A WORLD
LEADER
IN POOL
BETTING
Annual Report and
Accounts 2016
Welcome to our
Annual Report 2016
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 Financial review
13 Principal risks
16 Corporate social
responsibility report
Corporate governance
18 Chairman’s statement
20 Board of Directors
21 Senior management
22 Corporate governance report
30 Report of the Remuneration
Committee
31 Remuneration report
47 Directors’ report
50 Independent Auditors’ report
Financial statements
58 Consolidated income statement
59 Consolidated statement
of comprehensive income
60 Statements of changes in equity
61 Balance sheets
62 Statements of cash flows
63 Accounting policies
72 Notes to the financial statements
108 Shareholder and
corporate information
Sportech PLC Annual Report and Accounts 2016
01
Strategic report
Corporate governance
Financial statements
Highlights of the year
“A transformational year ....”
Group highlights
– Profit before tax increased to £30.7m (2015: £9.7m)
– Results in line with expectations with overall EBITDA up 3%
to £23.8m (2015: £23.1m)
– Successful outcome to our eight-year £97m VAT refund appeal
after rulings at the Supreme Court and the Court of Appeal
– Announced a return of capital to shareholders by way of a
tender offer for approximately £20m of Sportech ordinary
shares, representing a buyback of 10% of the Company’s
issued share capital
– Transformation in Group’s financing with adjusted net cash
balances at 31 December 2016 of £36.5m compared to
adjusted net debts of £57.7m in 2015
– Balance sheet strengthened by £22.6m despite a detailed
review of assets leading to a non-cash impairment of £63.7m
– Board restructured to include relevant industry experience
and associated knowledge
– Announced the sale of The Football Pools for £83.0m,
subject to certain conditions
Financial highlights
Group
Sportech
Racing and
Digital
Sportech
Venues
Football
Pools
– Adjusted profit before tax is up by 17% to £13.8m (2015: £11.8m)
– The Group holds adjusted net cash of £36.5m at 31 December
2016 (2015: adjusted net debt of £57.7m), which reduces by
£21.5m once the Spot the Ball tax and fees are paid, and
following receipt of the remaining £3m
– On a constant currency basis, EBITDA, excluding the closed
collector channel, remained level with prior year at £23.8m
– EBITDA of £9.4m, £0.3m down on prior year at constant
currency, new contract wins mitigating impact on business of
loss of material contract in California
– EBITDA of £2.7m, £0.5m decrease from prior year at constant
currency, with online handle growth partly offsetting the industry
handle decline
– EBITDA from continuing channels up by £0.7m (5%)
to £15.0m
02
Sportech PLC Annual Report and Accounts 2016
Overview
Sportech at a glance
Sportech Racing and Digital
We are confident in the strategic
positions that each of our divisions
have secured, whilst recognising that
further investment is required, ahead
of anticipated revenue and profit
benefits, to enable them to deliver
their full potential.
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.
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
Revenue (£m)
EBITDA (£m)
Capital expenditure
(£m)
Employees
2016
36.0
2016
9.4
2016
5.3
2016
314
2015*
38.8
2015*
9.7
2015
4.5
2015
356
* Numbers are at ‘constant currency’, translated using 2016 exchange rates
Sportech PLC Annual Report and Accounts 2016
03
Strategic report
Corporate governance
Financial statements
Sportech Venues
Football Pools
Operator of betting on racing in venues
and online across Connecticut and
The Netherlands. New venue opened
in California in 2016 and two new venues
due to open in Connecticut in 2017.
Operator of pools betting predominantly
through subscription and online channels.
The division operates brands Winners
(Connecticut), Striders (California) and
Runnerz (The Netherlands)
215,000 customers playing a range of
pools and instant win games every week
US (Connecticut and California)
and The Netherlands
2016
35.1
2016
2.7
2016
3.1
2016
248
2015*
36.6
2015*
3.2
2015
1.1
2015
257
UK
2016
28.4
2016
15.0
2016
2.7
2016
101
2015**
28.4
2015**
14.3
2015
2.5
2015
126
** 2015 excludes results relating to the closed collector channel
04
Sportech PLC Annual Report and Accounts 2016
Chief Executive’s review
Positioning Sportech as one of the
leaders in the global betting market
This has been a transformational year.
We have moved into a strong net cash
position, announced details of a return of
capital to shareholders, and also announced
the sale of our Football Pools business for
£83m, following a highly successful
modernisation programme. The Group is now
in a strong position and more focused to take
advantage of the strategic positioning of its
predominantly US-based businesses. We look
forward to delivering further progress in 2017.
Overview
Sportech is one of the world’s leading sports
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 over $11 billion bets annually) and
the Venues division (which operates all legal
betting exclusively and in perpetuity in
Connecticut in venues, online and via mobile),
are based in the US and Canada where we
employ 570 people across field operations,
14 betting venues and four corporate offices.
We are licensed by gaming regulators in 28
US States. We also have smaller operations
of these divisions based in the UK, Ireland,
Germany, Turkey and The Netherlands.
The Football Pools is based in Liverpool,
operating under a licence from the UK
Gambling Commission, and is the oldest
football gaming business in the world.
Group highlights
– Profit before tax increased to £30.7m
(2015: £9.7m).
– Results in line with expectations with overall
EBITDA up 3% to £23.8m (2015: £23.1m).
– Successful outcome to our eight year £97m
VAT refund appeal after rulings at the
Supreme Court and the Court of Appeal.
– Announced an intention to return capital
to shareholders by way of a tender offer for
approximately £20m of Sportech ordinary
shares, representing a buyback of around
10% of the issued share capital.
– Transformation in Group’s financing with
adjusted net cash balances at 31 December
2016 of £36.5m compared to adjusted net
debt of £57.7m in 2015.
– Balance sheet strengthened by £22.6m
despite a detailed review of assets leading
to a non-cash impairment of £63.7m.
– Board restructured to include relevant
industry experience and associated
knowledge.
– Announced the sale of The Football Pools
for £83.0m, subject to certain conditions.
Sportech PLC Annual Report and Accounts 2016
05
Strategic report
Corporate governance
Financial statements
Sportech Racing and Digital
Over the past five years, we have invested
heavily in new and improved betting
technology products and licensing in order
to create a leading gaming technology
business, servicing the global horseracing
industry and more recently, the North
American sports industry. We are pleased
that this diversification into new geographies
and sports is now beginning to deliver results.
As a consequence, we have recognised an
impairment charge against our old technology.
In order to build upon our long-term market
strength in North America and Europe and
to increase our global presence, we have
established a base in Singapore with the aim
of driving expansion into the significant Asian
market. This has led to several new contracts
(which generally are for five to ten years)
for the supply of Tote system software and
hardware during 2016. New customers include
the Macau Jockey Club, Royal Sabah Turf Club
in Malaysia, and Vung Tau greyhound track
in Vietnam, to whom we have supplied a full
range of betting software and hardware,
including our Quantum™ Tote System and
newly developed BetJet Aero™ terminals.
Contracts include ongoing software licensing,
maintenance and support services.
The expansion of our customer base follows
the successful installation of our QuantumTM
Tote system for Betfred in the UK, which now
processes all Tote bets on live UK Racing
from all UK domestic and international
sources. Licensing and software maintenance
services also continue to be supplied under
this contract.
Importantly, we completed the delivery of
a project to enable Betfred and its full UK
wagering network currently connected into
their Quantum Betfred system (including
all major UK LBOs and key online partners),
to bet directly into the Hong Kong Jockey
Club pools. We have also delivered a similar
solution for others internationally including
the Great Canadian Gaming Corporation, and
will watch the growth of this new business
stream closely.
We were also pleased to conclude a system
sale to our first customer in Russia in
December 2016, having developed and
successfully tested a new local language
Russian betting/wagering system. This is
our fifth local language deployment following
the development in Macau earlier this year
and we now have a suite of English, Russian,
Spanish and simple and traditional Chinese
language options.
Existing contracts continue to be renewed
in North America and Europe and we were
pleased to open live racing for new customers
including Lone Star Park in Texas, Remington
Park in Oklahoma and Kentucky Downs.
Our Digital services business has shown
good growth following a tough trading period
in the second half of 2015, having secured new
customers including Penn National Gaming.
Our Business Model
A unique position in the regulated gaming market worldwide
Reinvesting in the business…
has built a strong foundation and placed the Group in a strategic
position to take advantage of the opportunities available to it.
Growing our Digital offerings…
and solutions has powered Sportech ahead of its competitors
and opened up new revenue streams.
Keeping an international focus…
ensures the best value can be driven out of the Group’s assets
and growth continues to be achievable.
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06
Sportech PLC Annual Report and Accounts 2016
Chief Executive’s review continued
Our Bump 50:50 business which was acquired
in June 2014 and supplies in-stadia electronic
lotteries to professional sports teams has
had another year of growth from an initial
customer base of seven to 37 professional
sports teams to date. The business was loss
making when we acquired it and pleasingly
has generated EBITDA of £0.2m in 2016,
and has a strong run rate going into 2017.
We have been delighted with the calibre of
our customer roster, with new customers
contracted in the year including Dallas
Cowboys, Miami Dolphins and San Francisco
49ers (NFL), Dallas Stars and Tampa Bay
Lightning (NHL), Cleveland Cavaliers and
LA Clippers (NBA), and our first MLB teams,
San Diego Padres and Detroit Tigers. We have
also developed the business outside of sport,
offering 50:50 lotteries at the Fiesta Bowl, the
Cactus Bowl and at Canada’s biggest music
festival, the Festival d’été de Québec. During
2016, Bump’s systems raised over $8m for
charitable causes, and it is believed that this
could grow by more than 50% in 2017.
Delivering on our strategy
Racing and Digital
Build upon our long-term market
strength in North America and Europe
and increase our global presence.
Leverage our licensing position,
intellectual property and people
to drive value.
Sportech Venues
Broaden the product offering and
become a betting operator which
is able to offer the full suite of gaming
products (as regulation develops)
in an omni-channel environment.
Position to take advantage of sports
betting when regulation allows.
Football Pools
Following completion of modernisation
and stabilising the core distribution
channel, grow the business through
retail channels and increasing the
subscription base as well as expanding
our online offerings.
In February 2016, the Group’s existing joint
venture with Playwin, India’s largest lottery
provider, commenced supplying technology
to an Indian company engaged to provide
pool services for a Sikkim licence holder.
Revenues generated are currently small as
we look to establish a proof of concept for the
broader market in India, as legislation permits.
Sportech Venues
In Connecticut, Sportech Venues operates
all legal 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 of Connecticut,
and is the only legally permitted betting
operator in Connecticut.
Our strategy is to broaden the product
offering and become a betting operator
which is able to offer the full suite of gaming
products (as regulation develops) in an
omni-channel environment, including at
venues where bets can be placed watching
sport, eating and drinking. We anticipate
that betting on sports is now more likely to
become legalised in the US in the next few
years than previously.
We have commenced construction of our
20,000 sq.ft. flagship sports bar, restaurant
and betting venue in downtown Stamford, just
north of the New York State border, which is
due to open in June. We are again partnering
with Bobby Valentine for this venue as we
did with our Bradley location in the north
of Connecticut. Bobby will be relocating his
existing Stamford sports bar and restaurant
into the new facility which is bigger, better
and more centrally located in the city.
Further to this, we remain involved in the
ongoing debate and discussions concerning
the expansion of slots (a ‘third casino’) in
the State. 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 future
expected opening of new casinos in
neighbouring States.
We continue to look for further sites where
a betting venue would deliver opportunities
to further expand our reach in the State and
anticipate opening in Windham next month,
Sportech PLC Annual Report and Accounts 2016
07
Strategic report
Corporate governance
Financial statements
together with an additional unit before the
end of 2017. Furthermore, we have appointed
the land and property consultant, CBRE, to
apply to change our permitting (planning)
designation, to enable us to realise value from
our nine-acre site in New Haven whilst
relocating our existing Sports Haven venue.
Realising capital next year from this surplus
land asset would fund the majority of our
venues build out strategy in 2017 and 2018.
We still face competition from unlicensed
illegal internet operators who continue to
take bets (together with tax and jobs) from
Connecticut residents, despite the State’s
issue of cease and desist letters. We anticipate
support from the State to actively protect the
terms of our licence, and to grow in-State jobs
and State tax revenues.
Our expansion into California gained pace
in 2016 with the opening of our first sports
bar, restaurant and betting venue, in San
Diego, in partnership with The Silky Sullivan
Group under the brand name ‘Striders’. The
venue has been steadily building a customer
base and increasing its revenues. We have
an agreement to develop up to ten similar
facilities across Southern California under
which the Group currently has approval to
construct a second site in the town of Norco
and is considering further potential sites.
In The Netherlands, we operate a number
of OTBs, point-of-sale terminals and online
betting on horseracing, all on an exclusive
basis under a licence from the Ministry of
Justice. This licence has been extended to
June 2017 and we continue to work closely
with the Government, the regulator and the
horseracing industry regarding the future
regulatory plans.
Football Pools
We have implemented significant operational
and technological change in order to turn
around the fortunes of our 93-year-old
football gaming business over the past few
years. We are pleased therefore that the
final important stages in this process were
implemented in the year, such that the
business now has strong foundations to
move forward.
The logistically challenging and cost intensive
paper coupon collector network, which has
been in decline for many years, was phased
out over a number of months and finally
closed in June 2016. Customers from this
network are now transacting with the business
on a subscription or digital basis. A new
customer database is now in operation
following a lengthy process to move away
from old legacy systems, which have now
been closed down.
Having made significant improvements in
technology, we are now able to extend the
distribution of our products digitally through
the launch of The Football Pools App, which has
been downloaded 20,000 times to date. 6,000
downloads have occurred in the last four weeks
since the start of the promotional campaign.
We have also continued to develop new
products to drive additional revenues and
increase customer engagement. This summer,
we have introduced pool games with cash out
functionality to footballpools.com and a new
online Spot the Ball game to replace the
traditional Spot the Ball paper coupon offering.
The significant improvement in the technology
base has enabled us to broaden the
distribution of our products not just to digital,
but also to retail consumers. From the end of
January 2017, the traditional Football Pools
game is now available to be played in many
of the WH Smiths’ stores nationwide. We have
embarked on a supporting digital and TV
advertising campaign, as we look to boost
our customer numbers.
Outlook
Sportech has been through a transformational
period.
We have 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,
licensing and geographical reach, we are
now in a position to grow our business,
dispose of surplus property assets, benefit
from regulatory change and deliver increased
value to our shareholders.
We have had a good start to the year, are
trading in line with management expectations,
and look forward to delivering a successful 2017.
Ian Penrose
Chief Executive
2 March 2017
08
Sportech PLC Annual Report and Accounts 2016
Financial review
How we have performed
Net debt bridge
Summary
– On a constant currency basis, EBITDA1, excluding the closed Football
Pools collector channel, remained level with prior year at £23.8m.
– The Group holds adjusted net cash1 of £36.5m at 31 December 2016
(2015: adjusted net debt of £57.7m), which reduces by £21.5m once
the Spot the Ball tax and fees are paid, and following receipt of the
remaining £3m.
– Statutory profit before tax increased to £30.7m (2015: £9.7m).
– Adjusted profit before tax1 is up by 17% to £13.8m (2015: £11.8m).
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Group financial overview
Sportech Racing and Digital
Sportech Venues
Football Pools – continuing channels
Trading results
Inter-segment elimination
Results from continuing channels
Football Pools – closed collector channel
Total Group at constant currency
FX impact
Total Group
Revenue
EBITDA
2016
£m
36.0
35.1
28.4
99.5
(0.9)
98.6
—
98.6
—
98.6
2015*
£m
38.8
36.6
28.4
103.8
(0.9)
102.9
5.4
108.3
(8.1)
100.2
2016
£m
9.4
2.7
15.0
27.1
(3.3)
23.8
—
23.8
—
23.8
2015*
£m
9.7
3.2
14.3
27.2
(3.5)
23.7
0.9
24.6
(1.5)
23.1
* 2015 divisional results are at ‘constant currency’, retranslated using 2016 exchange rates.
1 Adjusted performance measures
The Executive Committee assesses the performance of the operating segments based on a measure of adjusted EBITDA. This excludes the effects
of non-recurring expenditure such as exceptional items and asset impairment charges. The share option expense is also excluded. This measure
provides the most reliable indicator of underlying performance of each of the trading divisions. An adjusted profit before tax measure is also used
in assessing the Group’s performance. This is calculated as adjusted EBITDA less share option expense, depreciation and amortisation and finance
costs. Again, this is deemed by the Executive Committee to be the most reliable indicator of Group performance.
The Executive Committee assesses the Group’s liquidity using a measure of adjusted net cash/(debt) which excludes customer funds which
the Group does not have beneficial ownership of. It also excludes the VAT refund in the time period prior to it becoming ‘free and clear’ to the
Group. This is consistent with the measure used by the Group’s lenders to assess the liquidity financial covenant.
Sportech PLC Annual Report and Accounts 2016
09
Strategic report
Corporate governance
Financial statements
At constant currency, excluding the results of
the closed collector channel in the Football
Pools, Group EBITDA has been maintained at
£23.8m on revenues which have reduced by
£4.3m (4%).
Adjusted profit before tax was £13.8m (2015:
£11.8m), the EBITDA increase of £0.7m,
reduced share-based payments charge of
£0.7m, and lower finance costs of £1.5m were
offset by increased depreciation of £0.8m.
Profit before tax was £30.7m (2015: £9.7m) with
basic earnings per share of 6.4p (2015: 3.3p)
and adjusted earnings per share of 5.2p
(2015: 4.4p).
