its
technology to
keep pace with
technological
change. Following
periods of significant
investment to develop
and improve the
Group’s technology,
this risk is considered
to be stable.
The Group:
– maintains good relationships with all of its current and
Level
potential customers;
– ensures that actual and potential customers are aware of
the premium products and technologies that it can deliver;
– provides a first class service to seek to avoid the desire for
a customer to run a competitive bid process;
– is developing new and innovative products by which to
differentiate the Company from the competition;
– notes that costs of transitioning supplier are significant which
helps to protect the current customer base and provide a
barrier to entry.
The Group’s Racing
and Digital division
has retained most of
its existing customer
contracts that were
up for renewal, won
a number of new
racetracks, secured
new international
system sales, but also
lost an important
contract in California.
Risk description
Technology
A significant proportion of the
Group’s annual income is dependent
on the sale of technology-led
products and the effective delivery
of services through such products.
The Group’s sales are at risk if its
product technology and development
are not competitive.
The Group is also exposed to the risk
of failure in software/hardware used
across the business in both operations
and back office support.
Industry competition
The Group’s pool betting processing
business, Sportech Racing and Digital,
is dependent on key contracts and
established software and systems.
The market for these services in the
US is particularly competitive, with
our business being one of the three
main operators. Contracts have a
typical three to ten year term.
Competitive tenders issued as part
of a renewal process can lead to a
loss of contract or a reduction in
revenues in order to retain the same.
Outside of the US, the business sells
systems in conjunction with
maintenance contracts to pools
operators worldwide. The frequency
of these systems sales can be
irregular due to their dependency
upon a customer’s system and
upgrade strategy.
Sportech PLC Annual Report and Accounts 2015 17
The Group has net debt of £57.7m at year
end and its banking agreement’s main
covenant is based on an EBITDA to net
debt ratio. One of the scenarios modelled
assumed revenue reductions across all three
operating divisions. This would lead to
approximately a 15% decline in the Group’s
EBITDA from the 2015 figure for each year
of the three-year forecast period. This
modelling demonstrated that the Group
would be able to withstand the impact of
such an EBITDA decline through taking
mitigating actions such as a reduction in
capital expenditure and other cash outflows.
Based on the results of this analysis, the
Directors have a reasonable expectation
that the Company will be able to continue
in operation and meet its liabilities, as they
fall due, over the period of their assessment.
On behalf of the Board
Cliff Baty
Director
3 March 2016
Viability statement
The Board has assessed the prospects
of the Group over a longer period than the
12 months required by the going concern
requirements of the UK Corporate Governance
Code (the “Code”). This longer-term
assessment process supports the Board’s
statements on both viability, as set out below,
and going concern, made on page 53.
The Board conducted this review for a
period up to December 2018, which was
selected for the following reasons:
i. The Group’s strategic review process
generally covers a three-year period.
ii. The Group’s operations are underpinned by
largely stable businesses and medium-term
contracts, allowing for sufficient certainty
to forecast results for this length of time.
The Group’s financing facilities are due
to expire in August 2018, and an assumption
has been made for this review that refinancing
will be available during this period.
The December 2015 strategic review
considered the Group’s cash flows, earnings,
leverage, and other key financial ratios over
the period. These metrics were subject to
sensitivity analysis which involved flexing a
number of the main assumptions underlying
the forecast, both individually and in unison.
The assumptions included the impact of the
potential occurrence of the Group’s principal
risks and the effectiveness of available
mitigating actions, other than the impact
of a loss of a key licence or severe technology
failure. These were not included within the
forecasts as it is the Board’s opinion that the
likelihood of those risks occurring is minimal.
Sportech PLC Annual Report and Accounts 2015Strategic reportCorporate governanceFinancial statements 18
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, California
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.
The Group remains focused on identifying
charitable opportunities to support in the
communities where our customers live and
our businesses operate.
Environment
The Group recognises its responsibility
to achieve good environmental practice
and continues to strive to improve its
environmental impact. The nature of its
business results in the principal environmental
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
encourage the use of technology to facilitate
information, data collection and dissemination,
which 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 below). 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 is also included. In 2015, an
increase in intensity of 20% over 2014 has
occurred due to increased use of natural gas,
electricity and motor fuel, following business
developments in the US and an overall decline
in Group revenues.
CO2 (metric tonnes)
Group revenues
Intensity ratio
Increase on
prior year (%)
2015
2014
7,176 6,202
104.1
100.2
59.6
71.6
2013
6,521
110.3
59.1
20.0
1.0
—
Sportech PLC Annual Report and Accounts 2015 19
Sportech’s support of charitable causes
in the UK and beyond is fantastic. Over
£1.3 billion has been given to sport, the
arts and other charities over the years.
I am particularly proud to have been
involved in programs supporting grass
roots football in the UK.
Alan Hansen
Liverpool and Scotland legend
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.
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 30.
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
Ian Penrose
Chief Executive
3 March 2016
Sportech PLC Annual Report and Accounts 2015Strategic reportCorporate governanceFinancial statements 20
Chairman’s statement
Technology driving expansion and
modernisation
Dear Shareholder
It has been another busy year for the Group.
Our results highlight both the progress made
and the challenges we have faced.
We have reached an important point in the
Group’s development, following a long period
of investment in technology and modernisation.
Performance
Overall, the Board is pleased with the
strategic position that each of its divisions
has secured, but recognises that each
division will also require further investment,
ahead of anticipated revenue and profit
benefits, to better enable them to deliver
their full potential.
Group results are in line with expectations and
the reduction in our net debt strengthens the
Group’s balance sheet.
Investment in technology across the Group,
our reputation and regulatory position have
driven both a significant number of new
contracts in Racing and Digital whilst we are
also nearing the completion of the
modernisation of The Football Pools.
Technology has also driven an expanding
customer base in Bump 50:50, the business
providing lottery products for professional
sports teams.
We expanded our Venues business into
California under the brand name “Striders”,
with the official opening in January 2016.
The Group sold its stake in its US online
gaming joint venture, SNG, for an £8.1m profit
in June. This business had only been operating
for three months and the profit realised is
recognition of the Group using its US licensing
and regulatory position to generate value.
Shareholder value
Delivery of shareholder value is our key aim
as a Group. The profit realised from the sale
of SNG demonstrates this and the Group
continues to make investments to support
its organic strategy.
In addition, during the year the Group
received indicative offers for both the
entire Group and certain operating divisions.
In reviewing these and any other potential
offers, the Board together with its advisers
consider the balance of the immediate
shareholder value to be realised compared
to the long-term prospects of the Group.
Sportech PLC Annual Report and Accounts 2015 21
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
3 March 2016
The Group continues to invest in its core
businesses and potential growth opportunities.
As such, no dividend is proposed for the year
to 31 December 2015. The Board continues to
assess the appropriate time to commence
dividend payments.
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 UK
Corporate Governance Code.
Board and employees
The Board is pleased that the appointment
of Mickey Kalifa as Chief Financial Officer
takes effect from today. Mickey has been
our Corporate Development Director for
the past six years. He has extensive experience
in finance and executive roles within some of
the world’s largest media and technology
companies, including Young & Rubicam,
Disney, Time Warner, BSkyB and Liberty
Media. He succeeds Cliff Baty, whom we
thank for his contribution to the Group.
Sportech is a geographically diverse business
which places significant demands upon
executives and employees. The Board would
like to thank them for their dedication and
commitment to the Group.
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 2015. 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.
Sportech PLC Annual Report and Accounts 2015Strategic reportCorporate governanceFinancial statements 22
Board of Directors
Roger Withers (73)
Non-executive Chairman
Ian Penrose (50)
Chief Executive
Cliff Baty (45)
Chief Financial Officer
Mickey Kalifa (49)
Chief Financial Officer
Date of appointment: February 2011
Board Committees: N
Date of appointment:
October 2005
Appointed: May 2013
Date of resignation: March 2016
Date of appointment:
March 2016
Roger was appointed
Non-executive 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.
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, 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.
Mickey was appointed to the
Board in March 2016. Mickey
has been our Corporate
Development Director for
the past six years. He has
extensive experience in finance
and executive roles with some
of the world’s largest media
and technology companies,
including Young & Rubicam,
Disney, Time Warner, BSkyB
and Liberty Media.
Rich Roberts (51)
President:
Sportech Digital
Date of appointment:
July 2014
Peter Williams (62)
Senior Independent
Non-executive Director
David McKeith (64)
Independent
Non-executive Director
Date of appointment: February 2011
Board Committees: R, A, N, ID
Date of appointment: August 2011
Board Committees: R, A, N, ID
Rich was appointed as
President of Digital in July 2014,
having previously served as an
Independent Non-executive
Director of the Company.
He has over 20 years of game
and gaming experience across
senior business development
and C-level positions. Rich was
Chief Executive Officer of Slingo
Inc. from 2010 to 2013. Prior
to that, Rich was VP (Chief
Revenue Officer) of Playfirst,
Inc. and previously led Hasbro
Interactive/Atari into the digital
game industry.
Peter was appointed Senior
Independent Non-executive
Director in February 2011. Peter
is Chairman of boohoo.com plc
and Mister Spex. He is also Senior
Independent Non-executive
Director of Rightmove plc;
Chairman Designate at U and
I Group PLC; and is a trustee of
the Design Council. In the past
he has also served on a number
of boards including ASOS plc,
Cineworld Group plc, the EMI
Group, Silverstone Holdings
Limited and Capital Radio
Group plc.
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. He is chairman of the
Hallé Orchestra and a Non-
executive Director of Norcros PLC,
where he is Senior Independent
Non-executive Director and Audit
Committee Chairman.
Full biographies of the Board members can be found at www.sportechplc.com
R Remuneration Committee
A Audit Committee
N Nomination Committee
ID
Independent Directors Committee
Note:
Red icon indicates Chairman of Committee
Sportech PLC Annual Report and Accounts 2015 Senior management
23
Sportech PLC
Football Pools
Sportech Racing
and Digital
Sportech Venues
Luisa Wright
Group General Counsel
and Company Secretary
Conleth Byrne
Managing Director
Andrew Gaughan
President
Ted Taylor
President –
Connecticut Venues
Richard Boardley
Director of
Corporate Affairs
Carl Lynn
Finance Director
Bob Mercer
Finance Director
Phil Balderamos
Managing Director –
California Venues
Nicola McCabe
Group Financial Controller
Nick Mounteer
Director of Marketing
and Operations
Louis Skelton
Vice President of
Technical Services
James D Birney
Vice President of Finance
Michelle Robbins
Group Marketing and
Communications Manager
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 2015Strategic reportCorporate governanceFinancial statements 24
Corporate governance report
Compliance with the UK Corporate
Governance Code
Sportech is committed to a high standard of corporate
governance and, throughout the financial year ended
31 December 2015, has complied with the provisions of
the UK Corporate Governance Code (the “Code”). A copy
of the Code is publicly available from www.frc.org.uk.
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 33 to
51, describes how the Company has applied the main
principles of corporate governance as set out in the Code.
Board of Directors
The Board 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
Cliff Baty gave notice in October 2015 and steps
down from the Board on 3 March 2016. Mickey Kalifa
is appointed to the Board, as Chief Financial Officer,
on 3 March 2016. Biographies of these Board members
appear on page 22. 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
Non-executive Chairman
Non-executive Directors
Independent Non-executive
Directors
17%
50%
33%
Length of service*
Up to two years
Two to six years
More than six years
1
4
1
* As at 31 December 2015
Sportech PLC Annual Report and Accounts 2015
25
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 engaged and retained
various advisers in order to continue to receive counsel
where and when it was 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, it was announced
that Peter Williams had been approved as Non-executive
Director and Chairman Designate of U and I Group plc
with effect from 4 January 2016, to become Chairman
on 14 July 2016. This additional commitment of the Senior
Independent Non-executive Director is not anticipated
to impact his ability to effectively discharge his duties
to the Company.
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
confidential questionnaires were completed in January
2016 and the results were circulated to the Directors in
February 2016. The results will be discussed by the Board
at the April 2016 Board meeting. The Board will review the
key findings and ensure that any follow-up action required
is undertaken promptly. It will continue to review its
procedures, its effectiveness and development in the
financial year ahead.
Sportech PLC Annual Report and Accounts 2015Strategic reportCorporate governanceFinancial statements 26
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 2015
Number of meetings held in year
Executive Directors
Ian Penrose
Cliff Baty
Rich Roberts
Non-executive Directors
Roger Withers
Peter Williams
David McKeith
Main
Board
8
Audit
Committee
3
Remuneration
Committee
5
Nomination
Committee
2
Independent
Directors
Committee
—
8
8
8
8
8
8
—
—
—
—
3
3
—
—
—
—
5
5
—
—
—
2
2
2
—
—
—
—
—
—
There are seven scheduled Board meetings for 2016.
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.
Sportech PLC Annual Report and Accounts 2015 27
– the consistency of the Annual Report as a whole and
ensuring it presents a fair, balanced and understandable
picture of the Company as well as providing shareholders
with the information necessary to assess the Company’s
performance, business model and strategy;
– the quality and acceptability of accounting policies
and practices;
– the clarity of the disclosures and compliance with
financial reporting standards and relevant financial and
governance reporting requirements;
– the 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 the
Company’s financial reporting.
During the year, the Committee received a presentation
from the Finance Director of the Racing and Digital
division on the control environment of the business.
The Committee also considered internal reports from the
Chief Financial Officer and the Group Financial Controller,
together with the external Auditor’s report, in their half-
year review and annual audit, reviewing the Group’s
financial reporting function.
The primary areas of judgement considered by the
Committee in relation to the 2015 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;
– the carrying value of joint venture investments;
– the carrying value of contingent consideration receivable
in relation to NYX; and
– the assessment of going concern and viability statement
disclosures, including the appropriate time period for
financial modelling.
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
and viability statement reviews;
– detailed review of joint venture business plans;
– stress testing of assumptions to understand impacts
and possible mitigations; and
– scenario analysis.
Chairman and financial expert
David McKeith
The Audit Committee
Member
Peter Williams
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 and relevant financial experience. 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, Chairman and Chief Executive are invited to
attend the Committee as appropriate.
Financial reporting
Following updates to the Code and the FRC’s “Guidance
on Risk Management, Internal Control and Related
Financial and Business Reporting”, the Committee spent
time ensuring that the additional requirements were met
by the Group.
The primary role of the Committee in relation to financial
reporting is the review, with both management and the
external Auditors, of the appropriateness of the half-year
and annual financial statements concentrating on,
amongst other matters:
Sportech PLC Annual Report and Accounts 2015Strategic reportCorporate governanceFinancial statements 28
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.
In assessing the carrying value of the contingent
consideration receivable from NYX, the Committee
receives updates from executive management on the
development of the North American online gaming market
and the pertinent regulatory and commercial issues.
In assessing the Group’s ability to continue as a going
concern, and its viability statement, the Committee has
challenged the Group’s strategic cash flow forecasts and
the appropriateness of the time period through detailed
review of the outputs. The Committee also considered the
resilience of the Group to the potential impact of the
Group’s principal risks and associated mitigating actions.
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 2015 relates
to work undertaken in respect of ongoing issues in
relation to indirect taxes 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.
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 2015 the significant
risks identified were in relation to asset impairment,
management override of controls, fraud in revenue
recognition and going concern. The Committee spends
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, has performed the role since 2014.
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 2015. 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.
Sportech PLC Annual Report and Accounts 2015 29
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
2016 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 2016 Annual
General Meeting (“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. The principal risks facing
the Group and the mitigating actions taken by the Board
and management are included on pages 14 to 16 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, the Group’s Californian joint venture,
S&S Venues employs a local accounting firm and is subject
to oversight from the Venues division Vice President of
Finance 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 those risks. The risk
appraisal process is regularly reviewed by the Board and
accords with the Code. The Audit Committee and Board
have reviewed the effectiveness of the internal controls
of the Group for the year ended 31 December 2015 and
up to the date of approval of the Annual Report and
Accounts. This review covered controls in areas of
finance, operations, risk management and compliance.
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 its findings to
the Audit Committee. During the year, the Group Finance
function performed internal controls reviews of all three
operating divisions: Football Pools, Sportech Venues and
Sportech Racing and Digital. 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 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
3 March 2016
Sportech PLC Annual Report and Accounts 2015Strategic reportCorporate governanceFinancial statements 30
Corporate governance report continued
The Remuneration Committee
The Remuneration Committee of the Board comprised
the two Independent Non-executive Directors, and is
chaired by Peter Williams. 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 33 to 51.
The Nomination Committee
The Nomination Committee comprises two Independent
Non-executive Directors and the Chairman of the Board,
who also chairs the Committee.
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. Notably, during
the year under review, the Committee recommended
to the Board the appointment of Mickey Kalifa to the
role of Chief Financial Officer, upon the departure of
Cliff Baty, with effect from 3 March 2016.
The Committee, in its recommendations to the Board,
acknowledges that diversity extends beyond the
boardroom and supports management in their efforts
to build a diverse organisation throughout the Group.
Out of a workforce of approximately 1,000 employees,
41% are female and out of 16 members of senior
management 19% 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 Independent Directors Committee
The Independent Directors Committee comprises two
Independent Non-executive Directors, chaired by Peter
Williams, 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.
Sportech PLC Annual Report and Accounts 2015 31
The Board recognises the high level of withholding
of votes and abstentions in relation to the auditors’
remuneration (resolution 6) and reappointment
(resolution 5) respectively at the 2015 AGM.
The appointment of PricewaterhouseCoopers LLP
as external Auditors is subject to regular review by
the Audit Committee and 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
3 March 2016
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 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 2015 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 on 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 2015Strategic reportCorporate governanceFinancial statements 32
Report of the Remuneration Committee
Letter from the Remuneration Committee Chairman
Dear Shareholder
I am pleased to present the Remuneration report
(the “Report”) for the year ended 31 December 2015.