Sportech Racing and Digital
Key financials
An analysis of revenue and EBITDA from our Sportech
Racing and Digital division is set out as follows:
As noted in the Chief Executive’s review, we
have seen growth in revenues and EBITDA in
our system software and equipment sales
(primarily in Asia) and our digital service
contracts. This demonstrates the benefits of
our expanded international focus in recent
years, and the investment in our core
technology. We are confident about the
prospects for the division in 2017.
Sportech Venues
Key financials
A detailed analysis of our Sportech Venues division
is set out as follows:
Connecticut Venues
Revenue
2016
£m
29.4
2015*
£m
30.9
Margin
17.0
17.7
Tote services
and maintenance
contracts
System software and
equipment sales
Digital services
including sports and
other lotteries
Total revenue
Payroll
Other costs
FX impact
EBITDA
2016
£m
22.5
6.0
7.5
36.0
(11.0)
(15.6)
—
9.4
2015*
£m
26.5
5.4
6.9
38.8
(12.2)
(16.9)
(1.1)
8.6
* 2015 channel results are at ‘constant currency’,
retranslated using 2016 exchange rates.
Total reported revenue has increased by 4%
to £36.0m (2015: £34.6m) and EBITDA for the
division was also ahead of prior year by 9% at
£9.4m (2015: £8.6m). On a constant currency
basis, revenue and EBITDA have reduced by
£2.8m and £0.3m respectively, reflecting the
effective repositioning of the business following
the loss of our California Tote contract in
October 2015 which had contributed $2.4m
of EBITDA annually. New service contracts,
including Lone Star Park and Remington Park,
have each made a positive contribution
towards earnings for the division.
Connecticut EBITDA
Other EBITDA
FX impact
Total Venues EBITDA
2.5
0.2
—
2.7
2.9
0.3
(0.4)
2.8
* 2015 channel results are at ‘constant currency’,
retranslated using 2016 exchange rates.
Revenues for the division, including
Connecticut and Other Venues, have
increased from prior year by £2.4m to
£35.1m and EBITDA has remained broadly
flat at £2.7m. On a constant currency basis,
revenue and EBITDA have fallen by £1.5m
and £0.5m respectively.
We continue to see the decline in industry
handle across the US impacting our
Connecticut retail business. However, our
online betting platform (‘ADW’) benefited
from the expected switch towards digital
products with a 16% increase in handle. Last
year, racing revenue was higher than normal
during the Triple Crown season as a result of
the interest in American Pharaoh who won
all three races, the first horse to do so for 37
years. With no similar contender in 2016,
revenues were lower during the Triple Crown
season. Offsetting this benefit in 2015, we
were also impacted by the closure of a Jai Alai
venue which reopened in 2016, although
revenues have not returned to levels from
prior to the closure.
10
Sportech PLC Annual Report and Accounts 2016
Financial review continued
We have announced the sale of the Football
Pools business and have reflected on the
carrying value of this division by recognising
a goodwill impairment charge of £37.7m.
This reduces the carrying value of goodwill
to £81.8m. In addition, we have impaired fixed
assets by £4.8m, taking the total Football
Pools asset impairment to £42.5m.
Corporate costs
Corporate costs of £3.3m (2015: £3.5m) have
been reduced by 6% and remain tightly
controlled. In addition, we have a non-cash
share option credit under IFRS 2 of £0.1m
(2015: charge of £0.5m).
Depreciation, amortisation
and impairments
The Group’s normal depreciation and
amortisation charge increased in the period
to £8.4m (2015: £7.6m), owing principally to
the ongoing investment into our businesses
in North America.
The Group has recognised various non-cash
impairments to assets across the business,
including £42.5m in the Football Pools, £17.2m
in Sportech Racing and Digital and £4.0m in
Sportech Venues. The impairments were
identified through a review of the asset
base of each division following the end of
modernisation in the Football Pools business,
the completion of a six-year road map of
software and ancillary product development
in Sportech Racing and Digital and a review
of fixed assets in Connecticut, as well as our
intention to realise value through sale of our
venue in New Haven, Connecticut.
The Group incurred a non-cash amortisation
charge of £0.6m (2015: £1.2m) on the intangible
assets acquired with eBet in 2012, Datatote in
2013 and Bump in 2014.
We are encouraged that our innovative
sports bar, restaurant and betting concept
is beginning to produce positive results.
At our Bradley venue, we now generate a
contribution of over $1.0m, which includes
a first-time contribution from food and
beverage of $0.2m, with total revenues up
by 16%. This bodes well for our new flagship
venue which will open in downtown Stamford.
In our other venues in California and The
Netherlands the combined revenues and
EBITDA were in line with prior year.
Football Pools
Key financials
The key performance indicators of our Football Pools
division are set out as follows:
Continuing channels
Revenue
Sales related costs
Overheads
EBITDA – continuing
channels
EBITDA – collector
channel
Total EBITDA
Weekly revenue
per Classic Pools
customer (£)
2016
£m
28.4
(4.6)
(8.8)
15.0
—
15.0
2015
£m
28.4
(4.4)
(9.7)
14.3
0.9
15.2
3.24
3.03
Revenues were stable at £28.4m and EBITDA
was up by £0.7m to £15.0m when excluding
the impact of the contribution last year from
the now closed collector channel (which had
become loss making in 2016).
Weekly spend per Classic Pools customer
has increased by 7% to £3.24 per week.
Total new player acquisition in the year was
16,000, with 68% being recruited online.
Total customer numbers at 31 December
2016 were 215,000 (2015: 230,000), with
64% of our Classic Pools customer base now
playing by direct debit. A continued focus on
the cost base has achieved a further reduction
of £0.7m in the continuing business, in
addition to stripping out £4.5m of costs
in relation to the collector channel.
Sportech PLC Annual Report and Accounts 2016
11
Strategic report
Corporate governance
Financial statements
Net exceptional income
The Group has recorded a pre-tax net gain
of £91.0m in relation to the VAT refund which
was successfully concluded by the Supreme
Court in December 2016. Total income of
£93.9m has been received with an expected
further £3.0m to be received in the next few
weeks. Costs in relation to this successful
eight-year legal process of £5.9m have been
recognised and are detailed in note 2.
Exceptional costs
The Group has incurred exceptional
administration costs of £9.7m (2015: £2.6m)
in the year. Of those costs, £2.4m relates to
the modernisation of the Football Pools
division (representing £2.2m of restructuring
costs and £0.2m of losses in winding down
and closing the collector channel). Costs of
£4.4m (2015: £0.3m) have been incurred in
relation to ongoing corporate activity and a
loss of £0.7m was realised on the sale of 25%
of our holding in NYX Gaming Group Limited.
A further £0.5m of redundancy and
restructuring costs were incurred within
our US business, £1.0m has been provided
in respect of irrecoverable VAT on asset
impairments and £0.7m of other exceptional
costs have been incurred in the year (see note
2 for further analysis). All these costs are
considered to be one-off in nature and not
relevant to the underlying performance of
the Group or of such a size that their exclusion
from underlying profits is considered
necessary to understand the true
performance of the Group.
Net finance costs
The Group has reduced its finance costs by
47% in the year to £1.7m (2015: £3.2m) due
to the lower average levels of net debt. In
addition, other finance income amounted
to £1.1m (2015: £0.6m), representing foreign
exchange gains on inter-company loans and
cash balances held.
Taxation
A tax charge for the period of £17.6m (2015:
£3.0m) has been provided at the weighted
average applicable tax rate for the Group
of 16.2% (2015: 17.0%) together with the tax
effects of permanent differences and other
adjustments. The increase in the Group’s tax
charge is a result of the Spot the Ball net gain.
The underlying adjusted effective tax rate has
marginally reduced to 22.8% (2015: 23.7%).
Tax has been provided on the net Spot the
Ball gain of £91.0m at the UK corporation tax
rate of 20%. Impairments to goodwill have
impacted the overall effective tax rate,
increasing it to 57.3%.
The Group has a net deferred tax asset of
£3.1m (2015: £0.5m), representing primarily
carried forward net operating losses and
foreign taxes withheld which can be utilised
against future profits. The Group has made
a value adjustment of £3.1m to the carrying
value of its carried forward foreign tax
credits as a result of a reassessment of
future recoverability. Tax payments of £3.1m
were made during the year (2015: £2.3m),
principally representing final payments for
prior-year tax liabilities and overseas tax
deducted at source.
VAT claim
On 4 May 2016, the Court of Appeal judges
found unanimously in favour of the Group in
respect of its £97m VAT reclaim relating to its
‘Spot the Ball’ game. On 13 May 2016, HMRC
sought permission from the Court of Appeal
to appeal to the Supreme Court, which was
refused. We announced on 6 June 2016 that
HMRC had lodged an application to appeal
directly to the Supreme Court which we were
delighted to hear on 8 December 2016 had
been refused which brought the litigation to
an end in the Group’s favour.
The Group has currently received £93.9m
and expects to receive the remaining balance
within the next few weeks. Following the
successful conclusion to this case, the Group
has recognised the income net of costs in the
income statement.
12
Sportech PLC Annual Report and Accounts 2016
Financial review continued
Cash position and bank facility
The Group ended the year in an adjusted
net cash position of £36.5m. Our £50.0m
facility with the banking syndicate of Royal
Bank of Scotland plc, Barclays Bank PLC and
Bank of Scotland plc will be reviewed during
2017. £25.0m of the original facility of £75.0m
was cancelled in December 2016 to reduce
commitment charges being incurred.
The Group’s bank leverage covenant under
the existing facility is 2.50x in June 2017.
There was no leverage to be tested at
31 December 2016.
Foreign exchange
The Group generates approximately 40%
and 10% of EBITDA in US dollars and Euros
respectively. Movements in overseas currency
rates are closely monitored by management
and action taken to minimise cash flow risk
arising from this. The Group has benefited
in its reported results from the weakening of
Sterling in 2016: EBITDA in prior year would
have been £1.5m higher had 2016 exchange
rates prevailed.
Capital expenditure
Capital expenditure in the year of £11.9m
(2015: £8.4m) includes platform and product
modernisation in the Football Pools,
approximately 40% of the Stamford venue
build out, and improvements made to the
Group’s Digital offering.
Distributions to shareholders
The Board has decided to return money
to shareholders by way of the Tender Offer
announced today. Once the Board has
considered the impact of the Tender Offer,
the timing of The Football Pools sale and
ongoing strategic initiatives, alongside new
banking facilities, the Board will determine
the appropriate capital structure and ongoing
distribution policy. Therefore, no dividend
is currently proposed.
Shareholders’ funds
Total equity and the Group’s net assets
at 31 December 2016 have increased to
£148.8m (31 December 2015: £126.2m).
Mickey Kalifa
Chief Financial Officer
2 March 2017
Sportech Racing and Digital
Sportech Venues
Football Pools
Corporate costs
2016
£m
5.3
3.1
2.7
0.8
11.9
2015
£m
4.5
1.1
2.5
0.3
8.4
Sportech PLC Annual Report and Accounts 2016
13
Principal risks
Effective risk management
Strategic report
Corporate governance
Financial statements
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 established and approved a risk
appetite statement in 2015, which has been
distributed to the Executive Boards of the
three main business units. This statement,
which has been reviewed by the Board during
the year, 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.
The Risk Committee, which is led by the Chief
Financial Officer, meets with the Executive
Boards of each of the three main business
units to assess risk and formally update their
business-specific risk registers. Risks are
measured in relation to their mitigated
likelihood and their prospective impact were
they to arise, in accordance with the following
risks matrix:
Risks matrix
High
t
c
a
p
m
I
Medium–High
Medium–Low
Low
4
3
2
1
8
6
4
2
12
9
6
3
Low Medium High
Mitigated likelihood
The Risk Committee reports to the Board
which in turn formally reviews a Group
principal risk register annually. Principal risks
to the Group are considered to be those risks
identified by the Divisions as having an overall
rating of eight or higher or an impact of four
despite the low level of mitigated likelihood.
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.
Risk area
Regulatory
The Group operates under numerous
licences worldwide. 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.
Description and mitigating actions
Heat map rating
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 employs a Group General Counsel in the UK and a
General Counsel in the US who oversee regulatory and legal
compliance worldwide;
– 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; and
– 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.
4
The Group continues
to hold licences in
the same jurisdictions
and monitors the
changing gaming
environment.
There have been
no detrimental
changes of note
during the period.
14
Sportech PLC Annual Report and Accounts 2016
Principal risks
Effective risk management continued
Risk area
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 and expand
our product base 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.
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
technology products 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.
Description and mitigating actions
Heat map rating
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; and
– 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.
9
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. The risk
of certain racetracks
closing also remains.
9
The Group continues
to invest in upgrading
and enhancing its
technology to
keep pace with
technological 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 and our software
is continually improved;
– the Group invests significant amounts in developing new
and innovative products such as Digital Link;
– Group systems, principally in the US, UK and in The
Netherlands, are subject to annual third-party audits 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.
Sportech PLC Annual Report and Accounts 2016
15
Strategic report
Corporate governance
Financial statements
Risk area
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 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 a
contract or a reduction in revenues
in order to retain the contract.
Description and mitigating actions
Heat map rating
The Group:
– maintains good relationships with all of its current and
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; and
– is developing new and innovative products by which to
differentiate the Company from the competition.
8
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, and
secured new
international
system sales.
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 48. The Board
conducted this review for a period up to December 2019,
which was selected for the following reasons:
i. The Group’s strategic review process generally covers
a three-year period.
The February 2017 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.
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.
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.
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.
On behalf of the Board
Mickey Kalifa
Director
2 March 2017
16
Sportech PLC Annual Report and Accounts 2016
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.
In the UK, the Group actively promotes
GamCare to its customers, and nearly £0.5m
has been contributed to GambleAware,
GamCare’s major funder, and its predecessor
bodies over recent years. In Connecticut, the
Venues business contributes over £0.1m
annually to promote responsible gambling
in the state.
Society
The Group remains focused on supporting
good causes in the communities where our
customers live and our businesses operate,
and identifying further opportunities to
continue this support.
Through its Bump 50:50 subsidiary, the Group
has raised $8.6m for sports foundations in
the US and Canada in 2016, including those
associated with Dallas Cowboys, LA Clippers
and San Diego Padres.
The Group’s support for communities across
the UK is virtually unparalleled in the sector.
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
nearly £150,000 annually for charitable use
through its management and operation of
society lotteries within its Football Pools
business activities.
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). As well as
providing a summary of the CO2 emissions
produced, an intensity ratio using Group
revenue is also included. In 2016, a decrease
in intensity of 14.6% from prior year has been
achieved, due to reduced use of natural gas,
electricity and motor fuel, following business
reorganisation in California and Germany, and
closer control of utility usage.
2016
CO2 (metric tonnes) 6,022
98.6
Group revenues
Intensity ratio
61.1
Movement on
prior year (%)
(14.6)
2015
7,176
100.2
71.6
2014
6,202
104.1
59.6
20.0
—
Sportech PLC Annual Report and Accounts 2016
17
Strategic report
Corporate governance
Financial statements
Neil Ruddock (ex-Liverpool and England) helping the
Football Pools raise money for ‘Balls to Cancer UK’
Sportech’s Bump 50:50 platform helps professional sports
teams’ foundations support their charitable missions
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 28.
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
2 March 2017
18
Sportech PLC Annual Report and Accounts 2016
Chairman’s statement
Generation of value for shareholders
Dear Shareholder
I am delighted that the position of the
Group has been transformed. Financially
we have moved into a net cash position,
having previously been heavily indebted.
We are also making the first returns to
shareholders in the Group’s history.
Performance
The Board is pleased to report that the
Group’s results for the year are in line with
expectations and ahead of last year. We
are confident in the strategic positions that
each of our divisions have secured, whilst
recognising that further investment is
required, ahead of anticipated revenue and
profit benefits, to enable them to deliver
their full potential.
VAT claim
After nearly eight years, the Board was
extremely pleased to announce in December
2016 that the Group had finally been
successful at the Supreme Court in its reclaim
of £97m of VAT from HMRC. There is the
potential to receive compound interest on
this money, which could more than double
the amount received to date. We will watch
the developments in the Supreme Court in
July 2017 with interest.
Shareholder distribution
The Group is now in a position to make
its first return to shareholders. Today we
announced we intended to return £20m to
shareholders, and following consultation with
our advisers, we will be carrying this out using
existing authorities available to us via a Share
Tender Offer to buy up to 10% of the share
capital of Sportech for a consideration of
approximately £20m.
Today the Board also announced the disposal
of the Football Pools for £83.0m, subject to
shareholder approval and the purchaser
receiving the appropriate licences from the
Gambling Commission. We anticipate
completion by the end of May 2017. The Board
will subsequently consider the Group’s optimal
capital structure and dividend policy, taking
into account business development and
acquisition opportunities.
Sportech PLC Annual Report and Accounts 2016
19
Strategic report
Corporate governance
Financial statements
The Board is committed to high standards
of governance but acknowledges that certain
provisions of the Code were not complied
with during the year, as explained further in
the Corporate governance report on page 22.
We also acknowledge the non-compliance
with DTR 7.1.1A from 1 January 2017 to date
in that the majority of members of the Audit
Committee should be Independent
Non-executive Directors. Notwithstanding
this, the Board is comfortable that it has
achieved, and continues to achieve, good
governance.
Outlook
This is an exciting time, with the Group
having forged a leading industry position,
established a strong financial structure and
having developed many opportunities, all
from a very difficult position several years ago.
Roger Withers
Non-executive Chairman
2 March 2017
Board and employees
The Board has been reconstructed during
the year in order to be better placed to
address the opportunities and challenges
ahead. We made two internal promotions to
Executive Directors, namely Mickey Kalifa (as
Chief Financial Officer) and Andrew Gaughan
(as Executive Director, Andrew continues to
act as President, Sportech Racing//Digital).
We also welcomed a new Non-executive
Director – Richard McGuire (as Independent
Non-executive Director and Chairman of
Remuneration Committee), and we look
forward to announcing further appointments
in the near future.
This has been a transformational year
for the Group. I would like to record my
sincere thanks to all my colleagues for the
tremendous effort in bringing our Company
to such a good position, and for putting
us in a situation to deliver such value to
loyal shareholders.
Corporate governance report
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 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 2016. As a whole, it is considered
by the Board, to be ‘fair, balanced and
understandable’ as is required by the UK
Corporate Governance Code.
20
Sportech PLC Annual Report and Accounts 2016
Board of Directors
Roger Withers (74)
Non-executive Chairman
Ian Penrose (51)
Chief Executive
Mickey Kalifa (49)
Chief Financial Officer
Date of appointment: February 2011
Board Committees: A, N, R
Date of appointment:
October 2005
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 Director and
Chairman of the Compensation
Committee of Inspired
Entertainment, Inc. in January 2017.
He 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.
Mickey was appointed to the
Board in March 2016. Mickey
was our Corporate Development
Director for six years prior to
taking his current position.
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.
Full biographies of the Board
members can be found at
www.sportechplc.com
R Remuneration Committee
A Audit Committee
N Nomination Committee
Note: Red icon indicates
Chairman of Committee
Andrew Gaughan (51)
Executive Director
Richard McGuire (50)
Non-executive Director
Date of appointment:
January 2017
Andrew joined Sportech in
2010 following the Company’s
acquisition of the Scientific
Games Racing business, and has
served as President: Sportech
Racing // Digital for the last four
years. He was appointed to the
Board in January 2017. Andrew
has extensive experience in the
gaming, technology and
horseracing sectors, having
previously held senior positions
at Scientific Games Corporation,
Magna Entertainment
Corporation and Woodbine
Entertainment Group. He is a
qualified lawyer, and is based
in Toronto, Canada.
Date of appointment:
August 2016
Board Committees: R, A, N
Richard McGuire joined Sportech
as a Non-executive Director to the
Board in August 2016. Richard has
extensive experience in capital
markets and the leisure and
gaming industries, and previously
held a number of Non-executive
directorships. Prior to joining
Sportech he sat as Chairman at
Timeweave plc, the joint owner
of TurfTV, a dedicated TV channel
providing horseracing pictures
and data to the vast majority of
licensed betting offices in the
UK and Ireland. He also held the
position of Non-executive Director
at Mitchells and Butlers Plc, one
of the largest operators of
restaurants, pubs and bars in
the UK.
Senior management
Strategic report
Corporate governance
Financial statements
Sportech PLC Annual Report and Accounts 2016
21
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
Richard Boardley
Director of
Corporate Affairs
Carl Lynn
Finance Director
Bob Mercer
Finance Director
James D Birney
Vice President of Finance
Nicola McCabe
Group Financial Controller
Kevan Woodcock
Director of Technology
Louis Skelton
Chief Technical Officer
Frank J. Chesky III
Executive Vice President
and General Counsel
Michelle Robbins
Head of Marketing
Dan Tanenbaum
President – Bump 50:50
Paul Klomp
Managing Director –
Netherlands Venues
and Online
22
Sportech PLC Annual Report and Accounts 2016
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 2016, has complied with the provisions of
the UK Corporate Governance Code (the ‘Code’), save
as described in the paragraphs below. 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 is able and believes it is practical.
The Board acknowledges that, following the resignation
of Peter Williams on 17 May 2016 (who had been Senior
Independent Non-executive Director and Chairman of the
Remuneration Committee until such date) and David
McKeith on 24 August 2016 (who had been Chairman of
the Audit Committee until such date), it has not complied
with the provisions of the Code in the following respects:
(i) the requirement to have at least two Independent
Non-executive Directors as members of the Remuneration
and Audit Committees and for the majority of Nomination
Committee members to be independent (Code Provisions
D.2.1, C.3.1 and B.2.1), (ii) there being an identified Senior
Independent Director (Code Provision A.4.1) and (iii) the
Chairman should not be a member of or chair the Audit
Committee or Remuneration Committee given his non-
independent status on appointment (Code Provisions C.3.1
and D.2.1), during the year under review.
Notwithstanding the above, the Board is comfortable
that it has achieved, and continues to achieve, good
governance, as a result of the experience of the Chairman
and the appointment of Richard McGuire as a new
Independent Non-executive Director on 24 August 2016.
The Company confirms that Richard McGuire has the
recent, relevant financial expertise required to effectively
challenge and review accounting judgements and
reporting. With this, and the extensive corporate
experience of Roger Withers in mind, the Company is
comfortable that the Committees have continued to
function to a high standard throughout, and robustly
challenge management and the preparation of the
financial statements.
The search for a further new Independent Non-executive
Director, who is intended to be appointed as Chairman of
the Audit Committee, has been rigorous and taken time,
as the Board has been mindful of its responsibility to
appoint an individual who achieves the appropriate
balance of skills, experience, independence and
knowledge of the Company to enable them to discharge
their respective duties and responsibilities effectively.
Further to this, the Board anticipates announcing the
appointment of a further Independent Non-executive
Director to the Board imminently and, following such
appointment, proposes immediately to appoint such
person to the role of Chairman of the Audit Committee,
and to the Remuneration and Nomination Committees,
and appoint one of the Independent Non-executive
Directors as Senior Independent Non-executive Director.
Following such appointment, the Audit Committee and
Remuneration Committee will comprise two Independent
Non-executive Directors and the Chairman will no longer
chair, or be a member of, the Committees. The Nomination
Committee will comprise majority Independent Directors
and be chaired by the Senior Independent Director.
In addition to the above, DTR 7.1.1A has been breached
following the revision to the Rule for the period beginning
1 January 2017, in relation to the majority of members of
the Audit Committee being independent. Following the
appointment of a new Independent Director, this breach
will be rectified.
This report, together with the Remuneration report on
pages 31 to 46, 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 one Independent Non-executive
Director as follows:
Roger Withers Non-executive Chairman
Ian Penrose
Chief Executive
Mickey Kalifa
Chief Financial Officer
Andrew Gaughan President: Sportech Racing // Digital
Richard McGuire Independent Non-executive Director
Biographies of the current Board members appear on
page 20. 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 Richard McGuire to be an
Independent Director. Roger Withers cannot be deemed
to be independent, 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.
Sportech PLC Annual Report and Accounts 2016
23
Strategic report
Corporate governance
Financial statements
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.
Board effectiveness
Division of responsibilities and information
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. 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.
Procedure for appointments to the Board, induction
for Board members and ongoing training
The Chairman is responsible for taking the lead on issues
of Director development and encouraging all Board
members to engage in Board and Committee meetings by
drawing on their skills, experience and knowledge. Non-
executive Directors regularly deepen their knowledge of
the business through site visits across the business. Each
newly appointed Director receives an induction and each
induction programme is tailored specifically to suit the
needs of the newly appointed Director. The induction
process includes meeting members of the Board and of
the Group Executive team.
Each Director has access to all required information
relating to the Group and to the advice and services of the
Company Secretary. The Board also obtains advice from
professional advisers as and when required and Directors
may, as required, obtain external advice at the expense of
the Group.
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. Roger Withers was appointed Director
and Chairman of the Compensation Committee of Inspired
Entertainment, Inc. on 27 January 2017. This additional
commitment is not anticipated to impact his ability to
effectively discharge his duties to the Company.
24
Sportech PLC Annual Report and Accounts 2016
Corporate governance report continued
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 2017 and the results were circulated to the Directors in February 2017. The results will be discussed
by the Board at the April 2017 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.
The Code provides that the Non-executive Directors should meet without the chairman present at least annually
to appraise the Chairman’s performance and on such other occasions as are deemed appropriate. The Chairman’s
performance was reviewed as part of the Board Evaluation process conducted in January 2016. The Code also requires
the performance of Non-executive Directors to be appraised and this is done through the Board evaluation process
described above.
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 and divisional
reports. 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.
Number of meetings held in the year
Executive Directors
Ian Penrose
Mickey Kalifa (appointed 3 March 2016)
Cliff Baty (resigned 3 March 2016)
Rich Roberts (resigned 18 July 2016)
Non-executive Directors
Roger Withers
Peter Williams (resigned 17 May 2016)
David McKeith (resigned 24 August 2016)
Richard McGuire (appointed 24 August 2016)
There are eight scheduled Board meetings for 2017.
Main Board
7
7
4
3
4
7
3
5
2
Remuneration
Committee
3
—
—
—
—
3
1
2
1
Audit
Committee
Nomination
Committee
Independent
Directors
Committee
3
—
—
—
—
3
1
2
1
1
—
—
—
—
1
1
1
—
—
—
—
—
—
—
—
—
—
Sportech PLC Annual Report and Accounts 2016
25
Strategic report
Corporate governance
Financial statements
Board Committees
The Committees of the Board are the Audit Committee,
Remuneration Committee and the Nomination
Committee. The Independent Directors Committee,
which was initially set up to deal with ongoing conflicts
from a Board and shareholder perspective, was
disbanded by the Board on 14 June 2016 as it was
deemed no longer applicable or required. The terms of
reference of the Audit, Remuneration and Nomination
Committees are available on request from the Company
Secretary and are available on the corporate website,
www.sportechplc.com/investors/corporate-governance.
Management ensures that the Committees are provided
with all the necessary resources to enable them to
undertake their duties in an effective and efficient
manner. The Company Secretary or her delegate acts
as secretary to the Committees.
The Audit Committee
The Audit Committee of the Board currently comprises
the Independent Non-executive Director, Richard
McGuire, and the Chairman, Roger Withers, who also
chairs the Committee.
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 has
delegated from the Board the responsibility for review
of the effectiveness of internal controls, the Company’s
whistleblowing procedures and the need for an internal
audit function as well as the scope, extent and
effectiveness of such a function. The Chief Financial
Officer and Chief Executive are invited to attend the
Committee as appropriate.
Financial reporting
The primary role of the Committee in relation to financial
reporting is the review with both management and the
external Auditor of the appropriateness of the half-year
and annual financial statements concentrating on,
amongst other matters:
– consistency of the Annual Report as a whole and
ensuring it presents a fair, balanced and understandable
picture of the Company as well as providing shareholders
with the information necessary to assess the Company’s
performance, business model and strategy;
– the quality and acceptability of accounting policies
and practices;
– the clarity of the disclosures and compliance with
financial reporting standards and relevant financial and
governance reporting requirements;
– material areas in which significant judgements have been
applied or there has been discussion with the external
Auditors; and
– any correspondence from regulators in relation to our
financial reporting.
The Committee considered internal reports from the Chief
Financial Officer and the Group Financial Controller,
together with the external Auditors’ report in their half-year
review and annual audit, in reviewing the Group’s financial
reporting function.
The primary areas of judgement considered by the
Committee in relation to the 2016 financial statements were:
– the assumptions underlying impairment testing of the
Group’s goodwill and intangible assets; and
– the carrying value of contingent consideration receivable
in relation to NYX.
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
– scenario analysis.
26
Sportech PLC Annual Report and Accounts 2016
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, and has challenged management as to their
rational for recognising impairments in the current year. 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.
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 and as of 1 January 2017, tax advice
and any advisory service which ultimately has an impact,
material in size, on the treatment of items in the financial
statements. The Group intends to comply with the new
ethical standards which also require that fees for non-audit
services do not exceed 70% of the average of the audit fee
for the prior three years, prospectively from 1 January 2017.
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 2016
relates to work undertaken in respect of corporate activity.
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 2016 the significant
risks identified were in relation to asset impairment,
management override of controls, fraud in revenue
recognition and the carrying value of contingent
consideration in relation to NYX. The Committee has time
with the external Auditors without management present
at each meeting to provide additional opportunity for
open dialogue and feedback. Matters typically discussed
include the Auditors’ assessment of business risks and
management activity thereon; the transparency and
openness of interactions with management; confirmation
that there has been no restriction in scope placed on
them by management; independence of their audit; and
how they have exercised professional scepticism. The
Chairman of the Audit Committee also has regular
discussions with the external audit partner outside the
formal committee process.
Appointment and reappointment
The Committee considers the reappointment of the
external Auditors, including the rotation of the audit
partner each year, and also assesses their independence
on an ongoing basis. The external Auditors are required
to rotate the audit partner responsible for the Group audit
every five years. The current lead audit partner, Nigel
Reynolds, has performed the role since 2014.
PricewaterhouseCoopers LLP have been the Company’s
external Auditors for more than 20 years, 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 2016. 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. Transitional arrangements
in the new ethical standards allow for the Auditor to
Sportech PLC Annual Report and Accounts 2016
27
Strategic report
Corporate governance
Financial statements
remain in place for no longer than six years from 16 June
2014 and as such PricewaterhouseCoopers will be allowed
to remain as the Group’s Auditor until post signing of the
31 December 2019 financial statements, at which point the
Group will be required to rotate its Auditor.
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 2017
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 shareholders at the 2017 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 13 to 15 of the
Strategic report. The Group separately employs an
India-based accountant as a consultant who is responsible
for ensuring the integrity of results and robustness of
internal controls and procedures in the Group’s Indian joint
venture. The accounting for the Group’s Californian joint
venture is performed by the Venues division and the Vice
President of Finance of that division ensures integrity of
results and that the Group’s high standard of internal
control is replicated.
To manage lower-level risks, a risk management
programme is in place, supported by a business
control and risk self-assessment process and a business
continuity plan. The risk management programme places
responsibility on managers to identify risks facing each
business unit and for implementing procedures to mitigate
these risks. The risk appraisal process is regularly reviewed
by the Board and accords with the UK Corporate
Governance Guidance. The Audit Committee and Board
have reviewed the effectiveness of the internal controls of
the Group for the year ended 31 December 2016 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. The Committee will continue to
assess the need for specific internal audit reviews and an
ongoing internal audit strategy during the coming months.
Whistleblowing policy
The Company is committed to providing a safe and
confidential avenue for all employees within the Group to
raise concerns about serious wrongdoings. The Company
also acknowledges the requirements of the UK Corporate
Governance Code in this regard, which states that the
Audit Committee should review arrangements by which
staff of the Group may, in confidence, raise concerns about
possible improprieties in matters of financial reporting or
other matters. Further to this, an appropriate policy so as
to encourage and enable staff to raise any such concerns
is in place and has been throughout the year. No instances
of serious wrongdoing have been reported to the Audit
Committee during the period.
Roger Withers
Non-executive Chairman and
Chairman of the Audit Committee
2 March 2017
28
Sportech PLC Annual Report and Accounts 2016
Corporate governance report continued
The Committee, in its recommendations to the Board,
acknowledges that diversity extends beyond the
boardroom and supports management in their efforts to
build a diverse organisation throughout the Group. Out of
a workforce of approximately 1,000 employees, 44% are
female and out of 21 members of senior management 33%
are female. The Committee endorses the Company’s policy
to attract and develop a highly qualified and diverse
workforce; to ensure that all selection decisions are based
on merit and that all recruitment activities are fair and
non-discriminatory. Although at present there are no
female Board members, the Committee acknowledges
the importance of diversity, including gender, to the
effective functioning of the Board. Furthermore, the Board
acknowledges the recommendations of the Davies Report,
and supports the principle of improving, in particular,
gender imbalance, both at a Board level and throughout
its businesses. Subject to securing suitable candidates,
when recruiting additional Directors and/or filling vacancies
that arise when Directors do not seek re-election, we will
seek to appoint new Directors who fit the skills criteria and
gender balance that is in line with the Company’s policy.
We continue to focus on encouraging diversity of business
skills and experience, recognising that Directors with
diverse skill sets, capabilities and experience gained from
different geographic and cultural backgrounds enhance
the Board.
The Remuneration Committee
The Remuneration Committee of the Board currently
comprises the Independent Non-executive Director,
Richard McGuire and the Chairman, Roger Withers.
It is chaired by Richard McGuire.
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
31 to 46.
The Nomination Committee
The Nomination Committee currently comprises the
Independent Non-executive Director and the Chairman
of the Board, who also chairs this 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 Richard McGuire to the role
of Independent Non-executive Director and the search,
which is at an advanced stage, for a new Independent
Non-executive Director, who will also be appointed as
Audit Committee Chairman.
Sportech PLC Annual Report and Accounts 2016
29
Strategic report
Corporate governance
Financial statements
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 2016 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
Luisa Wright
Company Secretary
2 March 2017
Investor relations
There is regular dialogue with shareholders through a
planned programme of investor relations which includes
formal presentations of the Group’s results by the Chief
Executive and Chief Financial Officer. Meetings also take
place with institutional investors and analysts on a regular
basis and there is regular communication with shareholders
through the Annual and Interim Reports and Sportech’s
corporate website (www.sportechplc.com). They are also
available at other times, outside close periods, to enter into
dialogue with these shareholders. All shareholders have
the opportunity to question the Board at the AGM both
formally and informally. The Non-executive Directors have
taken steps to develop an understanding of the views of
the major shareholders about the Company through
face-to-face contact and analyst and broker briefings.
All resolutions at the 2016 AGM were voted by way of
a manual poll. This follows best practice and allows the
Company to count all votes rather than just those of
shareholders attending the meeting. As recommended
by the Code, all resolutions were voted separately and the
voting results, which included all votes cast for, against and
those withheld, together with all proxies lodged prior to the
meeting, were indicated at the meeting and the final results
were released to the London Stock Exchange as soon as
practicable after the meeting. The announcement was also
made available on the Company’s corporate website. As in
previous years, the proxy form and the announcement of
the voting results made it clear that a ‘vote withheld’ is not
a vote in law and will not be counted in the calculation of
the proportion of the votes for or against the resolution.
30
Sportech PLC Annual Report and Accounts 2016
Report of the Remuneration Committee
Letter from the Remuneration Committee Chairman
Dear Shareholder
On behalf of the Board I am pleased to present, for the
first time as Sportech’s Remuneration Committee chair,
the Directors’ remuneration report (the ‘Report’) for the
year ended 31 December 2016.