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 2015 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 2016 have increased by 1%,
with no increases taking place in the other elements
of remuneration vis-à-vis 2015.
Performance and reward in
relation to 2015
As set out in detail in the Strategic report, the Company
delivered against a number of strategically important
objectives during the year under review (including
exploring indicative proposals made during the year for
the Group, launching the Resorts online casino via SNG
Interactive, the Group’s joint venture with NYX Gaming
Group Limited (“NYX”) and subsequently selling its stake
in such joint venture to NYX, integrating its systems and
technology into Betfred’s Totepool business and acquiring
a 39.2% share in DraftDay Gaming Group, an associate
established to pursue fantasy sports opportunities) and
delivered EBITDA of £23.1m. Challenging EBITDA targets
were not met during the year, but a number of personal
and strategic objectives were achieved. Therefore, overall
bonuses earned were between 17.5% and 22.5% of
maximum bonus entitlement.
Cliff Baty was considered eligible for an annual bonus in
relation to 2015 on the basis he served as Chief Financial
Officer for the whole performance period and ensured an
orderly handover process. He will not be entitled to a
bonus in relation to the period of service rendered in 2016.
Performance Share Plan (“PSP”) awards granted in 2013
will be eligible to vest in 2016 subject to two independent
performance conditions. The 50% of the award subject
to a relative Total Shareholder Return (“TSR”) performance
condition has a performance period ending in March 2016
but based on the most recent assessment, TSR
performance is ranked below the median position on a
relative basis, so there is no vesting expected from this
element of the award. The remaining 50% of the PSP
awards was based on EPS growth over the three-year
period ending 31 December 2015 with this element of the
awards not vesting due to EPS growth over the financial
years not achieving the minimum target.
The Committee has reviewed the variable incentive
payouts based on the financial period ended 31 December
2015 and is satisfied that the overall reward reflects the
performance delivered.
Policy for 2016
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 changes have
been proposed for 2016 with the exception of an
increased focus on shareholder value creation through
the use of a TSR metric as the primary performance
measure for Long-Term Incentive Plan (“LTIP”) awards,
alongside a financial performance underpin.
The remuneration package for the new Chief Financial
Officer, Mickey Kalifa, will be broadly comparable to his
predecessor in terms of salary, benefits, pension and
variable incentive.
Shareholder feedback
The Committee has not proposed any significant changes
to the remuneration policy for 2015 or 2016 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
3 March 2016
Sportech PLC Annual Report and Accounts 2015 Remuneration report
for the year ended 31 December 2015
33
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 policy detailed in the 2013 report and repeated
within this report, has operated for the entire current
financial year. The Chairman’s Statement and the Annual
Report on Remuneration will be subject to an advisory
shareholder vote at the 2016 AGM. This report is intended
to be in full compliance with the requirements of the
Regulations and the Code. PricewaterhouseCoopers LLP
have 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
34 to 37, which should be read in conjunction with the
recruitment/promotion policy on page 40, and the
“Detailed remuneration policy for 2016” section of the
Annual report on remuneration, which starts on page 41.
Sportech PLC Annual Report and Accounts 2015Strategic reportCorporate governanceFinancial statements 34
Remuneration report continued
for the year ended 31 December 2015
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
A broad-based assessment of individual and Company
on remuneration on page 41.
performance is considered as part of any salary review.
Pension
To provide cost-effective, yet market competitive,
retirement benefits.
– Contribution to a personal pension arrangement or
cash in lieu of pension by way of a salary supplement.
– 8% of salary for 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.
– Car allowance of £16,000 for the Chief Executive.
Not applicable.
– 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.
– Maximum bonus potential is 100% of salary for the
The majority of the bonus will be based on financial
Chief Executive and 75% of salary for other Directors.
measures such as EBITDA-targeted performance of the
The Committee, in its discretion, acting fairly and
Group (and operating divisions as appropriate), which
reasonably, may alter the bonus outcome (upwards or
takes into account market forecasts, and a minority of the
downwards) if it feels that the payout is inconsistent with
bonus will be based on Group strategic objectives and/or
the Company’s overall performance and events taking
personal objectives tailored to the achievement of the
place during the year along with any other factors it
Group strategic goals.
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 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 2015 annual
bonus and those proposed for 2016 are described in
the Annual report on remuneration on page 41.
– 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.
– 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.
Sportech PLC Annual Report and Accounts 2015 35
Operation
Opportunity
Performance metrics
– The current salaries are set out in the Annual report
on remuneration on page 41.
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.
To provide cost-effective, yet market competitive,
cash in lieu of pension by way of a salary supplement.
annual salary is pensionable.
– Contribution to a personal pension arrangement or
– 8% of salary for UK Executive Directors. Only basic
Not applicable.
– A car allowance for certain UK Executive Directors,
– 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 2015 annual
bonus and those proposed for 2016 are described in
the Annual report on remuneration on page 41.
Policy table
Remuneration element and purpose
Base salary
To attract and retain key individuals.
Reflects the relevant skills and experience in role.
– Salaries are set on 1 January each year and
reviewed annually against performance, experience,
responsibilities, relevant market information and the
level of workforce pay increases.
retirement benefits.
Pension
Benefits
To provide cost-effective, yet market competitive, benefits.
private health insurance and life insurance cover.
– The Committee may offer Executive Directors other
employee benefits on broadly similar terms to those
of the wider workforce.
Annual bonus plan
– Bonus is paid wholly in cash.
To motivate Executive Directors and incentivise the
achievement of key financial and strategic goals and
targets over the financial year.
– 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.
Sportech PLC Annual Report and Accounts 2015Strategic reportCorporate governanceFinancial statements 36
Remuneration report continued
for the year ended 31 December 2015
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
– Performance share awards of up to 100% of salary can
Awards will be granted subject to a combination of relative
subject to performance after three years.
be granted for a normal annual grant, with up to 200%
TSR and financial measures (such as EPS) over a three-
– Directors may be entitled to dividends which accrue
of salary used in exceptional circumstances.
year period.
To encourage greater shareholder alignment by rewarding
TSR outperformance.
on vested awards.
To facilitate share ownership.
– The policy is to grant awards of up to 100% of salary
The Committee will review the appropriateness of the
for Directors.
performance conditions on an annual basis and may make
changes to the weightings or introduce new measures
which are aligned to the Company strategy at that time.
A minority (25%) of the award will vest for threshold levels
of performance, rising on a straight-line basis to full vesting
for outperformance.
The performance measures used for the 2015 PSP award
and those proposed for the 2016 PSP award are described
in the Annual report on remuneration.
All Employee Share Plans
To promote wider employee share ownership.
Executive share ownership
To align Executive Directors’ and shareholders’ interests.
– All employees (including Executive Directors) may
be invited periodically to participate in a Company
Sharesave plan.
– Participants would have the right to commit to a savings
contract whereby the proceeds can be used towards the
exercise of an option granted at the time they participate.
The exercise price can be discounted by up to 20% of the
share price on grant.
– 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.
– Monthly savings limits are based on HMRC rules which
Not applicable.
currently limit monthly savings towards share purchases
under three-year savings contracts to £500.
– 100% of salary for all Executive Directors.
Not applicable.
– The Non-executive Chairman’s fee and Non-executive
Not applicable.
fees are set out in the Annual report on remuneration
on page 41.
– 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 2015 37
Remuneration element and purpose
Operation
Opportunity
Performance metrics
Long term incentive plan
– Annual awards of performance share awards which vest
To motivate Executive Directors and incentivise delivery
subject to performance after three years.
To encourage greater shareholder alignment by rewarding
on vested awards.
– Directors may be entitled to dividends which accrue
of performance over the long term.
TSR outperformance.
To facilitate share ownership.
– Performance share awards of up to 100% of salary can
be granted for a normal annual grant, with up to 200%
of salary used in exceptional circumstances.
Awards will be granted subject to a combination of relative
TSR and financial measures (such as EPS) over a three-
year period.
– The policy is to grant awards of up to 100% of salary
for Directors.
The Committee will review the appropriateness of the
performance conditions on an annual basis and may make
changes to the weightings or introduce new measures
which are aligned to the Company strategy at that time.
A minority (25%) of the award will vest for threshold levels
of performance, rising on a straight-line basis to full vesting
for outperformance.
The performance measures used for the 2015 PSP award
and those proposed for the 2016 PSP award are described
in the Annual report on remuneration.
All Employee Share Plans
To promote wider employee share ownership.
– All employees (including Executive Directors) may
be invited periodically to participate in a Company
– Monthly savings limits are based on HMRC rules which
Not applicable.
currently limit monthly savings towards share purchases
under three-year savings contracts to £500.
Executive share ownership
– All Executive Directors are expected to hold an
– 100% of salary for all Executive Directors.
Not applicable.
To align Executive Directors’ and shareholders’ interests.
investment of at least 100% of base salary in the
Non-executive fees
– Fee levels are reviewed on a regular basis and are set
To attract and retain high-calibre Non-executive Directors.
based on expected time commitments, responsibilities
To set remuneration by reference to the
responsibilities and time commitment undertaken
by each Non-executive Director.
and in context of the fee levels in companies of a
comparable size and complexity, and reflecting the
onerous obligations of international racing regimes.
– The Non-executive Chairman’s fee and Non-executive
fees are set out in the Annual report on remuneration
on page 41.
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.
Sharesave plan.
– Participants would have the right to commit to a savings
contract whereby the proceeds can be used towards the
exercise of an option granted at the time they participate.
The exercise price can be discounted by up to 20% of the
share price on grant.
Company, using 50% of net awards under the Company’s
LTIPs to achieve the shareholdings, if required.
Sportech PLC Annual Report and Accounts 2015Strategic reportCorporate governanceFinancial statements 38
Remuneration report continued
for the year ended 31 December 2015
The Committee operates the annual bonus plan and LTIPs
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:
– the timing of awards and payments;
– the size of an award (within the limits noted in the
table on pages 34 to 37), 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 or 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.
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 46 to 48.
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*
Rich Roberts
Peter Williams
David McKeith
Date of
Notice
appointment
period
07.02.11
3 months
01.10.05 12 months
14.05.13 12 months
14.07.14 12 months
3 months
07.02.11
3 months
25.08.11
* Cliff Baty gave notice in October 2015 and steps down from the
Board on 3 March 2016.
Copies of contracts of service 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
Sportech PLC Annual Report and Accounts 2015 39
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 1.5% for 2016, reflecting the RPI prevailing
in the country in which the individual is employed. The
Executive Directors received an increase of 1% for 2016
which is consistent with the general pay award for the
Group’s 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 2015Strategic reportCorporate governanceFinancial statements 40
Remuneration report continued
for the year ended 31 December 2015
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.
Sportech PLC Annual Report and Accounts 2015 41
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 five times during the year and
the following key activities were 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 TSR conditions;
– approval of bonus awards, in March 2015, 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 2012 PSP awards; and
– review and approval of new terms of employment
for Mickey Kalifa.
The Committee’s recommendations in 2015 and early 2016
were all accepted and implemented by the Board.
Compliance with best practice
During 2015, 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) and David McKeith. Peter and David are both
Independent Non-executive Directors. No Committee
member 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 receive advice from NBS 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 £56,000
(2014: £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 2015Strategic reportCorporate governanceFinancial statements 42
Remuneration report continued
for the year ended 31 December 2015
Detailed remuneration policy for 2016
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 £393,000 per annum with effect from 1 January 2016.
– Cliff Baty, Chief Financial Officer, is paid a salary of
£249,000 per annum with effect from 1 January 2016,
an increase of 1%, which is consistent with the general
pay award for all UK-based employees, until he steps
down from the Board and ceases to be an employee on
3 March 2016. The Committee determined that Cliff Baty
be eligible for the general pay increase in relation to 2016,
notwithstanding that he served notice of his resignation
in October 2015, on the basis that he continues to serve
as Chief Financial Officer until 3 March 2016 when he
ceases to be an employee of the Company and ensures
an orderly handover process.
– Rich Roberts, President: Sportech Digital, is paid a salary
of $306,000 per annum with effect from 1 January 2016,
an increase of 1% from the salary set on appointment.
– Mickey Kalifa, who will be appointed to the Board as
Chief Financial Officer on 3 March 2016, and commenced
a handover process from Cliff Baty on 4 January 2016,
will be paid £230,000 per annum.
Performance-related bonus
The maximum bonus potential for the Chief Executive
for 2016 is 100% of basic salary, for the new Chief Financial
Officer, 75% of basic salary and for the President: Sportech
Digital is 50% of basic salary. Cliff Baty will not be eligible
for a bonus in relation to the period of service rendered
in 2016.
For each Executive Director, their performance-related
bonus is based on the EBITDA performance of the Group
(and operating divisions as appropriate), delivering on the
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, implementing
plans for growth in The Football Pools and developing the
Sportech team to take advantage of 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.
Recovery provisions may be applied in the event of
material misconduct and/or an error in the calculation
of the bonus payable.
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).
Sportech PLC Annual Report and Accounts 2015 43
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 49.
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 2016 are unchanged from the
prior year, being £120,000 for the Chairman and a set fee
of £47,500 (with a further £5,000 for each Committee
they sit on) for the Non-executive Directors. The fees are
set competitively against 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 2015 are given in the table overleaf.
Directors’ remuneration for the year ended
31 December 2015
Basic annual salary
– Ian Penrose, Chief Executive, £389,000 per annum,
with effect from 1 January 2015.
– Cliff Baty, Chief Financial Officer, £247,000 per annum
with effect from 1 January 2015.
– Rich Roberts, President: Sportech Digital, $303,000 per
annum with effect from 1 January 2015.
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: a share option scheme and a 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 2016
at 100% of salary to the Chief Executive and 75% of salary
to the other Directors. The targets to apply to the 2016
awards are to be restructured with a greater focus on
incentivising growth in TSR. As a result, the primary
performance metric will be the Company’s relative TSR
performance measured against the constituents of the
FTSE Small Cap Index (excluding investment trusts) over a
three-year performance period (the comparator group set
as at the date of grant).
No portion of the awards 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
25%
Pro rata between
25% and 100%
100%
Moving to TSR as the primary performance metric
(from TSR and EPS) is considered appropriate for the
2016 awards to reflect Company strategy. However,
to ensure that financial performance will be taken into
account when determining the vesting of such awards,
a general financial underpin will apply. This will require
the Committee to consider the Company’s financial
performance over the performance period when
determining the final vesting result.
The Committee is aware that the PSP does not currently
operate recovery or withholding provisions. The Committee
believes there are strong internal controls, a relatively simple
reporting process and a robust level of oversight which
means the risk of a material misstatement to the accounts
or individual misconduct is considered to be extremely
unlikely. However, the Committee will keep this issue under
review for future awards.
Sportech PLC Annual Report and Accounts 2015Strategic reportCorporate governanceFinancial statements 44
Remuneration report continued
for the year ended 31 December 2015
Directors’ remuneration for 2015 (audited)
Executive Directors
Ian Penrose
Cliff Baty
Rich Roberts
Non-executive Directors
Roger Withers
Peter Williams
David McKeith
Aggregate emoluments
Year of
appointment
Fees/salary
£000
Taxable
benefits1
£000
Pension
£000
Bonuses
£000
Long-term
incentives
£000
2005
2013
2014
2011
2011
2011
389
247
198
120
58
58
1,070
17
1
14
—
—
—
32
31
20
4
—
—
—
55
80
32
22
—
—
—
134
—
—
—
—
—
—
—
2015
Total
£000
517
300
238
120
58
58
1,291
1 Taxable benefits comprise various insurance policies and car allowances.
Directors’ remuneration for 2014 (audited)
Executive Directors
Ian Penrose
Cliff Baty
Ian Hogg (resigned 25 September
2014)
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
Year of
appointment
Fees/salary
£000
Taxable
benefits1
£000
Pension
£000
Bonuses
£000
Long-term
incentives2
£000
2014
Total
£000
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
—
—
—
—
—
—
190
673
291
336
89
120
58
58
20
37
1,682
1 Taxable benefits comprise various insurance policies and car allowances.
2 The value of long-term incentives included for 2014 originally reflected an estimate of the number of awards expected to vest in relation
to performance ended or substantially ended at 31 December 2014. As the awards had not been transferred to the participants before the
publication of the 2014 report, the value originally recorded was based on the three-month average share price to 31 December 2014 of
54.8p. These awards have not yet been transferred to participants, due to an extended close period and therefore the numbers have not
been amended to reflect the actual value transferred.
Sportech PLC Annual Report and Accounts 2015 45
Performance-related bonus
The maximum bonus potential for the Chief Executive in the year under review was 100% of basic salary, and for the
Chief Financial Officer 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 the Group strategic goals.
The Committee determined that despite serving notice, Cliff Baty would be eligible to receive a bonus in relation to 2015
on the basis that he served in an executive capacity for the whole performance year and was facilitating an effective
handover process.
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 targets set were to achieve EBITDA
of between £23.5m and £26.5m, and actual EBITDA performance was £23.1m.
Strategic objectives
With regards to the Chief Executive, his targets related to delivering against a number of growth-focused initiatives
primarily in relation to the Group’s activities in the UK and US (including progress and growth in respect of the Venues
division, the launch of the Resorts online casino via SNG Interactive (the joint venture with NYX), delivery of the first
phase of software and technology integration into Betfred’s Totepool system and developing the product offering
and increasing customer acquisition in the Football Pools division). His strategic targets also included securing long-
term funding for the Group. Achievements against these targets were assessed, resulting in an award of 20.5% out
of a maximum target of 30% of potential bonus. The strategic targets relating to the Chief Financial Officer were in
relation to securing strategic long-term funding for the Group alongside the Chief Executive, supporting the
achievement of wider Group strategic objectives and implementing new system and process developments.