This annual statement, together with the annual report
on remuneration (pages 31 to 46), will be put to an
advisory shareholder vote at the 2017 AGM. Our approach
to pay is governed by our remuneration policy, which
was last approved by shareholders in 2014. Shareholders
will therefore be asked to approve a revised directors’
remuneration policy (pages 31 to 37) at the 2017 AGM
in a binding vote.
There have been a number of changes at the Board-level
and to the Committee membership over the last 12
months meaning that it has not been the optimum time
to conduct an in-depth review of the remuneration policy.
Further to this, we are not proposing any substantive
changes at the 2017 AGM. However, we will be taking
the opportunity to make a number of minor amendments
to bring the policy further into line with good practice.
We now have the stability required to ensure an in-depth
review of the remuneration policy can be conducted
and the Committee therefore intends to do so over 2017
(including consultation with major shareholders) to
ensure it appropriately drives performance and aligns
our executives and employees with our shareholders.
Performance and reward in relation to 2016
In determining remuneration levels for the executive
directors, the Committee has taken account of market
conditions, internal reference points, the performance of
the Company, responsibility to shareholders and good
corporate governance.
The basic salaries of the Chief Executive Officer (‘CEO’)
and Chief Financial Officer (‘CFO’) for 2017 have increased
by 1.5%, consistent with the general pay award for our
UK-based employees. In addition, following the promotion
of Mickey Kalifa to CFO in March 2016, he received an
increase during the year from £230,000 to £250,000,
commensurate to that of his predecessor, to reflect his
successful transition into the role. Mickey’s salary is now
positioned broadly in line with the market and no further
such one-off increases are proposed.
As set out in detail in the Strategic report, the Company
delivered against a number of strategically important
objectives during the year under review and delivered
EBITDA of £23.8m. The EBITDA targets set for 2016
were partially achieved during the year, and a number
of personal and strategic objectives were achieved.
Therefore, overall bonuses earned were 39.2% of
maximum for the CEO (39.2% of salary) and 39.7%
of maximum for the CFO (29.8% of salary).
During the year under review, Sportech was successful in a
VAT repayment claim in respect of ‘Spot the Ball’ (‘STB’)
which resulted in the Group receiving approximately £97m
gross. The success of this claim is transformational for the
business. Therefore, during 2016, in accordance with the
remuneration policy, the Committee consulted with the
Company’s major shareholders with regard to awarding
an exceptional bonus to reward the performance of the
Executive Directors in achieving this outcome. The
Committee proposed that 1.75% of gross proceeds be
allocated to management and other employees who had
materially contributed to the outcome, and that 37.5% and
6% of such allocation be awarded to the CEO and CFO
respectively. The shareholders consulted, representing the
majority of the shareholder base, were supportive of this
award. The bonuses are £637,000 for the CEO and
£102,000 for the CFO.
Performance Share Plan (‘PSP’) awards granted in 2014
will be eligible to vest in 2017 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 2017
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 2016 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 2016 and is satisfied
that the overall reward reflects the performance delivered.
Implementation of policy in 2017
The policy in 2017 will operate on a largely similar basis to
how it operated in 2016. The annual bonus will be assessed
against stretching EBITDA targets and personal objectives
linked to the Company’s strategic KPIs, and the LTIP which
will be granted in 2017 will be based on relative TSR
performance conditions with a financial modifier.
Changes to the Board
Andrew Gaughan was appointed to the Board as an
Executive Director as President: Sportech Racing // Digital
on 25 January 2017. His salary on joining the Board was set
at CAD$400,000. Details of the rest of his package can
be found in the annual report on remuneration on pages
37 to 42. Cliff Baty and Rich Roberts stepped down from
the Board on 3 March 2016 and 14 July 2016 respectively.
Details of their leaving arrangements can be found on
page 43.
Shareholder feedback
I thank shareholders for their helpful and constructive
feedback, particularly in relation to the consultation on the
STB VAT reclaim outcome. I look forward to engaging with
you further when we undertake a thorough review of our
remuneration policy during the course of 2017 and seek to
better align objectives and targets to tangible shareholder
returns. In the meantime, we would welcome your support
for the AGM remuneration resolutions.
Richard McGuire
Independent Non-executive Director and
Chairman of the Remuneration Committee
2 March 2017
Sportech PLC Annual Report and Accounts 2016
31
Remuneration report
for the year ended 31 December 2016
Strategic report
Corporate governance
Financial statements
This Report has been prepared in accordance with
the Large and Medium-Sized Companies and Groups
(Accounts & Reports) (Amendment) Regulations 2013
(the ‘Regulations’) and is intended to be in full compliance
with the requirements of the Regulations and the UK
Corporate Governance Code 2014 issued by the Financial
Reporting Council (the ‘Code’). PricewaterhouseCoopers
LLP have audited the contents of the Report to the extent
required by the Regulations.
Directors’ Remuneration Policy
This part of the Directors’ remuneration report sets out the
remuneration policy for the Group. This revised Directors’
remuneration policy will be put to shareholders for approval
in a binding vote at the AGM on 24 May 2017. The effective
date of the revised policy will be 24 May 2017.
The primary objective of the remuneration policy is
to promote the long-term success of the Company.
In working towards the fulfilment of this objective the
Committee aims 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 with increasing 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 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 it continues to operate
within the agreed risk framework of the Group.
The Committee 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 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, regarding the
overall remuneration structure, there is no restriction on
the Committee which prevents it from taking into account
corporate governance on ESG matters.
Changes to the remuneration policy approved
by shareholders at the 2014 AGM
The Committee has undertaken a review of the existing
remuneration policy taking account of the Group’s
strategic objectives and developments in the executive
pay environment. The Committee believes that the current
overarching remuneration policy continues to be effective
and that no significant changes are required at this stage.
However, some minor amendments have been proposed
to ensure that the policy is sufficiently flexible to operate
effectively over the policy period (for example the
Committee has built in some additional flexibility regarding
the specific measures which will be used for the bonus and
PSP to ensure that targets are fully aligned with the
strategic imperatives prevailing at the time they are set).
The Committee intends to further conduct a thorough
review of the remuneration policy during 2017 and will
consult with major shareholders if any substantive changes
are proposed.
Remuneration for Executive Directors
The main component parts of the remuneration packages
for Executive Directors are detailed in the table on pages
32 to 33, which should be read in conjunction with the
recruitment/promotion policy on page 36, and the
‘Detailed remuneration policy for 2017’ section of the
Annual report on remuneration, which starts on page 37.
32
Sportech PLC Annual Report and Accounts 2016
Remuneration report continued
for the year ended 31 December 2016
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 normally set on
1 January each year and typically
reviewed annually taking account
of performance, experience,
responsibilities, relevant market
information, internal reference
points and the level of workforce
pay increases.
– The current salaries are set out in
the Annual report on remuneration
on page 37.
– Annual increases will typically be
commensurate with those of the
wider workforce (in percentage
of salary terms).
A broad-based assessment
of individual and Company
performance is considered as
part of any salary review.
– 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 and
subject to satisfactory
performance.
– Up to 8% of salary for UK Executive
Directors. Only basic annual salary
is pensionable.
There is no maximum limit but the
Committee reviews the cost of the
benefits provision on a regular basis
to ensure that it remains appropriate.
Participation in the all-employee
share plans is subject to the limits
set out by HMRC.
Not applicable.
Not applicable.
Pension
To provide cost-
effective, yet market
competitive, retirement
benefits.
Benefits
To provide cost-
effective, yet market
competitive, benefits.
– Contribution to a personal
pension arrangement or
cash in lieu of pension by way
of a salary supplement.
Benefits may include a
combination of the following:
– Car or car allowance;
– Family cover private health
insurance;
– Life insurance cover.
Benefits such as relocation
allowances may also be offered
if considered appropriate and
reasonable by the Committee.
Executive Directors will be eligible
for any other benefits which are
introduced for the wider workforce
on broadly similar terms and where
Executive Directors are recruited
from overseas, benefits more
tailored to their geographical
location may be provided.
Executive Directors are also eligible
to participate in any all-employee
share schemes operated by the
Company, in line with prevailing
HMRC guidelines (where relevant),
on the same basis as for other
eligible employees.
Any reasonable business-related
expenses can be reimbursed.
Sportech PLC Annual Report and Accounts 2016
33
Strategic report
Corporate governance
Financial statements
Remuneration
element and purpose
Operation
Opportunity
Performance metrics
The majority of the bonus will be
based on financial measures such
as profit-based 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.
Performance is normally measured
over three years.
Awards are currently granted
subject to performance based on
a combination of relative TSR and
financial measures (such as EPS).
The Committee will review the
appropriateness of the
performance conditions on an
annual basis and may make
changes to the weightings or
use different measures which
are aligned to the Company’s
strategic priorities at that time.
A minority (no more than 25%) of
the award will vest for threshold
levels of performance, rising on a
straight-line basis to full vesting
for outperformance.
Not applicable.
Not applicable.
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 typically paid in cash.
– Based on the achievement of
performance metrics with a
sliding scale from a threshold to
maximum level of performance.
– Levels of award are determined
by the Committee after the year
end based on performance
against the targets set.
– Recovery provisions may be
applied in the event of material
misconduct and/or an error in
the calculation of the bonus
payable.
– Maximum bonus potential is up
to 100% of salary for the Chief
Executive and up to 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.
Long-term
incentive plan
To motivate Executive
Directors and
incentivise delivery of
performance over the
long term.
To encourage greater
shareholder alignment
and to facilitate share
ownership.
– Awards of performance shares
are normally made annually.
– The Committee reviews the
quantum of awards annually
and monitors the continuing
suitability of the performance
measures.
– Directors may be entitled to
dividends which accrue on
vested awards.
– 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.
– The policy is to grant awards of
up to 100% of salary for Directors.
Executive share
ownership
To align Executive
Directors’ and
shareholders’ interests.
– Executive Directors are expected
to hold an investment of at least
100% of base salary in the
company, using 50% of net
awards vesting under the
Company’s LTIPs to achieve the
shareholdings, if required.
– 100% of salary for all Executive
Directors.
Non-executive
Director 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 the
context of the fee levels in
companies of a comparable size
and complexity, and reflecting
the onerous obligations of
international racing regimes.
– Any increase in fees will also take
account of increases in salaries
across the workforce.
– Fees are normally paid monthly
in cash.
– Any reasonable business-related
expenses can be reimbursed.
– The Non-executive Chairman’s fee
and Non-executive Directors’ fees
are set out in the Annual report on
remuneration on page 38.
– There is no prescribed maximum
fee or fee increase. Any increase
will be guided by changes in market
rates, time commitments and
responsibility levels.
– 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.
34
Sportech PLC Annual Report and Accounts 2016
Remuneration report continued
for the year ended 31 December 2016
Choice of performance measures
The choice of the performance metrics applicable to
the annual bonus scheme reflects the Committee’s belief
that any incentive compensation should be appropriately
challenging and tied to both the delivery of targets relating
to key financial measures which support the Company’s
strategic objectives and individual and/or strategic
performance measures intended to ensure that Executive
Directors are incentivised to deliver across a range of
objectives for which they are accountable. The Committee
has retained some flexibility on the specific measures
which will be used to ensure that any measures are fully
aligned with the strategic imperatives prevailing at the
time they are set.
The performance conditions applicable to the LTIP awards
have been selected by the Committee on the basis that
a combination of relative TSR and key financial measures
(such as EPS) provides strong alignment with the delivery
of long-term returns to shareholders and incentivises
strong Group financial performance – consistent with
the Company’s objective of delivering superior levels
of long-term value to shareholders. The Committee has
retained flexibility on the measures which will be used for
future award cycles to ensure that the measures are fully
aligned with the strategy prevailing at the time the awards
are granted. Notwithstanding this, the Committee would
seek to consult with major shareholders in advance of any
material change to the choice or weighting of the LTIP
performance measures.
The Committee operates the annual bonus plan and
long-term incentive plans per their respective rules and
consistent with normal market practice, the Listing Rules
and HMRC rules where relevant, including flexibility in a
number of regards. These include:
– timing of awards and payments;
– the size of an award (within the limits noted in the table
on page 36), and when and how much should vest;
– who receives an award or payment;
– dealing with a change of control or restructuring of
the Group;
– determining whether a participant is a good/bad leaver
for incentive plan purposes and whether and what
proportion of awards vest;
– any adjustments required to awards in certain
circumstances (for example 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 LTIP awards, on the terms
applicable at the time each such commitment was made.
The relevant outstanding awards are described in more
detail on pages 40 to 42.
Reward scenarios
The relative proportions of fixed and performance-related
remuneration for the Executive Directors, based on the
remuneration policy, is shown below based on three
performance scenarios: minimum, target and maximum.
Illustration of policy application
1,246
33%
32%
747
13%
27%
448
100%
60%
36%
418
11%
23%
66%
275
100%
Total fixed pay
Annual bonus
Long-term share award
656
29%
29%
42%
611
31%
27%
42%
385
12%
21%
67%
250
100%
1,400
1,200
1,000
0
0
0
£
800
600
400
200
0
Minimum
Target
Maximum Minimum
Target
Maximum Minimum
Target
Maximum
Ian Penrose
Mickey Kalifa
Andrew Gaughan
Notes
1 Minimum = fixed pay only (base salary, benefits and pension).
2 Target = 50% of annual bonus and 25% vesting of the PSP awards.
3 Maximum = 100% of annual bonus payable and 100% vesting of
the PSP awards.
4 Salary levels are based on those applying on 1 January 2017.
An exchange rate of 1.6576 has been used to translate Andrew
Gaughan’s salary, benefits and pension from Canadian Dollars
to Sterling, being the rate per the Bank of England as at
31 December 2016.
5 The value of taxable benefits is the estimated cost of supplying
those benefits (using the cost for the year ended 31 December 2016
as a proxy). Benefits for Andrew Gaughan are an estimate based on
what is expected to be received.
6 The pension value is based on an 8% of salary contribution/
supplement for Ian Penrose and Mickey Kalifa and 3% for
Andrew Gaughan.
7 Amounts have been rounded to the nearest £1,000. Share price
growth has been ignored.
Sportech PLC Annual Report and Accounts 2016
35
Strategic report
Corporate governance
Financial statements
Policy on contracts of service
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 (for example, in relation to
redundancy) may be made as required. In connection with
the foregoing, the Committee reserves the right to award
to an Executive Director a bonus in respect of the period
of the year in which notice of termination had not been
served (and, in certain exceptional circumstances, in
respect of any period following receipt of notice of
resignation) that the individual remained in employment,
subject to the appropriate performance measures being
achieved. The determination of any share incentive vesting
would be subject to the rules of the relevant plan, but in
general where an individual is a good leaver (e.g. 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.
Copies of the Executive Directors’ service contracts
are available for inspection on request to the
Company Secretary.
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, if these are
not likely to lead to conflicts of interest.
Other employees’ pay
The Committee does 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. The Committee therefore regularly interacts
with the senior operational executives and monitors pay
trends and conditions across the workforce. In particular,
the Committee is made aware of general salary increases,
general benefit provision and the proposed level of annual
bonuses. Salary increases will ordinarily be (in percentage
of salary terms) in line with those of the wider workforce.
The Committee is also responsible for reviewing the
participants of the LTIPs and participation levels in the
all-employee plans.
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 quantum will operate below the Board level.
Over a quarter of full time employees currently benefit
from being part of an annual incentive plan to drive
exceptional performance and long-term growth across
the business. The Committee plans to review the
annual incentive plan population as part of its 2017
review of policy.
Long-term incentives are reserved for those judged
as having the greatest potential to influence the
Group’s strategic direction, earnings growth and
share price performance.
The Committee is aware of the support expressed by
some investors for the harmonisation of executive pension
allowances to bring them into line with percentages for
the wider workforce. Current allowances for Sportech’s
Executive Directors are up to 8% of base salary, which is
below mid-market practice; however, the Committee will
continue to closely monitor how market practice and
investor views about this topic develop.
36
Sportech PLC Annual Report and Accounts 2016
Remuneration report continued
for the year ended 31 December 2016
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 market
rate but with the view to make a series of planned phased increases, potentially above those of the
wider workforce as a percentage of salary, to achieve the desired market positioning over time. Any
increases would be subject to the individual’s continued development and performance in the role.
Benefits
A new appointment would be offered the same benefits package (or equivalent in line with local
market practice) as that provided to current Executive Directors.
Where considered necessary, the Committee may be required to pay certain relocation expenses,
legal fees and other costs incurred by the individual in relation to their appointment.
Pension
A defined contribution or cash supplement (or equivalent in line with local market practice) at up
to the level provided to current Executive Directors may be provided.
Annual bonus
The Committee would envisage the annual bonus for any new appointment operating as set out in
the Policy Table for current Executive Directors.
Long-term
incentives
Buy-out awards
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.
The maximum initial level of long-term incentives which may be awarded to a new Executive
Director will be limited to the maximum LTIP limit of 200% of salary. Ongoing LTIP awards will be
made on the same terms as current Executives, albeit possibly with different performance periods
depending on the timing of the appointment. The maximum ongoing award will be no higher than
that of the current Chief Executive. An award may be made shortly after an appointment.
For internal promotions, existing awards will continue over their original vesting period and remain
subject to their terms as at the date of grant.
A new appointment would be eligible to participate in any all-employee share 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. Any buy-out awards will be in addition to the limits set out above.
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.
The fee structure and quantum for Non-executive Director appointments will be based on the prevailing Non-executive
Director fee policy.
Sportech PLC Annual Report and Accounts 2016
37
Strategic report
Corporate governance
Financial statements
Shareholder engagement
The Committee is mindful of the concerns of shareholders
and stakeholders and 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
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 during regular
meetings throughout the year and this, plus any additional
feedback received from time to time, is considered as part
of the Committee’s annual review of remuneration policy.