Achievements against these targets were assessed, resulting in an award of 17.5% 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. Achievements against these targets
were assessed, resulting in an award of 22.5% 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
Total bonus: % Maximum (% salary payable)
20.5% out of the maximum entitlement (20.5% of salary payable)
17.5% out of the maximum entitlement (13.1% of salary payable)
22.5% out of the maximum entitlement (11.3% of salary payable)
The Committee is comfortable that the level of bonuses paid to Executive Directors reflect 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. Two Directors (2014: three Directors) were members of UK defined
contribution schemes during the year. Contributions paid by the Company in respect of these Directors are as shown
in the table on page 44. The Company pays a maximum of $6,750 per annum into a defined contribution scheme for
Rich Roberts, a US-based director.
Sportech PLC Annual Report and Accounts 2015Strategic reportCorporate governanceFinancial statements 46
Remuneration report continued
for the year ended 31 December 2015
Long-Term Incentive Plans
Awards vested in relation to performance ending 2015
Awards granted in March 2013 reached the end of their performance periods or were substantially complete in the year
under review. This includes 50% of awards subject to relative TSR (performance period to end 20 March 2016) and 50%
of awards subject to EPS (performance period ended 31 December 2015). Summary details of the full conditions
applying to the 2013 awards are included as a footnote to the PSP table on page 48.
In terms of the 2013 award, the assessment of the TSR measures was made independently by NBS who advised that
the relative TSR performance measured to 31 January 2016 was (29)% which resulted in the Company being ranked
below the median ranking position on a relative basis. As a result no vesting of this part of the awards is expected.
The EPS decline over the three-year period to 31 December 2015 was (6.1)% p.a. thereby triggering 0% vesting of this
element of the award.
In summary the total number of awards for each Executive is shown in the table below.
Performance Share Plan – 2015 Vesting
Measure
Relative TSR (2013)
Condition
TSR measured against the constituents
of the FTSE Small Cap Index (excluding
investment trusts) over the three years
from date of grant
Annualised adjusted EPS growth measured
against RPI over three financial years
EPS (2013)
Executive
Ian Penrose
Award
2013 (Part A)
2013 (Part B)
Threshold
Median
rank
(65.5)
RPI
+4% p.a.
Number
of awards
granted
188,700
188,700
Maximum
Upper
quartile
rank
(33.0)
RPI
+10% p.a.
Actual
TSR
(29)%
rank
(108)
(6.1)%
Number
of shares
vesting
—
—
Vesting
0%
0%
Vesting
0%
0%
Value of
awards
—
—
Cliff Baty’s outstanding PSP awards have been treated as lapsed in 2015.
LTIP awards granted during 2015
Share option scheme
A share option scheme is in place, the details of which are described in note 26. The last award under such a scheme was
made in 2005.
Sportech PLC Annual Report and Accounts 2015 47
Performance Share Plan
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 – 2015 Award
Executive
Ian Penrose
Cliff Baty
Rich Roberts
Type of award
Performance share
Performance share
Performance share
Number
of awards
granted
584,657
278,851
226,310
Basis of award
100% of salary
75% of salary
75% of salary
Share price
on grant
Pence
66.5
66.5
66.5
Face value*
£388,797
£185,436
£150,496
Percentage
which vests
at threshold
25%
25%
25%
* This is based on the closing share price on the day before the date of grant. The date of grant was 9 March 2015.
2015 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.
For ease of reference, such halves are referred to below as Part A and Part B respectively.
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.
Sportech PLC Annual Report and Accounts 2015Strategic reportCorporate governanceFinancial statements 48
Remuneration report continued
for the year ended 31 December 2015
Directors’ share-based incentives
Aggregate emoluments disclosed on page 44 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
No Director holds outstanding share option awards under this scheme subsequent to the expiry of the 2005 award
during the year.
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
As at
1 January
2015
Date of
Number
grant
—
02.12.111
08.03.121
751,269
21.03.132 377,400
07.03.142 432,525
09.03.152
Vested
Awarded
during
during
the year
the year
Number
Number
—
—
— (173,618)
—
—
—
—
— 584,657
—
1,561,194 584,657
(173,618)
—
—
— 278,851
278,851
—
— 226,310
226,310
As at
31 December
2015
Number
— 377,400
— 432,525
— 584,657
Lapsed
during
the year
Number
—
(577,651)
Vested
but not
exercised
Number
— 193,610
— 173,618
—
—
—
(577,651) 1,394,582 367,228
—
—
—
—
—
—
—
—
—
—
—
— 349,650
— 226,310
— 575,960
— (276,000)
— (206,292)
— (278,851)
— (761,143)
—
—
—
349,650
24.05.132 276,000
206,292
07.03.142
09.03.152
Date
from which
exercisable
02.12.14
Market price
on date
Award
of grant
expiry date
Pence
39.75
02.12.153
51.52 08.03.15 08.03.16
21.03.17
21.03.16
100.00
89.00
07.03.17 07.03.18
66.50 09.03.18 09.03.19
21.03.17
21.03.16
90.00
89.00
07.03.17 07.03.18
66.50 09.03.18 09.03.19
78.00 04.09.17 04.09.18
66.50 09.03.18 09.03.19
Total
482,292
Rich Roberts 04.09.142 349,650
09.03.152
Total
Total PSP
awards
2,393,136 1,089,818
(173,618) (1,338,794) 1,970,542 367,228
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 specific details of the performance targets for the 2011 and 2012 awards was disclosed in full in last year’s report. The outstanding
awards remain unexercised due to an extended close period during 2015.
2 2013, 2014 and 2015 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 pages 46 and 47.
3 Ian Penrose was unable to exercise the 2011 award prior to the award expiry date due to an extended close period preventing the same
throughout the exercise window. Further to this, the Committee resolved, in accordance with the rules of the PSP, to extend the award expiry
date in respect of such award to the date that is 30 days after the date upon which the regulatory restrictions no longer apply.
The market price of the ordinary shares at 31 December 2015 was 60.0p and the range during the year was 54.5p to 70.5p.
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 2015 the Company’s potential dilution was 6.52%.
Recruitment terms
On 18 December 2015, the Company announced that Mickey Kalifa would be appointed as Chief Financial Officer on
3 March 2016, following an orderly handover process which would begin on 4 January 2016. His package consists of
an initial salary of £230,000 per annum, effective from 4 January 2016, with benefit and pension provisions in line with
other Executive Directors. He is eligible to a full year bonus for 2016 and will be granted a PSP award of 75% of salary,
both subject to the same terms and performance conditions as other Executive Directors.
Sportech PLC Annual Report and Accounts 2015 49
Payments to departing Directors
Cliff Baty will step down from the Board following the Company’s results announcement on 3 March 2016 at which time
entitlements to salary, benefits and pension provision will cease. As noted previously, Cliff was eligible to receive a bonus
payment in relation to 2015 on the basis that he served in an executive function for the full performance period and
facilitated an orderly handover to Mickey Kalifa. He will not be eligible for a bonus in relation to any service rendered
during 2016.
Cliff Baty’s outstanding PSP awards have been treated as lapsed from the date of his resignation in 2015.
Payments for loss of office
There were no payments for loss of office during the period under review.
Payments to past directors
Ian Hogg tendered his notice of resignation as Chief Operating Officer, Consumer Facing Business, 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 was 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 treatment of “good leavers” and is partly compensatory for waiving his remaining contractual notice.
The bonus was paid on the normal bonus payment date in 2015. Long-term incentive awards granted in 2011, where the
relevant performance periods were completed, vested at the normal vesting date, subject to the rules of the PSP, with
a value of £35,000.
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. Further to this, in early 2015, Brooks Pierce
received a total payment under the 2011 award of £6,000 and Steve Cunliffe received a total payment under the 2011
award of £17,000.
Directors’ interests and shareholding guidelines
The following table shows Directors’ interests in the Company:
Director
Ian Penrose
Cliff Baty
Rich Roberts
Roger Withers
Peter Williams
David McKeith
Total
shareholding
at 31 December
2014
850,000
33,000
—
112,079
100,000
30,000
Total
shareholding
at 31 December
2015
850,000
33,000
—
112,079
100,000
30,000
PSP award
held unvested
1,394,582
—
575,960
—
—
—
PSP award
vested but
not exercised
367,228
—
—
—
—
—
Share
ownership
guideline
expected to be
achieved by third
anniversary of
employment
100%
100%
100%
N/A
N/A
N/A
% of
guideline met
by 31 December
2015
100%
12%
0%
N/A
N/A
N/A
All Executive Directors are expected to hold an investment of at least 100% of base salary in Company shares.
This requirement can be achieved over a period of time using 50% of net awards which vest under the Company’s LTIPs.
The table above shows shareholdings as at 31 December 2015 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.
Sportech PLC Annual Report and Accounts 2015Strategic reportCorporate governanceFinancial statements
50
Remuneration report continued
for the year ended 31 December 2015
Performance graphs and Chief Executive’s remuneration table
The following graph demonstrates the value by 31 December 2015, of £100 invested in Sportech PLC on 31 December
2010 compared with the same investment in the FTSE Small Cap Index. The other points plotted are the values at
intervening financial year ends. This time period reflects performance from the point in time that the Company was
transformed from a highly-geared and declining UK Football Pools business into the business it is today, following the
acquisition of its international business and associated refinancing in 2010:
250
200
150
100
50
Dec 10
Dec 11
Dec 12
Dec 13
Dec 14
Dec 15
Sportech PLC
FTSE Small Cap
The graph below shows the value, by 31 December 2015, 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:
250
200
150
100
50
Dec 08
Dec 09
Dec 10
Dec 11
Dec 12
Dec 13
Dec 14
Dec 15
Sportech PLC
FTSE Small Cap
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
seven 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%
2015
517
—
517
20.5%
—
Sportech PLC Annual Report and Accounts 2015 51
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
2015
2014
% change
389
97
51
2
385
99
49
2
1.0%
(2.0)%
2.8%
—
The table above shows the actual 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
2015
30.5
Nil
2014
31.0
Nil
% change
(1.6)%
—
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
3 March 2016
Sportech PLC Annual Report and Accounts 2015Strategic reportCorporate governanceFinancial statements 52
Directors’ report
for the year ended 31 December 2015
The Directors present their report and the audited consolidated financial statements for the year ended 31 December
2015. General information of the Company can be found in the Accounting Policies on page 69.
The Strategic report and Corporate governance report are set out on pages 1 to 31. Under section 414C(11) of the
Companies Act 2006, information on trading in the year and the Group’s principal risks are included in the Strategic
report on pages 1 to 16. Therefore this information is omitted from this Directors’ report.
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 PSP awards granted during the year ended 31 December 2015 are set out in the
Remuneration report on pages 33 to 51.
Roger Withers
Ian Penrose
Cliff Baty
Peter Williams
David McKeith
Rich Roberts
At 3 March
2016 and
31 December
2015
Number
112,079
850,000
33,000
100,000
30,000
—
31 December
2014
Number
112,079
850,000
33,000
100,000
30,000
—
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 ‘Employees’ section of the Corporate social responsibility report on page 19.
Substantial shareholdings
Holder
Henderson Global Investments Limited
Newby Manor Limited
Schroder Investment Management Limited
Richard Griffiths and Controlled Undertakings
Artemis Investment Management LLP
Aviva PLC
AXA S.A
Total of substantial shareholdings
3 March 2016
31 December 2015
Ordinary
shares
of 50p
58,067,362
35,113,010
18,345,331
16,982,614
13,444,756
11,443,960
11,150,306
164,547,339
% of
issued share
capital
28.2
17.0
8.9
8.2
6.5
5.6
5.4
79.8
Ordinary
shares
of 50p
58,067,362
35,113,010
18,345,331
16,982,614
13,444,756
11,443,960
11,150,306
164,547,339
% of
issued share
capital
28.2
17.0
8.9
8.2
6.5
5.6
5.4
79.8
Sportech PLC Annual Report and Accounts 2015 53
Dividend
No dividend is proposed (2014: £nil) and no dividend
has been paid during the year (2014: £nil).
Environmental matters
The Corporate social responsibility report provides
information with respect to the Group’s impact on the
environment. Greenhouse gas emissions are monitored
closely by management, and disclosure of those emissions
can be found in the Strategic report on page 18.
Corporate governance
The Group’s statement on corporate governance
is set out on pages 24 to 31 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 prepayment
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.
Share capital and authority
to issue shares
The Company has one class of ordinary shares and these
shares have equal voting rights. The nature of the holdings
of the Company’s individual Directors and individually
significant shareholders are disclosed on page 52.
There are no restrictions on the transfer of shares.
As part of the resolutions approved at the 2015 AGM,
shareholders’ authority was given to the Directors for:
(i) the allotment of up to 68,746,016 ordinary shares of
50p each (representing 33.3% of the issued share capital
of the Company as at the date of the 2015 AGM); and (ii)
the allotment of up to 137,492,032 ordinary shares of 50p
each (representing 66.7% of the issued share capital as
at the date of the 2015 AGM) in connection with a rights
issue (including within such limit, any shares pursuant
to the authority set out at (i)). As at 31 December 2015,
no shares have been allotted pursuant to such authority.
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’s forecasts and projections, which have been
prepared as described on page 17 were reviewed and
approved by the Board.
On the basis of this review, the Board has a reasonable
expectation that the Company will be able to continue in
operation and meet its liabilities as they fall due over the
period to June 2017. Accordingly, it is deemed appropriate
to prepare the financial statements on a going concern
basis for the financial year ended 31 December 2015.
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 25.
Sportech PLC Annual Report and Accounts 2015Strategic reportCorporate governanceFinancial statements 54
Directors’ report continued
for the year ended 31 December 2015
Disclosure of information to the 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 AGM.
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.
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 22 confirm
that, to the best of each person’s knowledge and belief:
– the financial statements, prepared in accordance with
IFRS 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
The Notice convening the AGM of the Company on
17 May 2016 is being sent to shareholders with this report.
In accordance with the Articles of Association of the
Company, Roger Withers and Peter Williams retire by
rotation and offer themselves for reappointment at the
AGM. The profiles of those Directors appear on page 22.
In addition, Mickey Kalifa, who has been appointed to the
Board today, will retire and offer himself for reappointment
as he was appointed to the Board since the last AGM.
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 33 to 51, to reappoint the Auditors and
to authorise the Directors to fix their remuneration.
On behalf of the Board
Cliff Baty
Director
3 March 2016
Sportech PLC Annual Report and Accounts 2015 Independent Auditors’ report
to the members of Sportech PLC
55
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 2015 and of the
Group’s profit 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 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
The financial statements, included within the Annual Report and Accounts (the “Annual Report”), comprise:
– the balance sheets as at 31 December 2015;
– the consolidated income statement and consolidated statement of comprehensive income/(expense) for the year
then ended;
– the statements of cash flows for the year then ended;
– the statements of changes in equity for the year then ended;
– the accounting policies; and
– the notes to the financial statements, which include other explanatory information.
Certain required disclosures have been presented elsewhere in 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
– Overall Group materiality: £575,000 which represents 2.5% of adjusted EBITDA
(being earnings before interest, tax, depreciation and amortisation, as adjusted
also for exceptional items, impairment of assets and share option charges).
Materiality
– The Group consists of 39 statutory entities (excluding dormant entities).
Audit scope
Areas of
focus
– Our audit focused on the most significant of these entities in terms of materiality
to the Group financial statements being; Sportech PLC (the Parent Company),
The Football Pools Limited, Sportech Racing, LLC and Sportech Venues, Inc.
– The components where we performed audit procedures accounted for 79%
of Group revenue and 74% of Group adjusted EBITDA.
– Goodwill and intangible asset impairment.
– Impairment of investments in joint ventures.
– Recoverability of contingent consideration receivable.
– Going concern – financial covenants on banking facilities of the Group.
Sportech PLC Annual Report and Accounts 2015Strategic reportCorporate governanceFinancial statements 56
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 27 (Audit Committee report), page 69
(Accounting policies) and pages 86 to 89 (notes).
The Group has goodwill and intangible fixed assets with
carrying value of £163.4m as at 31 December 2015. Our
work focused on the following specific balances, being
those assets which we assessed to have a higher level of
judgement involved because of key assumptions made
by the Directors in assessing their carrying values.
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:
Football Pools goodwill
Goodwill in relation to the Football Pools has a carrying
value of £119.5m. 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 broadly at the level
achieved in the current financial year, £15.2m, growing
1% over the course of the next five years, before
remaining at that level into perpetuity. The Directors
believe this will be achieved primarily as a result of the
expected stabilisation in the number of customers,
together with the continued improvement in spend per
player. We have focused on the Directors’ assumptions
regarding these EBITDA forecasts, given the historic
downward trend in profitability in recent years.
eBet goodwill
Goodwill arising on the acquisition of eBet has a
carrying value of £1.8m, following the recognition
in the year of an impairment of £3.7m (note 11).
In assessing the carrying value of this asset, the
Directors have assumed that there will be an average
annual 17% 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. This growth is
expected to be largely driven by a new contract which
was signed in 2015. We have therefore focused on the
Directors’ assumptions regarding the profitability of
this new contract.
Football Pools goodwill
In respect of the Football Pools goodwill we assessed
the reasonableness of the Directors’ estimate for future
EBITDA levels through comparison of forecast levels
of spend per player and customer numbers, against
the run rate of these assumptions within the current
and previous years, taking into account expectations
for the coming year. Further we 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.
eBet goodwill
In respect of the eBet goodwill we evaluated the
assumptions surrounding the forecast rise in profitability
over the coming five years, in particular the profitability
of the newly signed contract over that period. This has
been achieved through understanding and assessing the
causes of the current year performance, and critically
assessing the likely profitability of the newly signed
contract in the future. We found that the assumptions
used are supportable based on our audit work.