The Committee also closely monitors developments in
institutional investors’ best practice expectations.
Annual report on remuneration
Detailed remuneration policy for 2017
Basic annual salary
– Ian Penrose, Chief Executive, was awarded a salary
increase of 1.5%, which is consistent with the general pay
award for all UK-based employees. He is paid a salary of
£399,000 per annum with effect from 1 January 2017.
– Mickey Kalifa, Chief Financial Officer, was awarded a
salary increase of 1.5%, which is consistent with the
general pay award for all UK-based employees. He is
paid a salary of £254,000 per annum with effect from
1 January 2017. Mickey was previously awarded a salary
increase from £230,000 to £250,000 with effect from
1 September 2016. This increase was awarded to bring his
salary to a level commensurate to that of his predecessor,
to reflect his successful transition into the role. Mickey’s
salary is now positioned broadly in line with the market
and no further such one-off increases are proposed.
– Andrew Gaughan, President, Sportech Racing // Digital,
who was appointed to the Board on 25 January 2017, is
paid a salary of CAD$400,000 per annum with effect
from 1 January 2017.
Performance-related bonus
The maximum bonus potential for the Chief Executive
for 2017 is 100% of basic salary, and for the other Executive
Directors is 75% of basic salary.
For each Executive Director, their performance-related
bonus is based on the adjusted EBITDA performance
of the Group (and operating divisions as appropriate),
delivering on Group strategic objectives and meeting
personal targets. The adjusted EBITDA-based proportion
of the bonus, which represents a majority of each
Director’s bonus entitlement, is operated with a range
set around an agreed budgeted adjusted EBITDA figure.
Strategic and personal objectives are designed to
protect and enhance the Company’s position across key
geographical regions and enhance shareholder value.
Metrics include the success of new venues opening in
the US in 2017; further enhancements to the Company’s
product capabilities within the Racing and Digital division
and effective cash management and implementing
effective cost savings throughout the Group. The targets
themselves are considered commercially sensitive and will
therefore be disclosed on a retrospective basis only in
next year’s annual report on remuneration (as long as
such targets are no longer considered commercially
sensitive at that point). 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 or as a cash payment in lieu of pension for Ian
Penrose and Mickey Kalifa at a rate of 8% of base salary
and for Andrew Gaughan at a rate of 3% of salary.
Other benefits
Executive Directors are entitled to the following other
main benefits:
– a car allowance of £16,000 for the Chief Executive;
– private health insurance for themselves, their spouse and
children; and
– life insurance of four times salary (UK Directors only).
Long-Term Incentive Plan (‘LTIP’)
It is the Committee’s intention to grant awards in 2017 at
100% of salary to the Chief Executive and 75% of salary to
the other Executive Directors. The targets to apply to the
2017 awards are to be structured in a similar way to the
2016 awards, with a focus on incentivising growth in total
shareholder return. 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). The following vesting schedule will apply:
The Company’s TSR rank against the
TSR of the comparator companies
Below median
Median
Between median and upper quartile
Upper quartile (or better)
Extent of vesting
0%
25%
Pro rata between
25% and 100%
100%
A general financial modifier will also apply requiring the
Committee to consider the Company’s financial
performance over the performance period when
determining the final vesting result.
38
Sportech PLC Annual Report and Accounts 2016
Remuneration report continued
for the year ended 31 December 2016
The Committee is aware that the LTIP 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.
Non-executive Directors’ fees
The fees set for 1 January 2017 are unchanged for the
Chairman from the prior year, being £120,000. The
Non-executive Director base fee has been reduced from
£47,500 to £45,000 effective 22 August 2016 and the
additional Committee membership fee of £5,000 per
Committee that was previously paid is no longer payable.
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.
Directors’ remuneration for 2016 (audited)
Year of
appointment
Fees/salary
£000
Taxable
benefits
£000
Pension
£000
Bonuses
£000
Long-term
incentives
£000
Pay in Lieu
of notice
£000
Executive Directors
Ian Penrose
Mickey Kalifa
(appointed 3 March 2016)
Cliff Baty
(resigned 3 March 2016)
Rich Roberts
(resigned 14 July 2016)
Non-executive Directors
Roger Withers
Richard McGuire
(appointed 24 August 2016)
Peter Williams
(resigned 17 May 2016)
David McKeith
(resigned 24 August 2016)
Aggregate emoluments
2005
393
2016
2013
2014
2011
2016
2011
2011
198
48
120
120
16
22
38
955
18
1
—
13
—
—
—
—
32
31
16
4
3
—
—
—
—
54
791
161
—
16
—
—
—
—
968
—
—
—
—
—
—
—
—
—
2016
Total
£000
1,233
376
52
—
—
—
231
383
—
—
—
120
16
22
13
244
51
2,253
– Ian Penrose, Chief Executive, was paid a basic annual salary of £393,000 per annum, with effect from 1 January 2016.
– Mickey Kalifa, Chief Financial Officer, was paid a basic annual salary of £230,000 per annum with effect from 1 January 2016, increasing to
£250,000 per annum with effect from 1 September 2016 (appointed to the Board 3 March 2016).
– Rich Roberts, former President: Sportech Digital, was paid a basic annual salary of $306,000 per annum with effect from 1 January 2016
(stepped down from the Board 14 July 2016).
– Cliff Baty, former Chief Financial Officer, was paid a basic annual salary of £249,000 per annum (stepped down from the Board 3 March
2016).
– Rich Roberts is eligible to receive a bonus in relation to 2016 (pro-rated to 14 July 2016) on the basis that he served in an Executive capacity
for the performance year up until the date he stepped down from the Board. Cliff Baty is not eligible for a bonus in relation to 2016.
– Mickey Kalifa earned a bonus of £11,000 for performance in 2016 prior to his appointment to the Board. This is in addition to the figure set out
above.
Sportech PLC Annual Report and Accounts 2016
39
Strategic report
Corporate governance
Financial statements
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
benefits
£000
Pension
£000
Bonuses
£000
Long-term
incentives
£000
2015
Total
£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
—
—
—
—
—
—
—
517
300
238
120
58
58
1,291
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 (former and current) 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 adjusted EBITDA performance of the
Group and (ii) strategic objectives aligned with Group
strategic goals. In addition, the Executive Directors were
considered for an upwards alteration to their respective
overall bonus outcomes in light of the successful outcome
of the STB VAT Repayment Claim, which occurred during
the year.
Adjusted EBITDA performance
The Committee considered the Group’s adjusted EBITDA
performance for these purposes and in this respect,
achievement was determined to be 25.7% out of a
maximum target of 70% of overall potential bonus.
The targets set were to achieve adjusted EBITDA of
between threshold £23.1m (0% of this element of bonus
achievement) and stretch £24.9m (100% of this element
of bonus achievement), with target set at £24.0m (50%
of this element of bonus achievement). Actual adjusted
EBITDA performance was £23.8m.
Strategic objectives
With regards to the Chief Executive, his 2016 targets
related to: implementing cost savings across the Group
beyond that budgeted; improving customer retention
across significant business lines; improved communication
with shareholders and external advisers; restructuring the
Group’s European operations; successful implementation
of key IT projects; and driving the growth of our US
Venues business. Achievement against each of these
targets was assessed by the Committee, resulting in
an award of 13.5% out of a maximum target of 30% of
potential bonus. The 2016 strategic targets relating to the
Chief Financial Officer were in relation to: effective cash
management and adherence to banking covenants; the
implementation of cost savings beyond those set out
in the budget; establishing a strong presence as CFO
with key stakeholders and successful implementation
of key IT projects; and driving the growth of our US
business. Achievement against each of these targets
was assessed by the Committee, resulting in an award of
14% out of a maximum target of 30% of potential bonus.
The strategic targets of the President: Sportech Digital
related to: managing the Group’s interest in DraftDay;
increasing the US advance deposit wagering ‘ADW’
EBITDA; working with the Sportech Racing and Digital
Chief Technical Officer in developing new digital projects;
and implementing cost savings beyond those budgeted.
Achievements against these targets were assessed prior
to his departure, resulting in no award out of a maximum
target of 30% of potential bonus.
40
Sportech PLC Annual Report and Accounts 2016
Remuneration report continued
for the year ended 31 December 2016
The table below summarises the overall bonus result.
Individual
Chief Executive (Ian Penrose)
Chief Financial Officer (Mickey Kalifa)
President: Sportech Digital (Rich Roberts)
Total bonus: % Maximum (% salary payable)
39.2% out of the maximum entitlement (39.2% of salary payable)
39.7% out of the maximum entitlement (29.78% of salary
payable), pro-rated per date of appointment
25.7% out of the maximum entitlement (12.85% of salary payable),
pro-rated per date of stepping down from the Board
The Committee is comfortable that the level of bonuses paid to Executive Directors reflects both the Company and
individual performance during the year.
STB VAT repayment claim bonus
In December 2016, Sportech was successful in a VAT
repayment claim in respect of ‘Spot the Ball’ (‘STB’) which
resulted in the Group receiving approximately £97m gross.
The claim, which was first submitted in March 2009, was
heard by the First-tier Tribunal’s Tax Chamber (‘FTT’) in
2012. In 2013, it was announced that the FTT had found in
Sportech’s favour.
Following the FTT’s rejection of HMRC’s subsequent
application for leave to appeal to the Upper Tribunal
(Tax and Chancery Chamber) (‘UT’), HMRC then applied
directly to the UT which granted such permission. The
claim was heard by the UT in April and May of 2014 and
it was announced in September that the UT had ruled
in HMRC’s favour.
In January 2015, Sportech announced that it had been
granted the right to appeal to the Court of Appeal.
The hearing took place in April 2016, following which in
May 2016 the Court of Appeal judges found unanimously
in favour of Sportech. On 13 May 2016, HMRC sought
permission from the Court of Appeal to appeal to the
Supreme Court, which was refused. Sportech announced
in June 2016 that HMRC had lodged an application to
appeal directly to the Supreme Court.
The ultimate success of this £97m claim was led by
the Chief Executive Officer, supported by a significant
number of staff and senior Executives across the Group
over the last seven years, above and beyond their
ongoing business demands.
The success of this claim is transformational for the
business, therefore during 2016, in accordance with the
remuneration policy, the Committee consulted with the
Company’s major shareholders with regard to awarding
an exceptional bonus to reward the performance of the
Executive Directors in achieving this outcome which is of
material benefit to the Group. The Committee proposed
that 1.75% of gross proceeds be allocated to management
and other employees who had materially contributed to
the outcome, and that 37.5% and 6% of such allocation
be awarded to the Chief Executive Officer and Chief
Financial Officer respectively. The shareholders consulted,
representing just under 60% of the shareholder base,
were supportive of this award. The bonuses are £637,000
for the Chief Executive Officer and £102,000 for the Chief
Financial Officer.
Pension arrangements
The Company contributed into a defined contribution
scheme for the UK-based Executive Directors at a rate
of 8% of base salary. The Company paid a maximum of
$6,750 per annum into a defined contribution scheme
for Rich Roberts, a US-based director, until the date of
his resignation.
Long-Term Incentive Plans (‘LTIPs’)
Awards vested in relation to performance ending 2016
Awards granted in March 2014 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 7 March 2017)
and 50% of awards subject to EPS (performance period
ended 31 December 2016). Summary details of the full
conditions applying to the 2014 awards are included as
a footnote to the PSP table on page 42.
In terms of the 2014 award, the latest assessment of the
TSR measures was made independently by NBS who
advised that Sportech’s TSR performance measured to
18 February 2017 was 1.8% which resulted in the Company
being ranked below the median position on a relative
basis. As a result no vesting of this part of the awards
is expected.
The Committee noted the significant increase in EPS
during the three-year period to 31 December 2016,
increasing from 1.66p to 6.34p following the successful
STB VAT repayment claim. However, the Committee
determined it was appropriate to use the adjusted or
normalised EPS recorded as it reflects the underlying
performance of the business during the period. The
normalised EPS over the three-year period declined
thereby triggering no vesting of this element of the award.
Sportech PLC Annual Report and Accounts 2016
41
Strategic report
Corporate governance
Financial statements
In summary, the total number of awards for each Executive is shown in the table below.
Performance Share Plan – 2016 Vesting
Measure
Relative TSR (2014)
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 (2014)
*Indicative figures to 18 February 2017.
Executive
Ian Penrose
Mickey Kalifa
Rich Roberts
Award
2014 (Part A and B)
2014 (Part A and B)
2014 (Part A and B)
Threshold
Median rank
68.0
Maximum
Upper
quartile
rank 34.3
Actual
TSR 1.8%
rank 82
Vesting
0%
RPI +4%
p.a.
RPI +10%
p.a.
(0.5)%
0%
Number
of awards
granted
432,525
96,441
212,470*
Vesting
0%
0%
0%
Number
of shares
vesting
—
—
—
Value of
awards
—
—
—
* Rich Roberts’ award granted on 4 September 2014 has the same performance period and criteria as the awards on 7 March 2014 for Ian
Penrose and Mickey Kalifa. Due to Rich’s status as a ‘good leaver’ his shares have been pro-rated to his leaving date. The original number of
shares awarded was 349,650.
Cliff Baty’s outstanding PSP awards have been treated as lapsed in 2015.
LTIP awards granted during 2016
Performance Share Plan (‘PSP’)
Executive
Ian Penrose
Mickey Kalifa
Type of award
Performance share
Performance share
Number
of awards
granted
607,636
290,135
Basis of award
100% of salary
75% of salary
Share price
on grant
Pence
Face value*
64.625p £392,685
64.625p £187,500
Percentage
which vests
at threshold
25%
25%
2016 awards – targets
In connection with the awards to the Executive Directors, the primary performance metric is the Company’s relative TSR
performance, subject to the application of a general financial performance modifier to ensure that financial performance
is taken into account when determining the vesting of such awards.
The vesting 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). The grant was delayed until 3 November 2016 as a result of the Company being in an
extended close period at the normal grant date. However, for consistency of approach, the performance period will be
the three-year period beginning on 3 March 2016, i.e. the date the award would have been made had the Company not
been in a close period (with the comparator group also set at the same time).
The following vesting schedule will apply:
The Company’s TSR rank against the TSR of the comparator companies
Below median
Median
Between median and upper quartile
Upper quartile (or better)
Extent of vesting
0%
25%
Pro rata between 25% and 100%
100%
A modifier performance condition shall apply to all of the shares comprised within the award and provides that the
extent of vesting that would otherwise result may be scaled back or increased by such extent (including as to 100%)
as the Committee may consider appropriate having considered the effect of any materially adverse or advantageous
circumstances that have impacted the Company’s financial performance over the performance period on such basis
as the Committee reasonably determines.
42
Sportech PLC Annual Report and Accounts 2016
Remuneration report continued
for the year ended 31 December 2016
Directors’ share-based incentives
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.
As at
1 January
Date of
2016
grant
Number
193,610
02.12.111
173,618
08.03.121
21.03.132 377,400
08.03.142 432,525
09.03.152 584,657
Awarded
during
the year
Number
Exercised
during
the year
Number
— (193,610)
— (173,618)
—
—
—
— 607,636
Lapsed
during
the year
Number
—
—
— (377,400)
—
—
—
Award
expiry date
As at
31 December
2016
Number
—
—
— 100.00
Date
from which
exercisable
02.12.14
Share Price
Market price
at date of
on date
exercise
of grant
Pence
Pence
39.75
02.12.154 85.1095
51.52 08.03.15 08.03.164 85.1095
n/a
n/a
n/a
n/a
21.03.17
21.03.16
89.00 08.03.17 08.03.18
66.50 09.03.18 09.03.19
03.11.19 03.11.20
64.625
03.11.163
02.12.111
08.03.121
21.03.132
08.03.142
09.03.152
03.11.163
— 432,525
— 584,657
— 607,636
1,761,810 607,636 (367,228) (377,400) 1,624,818
—
—
— 100.00
— (39,245)
— (38,712)
—
—
—
— 290,135
290,135
—
—
— (84,150)
—
—
96,441
— 130,362
—
— 290,135
—
(84,150) 516,938
(77,957)
39,245
38,712
84,150
96,441
130,362
388,910
64.625
02.12.14
39.75
02.12.154 85.1095
51.52 08.03.15 08.03.164 85.1095
n/a
n/a
n/a
n/a
21.03.17
21.03.16
89.00 08.03.17 08.03.18
66.50 09.03.18 09.03.19
03.11.19 03.11.20
2,150,720
897,771
(445,185) (461,550) 2,141,756
Ian Penrose
Total
Mickey Kalifa
Total
Total PSP
awards
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 the 2014 Annual Report.
The awards remain unexercised until December 2016 due to an extended close period.
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 was outlines in full in last year’s report.
3 2016 awards were deferred until November because of certain ongoing corporate activity which delayed their grant.
4 Ian Penrose and Mickey Kalifa were unable to exercise the 2011 and 2012 awards 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 awards to the date that was 30 days after the date upon which the regulatory restrictions
no longer applied.
5 2014 awards are expected to lapse in full at the end of the performance period.
6 The market price of the ordinary shares at 31 December 2016 was 87.75p and the range during the year was 50.00p to 88.38p.
The number of ordinary shares that may be issued under the LTIP and any other share plan may not exceed 10% in any
ten-year period. As at 31 December 2016 the Company’s potential dilution was 2.94%.
Sportech PLC Annual Report and Accounts 2016
43
Strategic report
Corporate governance
Financial statements
Recruitment terms
On 25 January 2017, Andrew Gaughan was appointed to the Board. His package on appointment consists of a basic
salary of CAD$400,000 per annum (unchanged on appointment to the Board, his salary having been increased to this
amount from CAD$336,634 with effect from 1 January 2017) and benefit and pension provisions in-line with those
provided to other North American based employees. His maximum bonus opportunity is 75% of salary and annual
performance share awards will be at a maximum of 75% of salary.