Sportech PLC Annual Report and Accounts 2015 57
Area of focus
How our audit addressed the area of focus
Venues intangible assets
Intangible assets associated with the gaming licence
held within Sportech Venues Inc. (“Venues”) have a
carrying value of £16.9m. In assessing the carrying value
of the Venues licence, which applies to both land-based
and online venues, the Directors have assumed that the
level of net handle (the total amount of bets taken)
generated by the land-based venues will increase in
2016, following the reopening of a key sporting venue,
before falling 2% per year on average between 2017 to
2020, and then stabilising into perpetuity at 2020 levels.
Further, they have assumed the level of net handle in
respect of internet gambling in Connecticut will grow
on average 35% between 2016 and 2020. We have
therefore focused on the Directors’ assumptions around
the level of net handle generated by the land-based
venues in these future years, given the context of a fall
in net land-based handle in the current year on that
achieved in the prior year, and also the forecast growth
in net handle surrounding online gambling given this
business is in its infancy.
The Directors’ projections in relation to impairment
of goodwill and intangibles balances are also dependent
on a range of other judgemental assumptions. In addition
to those specifically referred to above, we focused on
the discount rate assumption in each of the value in use
calculations, given the significant amount of judgement
involved in establishing an appropriate rate, and given the
material sensitivity of the carrying values to small changes
in this assumption.
Venues intangible assets
In respect of the Venues gaming licence we evaluated
the key assumptions surrounding the improvement in net
handle generated by the land-based venues in 2016 when
compared with the current year, and the forecasts for net
handle beyond 2016, by reference to the trend in total
handle in recent years after removing the impact of
one-off events in 2015. Further, we have critically
evaluated the net handle growth assumptions adopted
by management in respect of online handle via reference
to market information and historic growth rates. The
Directors’ assumptions are supported by information
currently available.
In addition we have evaluated the discount rates
used within the above impairment reviews to assess
whether they are appropriate. This was done primarily
by comparison of the weighted average cost of capital
of each of the aforementioned businesses with other
comparable companies within the same industry or with
a similar business model. The discount rates were found
to be 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
Sportech PLC Annual Report and Accounts 2015Strategic reportCorporate governanceFinancial statements 58
Independent Auditors’ report continued
to the members of Sportech PLC
Area of focus
How our audit addressed the area of focus
Impairment of investments in joint ventures
Refer to page 27 (Audit Committee report), page 69
(Accounting policies) and page 93 (notes).
The Group has investments in joint ventures with a
carrying value of £1.7m as at 31 December 2015. Our work
focused on the following specific balances, being those
assets which we assessed to have a higher level of
judgement involved because of key assumptions made by
the Directors in assessing their carrying values:
We evaluated the Directors’ carrying value assessments,
including cash flow forecasts, and the process by which
they were drawn up. 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:
S&S Venues
The Group’s investment in S&S Venues California,
LLC has a carrying value of £1.2m. Given this venture
was still under construction for much of the year, and
had only commenced trading in December 2015, in
arriving at the year end carrying value the Directors have
made certain assumptions about the likely profitability
of the operation subsequent to trade commencing.
We have therefore focused on the likely profitability
of the venture in the coming years, as well as whether
the underlying net assets of the venture support the
Group’s investment.
S&S Venues
In respect of the S&S Venues California, LLC
investment,we assessed the reasonableness of the
Directors’ estimate for profitability through comparison
of the forecast profitability of the venue to other similar
venues in the region. In addition we assessed the
valuation of those assets within S&S Venues California,
LLC which underpin the investment, being primarily
property, plant and equipment purchased in the year
prior to the commencement of trading. Based on this
work we consider the carrying value of the investment
to be reasonable.
Sportshub Private Limited
The Group’s investment in Sportshub Private Limited
has a carrying value of £0.5m. During the year the joint
venture agreed to supply technology and related
services to an Indian company which has been engaged
by EGT Entertainment Pvt. Ltd., a Sikkim licence holder,
to support the operation of pool games. Trading
therefore commenced in February 2016. Given the lack
of historical information as to the profitability of this
venture, in arriving at the year end carrying value the
Directors have made certain assumptions about the
profitability of the venture in the coming years, as
well as the likelihood of the joint venture being able to
obtain further customers in India in the future. We have
therefore focused on the likely profitability of the venture
in the coming years, which is largely dependent on the
ability to obtain additional customers across India, as
well as whether the underlying net assets of the venture
support the Group’s investment.
Sportshub Private Limited
We have assessed the Directors’ estimates for the future
profitability of Sportshub Private Limited through testing
of the Board-approved business plan, and consideration
of the likelihood of the joint venture obtaining further
customers across India in future years. In addition we
assessed the valuation of those assets within Sportshub
Private Limited which underpin the Group’s investment,
being primarily trade and other receivables. Based on
this work we consider the carrying value of the
investment to be reasonable.
While inherent uncertainty exists around many of the
key assumptions used by the Directors in the above
assessments, particularly given both ventures are in their
initial set up phase, our procedures indicated that the
carrying value of the investments were supportable and
reasonable within the context of the evidence we obtained.
Sportech PLC Annual Report and Accounts 2015 59
Area of focus
How our audit addressed the area of focus
Recoverability of contingent consideration receivable
Refer to page 27 (Audit Committee report), page 70
(Accounting policies) and page 92 (notes).
During the year the Group disposed of its 50% investment
in Sportech – NYX Gaming LLC to NYX Gaming Group
Limited (“NYX”) for £10.9m. This sale generated a gain
on disposal of £8.1m (note 16).
Included within the consideration receivable by the Group
for the sale is £1.1m which is contingent on NYX acquiring
three new customers in the five years subsequent to the
disposal. The Directors have assumed that the conditions
for receipt of these amounts will be met within the
requisite period, and hence that the consideration will be
received. As such this amount has been included within
trade and other receivables as at 31 December 2015.
Given the judgement surrounding the likelihood of
these amounts being received, we have focused on the
Directors’ assumptions in respect of this consideration.
Going concern – financial covenants on banking
facilities of the Group
Refer to page 27 (Audit Committee report) and page 69
(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 £75m
revolving credit banking facilities. As at 31 December
2015, a total of £62.1m 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).
We have evaluated the Directors’ conclusions surrounding
the likelihood of this contingent amount being received,
focusing in on the likelihood of NYX obtaining the
additional three new customers within the required five
years for the consideration to be payable.
During our assessment we have considered a number
of factors which are relevant to the likelihood of NYX
acquiring new customers in those five years. These factors
included: the passage of gambling deregulation through
certain states within the USA in the year; the number of
credible competitors to NYX in those states; and the
pre-existing relationships NYX has with a number of
potential customers which increase the likelihood of a
new customer being acquired. We verified these factors
through external research over the regulatory and
competitive environment in the USA in this industry.
While there is an inherent amount of uncertainty within
the Directors’ assumptions in respect of this item, we have
concluded that, at this time, the Directors’ judgement
is reasonable.
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.
The Directors’ judgement in this respect appear reasonable.
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
Sportech PLC Annual Report and Accounts 2015Strategic reportCorporate governanceFinancial statements 60
Independent Auditors’ report continued
to the members of Sportech PLC
Area of focus
How our audit addressed the area of focus
Going concern – financial covenants on banking
facilities of the Group (continued)
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 2017 for going concern assessment purposes,
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.
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 considering other sensitivities and discussing the impact
of alternative assumptions. We found the Directors’
approach to be reasonable.
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 within the
financial statements to our testing in this area and found
that they appropriately reflected the future plans of the
Parent Company and Group and any uncertainties arising.
Our conclusions in relation to going concern are set out
in the Going concern section below.
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 geographic 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 Football Pools, Racing and Digital, and
Venues, 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. The Group
comprises 39 statutory entities (excluding dormant entities). We performed full scope audits over four statutory entities,
being Sportech plc (the Parent Company), The Football Pools Limited, Sportech Racing LLC and Sportech Venues Inc,
which we regarded as being financially significant components of the Group given their contribution to the Group’s
adjusted EBITDA.
The entities that were subject to audit work accounted for 79% of Group revenue and 74% of Group adjusted EBITDA.
Additionally we performed work in another eight 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.
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 on the individual financial statement line items and disclosures and in
evaluating the effect of misstatements, both individually and on the financial statements as a whole.
Sportech PLC Annual Report and Accounts 2015 61
Based on our professional judgement, we determined materiality for the financial statements as a whole as follows:
Overall Group materiality
£575,000 (2014: £592,000).
How we determined it
Rationale for benchmark applied
2.5% of adjusted EBITDA (being earnings before interest, tax,
depreciation and amortisation, as adjusted also for exceptional items,
impairment of assets and share option charges).
We believe that 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 (2014: £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 53, in relation to going
concern. We have nothing to report having performed our review.
Under ISAs (UK & Ireland) we are required to report to you if we have anything material to add, or to draw attention to,
in relation to the Directors’ statement about whether they considered it appropriate to adopt the going concern basis
in preparing the financial statements. We have nothing material to add or to draw attention to.
As noted in the Directors’ statement, the Directors have concluded that it is appropriate to adopt the going concern
basis in preparing the financial statements. 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.
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:
We have no exceptions to report.
• 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 54, 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
position and 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.
– the section of the Annual Report on page 27, as required by provision C.3.8 of the
We have no exceptions to report.
Code, describing the work of the Audit Committee does not appropriately address
matters communicated by us to the Audit Committee.
Sportech PLC Annual Report and Accounts 2015Strategic reportCorporate governanceFinancial statements 62
Independent Auditors’ report continued
to the members of Sportech PLC
The Directors’ assessment of the prospects of the Group and of the principal risks that would threaten the
solvency or liquidity of the Group
Under ISAs (UK & Ireland) we are required to report to you if we have anything material to add or to draw attention
to in relation to:
– the Directors’ confirmation on page 17 of the Annual Report, in accordance with
provision C.2.1 of the Code, that they have carried out a robust assessment of the
principal risks facing the Group, including those that would threaten its business
model, future performance, solvency or liquidity;
We have nothing material to
add or to draw attention to.
– the disclosures in the Annual Report that describe those risks and explain how they
are being managed or mitigated;
– the Directors’ explanation on page 17 of the Annual Report, in accordance with
provision C.2.2 of the Code, as to how they have assessed the prospects of the
Group, over what period they have done so and why they consider that period
to be appropriate, and their statement as to whether they have a reasonable
expectation that the Group will be able to continue in operation and meet its
liabilities as they fall due over the period of their assessment, including any related
disclosures drawing attention to any necessary qualifications or assumptions.
We have nothing material to
add or to draw attention to.
We have nothing material to
add or to draw attention to.
Under the Listing Rules we are required to review the Directors’ statement that they have carried out a robust
assessment of the principal risks facing the Group and the Directors’ statement in relation to the longer-term viability
of the Group. Our review was substantially less in scope than an audit and only consisted of making inquiries and
considering the Directors’ process supporting their statements; checking that the statements are in alignment with
the relevant provisions of the Code; and considering whether the statements are consistent with the knowledge acquired
by us in the course of performing our audit. We have nothing to report having performed our review.
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 Directors’ 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 statement relating to ten further
provisions of the Code. We have nothing to report having performed our review.
Sportech PLC Annual Report and Accounts 2015 63
Responsibilities for the financial statements and the audit
Our responsibilities and those of the Directors
As explained more fully in the Statement of the Directors’ responsibilities set out on page 54, 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
3 March 2016
Sportech PLC Annual Report and Accounts 2015Strategic reportCorporate governanceFinancial statements 64
Consolidated income statement
for the year ended 31 December 2015
Revenue
Cost of sales
Gross profit
Distribution costs
Administrative expenses
Other operating income
EBITDA before exceptional items, share option expense and impairment of assets
Share option expense
Depreciation and amortisation (excluding amortisation of acquired intangibles)
Amortisation of acquired intangibles
Impairment of assets
Exceptional income
Exceptional costs
Operating profit/(loss)
Finance costs
Other finance income
Net finance costs
Share of loss after tax and impairments of joint ventures and associates
Profit/(loss) before taxation
Adjusted profit before taxation*
Taxation
Profit/(loss) for the year
Attributable to:
Owners of the Company
Non-controlling interests
Earnings/(loss) per share attributable to owners of the Company
Basic
Diluted
Adjusted earnings per share attributable to owners of the Company
Basic
Diluted
Group
2015
£m
100.2
(58.2)
42.0
(0.6)
(36.3)
8.1
23.1
(0.5)
(7.6)
(1.2)
(6.1)
8.1
(2.6)
13.2
(3.2)
0.6
(2.6)
(0.9)
9.7
11.8
(3.0)
6.7
6.7
—
6.7
3.3p
3.1p
4.4p
4.2p
2014
£m
104.1
(58.1)
46.0
(0.9)
(62.4)
—
24.0
(0.6)
(6.2)
(4.1)
(28.1)
—
(2.3)
(17.3)
(2.8)
0.3
(2.5)
(0.2)
(20.0)
14.4
(1.3)
(21.3)
(21.3)
—
(21.3)
(10.4)p
(9.9)p
5.5p
5.2p
Note
2
2
4
4
4
17
5
8
10
10
10
10
* Adjusted profit before taxation is profit before taxation, amortisation of acquired intangibles, impairment of assets, exceptional items, share
of loss after tax and impairment of joint ventures and associates, and other finance income.
Sportech PLC Annual Report and Accounts 2015 Consolidated statement of
comprehensive income/(expense)
for the year ended 31 December 2015
65
Profit/(loss) for the year
Other comprehensive income/(expense):
Items that will not be reclassified to profit and loss
Actuarial gain/(loss) on retirement benefit liability
Deferred tax on movement on retirement benefit liability
Items that may be subsequently reclassified to profit and loss
Revaluation of available for sale financial assets
Currency translation differences
Total other comprehensive (expense)/income for the year, net of tax
Total comprehensive income/(expense) for the year
Attributable to:
Owners of the Company
Non-controlling interest
Note
32
20
25
Group
2015
£m
6.7
0.2
(0.1)
0.1
(1.6)
0.6
(0.9)
5.8
5.8
—
5.8
2014
£m
(21.3)
(0.4)
0.1
(0.3)
—
1.4
1.1
(20.2)
(20.2)
—
(20.2)
Sportech PLC Annual Report and Accounts 2015Strategic reportCorporate governanceFinancial statements 66
Statements of changes in equity
for the year ended 31 December 2015
Group
At 1 January 2014
Comprehensive income
Loss for the year
Other comprehensive (expense)/income
Actuarial loss on retirement benefit liability* (note 32)
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
Comprehensive income
Profit for the year
Other comprehensive income/(expense)
Actuarial gain on retirement benefit liability* (note 32)
Revaluation of available for sale financial assets (note 25)
Currency translation differences
Total other comprehensive income/(expense)
Total comprehensive income/(expense)
Transactions with owners
Share option credit (note 6)
Shares issued in relation to PSP
Changes in ownership interests
Acquisition of interest in S&S Venues California, LLC (note 17)
Total transactions with owners of the company
Total changes in equity
At 31 December 2015
* Net of deferred tax (note 20).
Company
At 1 January 2014
Comprehensive expense
Loss for the year (note 9)
Total comprehensive expense
Transactions with owners
Share option credit (note 6)
Employment taxes paid on vestings in the year
Shares issued in relation to PSP and reserve transfer
At 31 December 2014
Comprehensive expense
Loss for the year (note 9)
Total comprehensive expense
Transactions with owners
Share option credit (note 6)
Shares issued in relation to PSP and reserve transfer
At 31 December 2015
* Net of deferred tax (note 20).