Payments to departing Directors
Rich Roberts stepped down from the Board and left the employment of the Company on 14 July 2016. Rich received
12 months’ salary and benefits until 31 July 2016 in lieu of notice. He will also continue to receive his healthcare benefits
under COBRA for a period of 12 months thereafter. Rich is eligible to receive a bonus payment in relation to 2016 on a
pro-rata basis to the date of his leaving on the basis that he served in an executive function for the performance period
up until such date. Rich has also been treated as a good leaver under the Rules of the LTIP and therefore he remains
entitled to any benefit arising from the vesting of his outstanding LTIP awards on their normal vesting dates (to the
extent such awards do so vest per the applicable performance conditions and Rules of the LTIP), pro-rated according
to the date of his stepping down from the Board.
Details of Cliff Baty’s leaving arrangements were fully disclosed in last year’s annual report on remuneration.
David McKeith stepped down from the Board on 24 August 2016 and received three months’ Non-executive Director
fees in lieu of notice.
Payments for loss of office
There were no payments for loss of office during the period under review.
Payments to past directors
There were no payments to past directors during the period under review.
Directors’ interests and shareholding guidelines
The following table shows Directors’ interests in the Company:
Director
Ian Penrose
Mickey Kalifa
Roger Withers
Richard McGuire
Total shareholding
at 31 December
2015
850,000
—
112,079
—
Total shareholding
at 31 December
2016
950,000
89,613
112,079
300,000
Share ownership
guideline expected
to be achieved by
third anniversary
of employment
100%
100%
N/A
N/A
PSP award
held unvested
1,624,818
516,938
—
—
% of guideline met
by 31 December
2016
100%
31.5%
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 2016 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 LTIP 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.
44
Sportech PLC Annual Report and Accounts 2016
Remuneration report continued
for the year ended 31 December 2016
External directorships
Ian Penrose is currently a Trustee of the National Football Museum, a registered charity, and he receives no remuneration
in respect of this appointment.
Performance graph and Chief Executive pay chart
The following graph demonstrates the value of £100 invested in Sportech PLC as at 31 December 2010 compared with
the same investment in a fund mirroring the make-up of the FTSE Small Cap Index.
This time period reflects performance from the point
in time that the Company was transformed from a highly
geared, declining UK Football Pools business into the
business it is today, following the acquisition of its
international interest and allocated refinancing in 2010:
This graph shows the value, by 31 December 2016, 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:
100
80
60
40
20
Dec 10
Dec 11
Dec 12
Dec 13
Dec 14
Dec 15
Dec 16
200
150
100
50
0
Dec 08 Dec 09 Dec 10 Dec 11 Dec 12 Dec 13
Dec 14
Dec 15 Dec 16
Sportech PLC
FTSE Small Cap
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 (%)
1 Includes exceptional bonus of £637,000.
2 Excludes exceptional bonus.
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%
—
2016
1,2331
—
1,2331
39.2%2
—
Sportech PLC Annual Report and Accounts 2016
45
Strategic report
Corporate governance
Financial statements
Percentage increase in the remuneration of the Chief Executive (unaudited)
Chief Executive (£000)
– Salary
– Bonus and benefits, excluding exceptional bonus
– Exceptional bonus
Average of Group full-time employee (£000)
– Salary
– Bonus and benefits
2016
393
172
637
56
12
Restated1
2015
% change
389
97
—
54
10
1%
77%
N/A
4%
20%
1 The average Group full-time employee salary and bonus and benefits for 2015 have been restated to be calculated consistent with that
of 2016.
The table above shows the percentage movement in the salary, benefits and annual bonus for the Chief Executive
between the current and previous financial year compared to that for the average full-time salaried employee.
Relative importance of spend on pay (unaudited)
Staff costs (£m)
Distributions to shareholders
2016
30.3
Nil
2015
30.5
Nil
% change
(0.7)%
—
Dates of appointment of Directors
Details of the service contracts and letters of appointment in place as at 31 December 2016 for Directors are as follows:
Roger Withers
Ian Penrose
Mickey Kalifa
Richard McGuire
Date of Appointment
07.02.11
01.10.05
03.03.16
24.08.16
Notice period
3 months
12 months
12 months
3 months
Shareholders’ vote on remuneration
At the last Annual General Meeting on 17 May 2016, votes on the Directors’ remuneration report were cast as follows:
Ordinary Resolution – to approve the Directors’ remuneration report
for the year ended 31 December 2015
In favour
175,117,346
(99.64%)
Against
573,634
(0.33%)
Withheld
1,367
46
Sportech PLC Annual Report and Accounts 2016
Remuneration report continued
for the year ended 31 December 2016
The Chief Executive and Chairman (prior to May 2016,
at which time he became a member on a temporary basis)
are invited to attend meetings although neither is present
when matters affecting their own remuneration are
discussed. The Company Secretary or their nominee acts
as secretary to the Committee.
The Committee receive independent advice from New
Bridge Street (‘NBS’) (a trading name of Aon Plc) on
aspects of executive remuneration. NBS also provides
Sportech with advice on non-executive director
remuneration. NBS is a member of the Remuneration
Consultants Group and has voluntarily signed up to its
industry Code of Conduct. NBS has no connection with
Sportech other than in the provision of advice on executive
and non-executive director 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 £34,000 (2015: £56,000).
The Committee reviews its relationships with external
advisers on a regular basis and believes that no conflicts
of interest exist and that the advice they are provided
with remains independent and objective.
Approval
This report was approved by the Remuneration
Committee and signed on its behalf by:
Richard McGuire
Independent Non-executive Director and
Chairman of the Remuneration Committee
2 March 2017
Committee activity
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 ten times during the year and the
following key activities have been undertaken:
– review of best practice;
– approval and grant of annual awards under the PSP in
the year under review;
– approval of the PSP performance conditions and targets
for the 2016 award;
– in March 2016, approval of bonus awards for achievement
of FY2015 targets, and approval of bonus measures and
targets for 2016;
– consultation with major shareholders in relation to the
award of exceptional bonuses further to the successful
outcome of the STB VAT reclaim proceedings;
– review of base salaries for the Executive team;
– approval of vesting determination for the 2013 PSP
awards; and
– review and approval of terms of appointment for
Andrew Gaughan.
The Committee’s recommendations in 2016 and early 2017
were all accepted and implemented by the Board.
Composition of the Remuneration Committee
During the year, the Committee consisted of (i) Peter
Williams (Chairman) until his stepping down from the
Board in May 2016, (ii) David McKeith until his stepping
down from the Board in August 2016, (iii) Roger Withers,
Chairman of the Board (who became a temporary
member and the Chairman following Peter Williams’
stepping down from the Board in May 2016) and (iv)
Richard McGuire (who became a member upon his
appointment in August 2016 and became Chairman on
1 January 2017). Each of Peter Williams, David McKeith
and Richard McGuire are Independent Non-executive
Directors. Roger Withers will remain a member of the
Committee until such time as a further Independent
Non-executive Director is appointed to the Board and
subsequently to the Committee. None of the Committee
has any personal financial interest (other than as a
shareholder), conflicts of interest from cross-Directorships
or day-to-day involvement in the running of the business.
Directors’ report
for the year ended 31 December 2016
Sportech PLC Annual Report and Accounts 2016
47
Strategic report
Corporate governance
Financial statements
The Directors present their report and the audited consolidated financial statements for the year ended 31 December
2016. General information of the Company can be found in the accounting policies on page 63.
The Strategic report and Corporate governance report are set out on pages 2 to 29. This Directors’ report does not
include information on trading in the year or principal risks as this information is included in the Strategic report instead
under section 414C(11) of the Companies Act 2006, on pages 13 to 15.
Directors and their interests in the shares of the Company
The Directors who held office during the year, and up to the date of signing these financial statements (unless otherwise
stated), had beneficial interests in the share capital of the Company as shown below.
Details of share options and performance share plan (‘PSP’) awards granted during the year ended 31 December 2016
are set out in the Remuneration report on pages 31 to 46.
Roger Withers
Ian Penrose
Mickey Kalifa (appointed 3 March 2016)
Andrew Gaughan (appointed 27 January 2017)
Cliff Baty (resigned 3 March 2016)
Richard McGuire (appointed 24 August 2016)
David McKeith (resigned 24 August 2016)
Peter Williams (resigned 17 May 2016)
Rich Roberts (resigned 18 July 2016)
At 3 March
2017 and
31 December
2016
Number
112,079
950,000
89,613
545,111
—
300,000
—
—
—
31 December
2015
Number
112,079
850,000
—
—
33,000
—
30,000
100,000
—
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 17.
Substantial shareholdings
Holder
Henderson Volantis
Newby Manor Limited
Artemis Investment Management LLP
Schroder Investment Management Limited
Henderson Global Investors
Richard Griffiths and Controlled Undertakings
Aviva PLC
Hargreaves Hale
Total of substantial shareholdings
2 March 2017
31 December 2016
Ordinary
shares
of 50p
39,269,833
35,111,010
19,930,862
17,745,332
16,706,396
14,742,069
10,678,822
7,673,123
161,857,447
% of
issued share
capital
19.0
17.0
9.7
8.6
8.1
7.1
5.2
3.7
78.4
Ordinary
shares
of 50p
37,922,110
35,111,010
19.930,862
17,745,332
16,300,018
14,742,069
10,678,822
7,673,123
160,103,346
% of
issued share
capital
18.4
17.0
9.7
8.6
7.9
7.1
5.2
3.7
77.6
48
Sportech PLC Annual Report and Accounts 2016
Directors’ report continued
for the year ended 31 December 2016
Dividend
No dividend is proposed (2015: £nil) and no dividend
has been paid during the year (2015: £nil).
Environmental matters
The Corporate Social Responsibility report provides
information with respect to the Group’s impact on the
environment and can be found on page 16.
Corporate governance
The Group’s statement on corporate governance is
set out on pages 22 to 29 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 47.
There are no restrictions on the transfer of shares.
As part of the resolutions approved at the 2016 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 2016 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 2016 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 2016, 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 15 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 2018. Accordingly, it is deemed appropriate
to prepare the financial statements on a going concern
basis for the financial year ended 31 December 2016.
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 23.
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 Annual General Meeting.
Sportech PLC Annual Report and Accounts 2016
49
Strategic report
Corporate governance
Financial statements
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 20
confirms 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
24 May 2017 will be sent to shareholders in due course.
In accordance with the Articles of Association of the
Company, Ian Penrose and Mickey Kalifa retire by rotation
and offer themselves for reappointment at the AGM.
The profiles of those Directors appear on page 20.
In addition, Richard McGuire and Andrew Gaughan,
who were appointed to the Board since the last AGM,
will retire and offer themselves for reappointment.
Resolutions will also be proposed at the AGM to receive
the Accounts and the Directors’ and Independent
Auditors’ reports, to approve the Remuneration Policy
set out on pages 31 to 37, to approve the Remuneration
report set out on pages 31 to 46, to reappoint the Auditors
and to authorise the Directors to fix their remuneration.
On behalf of the Board
Luisa Wright
Company Secretary
2 March 2017
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.
50
Sportech PLC Annual Report and Accounts 2016
Independent Auditors’ report
to the members of Sportech PLC
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 2016 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 2016;
– the Consolidated income statement and the Consolidated statement of comprehensive income 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 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, and applicable law.
Our audit approach
Overview
– Overall Group materiality: £590,000 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).
– The Group consists of 35 statutory entities (excluding dormant entities).
– 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 82%
of Group revenue and 80% of Group adjusted EBITDA.
– Goodwill and intangible asset impairment.
– Recoverability of contingent consideration receivable.
Materiality
Audit scope
Areas of
focus
Sportech PLC Annual Report and Accounts 2016
51
Strategic report
Corporate governance
Financial statements
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 25 (Audit Committee Report), page 64
(Significant Accounting Policies) and page 80 (notes).
The Group has goodwill and intangible fixed assets with
carrying value of £109.6m as at 31 December 2016. 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, together with the process by which they were
drawn up, and tested the underlying value-in-use calculations
where relevant. 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 Limited has a
carrying value of £81.8m, following the recognition of a
£37.7m impairment in the year. In arriving at the remaining
carrying value the Directors have assumed that the historic
subscription channel will continue its long term EBITDA
decline, at an average annual rate of 1% between 2017 and
2021, and a 1% annual decrease into perpetuity. However the
Directors have assumed significant EBITDA growth in the
online channel between 2017 and 2021, before then EBITDA
stabilising into perpetuity at 2021 levels. The Directors
believe these forecasts will be achieved primarily as a result
of the expected stabilisation in the number of subscription
customers, growth in the number of online customers, and
the continued improvement in spend per player across both
channels. We have focused on the Directors’ assumptions
regarding these EBITDA forecasts, given the historic
downward trend in profitability on the subscription channel,
and the historic performance in the online channel.
Football Pools goodwill
In respect of The Football Pools Limited goodwill we
assessed the reasonableness of the Directors’ estimate
for future EBITDA levels within both the subscription and
online channels 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.
52
Sportech PLC Annual Report and Accounts 2016
Independent Auditors’ report continued
to the members of Sportech PLC
Area of focus
How our audit addressed the area of focus
Venues intangible assets
In respect of the Venues gaming licence we evaluated the
key assumptions over the net handle generated by the land
based venues in 2017 and beyond by reference to the trend
in total handle in recent years, after removing the impact of
one off events. Further, we have critically evaluated the net
handle growth assumptions adopted by the Directors in
respect of online handle, via reference to historic growth
rates. Finally we have assessed the reasonableness of the
Directors’ forecasts for the profitability of venues under
construction with reference to the profitability achieved
from other similar venues in the years immediately following
their opening. The Directors’ assumptions are supported by
information currently available.
Venues intangible assets
Intangible assets associated with the gaming licence held
within Sportech Venues Inc. (‘Venues’) have a carrying
value of £19.6m, following the recognition of a £1.1m
impairment in the year. 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 value of bets taken) generated by the
land based venues will continue its recent decline, falling by
5% per year on average from 2017 to 2021, then stabilising
into perpetuity at 2021 levels. Further, they have assumed
the level of net handle in respect of internet gambling in
Connecticut will grow on average 11% between 2017 and
2021, then at a rate of 3% into perpetuity. Finally the
Directors have made assumptions on the expected
profitability of venues which are still under construction.
We have therefore focused on the Directors’ assumptions
over 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 against that
achieved in the prior year, the forecast growth in net handle
for online gambling, given this channel is still in its relative
infancy, and on the Directors’ forecasts for profitability from
venues under construction, given the uncertainty over the
profitability of unopened venues.
eBet goodwill
Goodwill arising on the acquisition of eBet has a carrying
value of £nil, following the recognition of a £1.8m
impairment in the year. In determining that this impairment
should be recognised, but that no further impairments to
the underlying assets of the business are required, the
Directors have assumed that the average annual growth
rate in EBITDA between 2017 and 2021 will be 14%, before
then growing at 2% per year into perpetuity. This growth
is expected to be largely driven by a new contract which
commenced in 2016. The Directors have however not
included in their forecasts EBITDA which may be generated
in the future by currently unsecured contracts, since they
do not believe the likelihood of securing those contracts
to be sufficiently high. We have therefore focused on the
Directors’ assumptions regarding the profitability of this
new contract, and the assumptions surrounding the
likelihood of unsecured contracts being won.
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 new contract over that period, together with the
assumptions surrounding the likelihood of unsecured
contracts being won. In respect of the profitability of
the new contract, this has been achieved by reviewing
the profits generated by existing similar contracts, and
comparing this to the forecast profitability level of the
new contract that is anticipated. We have evaluated the
likelihood of unsecured contracts being won through
understanding the status of negotiations, and assessing
the barriers to securing those contracts e.g. regulatory
change required, to form an overall conclusion as to the
reasonableness of the Directors’ judgements. We found
that the assumptions used by the Directors are supportable
based on our audit work.
Sportech PLC Annual Report and Accounts 2016
53
Strategic report
Corporate governance
Financial statements
Area of focus
Software intangbile assets
Intangible assets related to software across the Group’s
divisions have a carrying value of £7.5m, following the
recognition of a £17.4m impairment in the year. In assessing
the carrying value of these assets the Directors’ have
carried out a thorough review of the Group’s software
and have made assessments as to which assets continue
to generate value to the Group, and which are obsolete
with no further value. We have therefore focused on the
Directors’ judgements as to the ongoing value of the
respective items of software to the Group going forward.
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.
Recoverability of contingent consideration receivable
Refer to page 25 (Audit Committee Report), page 64
(Significant Accounting Policies) and page 95 (notes).
In May 2015 the Group disposed of its 50% investment in
Sportech – NYX Gaming LLC (‘NYX’). Included within the
consideration receivable by the Group for the sale was an
amount which is contingent on NYX acquiring three new
customers in the five years subsequent to the disposal.
The Directors assumed, and continue to assume, 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, £1.6m, continues
to be included within trade and other receivables as at
31 December 2016.
Given the judgement over the likelihood of this amount being
received, we have focused on the Directors’ assumptions in
respect of this consideration.
How our audit addressed the area of focus
Software intangbile assets
In respect of software intangible assets we have evaluated
the Directors’ judgements regarding the ongoing value
which these assets bring to the Group as to whether each
individual asset is obsolete. We have done this through a
critical assessment of the significant items of software
within the Group versus their current usage and likely usage
in the future. We found the Directors’ judgements to be
reasonable based on our audit work.
In addition, where relevant, 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, where relevant, we performed sensitivity
analysis around 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.