Ordinary
shares
£m
102.4
Share
option
reserve
£m
2.2
Other reserves
Currency
translation
reserve
£m
(1.5)
Pension
reserve
£m
(0.3)
Available
for sale
Retained
reserve
earnings
£m
£m
— 36.9
Non-
controlling
interests
Total
£m
£m
— 139.7
—
—
—
—
—
—
—
— (0.3)
—
—
— (0.3)
— (0.3)
—
—
1.4
1.4
1.4
—
0.6
— (0.3)
(0.2)
2.3
0.2
102.6
—
—
—
(0.6)
—
—
—
(0.1)
—
—
—
—
—
—
—
—
—
—
—
—
—
0.5
0.5
(0.5)
—
0.1
—
—
0.1
0.1
—
—
—
0.5
0.5
103.1
—
—
—
—
—
0.1
2.3 (0.5)
—
—
—
0.6
0.6
0.6
—
—
—
—
0.6
0.5
— (21.3)
— (21.3)
—
—
—
—
—
—
— (21.3)
—
—
—
—
—
—
(1.6)
—
(1.6)
(1.6)
—
—
—
—
(1.6)
(1.6)
—
—
—
15.6
6.7
—
—
—
—
6.7
—
—
—
—
6.7
22.3
— (0.3)
1.4
—
—
1.1
— (20.2)
— 0.6
— (0.3)
—
—
— 119.8
— 6.7
—
0.1
— (1.6)
— 0.6
— (0.9)
— 5.8
— 0.5
—
—
0.1
0.1
0.6
0.1
0.1
6.4
0.1 126.2
Ordinary
shares
£m
102.4
—
—
—
—
0.2
102.6
—
—
—
0.5
103.1
Other reserve –
share option reserve
£m
2.2
—
—
0.6
(0.3)
(0.2)
2.3
—
—
0.5
(0.5)
2.3
Retained
earnings
£m
19.4
(6.5)
(6.5)
—
—
0.2
13.1
(5.7)
(5.7)
—
0.5
7.9
Total
£m
124.0
(6.5)
(6.5)
0.6
(0.3)
0.2
118.0
(5.7)
(5.7)
0.5
0.5
113.3
Sportech PLC Annual Report and Accounts 2015 Balance sheets
at 31 December 2015
ASSETS
Non-current assets
Goodwill
Intangible fixed assets
Property, plant and equipment
Investments in subsidiaries
Net investment in joint ventures and associates
Trade and other receivables
Deferred tax assets
Current assets
Trade and other receivables
Available for sale financial assets
Inventories
Cash and cash equivalents
TOTAL ASSETS
LIABILITIES
Current liabilities
Derivative financial instruments
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
EQUITY ATTRIBUTABLE TO OWNERS OF THE COMPANY
Non-controlling interests
TOTAL EQUITY
Group
2015
£m
Note
11
12
13
14
17
18
20
18
25
19
21
25
22
23
24
32
23
20
26
121.3
42.1
24.0
—
2.1
2.0
1.4
192.9
10.9
2.9
2.1
4.4
20.3
213.2
—
(20.6)
(0.1)
(1.3)
(22.0)
(1.7)
(62.3)
(1.4)
(0.4)
(0.9)
(65.0)
(87.0)
126.2
103.1
0.7
22.3
126.1
0.1
126.2
2014
£m
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
—
119.8
67
Company
2015
£m
2014
£m
—
12.0
0.1
203.7
—
—
0.1
215.9
21.9
—
—
—
21.9
237.8
—
(62.4)
—
—
(62.4)
(40.5)
(62.1)
—
—
—
(62.1)
(124.5)
113.3
103.1
2.3
7.9
113.3
—
113.3
—
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
—
118.0
The financial statements on pages 64 to 113 were approved and authorised for issue by the Board of Directors on
3 March 2016 and were signed on its behalf by:
Ian Penrose
Chief Executive
Company Registration Number: SC069140
Cliff Baty
Chief Financial Officer
Sportech PLC Annual Report and Accounts 2015Strategic reportCorporate governanceFinancial statements 68
Statements of cash flows
for the year ended 31 December 2015
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 items
Cash exceptional costs
Net cash generated from/(used in) operating activities
Cash flows from investing activities
Investment in joint ventures
Acquisition of Bump Worldwide, Inc. inclusive
of overdraft acquired
Payment of deferred consideration for eBet Online, Inc.
Proceeds received on disposal of Sportech-NYX
Gaming, LLC
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 (outflow)/inflow from (repayment)/drawdown
of borrowings
Net cash (used in)/generated from financing activities
Net (decrease)/increase in cash and cash equivalents
Effect of foreign exchange on cash and cash equivalents
Cash and cash equivalents at the beginning of the year
Cash and cash equivalents at the end of the year
Reconciliation of net bank debt
(Decrease)/increase in cash in the year
Net cash outflow/(inflow) from repayment/(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
27
17
15
16
4
24
21
21
24
Group
2015
£m
20.2
(3.2)
(2.3)
14.7
(2.3)
12.4
2014
£m
20.4
(3.0)
(1.3)
16.1
(2.3)
13.8
(2.5)
(1.9)
—
—
5.1
(4.9)
(3.4)
(5.7)
(0.2)
(0.7)
—
(5.1)
(4.9)
(12.8)
(0.3)
(1.4)
(8.0)
(8.3)
(1.6)
(0.3)
6.3
4.4
(1.9)
8.0
6.1
(63.8)
(57.7)
4.4
(62.1)
(57.7)
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)
Company
2015
£m
13.2
(3.2)
(0.7)
9.3
(0.9)
8.4
—
—
—
—
(1.2)
—
(1.2)
(0.3)
(8.0)
(8.3)
(1.1)
—
0.1
(1.0)
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
Sportech PLC Annual Report and Accounts 2015
Accounting policies
for the year ended 31 December 2015
69
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 2015 comprise the Company, its
subsidiaries, joint ventures and associates (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
As discussed in the Directors’ report on page 53, the
Directors have a reasonable expectation that the Company
and the Group have adequate resources to continue in
operational existence for the period to 30 June 2017.
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 and available for sale
financial assets) to fair value in accordance with IAS 39
“Financial Instruments: Recognition and measurement”.
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 intangible fixed assets
To determine whether an impairment of goodwill from
the Littlewoods, Vernons and eBet Online, Inc. acquisitions,
or of the intangible assets held in the Sportech Venues
division has occurred, the key assumptions the Group
uses in estimating future cash flows for value-in-use
measures are:
– spend per player;
– rates of player retention and acquisition;
– new product uptake;
– the benefit of our continued investment in technologies;
– industry handle rates;
– levels of capital expenditure representing industry norms;
– rates of industry and market growth/decline;
– discount rates, which appropriately reflect the risks
associated with those specific cash-generating units
(“CGUs”).
These assumptions, and the judgements of management
that are based on them, are subject to change as new
information becomes available. Economic conditions
and government policy changes can also impact on the
discount rates applied, which are reviewed annually.
Further details are disclosed within notes 11 and 12.
Carrying value of joint venture investments
The Group prepares long-term cash flow forecasts
for each of its joint ventures which are reviewed by
management on a regular basis. At the reporting date,
the active joint venture investments held by the Group
are those for the venue in San Diego, and the Indian
pools betting venture, Sportshub Private Limited
(“Sportshub”). As with all start up ventures, the accuracy
of those projections is based on estimates of local demand
where the ventures operate, growth in those local markets
together with potential new markets, combined with the
success of the venue and product in attracting a strong
customer base.
Management believe the ventures represent growth
areas capable of generating future cash flows in excess
of the net assets held by each of the respective joint
ventures at the reporting date. Accordingly, it is
management’s judgement that neither of the Group’s
net investment in joint ventures are impaired. Further
details are disclosed within note 17.
Sportech PLC Annual Report and Accounts 2015Strategic reportCorporate governanceFinancial statements 70
Accounting policies continued
for the year ended 31 December 2015
The acquisition 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) Equity accounted investees
The Group equity accounts for any investees which are
considered to be either a joint venture or an associate.
A joint venture is an entity which is jointly controlled by
the Group and one or more venturers under a contractual
agreement. An associate is an entity in which the Group
has no control nor joint control, but bears significant
influence over that entity. In both cases, the Group holds
its interest in the entity on a long-term basis.
Carrying value of contingent consideration receivable
An element of the consideration received on the disposal
of Sportech-NYX Gaming, LLC, as discussed in note 16,
is contingent upon NYX Gaming Group Limited (“NYX”)
customers going live on their Real Money Wagering
Platform. Judgement is therefore applied by management
as to the likelihood that customers will go-live on this
platform, and the number of customers who do so.
The judgements which have been applied by management
are discussed further in note 16. Changes to market
conditions, including regulatory change and competition
from other online gaming suppliers are the key assumptions
used in making these judgements. Management are
confident that the assumptions applied represent the best
estimate of the amount receivable by the Group for future
customer acquisitions made by NYX.
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
equity accounted investees, 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 3 January 2016 (2014: 4 January 2015). For ease
of reference in these financial statements, all references
to the results for the year are for the year ended
31 December 2015 (2014: 31 December 2014)
and the financial position at 31 December 2015
(2014: 31 December 2014).
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
control. Control of an entity is deemed to exist when
the Group is exposed to, or has rights to, variable returns
through its power over that entity 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 deconsolidated from the date that
control ceases.
Sportech PLC Annual Report and Accounts 2015 71
The Group’s share of post-acquisition profits and losses
made by the investee 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
an equity-accounted investee equals or exceeds its
interest in that entity, 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 equity accounted investees are eliminated to the extent
of the Group’s interest in that entity. Unrealised losses are
also eliminated unless the transaction provides evidence
of an impairment of the asset transferred. The accounting
policies of the investee 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;
– the 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, and revenue is recognised on the
separate components of the contract in accordance
with the appropriate revenue recognition policy for that
item or service.
(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 follows:
– 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.
Sportech PLC Annual Report and Accounts 2015Strategic reportCorporate governanceFinancial statements 72
Accounting policies continued
for the year ended 31 December 2015
(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.
(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
or liabilities of the foreign entity and translated at the
closing rate.
Sportech PLC Annual Report and Accounts 2015 73
(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.
Goodwill is allocated to specific CGUs 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 outlined in
note 12.
Software
(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:
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).
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.
(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.
Development costs that are directly attributable to the
design and testing of identifiable and unique software
products controlled by the Group are recognised as
intangible assets when the following criteria are met:
– it is technically feasible to complete the software product
so that it will be available for use;
– management intends to complete the software product;
– it can be demonstrated how the software product will
generate probable future economic benefits;
– adequate technical, financial and other resources to
complete the development and to use or sell the
software product are available; and
– the expenditure attributable to the software product
during its development can be reliably measured.
Sportech PLC Annual Report and Accounts 2015Strategic reportCorporate governanceFinancial statements 74
Accounting policies continued
for the year ended 31 December 2015
(k) Intangible fixed assets (continued)
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.
(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 the
income statement.
Sportech PLC Annual Report and Accounts 2015 75
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.
Amounts accumulated in equity are recycled in the income
statement in the periods when the hedged item will affect
profit or loss, e.g. 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.
Available for sale financial assets
Financial assets which do not meet the criteria of being
loans and receivables, fair value through profit and loss,
or held to maturity financial assets are classified as
available for sale financial assets in accordance with IAS
39. Those assets are remeasured to their fair value at the
reporting date, with any gains/losses recognised within
other comprehensive income. An available for sale
financial asset reserve holds all unrealised gains/losses
within equity on the balance sheet.
Gains/losses on available for sale financial assets are
realised at the point that the asset is disposed of by
the Group.
(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 2015Strategic reportCorporate governanceFinancial statements 76
Accounting policies continued
for the year ended 31 December 2015
(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 “Share-based Payment”,
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
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. Cash held on behalf of customers is
netted against the corresponding liability within trade
and other payables and does not form part of the
Group’s cash and cash equivalents balance.
(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.
Sportech PLC Annual Report and Accounts 2015 77
(z) New standards, amendments and interpretations adopted by the Group
There are no new standards or amendments to standards or interpretations that are mandatory for the first time for
the financial year beginning 1 January 2015 that materially impacted the Group financial statements. Accordingly, the
accounting policies applied in these financial statements are consistent with those of the annual financial statements
for the year ended 31 December 2014, as described in those financial statements.
(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
IFRS 16
Amendments to IFRS 9
IFRS 15
Annual improvements 2014
Content
Leasing
Financial instruments
Revenue from contracts with customers
Various
Applicable for financial
years beginning on or after
1 January 2019
1 January 2018
1 January 2018
1 January 2016
Sportech PLC Annual Report and Accounts 2015Strategic reportCorporate governanceFinancial statements 78
Notes to the financial statements
for the year ended 31 December 2015
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 exceptional items and asset impairment
charges. 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 items, share option
expense and impairment of assets
Share option expense
Depreciation and amortisation (excluding
amortisation of acquired intangibles)
Segment result before amortisation of
acquired intangibles and impairment of assets
Amortisation of acquired intangibles
Impairment of assets
Exceptional income
Exceptional costs
Operating profit/(loss)
Net finance costs
Share of loss after tax and impairment of joint
ventures and associates
Profit before taxation
Taxation
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)
Football
Pools
£m
33.8
—
33.8
15.2
—
Sportech
Racing
and
Digital
£m
4.7
29.9
34.6
2015
Sportech
Venues
£m
—
32.7
32.7
Corporate
costs
£m
—
—
—
Inter-
segment
elimination
£m
—
(0.9)
(0.9)
8.6
—
2.8
—
(3.5)
(0.5)
(1.8)
(3.8)
(1.3)
(0.7)
13.4
—
—
—
(0.2)
13.2
4.8
(1.2)
(6.1)
8.1
(1.5)
4.1
1.5
—
—
—
(0.2)
1.3
(4.7)
—
—
—
(0.7)
(5.4)
—
—
—
—
—
—
—
—
—
193.0
(18.7)
90.1
(78.0)
39.4
(8.7)
39.2
(130.1)
(148.5)
148.5
2.5
0.2
1.6
4.5
1.8
3.2
1.1
1.2
0.1
0.3
0.1
0.6
—
—
—
Group
£m
38.5
61.7
100.2
23.1
(0.5)
(7.6)
15.0
(1.2)
(6.1)
8.1
(2.6)
13.2
(2.6)
(0.9)
9.7
(3.0)
6.7
213.2
(87.0)
8.4
3.3
5.5
Sportech PLC Annual Report and Accounts 2015 Revenue from sale of goods
Revenue from rendering of services
Total revenue
EBITDA before exceptional items, share option
expense and impairment of assets
Share option expense
Depreciation and amortisation (excluding
amortisation of acquired intangibles)
Segment result before amortisation of
acquired intangibles and impairment of assets
Amortisation of acquired intangibles
Impairment of assets
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)
Football
Pools
£m
38.0
—
38.0
16.6
—
Sportech
Racing
and
Digital
£m
4.2
30.3
34.5
8.1
—
(1.5)
(3.5)
15.1
(2.6)
(28.1)
(1.4)
(17.0)
4.6
(1.5)
—
—
3.1
2014
Sportech
Venues
£m
—
32.5
32.5
Corporate
costs
£m
—
—
—
Inter-
segment
elimination
£m
—
(0.9)
(0.9)
3.2
—
(1.2)
2.0
—
—
(0.1)
1.9
(3.9)
(0.6)
—
(4.5)
—
—
(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
—
—
—
—
—
—
79
Group
£m
42.2
61.9
104.1
24.0
(0.6)
(6.2)
17.2
(4.1)
(28.1)
(2.3)
(17.3)
(2.5)
(0.2)
(20.0)
(1.3)
(21.3)
215.0
(95.2)
10.0
3.0
7.3
Sportech PLC Annual Report and Accounts 2015Strategic reportCorporate governanceFinancial statements 80
Notes to the financial statements continued
for the year ended 31 December 2015
1. Segmental reporting continued
Information by geographical area
United Kingdom
North and South America
Europe
Other
Total
Revenues from
external customers
Non-current assets
2015
£m
38.7
51.3
9.3
0.9
100.2
2014
£m
41.1
50.7
11.3
1.0
104.1
2015
£m
141.9
48.6
2.4
—
192.9
2014
£m
142.2
51.5
3.1
—
196.8
Revenue is allocated to the country in which the customer is located and the service is performed or product is delivered.
2. Exceptional (income)/costs
Net exceptional (income)/costs by type are as follows:
Included in administrative expenses:
Redundancy and restructuring costs in respect of the rationalisation
and modernisation of the business
Costs incurred in relation to California contract exit
Costs and fees in relation to Spot the Ball VAT claim
Transaction costs in relation to Contagious Gaming, Inc. proposal
Transaction costs in respect of the acquisition of subsidiaries and associates
Licensing costs in New Jersey in respect of the acquisition of Sportech Racing
Costs in relation to the set up of joint ventures
IFRS 3 employment costs in relation to Datatote (England) Limited and Bump Worldwide, Inc.
Release of contingent consideration accrued for Datatote (England) Limited
Release of contingent consideration accrued for eBet Online, Inc.
Realised fair value loss on receipt of shares in NYX Gaming Group Limited (note 16)
Other exceptional items
Included in other operating income:
Net gain on disposal of Sportech-NYX Gaming, LLC (note 16)
Included in net finance costs:
Refinancing fee
Movement on derivative financial instruments post designation as ineffective
Net exceptional (income)/costs
2015
£m
2014
£m
1.0
0.6
—
0.2
0.1
0.3
0.2
0.2
(0.2)
—
0.2
—
2.6
(8.1)
(8.1)
0.3
(0.5)
(0.2)
(5.7)
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
Sportech PLC Annual Report and Accounts 2015 3. Expenses by nature
Selling commissions
Betting and gaming duties
Track and tote fees
Marketing, printing and postage costs
Employment costs
Share option expense
Depreciation and amortisation
Impairment of goodwill
Impairment of property, plant and equipment and intangible assets in respect of
the California contract exit
Distribution costs
IT and telecommunications costs
Cost of inventories recognised as an expense
Exceptional costs excluding redundancy and restructuring costs in respect of the
rationalisation and modernisation of the business
Property related costs
Other costs
Total expenses
Included in the above table are exceptional costs of £2.6m (2014: £2.3m).
4. Net finance costs
Note
6
6
12, 13
11
12, 13
19
2
Interest payable on bank loans, derivative financial instruments and overdrafts
Foreign exchange gain on financial assets and liabilities denominated in foreign currency
Movement on derivative financial instruments post designation as ineffective
Refinancing fee
Net finance costs
2015
£m
1.6
5.8
15.4
5.2
30.0
0.5
8.8
3.7
2.4
0.6
2.4
3.8
1.6
5.4
7.9
95.1
2015
£m
3.2
(0.4)
(0.5)
0.3
2.6
81
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
2014
£m
2.8
(0.9)
(0.8)
1.4
2.5
The foreign exchange gain on financial assets and liabilities denominated in foreign currency, fair value movements on
derivative financial instruments and the refinancing fee are all together shown as other finance income in the income
statement. Included in the above table is exceptional income of £0.2m (2014: exceptional costs of £0.6m)
(see note 2).
Sportech PLC Annual Report and Accounts 2015Strategic reportCorporate governanceFinancial statements 82
Notes to the financial statements continued
for the year ended 31 December 2015
5. Profit/(loss) before taxation
Profit/(loss) before taxation is stated after charging:
Employment costs
Depreciation of property, plant and equipment
Impairment of goodwill
Impairment of property, plant and equipment and intangible assets in respect of
the California contract exit
Amortisation of acquired intangibles
Amortisation of other intangibles
Impairment of net investment in joint venture
Note
6
13
11
12, 13
12
12
17
2015
£m
30.5
3.3
3.7
2.4
1.2
4.3
0.2
2014
£m
31.0
3.0
28.1
—
4.1
3.2
—
The fees of the Auditors in relation to their audit of the Company and consolidated accounts are £52,000 (2014: £38,000).
Fees paid to Auditors during the period comprise:
Audit of the Group’s subsidiaries
Taxation compliance
Taxation advisory services
Other assurance services
Total fees
2015
£m
0.2
0.1
0.1
0.1
0.5
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 32)
Pension costs – defined benefit scheme (note 32)
Share option expense
Total remuneration
2015
Number
96
516
137
749
2015
£m
25.1
4.1
0.7
0.1
0.5
30.5
2014
£m
0.2
0.1
0.2
0.1
0.6
2014
Number
103
583
110
796
2014
£m
25.6
3.9
0.7
0.2
0.6
31.0
Sportech PLC Annual Report and Accounts 2015 83
2015
£000
1,236
266
55
1,557
2014
£000
1,420
304
72
1,796
7. Directors and key management remuneration
Directors
Short-term employee benefits
Share-based payments
Post-employment benefits
Total remuneration
Details of individual Directors’ remuneration and share-based incentives granted are given in the Remuneration
report on pages 33 to 51. This information forms part of the financial statements. Retirement benefits are accruing
under defined benefit pension schemes for nil Directors (2014: nil). Nil Directors exercised share options in the year
(2014: three).
Key management compensation
Short-term employee benefits
Share-based payments
Post-employment benefits
Total remuneration
2015
£000
1,559
335
58
1,952
2014
£000
1,803
386
83
2,272
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 profit/(loss) 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
Adjustments in respect of prior years
Total deferred tax
Total taxation charge
2015
£m
2.8
0.4
3.2
0.7
(0.1)
(0.8)
(0.2)
3.0
2014
£m
1.5
(0.2)
1.3
0.1
(0.1)
—
—
1.3
Sportech PLC Annual Report and Accounts 2015Strategic reportCorporate governanceFinancial statements 84
Notes to the financial statements continued
for the year ended 31 December 2015
8. Taxation continued
The taxation on the Group’s profit/(loss) before taxation differs from the theoretical amount that would arise using the
weighted average tax rate applicable to profits and losses of the consolidated entities as follows:
Profit/(loss) before taxation
Add share of loss after tax and impairment of joint ventures and associates
Profit/(loss) 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
– effect of changes in tax rates
– adjustments in respect of prior years
Total taxation charge
2015
£m
9.7
0.9
10.6
1.8
1.7
(0.1)
(0.4)
3.0
2014
£m
(20.0)
0.2
(19.8)
(4.6)
6.2
(0.1)
(0.2)
1.3
The weighted average applicable tax rate was 17.0% (2014: 23.0%). The decrease is as a result of a change in mix of
profits/(losses) in jurisdictions with varying tax rates.
Included within permanent differences in 2015 is the tax effect at 34% of the £3.7m impairment of goodwill attributable
to eBet Online, Inc., for which no tax relief is received. Similarly no tax relief was received in 2014 for the £28.1m
impairment of goodwill in the Football Pools segment, and the tax effect at 21.5% of this is reflected within permanent
differences in that year.
As the Group’s year end is after the substantive enactment date (26 October 2015) of the Finance Act 2015, these
financial statements account for the change in the UK Corporation Tax rate from 20% to 19% with effect from 1 April
2017, with a further change to 18% for financial years beginning 1 April 2020. Therefore the rate at which deferred tax is
calculated has changed. Deferred tax in the UK is provided at a blended rate, depending on when the deferred tax
is expected to unwind.
9. Result of Parent Company
Included in the Group’s result for the year is a loss of £5.7m (2014: £6.5m) in respect of its Parent Company, Sportech
PLC. 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 3 March 2016.
Sportech PLC Annual Report and Accounts 2015 85
10. Earnings per share
(a) Basic
Basic earnings per share is calculated by dividing the profit/(loss) attributable to equity holders of the Parent Company
by the weighted average number of ordinary shares in issue during the year.
Profit/(loss) attributable to the owners of the Company
Weighted average number of ordinary shares in issue (’000)
Basic earnings/(loss) per share
2015
£m
6.7
206,051
3.3p
2014
£m
(21.3)
204,986
(10.4)p
(b) Basic adjusted
Adjusted EPS is calculated by dividing the adjusted profit after tax attributable to owners of the Company by the weighted
average number of ordinary shares in issue during the year. Adjusted profit after tax is calculated by applying an estimated
adjusted tax charge of 23.7% (2014: 22.3%) to adjusted profit before tax as defined on the income statement. This adjusted
tax charge excludes the tax impact of income statement items not included in adjusted profit before tax.
Adjusted profit before taxation
Tax at 23.7% (2014: 22.3%)
Adjusted basic EPS
2015
Weighted
average
number of
shares
’000
206,051
206,051
206,051
Profit
£m
11.8
(2.8)
9.0
Per share
amount
Pence
5.7
(1.3)
4.4
2014
Weighted
average
number of
shares
’000
204,986
204,986
204,986
Profit
£m
14.4
(3.2)
11.2
Per share
amount
Pence
7.0
(1.5)
5.5
(c) 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 (202,020 in number; 2014: 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 8,191,000 (2014: 9,005,000). Diluted basic earnings per share is 3.1p (2014: loss per share 9.9p)
and diluted adjusted EPS is 4.2p (2014: 5.2p).
Sportech PLC Annual Report and Accounts 2015Strategic reportCorporate governanceFinancial statements 86
Notes to the financial statements continued
for the year ended 31 December 2015
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
2015
£m
2014
£m
171.0
171.0
(46.0)
(3.7)
(49.7)
125.0
121.3
(17.9)
(28.1)
(46.0)
153.1
125.0
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.
(a) Football Pools
The goodwill from the Littlewoods Leisure and Vernons acquisitions is attributed to the Football Pools segment.
During the year the Group carried out its annual impairment review of the carrying value of its goodwill. In testing for
impairment, other assets used solely to generate cash flows in the Football Pools CGU are also included, totalling £9.2m
(2014: £7.9m). For the purpose of the annual impairment review, 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 2016 and on cash flow projections
for 2017 to 2020 also approved by the Board, with a terminal value at 2020 calculated in accordance with IAS 36
“Impairment of Assets”. Forecasts assume stabilisation of cash flows in 2016 from 2015 together with an overall 1%
growth in EBITDA by 2020;
– trading forecasts for the core Football Pools business reflect the continued improvement in spend per player from
core customer numbers; the discontinuance of legacy and loss making products/channels; the continuation and
improvement of new player acquisition activities; the improvement in technology and overall customer offering
following the continued investment in 2015; and the benefits from operating the whole business from a new single
customer facing, fully integrated technology platform from the end of H1 2016. The Board believes that the impact
of all of those factors will lead to a stabilisation of EBITDA within the core Football Pools business in 2016;
– the terminal value is based on a nil growth rate given the expected stabilisation of profit streams;
– cash flows have been discounted at 8.4% (2014: 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.
The recoverable amount of the Football Pools goodwill was estimated to be £129.3m, and therefore no impairment
is recognised in the income statement (2014: impairment of £28.1m).
Management consider that the calculated recoverable amount is most sensitive to changes in the following reasonable
downside assumptions and notes that the changes to the assumptions below, all other variables held constant, would
cause the indicated further impairments:
EBITDA decline from 2015 of 3% per annum into perpetuity
WACC of 10% rather than 8.4%
Resulting
impairment
£m
40.5
19.8
Sportech PLC Annual Report and Accounts 2015 87
(b) eBet Online, Inc.
The goodwill from the eBet Online, Inc. (“eBet”) acquisition is attributed to the Sportech Racing and Digital segment.
In H1 2015, impairment indicators arose in respect of the goodwill attributable to eBet, being the loss of two significant
customers. Accordingly, an impairment review was performed at that time indicating a reduction in the recoverable
amount of this asset. An impairment charge of £3.7m has therefore been recognised in the income statement (2014: £nil).
In accordance with the Group’s annual cycle in its review of all critical judgments, a further impairment review was
performed to assess the value-in-use of the eBet goodwill at the reporting date. The key assumptions in this value-in-use
calculation were:
– EBITDA forecasts are in line with the approved 2016 budget and strategic plans, with compound growth of 17%
in earnings from 2016 to 2020 given market growth expectations;
– the terminal value is based on a growth rate of 1.5%, reflecting foreseen growth in the online gambling market
in the US; and
– cash flows have been discounted at 10.0% (2014: 8.3%), reflecting a market-based weighted average cost
of capital appropriate for the CGU.
On the basis of this latest review, the recoverable amount of the eBet goodwill is estimated to be £8.1m and therefore
no further impairment charge has been recognised.
Management consider that the calculated recoverable amount is most sensitive to changes in the following reasonable
downside assumptions and notes that the changes to the assumptions below, all other variables held constant, would
cause further impairments to arise:
Compound growth in EBITDA of 5% per annum from 2016 to 2020, with no terminal growth
WACC of 12.5% rather than 10.0%
12. Intangible fixed assets
Group
Cost
At 1 January 2015
Additions
Transfer
Disposals
At 31 December 2015
Accumulated amortisation
At 1 January 2015
Charged during the year
Impairment
Disposals
At 31 December 2015
Cumulative exchange differences
Net book amount at 31 December 2015
Customer
contracts and
relationships
£m
Software
£m
36.5
—
—
—
36.5
35.0
0.9
—
—
35.9
—
0.6
42.1
4.8
1.3
(0.4)
47.8
20.7
4.0
0.2
(0.4)
24.5
0.4
23.7
Resulting
impairment
£m
1.3
0.2
Other
£m
21.9
0.1
(1.3)
—
20.7
3.3
0.6
—
—
3.9
1.0
17.8
Total
£m
100.5
4.9
—
(0.4)
105.0
59.0
5.5
0.2
(0.4)
64.3
1.4
42.1
Sportech PLC Annual Report and Accounts 2015Strategic reportCorporate governanceFinancial statements 88
Notes to the financial statements continued
for the year ended 31 December 2015
12. Intangible fixed assets continued
Company
Cost
At 1 January 2015
Additions
At 31 December 2015
Accumulated amortisation
At 1 January 2015
Charged during the year
At 31 December 2015
Net book amount at 31 December 2015
Software
£m
Other
£m
15.7
1.2
16.9
4.4
0.9
5.3
11.6
0.9
—
0.9
0.4
0.1
0.5
0.4
Total
£m
16.6
1.2
17.8
4.8
1.0
5.8
12.0
Customer contracts and relationships
Customer contracts and relationships of the Group are in relation to eBet Online, Inc., which have a useful life of four
years from 19 December 2012, Datatote (England) Limited, which have a useful life of four years and eight months
from 27 September 2013, and to Bump Worldwide, Inc. which have a useful life of two years from 12 June 2014.
Software
Software owned by the Group largely relates to that providing pari-mutuel services to customers in North America.
This software is owned by the Company, and has a useful life of 15 years. Other software is predominantly spend on the
proprietary Football Pools customer database and system, which has a useful life of between six and ten years.
Other intangibles
The Group holds a licence in perpetuity to offer pari-mutuel off-track betting in the State of Connecticut in the US.
Given this licence is in perpetuity, the book value of the asset amounting to £16.9m (2014: £16.3m) is not amortised
and the useful economic life allocated to the asset is indefinite. The movement in net book value is as a result of
movement in exchange rates given the asset value is denominated in US Dollars.
As required by IAS 36 an impairment test has been carried out as at 31 December 2015. In testing for impairment,
other assets used solely to generate cash flows in the CGU are also included, totalling £10.4m (2014: £9.9m).
The recoverable amount of the asset has been determined based on a value-in-use calculation. The following
assumptions were made in determining the recoverable amount:
– EBITDA forecasts are in line with the approved 2016 budget and 2017 to 2020 strategic plans which assume year
on year handle decline in the land-based Venues of 2%, offset by compound growth in online handle of 35% in the
same period;
– the future cash flow forecasts include capital expenditure and EBITDA for the build out and trading of a significant
new venue, which is currently classified as an asset under construction;
– cash flows beyond the fifth year were extrapolated using a nil growth rate for the land-based Venues, given the
expected stabilisation of cash flows over time, and a 2% growth rate in the online business, reflecting expected growth
in the online betting market;
– capital expenditure was included in the cash flows at management’s best estimate of industry norm for reinvestment
in retail outlets of the kind under review; and
– a post tax discount rate of 8.5% (2014: 8.3%) was used representing a market-based weighted average cost of capital
appropriate for the Sportech Venues CGU.
Following the impairment review, the recoverable amount of those assets was deemed to be £31.4m and accordingly
no impairment was charged to the income statement (2014: £nil).
Sportech PLC Annual Report and Accounts 2015 89
Management consider that the calculated recoverable amount is most sensitive to changes in the following reasonable
downside assumptions and notes that the changes to the assumptions below, all other variables held constant, would
cause the indicated impairments:
Land-based handle decline of 2% runs into perpetuity; online handle compound growth
reduced to 11% to 2020; and remove the build out and trading of the venue under construction
WACC of 10% rather than 8.5%
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
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
Amortisation has been included within administrative expenses.
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
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
Resulting
impairment
£m
7.6
1.6
Total
£m
95.1
0.3
5.1
100.5
51.7
7.3
59.0
0.6
42.1
Total
£m
16.5
0.1
16.6
3.4
1.4
4.8
11.8
Sportech PLC Annual Report and Accounts 2015Strategic reportCorporate governanceFinancial statements 90
Notes to the financial statements continued
for the year ended 31 December 2015
13. Property, plant and equipment
Group
Cost
At 1 January 2015
Additions
Acquisition of interests in S&S Venues
California, LLC (note 17)
Disposals
Transfer
At 31 December 2015
Accumulated depreciation
At 1 January 2015
Charged during the year
Impairment
Disposals
At 31 December 2015
Cumulative exchange differences
Net book amount at 31 December 2015
Company
Cost
At 1 January and 31 December 2015
Accumulated depreciation
At 1 January and 31 December 2015
Net book amount at 31 December 2015
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
0.2
—
—
—
—
0.2
0.1
—
—
—
0.1
—
0.1
11.4
—
—
—
0.1
11.5
4.0
0.6
—
—
4.6
0.5
7.4
20.3
0.8
—
(5.3)
4.3
20.1
8.3
2.5
2.2
(5.3)
7.7
0.3
12.7
0.8
—
—
—
—
0.8
0.1
0.2
—
—
0.3
—
0.5
4.2
2.7
0.6
—
(4.4)
3.1
—
—
—
—
—
0.2
3.3
Short
leasehold
land and
buildings
£m
Plant and
machinery
£m
0.1
0.1
—
0.2
0.1
0.1
Total
£m
36.9
3.5
0.6
(5.3)
—
35.7
12.5
3.3
2.2
(5.3)
12.7
1.0
24.0
Total
£m
0.3
0.2
0.1
Sportech PLC Annual Report and Accounts 2015 91
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
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
Group
Company
2015
£m
—
2014
£m
—
2015
£m
203.7
2014
£m
203.7
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
14. Investments in subsidiaries
Investments in Group companies
At 1 January and 31 December
Investments in Group companies are stated at cost which is the fair value of the consideration paid.
A full listing of the Group’s subsidiaries, and other related undertakings, is included in note 33.
Sportech PLC Annual Report and Accounts 2015Strategic reportCorporate governanceFinancial statements 92
Notes to the financial statements continued
for the year ended 31 December 2015
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”.
There were no changes during the hindsight period to the fair value assumptions applied at acquisition in relation
to the net assets acquired and consideration paid for Bump.
EBITDA estimates for the business continue to indicate that contingent consideration will be due and payable in 2017.
This is treated as employment costs under IFRS 3 “Business Combinations” (revised) and is accordingly accrued on a
time apportioned basis to 31 December 2016 (see note 24).
(b) Datatote (England) Limited
On 27 September 2013, the Group acquired 100% of the issued share capital of Datatote (England) Limited (“Datatote”).
An element of the consideration payable for this purchase was contingent based on EBITDA targets.
Management estimates that the achievement of EBITDA targets required for any contingent consideration to be paid on
this acquisition is unlikely. As such, the accrual recognised in the balance sheet at 31 December 2014 has been released
in full (see note 2).
16. Disposals
On 3 July 2015, the Group disposed of its investment in Sportech-NYX Gaming, LLC for cash consideration of £5.1m,
2.2m ordinary shares of NYX Gaming Group Limited (“NYX”), and an element of contingent consideration.
The shares had an aggregate value on the date of disposal of £4.7m, based on the share price at that time of CAD $4.15.
As a condition to the disposal, NYX are required to pay the Group CAD $1.0m for each customer to go-live on the NYX
Real Money Wagering Platform in the US, its territories and Commonwealth, Canada, and all sovereign Indian Nations in
these countries prior to 28 May 2020. The maximum consideration receivable by the Group for this condition is CAD
$3.0m. Management believe that NYX will acquire at least three customers to the relevant platform within the next five
years, and as such accrued for the contingent consideration in full (discounted to today’s value at a rate of 8.3%), at a
value of £1.1m.
The net gain on disposal of Sportech-NYX Gaming, LLC recognised in the year is calculated as follows:
Consideration receivable
Net investment in joint venture disposed of (note 17)
Disposal costs
Net gain on disposal before taxation (note 2)
2015
£m
10.9
(1.9)
(0.9)
8.1
On the date of receipt, the shares had an aggregate value of £4.5m, based on the share price at that date (16 July 2015)
of CAD $4.06 per share. The fair value loss on the consideration receivable of £0.2m from disposal date to the date of
receipt has been recognised as an exceptional cost in the year (see note 2). The shares held in NYX represent an
available for sale financial asset in accordance with IAS 39. Accordingly, the shares are revalued to their fair value at the
reporting date, with gains/(losses) recognised in other comprehensive income until their ultimate disposal by the Group.