We have evaluated the Directors’ conclusions surrounding
the likelihood of this contingent amount being received,
focusing on the likelihood of NYX obtaining the additional
three new customers within the remaining three and a half
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 the remaining period. These factors
included: the passage of gambling de-regulation 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.
54
Sportech PLC Annual Report and Accounts 2016
Independent Auditors’ report continued
to the members of Sportech PLC
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
structure includes 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 35 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 82% of Group revenue and 80% of Group adjusted EBITDA.
Additionally we performed work in another four statutory entities on specific balances that we regarded to be significant
to the consolidated 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.
Based on our professional judgement, we determined materiality for the financial statements as a whole as follows:
Overall Group materiality
£590,000 (2015: £575,000).
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. Further we believe it is the key metric
used by external stakeholders to assess the performance of the Group.
We agreed with the Audit Committee that we would report to them misstatements identified during our audit above
£30,000 (2015: £30,000) as well as misstatements below that amount that, in our view, warranted reporting for
qualitative reasons.
Sportech PLC Annual Report and Accounts 2016
55
Strategic report
Corporate governance
Financial statements
Going concern
Under the Listing Rules we are required to review the Directors’ statement, set out on page 48, 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 and compliance with applicable requirements
Companies Act 2006 reporting
In our opinion, based on the work undertaken in the course of the audit:
– the information given in the Strategic Report and the Directors’ report for the financial year for which the financial
statements are prepared is consistent with the financial statements; and
– the Strategic Report and the Directors’ report have been prepared in accordance with applicable legal requirements.
In addition, in light of the knowledge and understanding of the Group, the Parent Company and their environment
obtained in the course of the audit, we are required to report if we have identified any material misstatements in the
Strategic Report and the Directors’ report. We have nothing to report in this respect.
ISAs (UK & Ireland) reporting
Under ISAs (UK & Ireland) we are required to report to you if, in our opinion:
– information in the Annual Report is:
– materially inconsistent with the information in the audited financial statements; or
– apparently materially incorrect based on, or materially inconsistent with, our knowledge
of the Group and Parent Company acquired in the course of performing our audit; or
– otherwise misleading
We have no
exceptions to report.
– the statement given by the Directors on page 49, 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 25, as required by provision C.3.8 of the Code,
describing the work of the Audit Committee does not appropriately address matters
communicated by us to the Audit Committee.
We have no
exceptions to report.
56
Sportech PLC Annual Report and Accounts 2016
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 15 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 15 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 2016
57
Strategic report
Corporate governance
Financial statements
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, 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. With respect to the Strategic Report and Directors’ report, we consider whether those reports include the
disclosures required by applicable legal requirements.
Nigel Reynolds (Senior Statutory Auditor)
for and on behalf of PricewaterhouseCoopers LLP
Chartered Accountants and Statutory Auditors
London
2 March 2017
58
Sportech PLC Annual Report and Accounts 2016
Consolidated income statement
for the year ended 31 December 2016
Revenue
Cost of sales
Gross profit
Distribution costs
Administrative expenses
Other operating income
EBITDA before exceptional items, share option charge and impairment of assets
Share option credit/(expense)
Depreciation and amortisation (excluding amortisation of acquired intangibles)
Amortisation of acquired intangibles
Impairment of assets
Exceptional income
Exceptional costs
Operating profit
Finance costs
Other finance income
Net finance costs
Share of loss after tax and impairments of joint ventures and associates
Profit before taxation
Adjusted profit before taxation*
Taxation
Profit for the year
Attributable to:
Owners of the Company
Non-controlling interests
Earnings per share attributable to owners of the Company
Basic
Diluted
Adjusted earnings per share attributable to owners of the Company
Basic
Diluted
Group
2016
£m
98.6
(58.6)
40.0
(0.2)
(98.3)
91.0
23.8
0.1
(8.4)
(0.6)
(63.7)
91.0
(9.7)
32.5
(1.7)
1.1
(0.6)
(1.2)
30.7
13.8
(17.6)
13.1
13.1
—
13.1
6.4p
6.2p
5.2p
5.0p
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
Note
2
2
4
4
4
15
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 2016
59
Consolidated statement of
comprehensive income
for the year ended 31 December 2016
Profit for the year
Other comprehensive income/(expense):
Items that will not be reclassified to profit and loss
Actuarial gain on retirement benefit liability
Deferred tax on movement on retirement benefit liability
Items that have been reclassified to profit and loss
Realised fair value loss on available for sale financial assets
Items that may be subsequently reclassified to profit and loss
Revaluation of available for sale financial assets
Currency translation differences
Total other comprehensive income/(expense) for the year, net of tax
Total comprehensive income for the year
Attributable to:
Owners of the Company
Non-controlling interests
Strategic report
Corporate governance
Financial statements
Note
30
18
23
23
Group
2016
£m
13.1
—
—
—
2015
£m
6.7
0.2
(0.1)
0.1
0.7
—
(1.6)
10.5
8.9
9.6
22.7
22.7
—
22.7
(1.6)
0.6
(1.0)
(0.9)
5.8
5.8
—
5.8
60
Sportech PLC Annual Report and Accounts 2016
Statements of changes in equity
for the year ended 31 December 2016
Group
At 1 January 2015
Comprehensive income
Profit for the year
Other comprehensive income/(expense)
Actuarial loss on retirement benefit liability* (note 30)
Revaluation of available for sale financial assets
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
Total transactions with owners of the Company
Total changes in equity
At 31 December 2015
Comprehensive income
Profit for the year
Other comprehensive income/(expense)
Realised fair value losses on available for sale financial assets
(note 23)
Revaluation of available for sale financial assets (note 23)
Currency translation differences
Total other comprehensive income/(expense)
Total comprehensive income/(expense)
Transactions with owners
Share option debit (note 6)
Total changes in equity
At 31 December 2016
* Net of deferred tax (note 18).
Company
At 1 January 2015
Comprehensive expense
Loss for the year (note 9)
Transactions with owners
Share option credit (note 6)
Shares issued in relation to PSP
At 31 December 2015
Comprehensive expense
Loss for the year (note 9)
Transactions with owners
Share option debit (note 6)
At 31 December 2016
Other reserves
Currency
translation
reserve
£m
(0.1)
Pension
reserve
£m
(0.6)
Share
option
reserve
£m
2.3
Available
for sale
reserve
£m
—
Retained
earnings
£m
15.6
Non-
controlling
Total
interests
£m
£m
— 119.8
Ordinary
shares
£m
102.6
—
—
—
—
—
—
—
—
—
—
—
—
—
0.5
0.5
(0.5)
—
0.1
—
—
0.1
0.1
—
—
—
0.5
0.5
103.1
—
—
—
2.3
—
—
0.1
(0.5)
—
—
6.7
—
—
—
—
6.7
—
—
—
—
6.7
22.3
— 6.7
0.1
—
— (1.6)
— 0.6
— (0.9)
— 5.8
— 0.5
—
—
0.1
0.1
0.1
0.1
0.1
0.6
6.4
126.2
—
(1.6)
—
(1.6)
(1.6)
—
—
—
—
(1.6)
(1.6)
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
10.5
— 10.5
— 10.5
—
13.1
— 13.1
0.7
(1.6)
—
(0.9)
(0.9)
—
—
—
—
13.1
— 0.7
— (1.6)
— 10.5
— 9.6
— 22.7
—
—
0.6
0.6
0.6
—
—
—
—
0.6
0.5
—
—
—
—
103.1
—
(0.1)
(0.1)
—
2.2 (0.5)
—
10.5
11.0
—
—
(0.9)
13.1
(2.5) 35.4
— (0.1)
— 22.6
0.1 148.8
Other
reserve –
share option
reserve
£m
2.3
Ordinary
shares
£m
102.6
Retained
earnings
£m
13.1
Total
£m
118.0
—
—
0.5
103.1
—
—
103.1
—
(5.7)
(5.7)
0.5
(0.5)
2.3
—
0.5
7.9
0.5
0.5
113.3
—
(29.7)
(29.7)
(0.1)
2.2
—
(21.8)
(0.1)
83.5
Balance sheets
at 31 December 2016
Sportech PLC Annual Report and Accounts 2016
61
Strategic report
Corporate governance
Financial statements
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
Inventories
Available for sale financial assets
Cash and cash equivalents
TOTAL ASSETS
LIABILITIES
Current liabilities
Trade and other payables
Provisions
Financial liabilities
Current tax liabilities
Net current assets/(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
Company
Note
2016
£m
Restated
2015
£m
2016
£m
2015
£m
11
12
13
14
15
16
18
16
17
23
19
20
21
22
22
30
21
18
24
81.8
27.8
26.2
—
1.4
2.6
3.1
142.9
14.6
2.5
1.3
39.6
58.0
200.9
(31.4)
(0.1)
(0.2)
(18.1)
(49.8)
8.2
(0.1)
(1.7)
(0.5)
—
(2.3)
(52.1)
148.8
103.1
10.2
35.4
148.7
0.1
148.8
121.3
42.1
24.0
—
2.1
2.0
1.4
192.9
10.9
2.1
2.9
7.2
23.1
216.0
(23.4)
(0.1)
—
(1.3)
(24.8)
(1.7)
(62.3)
(1.4)
(0.4)
(0.9)
(65.0)
(89.8)
126.2
103.1
0.7
22.3
126.1
0.1
126.2
—
1.0
0.1
194.6
—
—
0.1
195.8
34.5
—
—
20.2
54.7
250.5
(167.0)
—
—
—
(167.0)
(112.3)
—
—
—
—
—
(167.0)
83.5
103.1
2.2
(21.8)
83.5
—
83.5
—
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
The financial statements on pages 58 to 107 were approved and authorised for issue by the Board of Directors on
2 March 2017 and were signed on its behalf by:
Ian Penrose
Chief Executive
Company Registration Number: SC069140
Mickey Kalifa
Chief Financial Officer
62
Sportech PLC Annual Report and Accounts 2016
Statements of cash flows
for the year ended 31 December 2016
Cash flows from operating activities
Cash generated from operations, before exceptional items
Interest paid
Tax paid
Net cash generated from operating activities before
exceptional cash flows
Exceptional cash inflows
Exceptional cash outflows
Net cash generated from operating activities
Cash flows from investing activities
Investment in joint ventures and associates
Cash received on disposal of Sportech-NYX
Gaming, LLC
Disposal of shares in NYX Gaming Group Limited
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 from repayment of borrowings
Net cash used in financing activities
Net increase/(decrease) in cash and cash equivalents
Effect of foreign exchange on cash and cash equivalents
Net cash and cash equivalents at the beginning of the year
Net cash and cash equivalents at the end of the year
Represented by:
Cash and cash equivalents
Bank overdrafts
Net cash and cash equivalents at the end of the year
Loans repayable after one year
Less customer funds
Adjusted net cash/(debt) at end of the year
Note
25
15
23
4
22
19
20
22
20
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)
Group
Company
2016
£m
25.1
(1.9)
(3.1)
20.1
93.9
(6.7)
107.3
Restated
2015
£m
19.3
(3.2)
(2.3)
13.8
—
(2.3)
11.5
2016
£m
89.1
(1.9)
(1.4)
85.8
—
(1.6)
84.2
(0.5)
(2.5)
—
—
—
(0.9)
—
(0.9)
—
(62.1)
(62.1)
21.2
—
(1.0)
20.2
—
0.6
(5.8)
(6.1)
(11.8)
—
(62.1)
(62.1)
33.4
0.4
5.8
39.6
39.6
—
39.6
—
(3.1)
36.5
5.1
—
(4.9)
(3.4)
(5.7)
(0.3)
(8.0)
(8.3)
(2.5)
(0.3)
8.6
5.8
7.2
(1.4)
5.8
(62.1)
(1.4)
(57.7)
Accounting policies
for the year ended 31 December 2016
Sportech PLC Annual Report and Accounts 2016
63
Strategic report
Corporate governance
Financial statements
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 2016 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 48, 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 2018.
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 and approved by the Audit Committee.
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.
In March 2016, IFRIC issued an agenda decision
regarding the treatment of offsetting and cash-pooling
arrangements in accordance with IAS 32 ‘Financial
instruments: Presentation’. This provided additional
guidance on when bank overdrafts in cash-pooling
arrangements would meet the requirements for
offsetting in accordance with IAS 32. Following this
additional guidance, the Group has reviewed its cash-
pooling arrangements and has revised its presentation
of bank overdrafts to gross up both the cash and overdraft
balances at each reporting date. At 31 December 2016,
the impact of this is £nil as the Group is not using any of
its available overdraft facilities. At 31 December 2015, the
Group had overdrafts of £1.4m. This has been presented
within trade and other payables in restated financial
statements for that year, and the corresponding increase
is shown within cash and cash equivalents.
During this review of the IFRIC guidance, the Group has
also considered the most appropriate presentation of the
cash it holds on behalf of customers. As disclosed in its
annual financial statements, the Group has historically
presented this cash within trade and other payables,
offsetting the liability owing to those customers of an
equal and opposite amount. Following this guidance,
the Group has revised its presentation of customer
cash to show as cash and cash equivalents. The liability
owing to players is presented gross within trade and
other payables. The impact of this at the reporting date
is £3.1m of player liabilities being presented within trade
and other payables. £1.4m of customer cash held at
31 December 2015 has been presented within trade
and other payables in restated financial statements of
that period, and the corresponding increase is shown
within cash and cash equivalents.
Both of the above items have no impact on the Group’s
adjusted net cash/(debt) used for covenant testing
purposes at any of the reporting dates.
Amounts presented in the financial statements have been
rounded to the nearest £100,000.
64
Sportech PLC Annual Report and Accounts 2016
Accounting policies continued
for the year ended 31 December 2016
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 by the Group 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;
– return on brand marketing;
– new product uptake;
– success of newly-built venues;
– value that can be realised from surplus assets;
– the benefit of our continued investment in technologies;
– industry handle rates;
– levels of capital expenditure required to continue
development of market-leading technologies;
– useful lives of assets developed;
– pace of technology change in the industry which would
require further capital investment;
– 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 contingent consideration receivable
An element of the consideration received on the disposal
of Sportech-NYX Gaming, LLC 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.
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 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 1 January 2017 (2015: 3 January 2016).
For ease of reference in this preliminary announcement,
all references to the results for the year are for the year
ended 31 December 2016 (2015: 31 December 2015)
and the financial position at 31 December 2016
(2015: 31 December 2015).
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 2016
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Financial statements
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.
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.
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Sportech PLC Annual Report and Accounts 2016
Accounting policies continued
for the year ended 31 December 2016
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) Deferred income
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,
retail outlets, third-party licensed betting offices, and
through online and digital channels;
– Sportech Racing and Digital: provision of pari-mutuel
wagering services and systems worldwide principally
to the horseracing industry;
– Sportech Venues: off-track betting venue management;
and
– Corporate costs: central costs relating to the Company
in its capacity as the holding company of the Group.
(f) Taxation
The current income tax charge is calculated on the basis
of the tax laws enacted or substantively enacted at the
balance sheet date in the countries where the Company
and its subsidiaries operate and generate taxable income.
Management periodically evaluates positions taken in tax
returns with respect to situations in which applicable tax
regulation is subject to interpretation and establishes
provisions, where appropriate, on the basis of amounts
expected to be paid to the tax authorities.
Tax is recognised in the income statement, except to
the extent that it relates to items recognised in other
comprehensive income or directly in equity. In this case,
the tax is also recognised in other comprehensive income
or directly in equity, respectively.
Deferred income tax is provided in full, using the liability
method, on temporary differences arising between the tax
bases of assets and liabilities and their carrying amounts
in the consolidated financial statements. However, the
deferred income tax is not accounted for if it arises from
initial recognition of an asset or liability in a transaction
other than a business combination that, at the time of the
transaction, affects neither accounting nor taxable profit
or loss. Deferred income tax is determined using tax rates
(and laws) that have been enacted or substantially enacted
by the balance sheet date and are expected to apply when
the related deferred income tax asset is realised or the
deferred income tax liability is settled.
Deferred income tax assets are recognised to the extent
that it is probable that future taxable profit will be available
against which the temporary differences can be utilised.
Deferred income tax is provided on temporary
differences arising on investments in subsidiaries,
except where the timing of the reversal of the temporary
difference is controlled by the Group and it is probable
that the temporary difference will not reverse in the
foreseeable future.
Deferred income tax assets and liabilities are offset when
there is a legally enforceable right to offset current tax
assets against current tax liabilities and when the deferred
income tax assets and liabilities relate to income taxes
levied by the same taxation authority, on either the same
or different taxable entities, where there is an intention to
settle the balances on a net basis.
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Financial statements
(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.
(h) Property, plant and equipment
Property, plant and equipment are carried at historical
cost less accumulated depreciation and any impairment.
Cost includes the original purchase price of the asset and
the costs attributable in bringing the asset to its working
condition for its intended use and any associated
borrowing costs. Assets in the course of construction
are not depreciated until the asset is completed.
Subsequent costs are included in the asset’s carrying
amount or recognised as a separate asset, as appropriate,
only when it is probable that future economic benefits
associated with the item will flow to the Group and the
cost of the item can be measured reliably. The carrying
amount of the replaced part is derecognised. All other
repairs and maintenance are charged to the income
statement during the financial period in which they
are incurred.
Gains and losses on disposals are determined by
comparing the proceeds with the carrying amount and
are recognised within administrative expenses in the
income statement.
Assets in the course of construction are capitalised when
first brought into use and depreciated from this date.
(i) Depreciation
Depreciation is provided on a straight-line basis to write
off the cost of property, plant and equipment down to
residual value over their anticipated useful lives at the
following annual rates:
Long leasehold and owned land
Not depreciated
Long leasehold and owned buildings
4.0% to 5.0%
Short leasehold land and buildings
Over the period of the lease
Plant, equipment and other fixtures and fittings
10.0% to 33.3%
The assets’ residual values and useful lives are reviewed,
and adjusted if appropriate, at each balance sheet date.