At year end, the shares had an aggregate value of £2.9m, representing a share price of CAD $2.72 at that date.
Contingent consideration of £1.1m is included in non-current trade and other receivables at the reporting date.
Sportech PLC Annual Report and Accounts 2015 17. Net investment in joint ventures/associates
During the year, the Group held the following investments in joint ventures and associates:
Company
Picklive USA, LLC
(“Picklive”)
Sportech - NYX Gaming, LLC
(“SNG Interactive”)
S&S Venues California, LLC
(“S&S Venues”)
Sportshub Private Limited
(“Sportshub”)
DraftDay Gaming Group, Inc.
(“DraftDay”)
Description
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
Provides a suite of prediction and
fantasy games centred on cricket,
football and Formula 1
Daily fantasy sports business
operating in the US
Country of
incorporation
US
Year of
investment
2013
US
2013
US
2013
India
2008
Joint venture/
associate
Joint
venture
Joint
venture
Joint
venture
Joint
venture
US
2015 Associate
(a) Movements in the Group’s net investment in joint ventures and associates
Movements in the Group’s net investment in joint ventures and associates in the year are outlined below:
At 1 January
Additions
Acquisition of controlling interest in Norco (b)
Disposals (c)
Impairment (d)
Share of loss after tax
Currency translation differences
At 31 December
Picklive
£m
0.2
0.1
—
—
(0.2)
(0.1)
—
—
SNG
Interactive
£m
0.9
1.2
—
(1.9)
—
(0.2)
—
—
2015
S&S
Venues
£m
0.6
1.1
(0.5)
—
—
Sportshub
£m
0.5
0.1
—
—
—
—
—
1.2
(0.1)
—
0.5
DraftDay
£m
—
0.6
—
—
—
(0.3)
0.1
0.4
Total
£m
2.2
3.1
(0.5)
(1.9)
(0.2)
(0.7)
0.1
2.1
93
%
holding
51
50
50
50
39
2014
Total
£m
0.5
1.9
—
—
—
(0.2)
—
2.2
(b) Acquisition of controlling interest in S&S Venues California, LLC
During the year the Group renegotiated the agreement with Silky Sullivan Group, LLC in relation to the joint venture
company S&S Venues California, LLC, to increase the Group’s share of the venue being constructed in North Corona
(“Norco”), California, from 50% to 80%. Simultaneously the Group obtained control of this venue. As such this venue is
now fully consolidated into the Group’s financial statements as a subsidiary, and is no longer equity accounted for as a
joint venture. All other venues within S&S Venues California, LLC remain jointly controlled and therefore continue to be
subject to equity accounting.
Prior to this change in control, the Group had an investment in the Norco joint venture of £0.5m. Upon acquiring control
the fair value of the net assets of Norco were assessed and determined provisionally to be £0.6m, primarily related to
assets under construction.
As such the Group has derecognised its previously held investment in the Norco joint venture, £0.5m and recognised
100% of the fair value of the net assets of Norco in the consolidated balance sheet of £0.6m (note 13). Non-controlling
interests of £0.1m have also been recognised within equity, representing the stake held in Norco by Silky Sullivan Group,
LLC. No goodwill or gain on bargain purchase has been recognised upon acquisition of control.
Sportech PLC Annual Report and Accounts 2015Strategic reportCorporate governanceFinancial statements 94
Notes to the financial statements continued
for the year ended 31 December 2015
17. Net investment in joint ventures/associates (continued)
(c) Disposal of Sportech-NYX Gaming, LLC
On 3 July 2015, the Group disposed of its 50% share in Sportech-NYX Gaming, LLC to its joint venture partner. The net
gain on disposal has been recognised in the income statement within exceptional income (see note 16).
(d) Dissolution of Picklive USA, LLC
The Group’s involvement in Picklive came to an end in the year, and the joint venture company was dissolved.
Accordingly an impairment was recognised in the year, equating to the Group’s net investment in Picklive at that time of
£0.2m.
(e) Shareholding acquired in DraftDay Gaming Group, Inc.
On 8 September 2015, the Group acquired a 39.2% interest in DraftDay Gaming Group, Inc. (“DDGG”), an operator in the
daily fantasy sports industry. While the Group has significant influence over DDGG through its stakeholding, it does
not have control nor joint control. As such DDGG is an associate of the Group.
Nil cash consideration was paid on acquisition of this stake in DraftDay. The consideration given by the Group to acquire
its interest, and hence its cost of investment, was £0.6m, which shall be settled through the Group providing executive
management services to DDGG over the two years post acquisition. Upon acquisition, the fair value of the net assets of
DDGG were assessed and have provisionally been determined to be £1.5m. As a result no goodwill nor gain on bargain
purchase have been recognised on acquisition.
(f) Summarised financial information of joint venture and associate investments held at reporting date
Summary financial statements of those joint ventures or associates in which the Group holds material investments
at the reporting date are as follows:
(1) Sportshub Private Limited
Non-current assets
Current assets
Total assets
Current liabilities
Net assets
Revenue
Expenses
Loss after tax
(2) S&S Venues California, LLC - San Diego
Non-current assets
Current assets
Total assets
Current liabilities
Net assets
Revenue
Expenses
Profit after tax
(g) Capital commitments
The Group’s share of capital commitments owing by the joint ventures amounted to £nil (2014: £nil).
2015
£m
0.1
0.9
1.0
—
1.0
—
(0.2)
(0.2)
2015
£m
2.2
0.2
2.4
(0.1)
2.3
0.1
(0.1)
—
2014
£m
0.1
0.9
1.0
—
1.0
—
(0.1)
(0.1)
2014
£m
0.7
0.5
1.2
—
1.2
—
—
—
Sportech PLC Annual Report and Accounts 2015 18. Trade and other receivables
Non-current
Trade and other receivables
Non-current trade and other receivables
Current
Trade receivables
Less provision for impairment of receivables
Trade receivables – net
Amounts owed by Group companies
Other receivables
Accrued income
Prepayments
Current trade and other receivables
Total trade and other receivables
Group
Company
2015
£m
2.0
2.0
6.4
(1.2)
5.2
—
1.2
2.4
2.1
10.9
12.9
2014
£m
1.2
1.2
7.6
(1.1)
6.5
—
0.7
1.3
1.9
10.4
11.6
2015
£m
—
—
—
—
—
21.6
0.1
—
0.2
21.9
21.9
95
2014
£m
—
—
—
—
—
20.2
0.1
—
0.3
20.6
20.6
Non-current trade receivables relate to contingent consideration due on the disposal of Sportech-NYX Gaming, LLC
of £1.1m (note 16), and accrued income due after more than twelve months of £0.9m (2014: £nil and £1.2m respectively).
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 2015, £0.4m (2014: £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 2015, trade receivables of £1.2m (2014: £1.1m) were impaired and fully provided for. The Group’s
provision for impairment has been increased by £0.1m in the year, owing to a £0.2m increase in the sterling value of
debts denominated in foreign currencies, net of a £0.1m reduction of provisions against specific debts in the Sportech
Racing and Digital segment. This has been reduced as a result of improved credit control and 2015 payment activity
of specific customers.
The carrying amounts of trade and other receivables are denominated in the following currencies:
Sterling
US Dollar
Euro
Other
Total
Group
Company
2015
£m
4.0
6.2
1.5
1.2
12.9
2014
£m
2.8
5.8
0.7
2.3
11.6
2015
£m
3.1
17.5
1.3
—
21.9
2014
£m
3.1
16.4
1.1
—
20.6
Sportech PLC Annual Report and Accounts 2015Strategic reportCorporate governanceFinancial statements 96
Notes to the financial statements continued
for the year ended 31 December 2015
19. Inventories
Work in progress
Spare parts
Finished goods
Total
Group
2015
£m
0.4
1.4
0.3
2.1
2014
£m
0.2
1.1
0.2
1.5
The cost of inventories recognised as an expense and included in cost of sales amounted to £3.8m (2014: £3.5m).
Provisions for obsolescence held against inventories at 31 December 2015 amounted to £0.1m (2014: £0.1m).
20. Deferred tax
The movement on the net deferred tax balance is as follows:
Net deferred tax asset at 1 January
Income statement charge
Tax (charged)/credited directly to other comprehensive income
Net deferred tax asset at 31 December
Group
Company
2015
£m
0.8
(0.2)
(0.1)
0.5
2014
£m
0.7
—
0.1
0.8
2015
£m
0.2
(0.1)
—
0.1
2014
£m
1.0
(0.8)
—
0.2
The tax (charged)/credited directly to other comprehensive income 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 2014
Income statement (charge)/credit
Tax credited directly to other comprehensive income
At 31 December 2014
Income statement (charge)/credit
Tax charged directly to other comprehensive income
At 31 December 2015
Pension
£m
0.4
—
0.1
0.5
—
(0.1)
0.4
Capital
allowances
£m
(2.2)
(2.6)
—
(4.8)
(0.5)
—
(5.3)
Losses and
foreign tax
credits
£m
1.7
3.5
—
5.2
(0.4)
—
4.8
Other
temporary
differences
£m
1.9
(1.4)
—
0.5
1.0
—
1.5
Total
£m
1.8
(0.5)
0.1
1.4
0.1
(0.1)
1.4
Deferred tax of £nil is expected to be recovered within twelve months (2014: £nil) with £1.4m expected to be recovered
after more than twelve months (2014: £1.4m).
The deferred tax asset in the Company consists of temporary differences of £0.1m and capital allowances of £nil
(2014: temporary differences of £0.2m and capital allowances of £nil).
Sportech PLC Annual Report and Accounts 2015 97
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 £2.9m (2014: £3.0m) 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
2015
2014
Provided
£m
14.3
Unprovided
£m
12.9
Provided
£m
15.0
Unprovided
£m
13.3
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 2014
Income statement credit
At 31 December 2014
Income statement charge
At 31 December 2015
Other
temporary
differences
£m
(1.1)
0.5
(0.6)
(0.3)
(0.9)
21. Cash and cash equivalents
The fair value of cash and cash equivalents is not considered to be different from the carrying value recorded in the
financial statements for either the Group or the Company.
Cash balances of £1.4m (2014: £2.3m) 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 (see note 22).
22. Trade and other payables
Trade payables
Amounts owed to Group companies
Other taxes and social security costs
Accruals and deferred income
Bank overdraft
Total
Group
Company
2015
£m
6.1
—
1.6
12.9
—
20.6
2014
£m
6.6
—
0.6
13.3
—
20.5
2015
£m
0.7
59.0
—
1.7
1.0
62.4
2014
£m
0.3
46.7
—
0.9
—
47.9
There is no difference between book values and fair values of trade and other payables. All amounts are due within
one year.
Sportech PLC Annual Report and Accounts 2015Strategic reportCorporate governanceFinancial statements 98
Notes to the financial statements continued
for the year ended 31 December 2015
23. Provisions
Group
At 1 January 2014
Utilised during the year
At 31 December 2014
Released during the year
At 31 December 2015
Onerous
contracts
£m
0.3
—
0.3
(0.1)
0.2
Other
provisions
£m
0.3
—
0.3
—
0.3
Total
£m
0.6
—
0.6
(0.1)
0.5
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.
Following a revision to expected performance on contracts within the Racing and Digital segment, provisions have been
reduced by £0.1m in the year.
Of the provisions included in the above table, £0.1m is expected to be utilised within twelve months (2014: £0.2m) and
£0.4m is expected to be utilised after twelve months (2014: £0.4m).
24. Financial liabilities
Non-current
Drawn revolving credit facility due after one year
Deferred and contingent consideration due after one year
Total non-current financial liabilities
Group
Company
2015
£m
62.1
0.2
62.3
2014
£m
70.1
0.5
70.6
2015
£m
62.1
—
62.1
2014
£m
70.1
—
70.1
Bank loans and revolving credit facility
The Group’s 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 2015, the Group repaid borrowings of £8.0m (2014: draw down 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 and contingent consideration
Deferred and contingent consideration totalling £1.0m (2014: £1.0m) and £5.5m (2014: £5.5m) in relation to the
acquisitions of Datatote and Bump respectively represent the maximum amounts payable in acquiring these entities.
As outlined in note 15, management do not believe that EBITDA targets will be met for payment of contingent
consideration on the Datatote acquisition, and accordingly no amounts are accrued for this at year end.
Deferred and contingent consideration due after one year of £0.2m represents management’s best estimate of the
consideration to be paid in acquiring Bump. The amount payable on this acquisition 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.
Sportech PLC Annual Report and Accounts 2015 99
The amount is payable subsequent to the finalisation of the 2016 financial statements.
The Directors believe that a sum of £0.4m will be payable in respect of these performance targets. This is treated as
employment costs under IFRS 3 “Business Combinations” (revised) and is accordingly accrued on a time apportioned
basis to 31 December 2016.
25. Financial instruments
Financial risk management policies and objectives
The Group’s activities expose it to a variety of financial risks: fair value and cash flow interest rate risk; liquidity risk;
credit risk; and foreign exchange risk. Where appropriate the Group uses derivative financial instruments to hedge
certain risk exposures.
The policy for each of the above risks is described in more detail below:
Fair value and cash flow interest rate risk
As the Group has no significant interest-bearing assets, the Group’s income and operating cash flows are substantially
independent of changes in market interest rates.
The Group’s interest rate risk arises from its long-term bank borrowings. Borrowings issued at variable interest rates
expose the Group to cash flow interest rate risk. Borrowings issued at fixed rates expose the Group to fair value interest
rate risk. The Group’s bank borrowings are a multi-currency, revolving credit facility with Bank of Scotland plc, Barclays
Bank PLC and Royal Bank of Scotland plc until August 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 one swap agreement with one month remaining on a total of £10.0m, at an average swap
rate before any lending margin of 4.80%. The hedge comprises one £10.0m hedge with an expiry date of January 2016.
The contract is not a designated effective hedge and, as a result, gains and losses are recognised in the income
statement within finance costs.
At 31 December 2015, 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 £0.3m (2014: £0.1m) higher/lower as a result of higher/lower
interest expense on unhedged variable rate borrowings. This sensitivity is considered a reasonable assumption
based on current economic conditions.
Liquidity risk
Cash flow forecasting is performed on a 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 advisers.
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. 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.
Sportech PLC Annual Report and Accounts 2015Strategic reportCorporate governanceFinancial statements 100
Notes to the financial statements continued
for the year ended 31 December 2015
25. Financial instruments continued
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 risks and takes steps, where practical, to ensure that the net
exposure is kept to an acceptable level. In doing so, the Group considers whether use of foreign exchange forward
contracts would be appropriate in fixing the economic impact of forecasted profitability. As at 31 December 2015, there
were no outstanding commitments on foreign exchange forward contracts (2014: none).
The average rate of the US Dollar during the year was 1.53 and the Euro was 1.37, and the rates as at the reporting date
were 1.48 for the US Dollar and 1.36 for the Euro. If the average and closing rates for the US Dollar were 1.65 and for the
Euro were 1.40, profit after tax would have been £6.1m and net assets would have been £115.6m at 31 December 2015.
Available for sale financial assets and hedging instruments
Non-current assets - Available for sale financial assets
Contingent consideration receivable from disposal
of Sportech-NYX Gaming, LLC
Current assets - Available for sale financial assets
Shares held in NYX Gaming Group Limited
Current liabilities - Hedging instruments
Interest rate swaps – cash flow hedges
Group
2015
£m
1.1
2.9
—
2014
£m
—
—
0.5
Company
2015
£m
—
—
—
2014
£m
—
—
0.5
The Group’s available for sale financial assets and hedging instruments are carried at fair value. Alternative valuation
methods used in applying the relevant fair values are summarised below:
– 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 contingent consideration is included in level 3. Management observe market activity including industry
growth and pace of regulatory change in determining the probability that the contingent consideration will be received.
As outlined in note 16, it is management’s belief that NYX will sign up at least three new customers to the relevant
platform and therefore the maximum amount of contingent consideration receivable has been recognised.
The fair value of shares held in NYX are included in level 1, using the quoted share price at the reporting date in
determining the amount receivable. Fair value movements on those shares are recognised in the available for sale
reserve within equity until the date of their disposal, at which point the gains will be realised in the income statement
(note 16). At the reporting date, the fair value of those shares is £2.9m, with £1.6m held in the available for sale reserve.
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 2015 101
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 issue new shares or sell assets to reduce debt.
The Group monitors capital on the basis of its leverage ratio, which is also used for covenant testing purposes. This ratio
is calculated as Adjusted EBITDA divided by net debt. Adjusted EBITDA is defined as EBITDA before exceptional items,
impairment of assets and share option charges, as reflected on the income statement. Net debt is calculated as bank
debt plus any deferred consideration due under the terms of an acquisition, less cash and cash equivalents. The deferred
consideration excludes any contingent consideration treated as employment costs in accordance with IFRS 3 “Business
Combinations”. The Group’s leverage ratio as at 31 December 2015 and 31 December 2014 were as follows:
Drawn revolving credit facility due after one year
Less cash and cash equivalents
Net debt
EBITDA before exceptional items, share option expense and impairment of assets
Leverage
Note
24
21
2015
£m
62.1
(4.4)
57.7
23.1
2.50x
2014
£m
70.1
(6.3)
63.8
24.0
2.66x
During 2015, the Group’s leverage ratio reduced, largely as a result of the proceeds received on the disposal of
Sportech-NYX Gaming, LLC.
The Group also monitors capital on the basis of its gearing ratio, calculated as net debt divided by total capital.
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 2015, net debt reduced
by £6.1m (9.6%) (2014: £0.4m (0.6%)). Gearing has also reduced in the year given the disposal of Sportech-NYX
Gaming, LLC. The total net debt and gearing ratios at 31 December 2015 and 2014 were as follows:
Net debt
Total equity
Total capital
Gearing ratio
Fair value of non-current borrowings
As at 31 December 2015
Bank borrowings due after one year
As at 31 December 2014
Bank borrowings due after one year
2015
£m
57.7
126.2
183.9
31%
2014
£m
63.8
119.8
183.6
35%
Group
Company
Book value
£m
62.1
Fair value
£m
55.2
Book value
£m
62.1
Fair value
£m
55.2
Group
Company
Book value
£m
70.1
Fair value
£m
65.0
Book value
£m
70.1
Fair value
£m
65.0
The fair values are based on cash flows discounted at a rate of 8.3% (2014: 8.3%) and are within level 2 of the fair value
hierarchy. Future interest payments are £2.6m payable within one year (2014: £3.0m), £2.6m payable between one and
two years (2014: £3.0m) and £1.7m payable between two and five years (2014: £5.0m).
Sportech PLC Annual Report and Accounts 2015Strategic reportCorporate governanceFinancial statements 102
Notes to the financial statements continued
for the year ended 31 December 2015
25. Financial instruments continued
Maturity of bank borrowings
Bank borrowings are repayable as follows:
Contractual undiscounted amount
Between two and five years
The maturity analysis of derivative financial liabilities is as follows:
Contractual undiscounted amount
Within one year
The maturity analysis of non-derivative financial liabilities is as follows:
Group
Company
2015
£m
62.1
2014
£m
70.1
2015
£m
62.1
Group
Company
2015
£m
—
2014
£m
0.9
2015
£m
—
Group
Company
Liabilities due at the reporting date
Within one year
Between one and two years
Between two and five years
Total
Contractual undiscounted amount
Within one year
Between one and two years
Between two and five years
Total
2015
£m
17.2
0.2
62.1
79.5
Group
2015
£m
19.9
2.8
63.8
86.5
2014
£m
16.8
0.5
70.1
87.4
2014
£m
19.8
3.5
75.0
98.3
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
Available for sale financial assets
Financial liabilities at fair value through profit or loss:
– designated post refinancing
Financial liabilities measured at amortised cost
2015
£m
62.4
—
62.1
124.5
Company
2015
£m
63.9
2.6
63.8
130.3
2015
£m
12.9
12.9
2015
£m
9.7
4.0
—
79.5
2014
£m
70.1
2014
£m
0.9
2014
£m
47.9
—
70.1
118.0
2014
£m
50.9
3.0
75.0
128.9
2014
£m
9.9
9.9
2014
£m
9.7
—
0.5
87.4
Sportech PLC Annual Report and Accounts 2015 103
26. Ordinary shares
Authorised, issued and fully paid
Ordinary shares of 50p each (2014: 50p)
At 1 January
New shares issued to satisfy PSP vesting
At 31 December
2015
2014
’000
205,221
1,017
206,238
£m
102.6
0.5
103.1
’000
204,851
370
205,221
£m
102.4
0.2
102.6
Potential issue of ordinary shares
Sportech share option schemes
Certain Senior Executives hold options to subscribe for shares in the Company at prices of £1.064 (2014: £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 £1.064 (2014: £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 2015
Number
—
202,020
202,020
Outstanding at
31 December 2014
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 2015
was three months (31 December 2014: eleven months).
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 2015 was £0.595 (2014: £0.670) and the range during the year
was £0.705 to £0.545 (2014: £0.923 to £0.480).
Sportech PLC Annual Report and Accounts 2015Strategic reportCorporate governanceFinancial statements
104
Notes to the financial statements continued
for the year ended 31 December 2015
26. Ordinary shares continued
Options are granted with a fixed exercise price equal to the market price of the shares under option at the date of the
grant. Options were valued using the Black-Scholes option pricing model. No performance conditions are included in
the fair value calculation. The fair value per option granted and the assumptions used in the calculations are as follows:
Risk-free interest rate
Vesting period
Option life
Expected life of options
Expected share price volatility
Dividend growth
Fair value of option
2006
4.40%
3 years
10 years
5 years
48.61%
—
£0.601
The expected volatility is based on historical volatility over the past 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 past three years.
The Performance Share Plan
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 2015, 2,400,000 shares have
been awarded (2014: 2,329,000), 2,231,000 awards lapsed due to failure to meet the performance conditions (2014:
1,095,000) 1,003,000 awards lapsed due to employees ceasing to be employed by the Group (2014: 732,000) and
505,000 awards expired during the year (2014: nil). 576,000 shares vested during the period of which 330,000
remain unexercised as at 31 December 2015. 5,826,000 (2014: 7,236,000) share awards remained outstanding
(unvested) at 31 December 2015.
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 Committee, the new targets are not materially less challenging in
the circumstances than those described below. The 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 Committee to consider that it would be appropriate to amend the performance conditions,
provided that the 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 2015 105
2015, 2014 and 2013 grants
The vesting of one-half of the award (“Part A”) will be dependent on the Company’s 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 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%
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
Mar
2015
£nil
25
£0.667
3 years
35.2%
0%
£0.544
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
The weighted average remaining contractual life of outstanding awards under the PSP at 31 December 2015 was one
year and three months (2014: one year and one month). The weighted average exercise price of awards granted during
the period was £nil (2014: £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 2015Strategic reportCorporate governanceFinancial statements 106
Notes to the financial statements continued
for the year ended 31 December 2015
27. Cash generated from operations
Reconciliation of profit/(loss) before taxation to cash generated from operations, before exceptional items:
Company
Group
Profit/(loss) before taxation
Adjustments for:
Net exceptional (income)/costs
Share of loss after tax and impairment of joint ventures
and associates
Depreciation
Amortisation of acquired intangibles
Amortisation of other intangibles
Impairment of assets
Finance costs
Other finance income, excluding exceptional finance
items
Share option expense
Movement in retirement benefit liability
Gift of shares to Employee Benefit Trust
Changes in working capital:
Increase in trade and other receivables
Increase in inventories
(Decrease)/increase in trade and other payables
Cash generated from operating activities, before
exceptional items
Note
2
17
13
12
12
4
4
6
32
2015
£m
9.7
(5.7)
0.9
3.3
1.2
4.3
6.1
3.2
(0.4)
0.5
(0.1)
—
(0.1)
(0.6)
(2.1)
2014
£m
(20.0)
2.9
0.2
3.0
4.1
3.2
28.1
2.8
(0.9)
0.6
(0.2)
—
(2.1)
—
(1.3)
20.2
20.4
2015
£m
(7.2)
1.0
—
—
—
1.0
—
4.2
(0.6)
0.5
—
0.5
(1.2)
—
15.0
13.2
2014
£m
(7.5)
0.8
—
—
—
1.4
—
3.9
(0.3)
0.6
—
0.2
(5.3)
—
7.3
1.1
28. Contingent assets and liabilities
Contingent assets
The Board has previously announced that the Group had submitted a claim for in excess of £40.0m to HMRC for
the repayment of VAT overpaid in respect of the “Spot the Ball” game from 1979 to 1996. Interest may also be added
to the principal sum claimed, which, if successful, given the timeframe of the claim, could increase the sum claimed to
approximately £97.0m. 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 on either
7 or 8 April 2016. 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 Datatote on 27 September 2013, and Bump on 12 June 2014, additional consideration
is payable under certain circumstances. The maximum amounts payable are outlined in note 24.
Sportech PLC Annual Report and Accounts 2015 107
29. 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 £2.2m (2014: £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
2015
£m
2.3
6.3
7.5
16.1
2014
£m
2.0
4.6
6.5
13.1
2015
£m
0.1
0.5
—
0.6
2014
£m
0.1
0.7
—
0.8
30. Other financial commitments
In December 1996, an incentive scheme to reward Football Pools collectors was established by a subsidiary company.
Under the terms of the scheme, the collectors earn points on the basis of their sales. These points can be converted into
vouchers to purchase items from high street shops. On the basis of similar schemes, a redemption rate attributable to
these points has been established and an appropriate charge made in these accounts. The potential liability in respect
of these points not provided for in these financial statements is £0.2m (2014: £0.2m). 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 2015, in relation to a contract to provide and maintain
pari-mutuel betting terminals to a customer in Turkey.
31. Related party transactions
The extent of transactions with related parties of Sportech PLC and the nature of the relationships with them are
summarised below:
a. Key management compensation is disclosed in note 7.
b. The Company had the following transactions with subsidiaries during the year:
Management charges received
Royalty income received
Management charges paid
Interest received on inter-company loan balances
Interest paid on inter-company loan balances
2015
£m
1.3
1.6
—
0.6
1.4
2014
£m
1.4
1.5
0.1
0.4
1.6
The amount outstanding in relation to management charges at the balance sheet date was £nil (2014: £0.1m).
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 and associates (2014: £nil and £nil respectively).
Sportech PLC Annual Report and Accounts 2015Strategic reportCorporate governanceFinancial statements 108
Notes to the financial statements continued
for the year ended 31 December 2015
31. Related party transactions (continued)
The Group also invested cash into its joint ventures during the year as outlined in note 17. There were no trading
transactions between the Group and any of its joint ventures or associates and no amounts outstanding at the
31 December 2015 (2014: £nil and £nil).
32. Pension schemes
The Group operates four pension schemes in the UK: for employees other than those employed by Datatote, a defined
contribution scheme, a funded defined benefit scheme and an auto-enrolment scheme for qualifying employees who
are not members of the first two schemes. Datatote operates a defined contribution scheme. The Group operates a
further funded defined benefit scheme in the US, two defined contribution schemes in the US, 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
2015
£m
0.7
0.2
0.9
2014
£m
0.7
0.3
1.0
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 Datatote – 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. Datatote 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 US, 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 Group also contributes 3% of gross salary into the RRSP for full time
Canadian Union employees.
The pension scheme in the Netherlands provides benefits to employees on a percentage of salary basis.
For employees in Ireland, the Group contributes between 7.5% and 12.5% of salary, dependent on length of service,
into a defined contribution scheme.
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.
Sportech PLC Annual Report and Accounts 2015 109
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 US 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
– US
Total fair value of assets
Present value of the schemes’ liabilities
Deficit in the schemes
Included in:
– non-current liabilities
The figures below have been determined by qualified actuaries at the balance sheet date using the
following assumptions:
2015
£m
1.9
3.0
4.9
(6.3)
(1.4)
2014
£m
2.0
2.8
4.8
(6.4)
(1.6)
(1.4)
(1.6)
Discount rate
Rate of increase in salaries
Rate of increase in pensions in payment:
– 5% LPI
– rate of inflation
– mortality table
US
2015
4.00%
N/A
UK
2015
3.60%
0%
N/A
N/A
RP-2014
Total Dataset
Mortality
with Scale
MP-2015
3.00%
3.00%
SINxA
CMI 2012
projections
1.5% per
annum
long-term
rate of
improvement
US
2014
3.75%
N/A
N/A
N/A
2014 IRS
Static
Mortality
Table
UK
2014
3.40%
0%
3.15%
3.15%
S1NxA
CMI 2012
projections
1.5% per
annum
long-term
rate of
improvement
For the US scheme, under the adopted mortality tables, if the future life expectancy were to be plus/minus one year
the liabilities would increase/decrease by £12,000.
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.
For the UK, if the discount rate were to be increased to 3.85% the liabilities would decrease by £70,000. For the US,
if the discount rate were to be increased to 4.50% the liabilities would decrease by £184,000.
Sportech PLC Annual Report and Accounts 2015Strategic reportCorporate governanceFinancial statements 110
Notes to the financial statements continued
for the year ended 31 December 2015
32. Pension schemes continued
The movement in the defined benefit obligation over the year is as follows:
At 1 January 2015
Income statement expense/(income):
- Current service cost
- Interest expense/(income)
Remeasurements:
– Currency exchange movements
– Gain from change in actuarial assumptions
Contributions:
– Employer’s
Payments from plans:
– Benefit payments
At 31 December 2015
At 1 January 2014
Income statement expense/(income):
- Current service cost
- Interest expense/(income)
Remeasurements:
– Currency exchange movements
– Loss from change in actuarial assumptions
Contributions:
– Employer’s
Payments from plans:
– Benefit payments
At 31 December 2014
Present value
of obligation
£m
6.4
Fair value of
plan asset
£m
(4.8)
0.1
0.2
0.3
0.2
(0.2)
—
—
(0.2)
(0.2)
(0.1)
—
(0.1)
Total
£m
1.6
0.1
—
0.1
0.1
(0.2)
(0.1)
—
(0.2)
(0.2)
(0.4)
6.3
0.4
(4.9)
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
—
1.4
Total
£m
1.3
0.2
—
0.2
—
0.4
0.4
Sportech PLC Annual Report and Accounts 2015 111
Effect of change of assumptions on liability values
Changes in the financial assumptions used would have the following approximate effect on the schemes’ liabilities
and hence the deficit at the end of the year:
Change
Increase inflation by 0.25% (2014: 0.25%)
2015
Increases
liability by
£m
0.1
2014
Increases
liability by
£m
0.1
The assets of the UK scheme are held in an independent Trustee administered fund. The Trustee of the scheme
is Sportech Trustees Limited. The Directors of Sportech Trustees Limited include Carl Lynn, a Sportech employee,
who also acts as Chair of the Trustee company. The assets of the US scheme are held by an insurance company.
The actuarial method for calculating the liabilities of the scheme is the projected unit method.
The expected employer annual contributions to the schemes for the financial year ending 31 December 2016 amount
to £0.2m (year ended 31 December 2015: £0.2m).
Estimated future benefit payments for the next ten fiscal years for the US scheme are:
At 31 December 2015
Pension benefits
Less than
a year
£m
0.5
Between
1 and 2 years
£m
0.2
Between
2 and 5 years
£m
0.8
Over 5 years
£m
7.4
The weighted average duration of the US scheme obligation is approximately ten years.
Estimated future benefit payments for the next ten fiscal years for the UK scheme are:
At 31 December 2015
Pension benefits
Less than
a year
£m
0.1
Between
1 and 2 years
£m
0.1
Between
2 and 5 years
£m
0.3
Over 5 years
£m
0.6
Total
£m
8.9
Total
£m
1.1
The weighted average duration of the UK scheme obligation is approximately thirteen years.
Sportech PLC Annual Report and Accounts 2015Strategic reportCorporate governanceFinancial statements 112
Notes to the financial statements continued
for the year ended 31 December 2015
33. Related undertakings
During the year, the Group held investments in related undertakings as follows:
Subsidiaries, excluding dormant companies
Sportech Gaming Limited
The Football Pools Limited
C&P Promotions Limited
Football Pools 1923 Limited
TFPL Financial Services Limited
Football Pools Games Limited
Pools Promotions Limited
UK Lottery Management Limited
Sportech Mauritius Limited
Sportech Holdco 1 Limited
Datatote (England) Limited
Sportech Holdco 2 Limited
Sportech, Inc.
Sportech Racing, LLC.
Trackplay, LLC.
Sportech Venues, Inc.
eBet Technologies, Inc.
Fantasy Sports Online, LLC
Sportech Venues California, LLC
Sportech Venues CA Holdco, LLC
Sportech Games Holdco, LLC
Bump Worldwide, Inc.
Sportech Racing Canada, Inc.
1891323 Ontario, Inc.
Sportech Racing Panama, Inc.
Sportech Racing Limited
Racing Technology Ireland Limited
Sportech Racing BV
Sportech Racing Banen BV
Autotote Europe GmbH
Sportech Racing GmbH
Sportech Racing Turkey
Sportech Racing SAS
Country of incorporation
England & Wales
England & Wales
England & Wales
England & Wales
England & Wales
England & Wales
England & Wales
England & Wales
Mauritius
England & Wales
England & Wales
England & Wales
United States
United States
United States
United States
United States
United States
United States
United States
United States
Canada
Canada
Canada
Panama
British Virgin Islands
Ireland
Netherlands
Netherlands
Germany
Germany
Turkey
France
Class of shares held
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Shareholding
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
Sportech PLC Annual Report and Accounts 2015 113
Joint ventures and associates
Sportshub Private Limited
S&S Venues California, LLC
DraftDay Gaming Group, Inc
Picklive USA, LLC*
Sportech-NYX Gaming, LLC**
Country of incorporation
India
United States
United States
United States
United States
Class of shares held
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Shareholding
50%
50%
39%
50%
50%
*The Group’s involvement in Picklive USA, LLC came to an end in the year. See note 17.
**The Group disposed of its investment in Sportech-NYX Gaming, LLC in the year. See note 16.
Other undertakings
NYX Gaming Group Limited
E-Tote Limited
Country of incorporation
United States
England & Wales
Class of shares held
Ordinary
Ordinary
Shareholding
4%
6.49%
Dormant companies
Sportech Trustees Limited
Footballpools.com Limited
UKCL Limited
Football Pools Competitions Company Limited
Bet 247 Limited
Pools Company Limited
The New Football Pools Limited
Football Pools Trustee Company Limited
Sportech BV
Country of incorporation
England & Wales
England & Wales
England & Wales
England & Wales
England & Wales
England & Wales
England & Wales
England & Wales
Netherlands
Class of shares held
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Shareholding
100%
100%
100%
100%
100%
100%
100%
100%
100%
Sportech PLC Annual Report and Accounts 2015Strategic reportCorporate governanceFinancial statements 114
Shareholder and
corporate information
Head Office
Sportech PLC
101 Wigmore Street
London W1U 1QU
Company registration number
SC069140
Company Secretary
Luisa Wright
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: 0371 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
Sportech PLC Annual Report and Accounts 2015 Designed and produced
by MerchantCantos
www.merchantcantos.com
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
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