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Sportech PLC Annual Report and Accounts 2016
Accounting policies continued
for the year ended 31 December 2016
(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.
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.
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.
Software
Externally acquired computer software licences are
capitalised on the basis of the costs incurred to acquire
and bring to use the specific software. These costs are
amortised over their estimated useful lives or contractual
period if shorter (six to ten years).
Development costs that are directly attributable to the
design and testing of identifiable and unique software
products controlled by the Group are recognised as
intangible assets when the following criteria are met:
– it is technically feasible to complete the software product
so that it will be available for use;
– management intends to complete the software product;
– it can be demonstrated how the software product will
generate probable future economic benefits;
– adequate technical, financial and other resources to
complete the development and to use or sell the
software product are available; and
– the expenditure attributable to the software product
during its development can be reliably measured.
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.
(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.
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Financial statements
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.
For defined contribution plans, the Group pays
contributions to privately administered pension insurance
plans on a mandatory, contractual or voluntary basis.
The Group has no further payment obligations once
the contributions have been paid. The contributions are
recognised as an employee benefit expense when they
are due. Prepaid contributions are recognised as an asset
to the extent that a cash refund or a reduction in future
payments is available.
(o) Financial instruments
The Group uses derivative financial instruments to reduce
exposure to interest rate and exchange rate movements.
The Group does not hold or issue derivative financial
instruments for speculative purposes. Financial assets
and liabilities are recognised on the Group’s balance sheet
initially at fair value when the Group becomes party to
the contractual provisions of the instrument. Subsequent
measurement depends on the designation of the
instrument in accordance with IAS 39.
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.
70
Sportech PLC Annual Report and Accounts 2016
Accounting policies continued
for the year ended 31 December 2016
(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, both owned by the Group and held
on behalf of customers. Any bank overdrafts used by the
Group are shown within trade and other payables. Positive
cash balances and overdrafts are only offset within cash
and cash equivalents to the extent that they form part of
a cash-pooling arrangement implemented by the Group
where the balances will be settled on a net basis.
(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.
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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
Content
Leasing
Applicable from
1 January 2019
Financial instruments
Revenue from contracts
with customers
1 January 2018
1 January 2018
A review of the impact of those new standards will
be performed in 2017, and an update of this impact will
be provided in the Annual Report for the year ended
31 December 2017.
(w) Provisions
Provisions for onerous contracts, onerous leases,
restructuring costs, legal claims and dilapidations are
recognised when the Group has: a present legal or
constructive obligation as a result of past events; it is
probable that an outflow of resources will be required
to settle the obligation; and the amount has been reliably
estimated. Provisions are not recognised for future
operating losses where the Group has no contractual
obligation to deliver the service or product.
(x) Leases
Leases in which a significant portion of the risks and
rewards of ownership are retained by the lessor are
classified as operating leases. Payments made under
operating leases (net of any incentives received from
the lessor) are charged to the income statement on a
straight-line basis over the period of the lease.
(y) Share capital
Ordinary shares are classed as equity. Incremental
costs directly attributable to the value of new shares
or options are shown in equity as a deduction from the
proceeds in the share premium account where the shares
were issued at a premium or, where issued at par or where
the issue costs exceed the premium on the issue, to
retained earnings.
(z) New standards, amendments and
interpretations adopted by the Group
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 2016 that materially
impacted the Group financial statements.
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Sportech PLC Annual Report and Accounts 2016
Notes to the financial statements
for the year ended 31 December 2016
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 credit
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
28.4
—
28.4
15.0
—
2016
Sportech
Racing
and
Digital
£m
5.8
30.2
36.0
Sportech
Venues
£m
—
35.1
35.1
Corporate
costs
£m
—
—
—
Inter-
segment
elimination
£m
—
(0.9)
(0.9)
9.4
—
2.7
—
(3.3)
0.1
(2.0)
(5.0)
(1.3)
(0.1)
13.0
—
(42.5)
96.8
(3.4)
63.9
4.4
(0.6)
(17.2)
—
(1.6)
(15.0)
1.4
—
(4.0)
—
(0.3)
(2.9)
(3.3)
—
—
(5.8)
(4.4)
(13.5)
—
—
—
—
—
—
—
—
—
249.7
(30.2)
98.0
(93.2)
46.7
(13.0)
57.2
(166.4)
(250.7)
250.7
2.7
0.2
1.8
5.3
2.0
3.6
3.1
1.3
—
0.8
—
0.1
—
—
—
Group
£m
34.2
64.4
98.6
23.8
0.1
(8.4)
15.5
(0.6)
(63.7)
91.0
(9.7)
32.5
(0.6)
(1.2)
30.7
(17.6)
13.1
200.9
(52.1)
11.9
3.5
5.5
Sportech PLC Annual Report and Accounts 2016
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Corporate governance
Financial statements
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 (Restated)
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)
—
—
—
—
—
—
—
—
—
193.4
(19.1)
91.2
(79.1)
39.7
(9.0)
40.2
(131.1)
(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
216.0
(89.8)
8.4
3.3
5.5
74
Sportech PLC Annual Report and Accounts 2016
Notes to the financial statements continued
for the year ended 31 December 2016
1. Segmental reporting continued
Information by geographical area
United Kingdom
North and South America
Europe
Other
Total
Revenues from
external customers
Non-current assets
2016
£m
30.8
54.3
10.2
3.3
98.6
2015
£m
38.7
51.3
9.3
0.9
100.2
2016
£m
88.5
52.0
2.4
—
142.9
2015
£m
141.9
48.6
2.4
—
192.9
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
Losses incurred post collector channel closure announcement (note a)
Costs incurred in relation to California contract exit
Costs incurred in relation to New Jersey data outage
Transaction costs
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
Charges arising as a result of asset impairments
Fair value losses realised in respect of shares held in NYX Gaming Group Limited
Other exceptional items
Included in other operating income:
Net gain on successful outcome of Supreme Court Spot the Ball ruling (note b)
Net gain on disposal of Sportech-NYX Gaming, LLC
Included in net finance costs:
Refinancing fee
Movement on derivative financial instruments post designation as ineffective
Net exceptional income
2016
£m
2015
£m
2.7
0.2
0.2
0.2
4.4
—
0.1
0.1
—
1.0
0.7
0.1
9.7
(91.0)
—
(91.0)
—
—
—
(81.3)
1.0
—
0.6
—
0.3
0.3
0.2
0.2
(0.2)
—
0.2
—
2.6
—
(8.1)
(8.1)
0.3
(0.5)
(0.2)
(5.7)
Sportech PLC Annual Report and Accounts 2016
75
Strategic report
Corporate governance
Financial statements
(a) Losses incurred post collector channel closure announcement
The Group announced the closure of its Football Pools collector channel in January 2016. Subsequent to this
announcement, the net revenue and costs generated from this channel are deemed to be non-core trading of the
Group and are exceptional in nature. Accordingly, the net losses of £0.2m have been presented as exceptional costs.
Those losses are incurred after generating revenues from this channel of £1.3m in the period to closure.
(b) Spot the Ball
On 8 December 2016, the Supreme Court refused HMRC’s request for permission to appeal the Court of Appeal’s
judgment in the Group’s favour in respect of its Spot the Ball ruling. Accordingly the principal amount refunded of
£43.5m together with related simple interest of £53.4m has been recognised as exceptional income in the year, net
of costs relating to the claim totalling £5.9m.
An analysis of the costs in relation to the claim is shown below:
Advisor fees
Executive Director and employee bonuses
Other costs
Total
3. Expenses by nature
Selling commissions
Betting and gaming duties
Track and tote fees
Marketing, printing and postage costs
Employment costs
Share option (credit)/expense
Depreciation and amortisation
Impairment of goodwill
Impairment of property, plant and equipment and intangible assets
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 £9.7m (2015: £2.6m).
Note
6
6
12, 13
11
12, 13
17
2
2016
£m
0.6
5.4
14.6
4.8
30.4
(0.1)
9.0
39.5
24.2
0.2
2.3
4.4
7.0
5.5
9.3
157.1
2016
£m
3.8
1.9
0.2
5.9
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
76
Sportech PLC Annual Report and Accounts 2016
Notes to the financial statements continued
for the year ended 31 December 2016
4. Net finance costs
Finance costs
Interest payable on bank loans, derivative financial instruments and overdrafts
Other finance income
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
5. Profit before taxation
Profit 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
Amortisation of acquired intangibles
Amortisation of other intangibles
Net impairment of investments in joint ventures and associates
2016
£m
1.7
(1.1)
—
—
0.6
2016
£m
30.3
3.5
39.5
24.2
0.6
4.9
0.6
2015
£m
3.2
(0.4)
(0.5)
0.3
2.6
2015
£m
30.5
3.3
3.7
2.4
1.2
4.3
0.2
Note
6
13
11
12, 13
12
12
15
The fees of the Auditors in relation to their audit of the Company financial statements are £52,000 (2015: £52,000).
Fees paid to Auditors during the period comprise:
Audit fees
Taxation compliance
Taxation advisory services
Other assurance services
Total fees
2016
£m
0.3
0.1
0.1
0.6
1.1
2015
£m
0.2
0.1
0.1
0.1
0.5
Sportech PLC Annual Report and Accounts 2016
77
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Corporate governance
Financial statements
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 30)
Pension costs – defined benefit scheme (note 30)
Share option (credit)/expense
Total remuneration
7. Directors and key management remuneration
Directors
Short-term employee benefits
Share-based payments
Pay in lieu of notice
Post-employment benefits
Total remuneration
2016
Number
86
466
123
675
2015
Number
96
516
137
749
2016
£m
25.5
4.1
0.6
0.2
(0.1)
30.3
2016
£000
1,955
(149)
244
54
2,104
2015
£m
25.1
4.1
0.7
0.1
0.5
30.5
2015
£000
1,236
266
—
55
1,557
Details of individual Directors’ remuneration and share-based incentives granted are given in the Remuneration
report on pages 31 to 46. This information forms part of the financial statements. Retirement benefits are accruing
under defined benefit pension schemes for nil Directors (2015: nil). Two Directors exercised share options in the year
(2015: nil).
Key management compensation
Short-term employee benefits
Share-based payments
Pay in lieu of notice
Post-employment benefits
Total remuneration
2016
£000
2,448
(168)
244
59
2,583
2015
£000
1,559
335
—
58
1,952
Key management is considered to be the Directors of the Company (Executive and Non-executive) and senior Executives.
78
Sportech PLC Annual Report and Accounts 2016
Notes to the financial statements continued
for the year ended 31 December 2016
8. Taxation
Current tax
Current tax on profit for the year
Adjustments in respect of prior years
Total current tax
Deferred tax
Origination and reversal of temporary differences
Effect of changes in tax rates
Adjustments in respect of prior years
Derecognition of previously recognised deferred tax assets
Total deferred tax
Total taxation charge
2016
£m
19.5
0.2
19.7
(5.8)
0.1
0.5
3.1
(2.1)
17.6
The taxation on the Group’s profit before taxation differs from the theoretical amount that would arise using the
weighted average tax rate applicable to profits and losses of the consolidated entities as follows:
Profit before taxation
Add share of loss after tax and impairment of non-US based joint ventures
Profit before taxation and share of loss and impairment of non-US based 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 – current tax
– adjustments in respect of prior years – deferred tax
– derecognition of previously recognised deferred tax assets
Total taxation charge
2016
£m
30.7
0.1
30.8
5.0
8.7
0.1
0.2
0.5
3.1
17.6
2015
£m
2.8
0.4
3.2
0.7
(0.1)
(0.8)
—
(0.2)
3.0
2015
£m
9.7
0.9
10.6
1.8
1.7
(0.1)
0.4
(0.8)
—
3.0
Share of loss after tax and impairment of joint ventures excludes those relating to US joint ventures as these are taxed
within US taxable profits. Therefore this is not a reconciling item to the expected tax charge. The weighted average
applicable tax rate was 16.2% (2015: 17.0%).
Included within permanent differences in 2016 is the tax effect at 20% of the £37.7m impairment of goodwill attributable
to the Football Pools, and the tax effect at 34% of the £1.8m impairment of goodwill attributable to eBet Online, Inc.,
for which no tax relief is received. Additionally, certain transaction costs incurred in the UK are not deductible for
corporation tax purposes. Finally, foreign taxes deducted at source amount to a difference of £0.7m due to a 34%
deduction being taken for the payments in the year rather than carrying forward the credits to set off against future
taxable income.
Tax on the net Spot the Ball exceptional income has been provided at 20%. It is possible that capital losses of £23.0m
may be able to be offset against the gain to reduce taxation on this gain by £4.6m, however this is an uncertain tax
position and therefore the charge has been provided for in full in these financial statements. No deferred tax is
recognised on the capital losses being carried forward.
Derecognition of previously recognised deferred tax assets relates to deferred tax on foreign tax credits carried forward
which are considered not to be recoverable in full as at 31 December 2016 as had previously been expected, due to
changes in underlying taxable profit forecasts.
Sportech PLC Annual Report and Accounts 2016
79
Strategic report
Corporate governance
Financial statements
As the Group’s year end is after the substantive enactment date (15 September 2016) of the Finance Act 2016,
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 17% 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 £29.7m (2015: £5.7m) in respect of its Parent Company, Sportech
PLC. Key drivers of the increased losses from prior year include impairments recognised in 2016 to investments in
subsidiaries and intangible fixed assets of £9.1m and £10.5m (2015: £nil and £nil respectively), together with exceptional
costs of £10.2m (2015: £1.0m) net of other finance income of £4.2m (2015: £0.2m).
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 2 March 2017.
10. Earnings per share
(a) Basic
Basic earnings per share is calculated by dividing the profit attributable to equity holders of the Parent Company by the
weighted average number of ordinary shares in issue during the year.
Profit attributable to the owners of the Company
Weighted average number of ordinary shares in issue (’000)
Basic earnings per share
2016
£m
13.1
206,238
6.4p
2015
£m
6.7
206,051
3.3p
(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 22.8% (2015: 23.7%) 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 22.8% (2015: 23.7%)
Adjusted basic EPS
2016
Weighted
average
number of
shares
’000
206,238
206,238
206,238
Profit
£m
13.8
(3.1)
10.7
Per share
amount
Pence
6.7
(1.5)
5.2
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
(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. In 2015, 202,020 employee options were 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. Those options lapsed during the year. The weighted average number of shares that do
have a dilutive effect on adjusted EPS is 5,457,000 (2015: 8,191,000). Diluted basic earnings per share is 6.2p (2015: 3.1p)
and diluted adjusted EPS is 5.0p (2015: 4.2p).
80
Sportech PLC Annual Report and Accounts 2016
Notes to the financial statements continued
for the year ended 31 December 2016
11. Goodwill
Group
Cost
At 1 January and at 31 December
Accumulated impairment charges
At 1 January
Impairment charge
At 31 December
Closing net book amount
Football Pools
£m
2016
eBet
£m
Total
£m
2015
Total
£m
165.5
5.5
171.0
171.0
(46.0)
(37.7)
(83.7)
81.8
(3.7)
(1.8)
(5.5)
—
(49.7)
(39.5)
(89.2)
81.8
(46.0)
(3.7)
(49.7)
121.3
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.
During the year the Group carried out its annual impairment reviews of the carrying value of its goodwill. For the
purpose of the annual impairment reviews, the recoverable amounts are measured based on value-in-use, calculated
using discounted future cash flows. For each of the reviews performed, the value-in-use is calculated using cash flow
forecasts for 2017-2021 approved by the Board, and a terminal value at 2021 calculated in accordance with IAS 36
‘Impairment of Assets’. The results of those specific impairment reviews are outlined below.
(a) Football Pools
The goodwill from the Littlewoods Leisure and Vernons acquisitions is attributed to the Football Pools segment.
In testing for impairment, other assets used solely to generate cash flows in the Football Pools CGU are also included,
totalling £5.1m post impairment, (see note 12) (2015: £9.2m). During the year, the business has undergone significant
change, including nearing completion of its modernisation programme and closing the collector channel. In addition, the
division plans to launch a new retail channel in 2017 and incur significantly increased marketing expense. The changes
have resulted in revisions to management’s plans and forecasts to those which were in place as at 31 December 2015.
These revisions are as a result of the passage of time under which management have gained more knowledge of how
the underlying business will perform having been restructured and also the commencement of the new retail channel
and marketing strategy.
The key assumptions in the value-in-use calculations were:
– year-on-year growth in online, reflecting the businesses focus on this channel and the improved capability and offering
of the division’s software following investment;
– decline of 1% in core subscription EBITDA from 2017 to 2021, with 1% decline into perpetuity thereafter of core
subscription earnings;
– growth in retail sales over the period with support from investment in brand marketing;
– the terminal value for online and retail uses a nil growth rate given the expected stabilisation of profit streams; and
– cash flows have been discounted at 9.0% (2015: 8.4%), reflecting a market-based weighted average cost of capital
appropriate for the Football Pools CGU.
The recoverable amount of the Football Pools goodwill was estimated to be £86.9m, and therefore an impairment
of £37.7m has been recognised in administrative expenses in the income statement (2015: £nil).
Sportech PLC Annual Report and Accounts 2016
81
Strategic report
Corporate governance
Financial statements
As disclosed in note 31, the Group has agreed to dispose of its Football Pools division post year end, subject to certain
conditions. This is expected to result in no material gain or loss being recognised in the 2017 financial statements.
Accordingly management do not believe it necessary to present a reasonable downside case with a resultant
impairment that may arise if any of the assumptions or variables used in the impairment review were to change.
(b) eBet Online, Inc.
The goodwill from the eBet Online, Inc. (‘eBet’) acquisition is attributed to the Sportech Racing and Digital segment.
In performing the annual impairment review of this goodwill, other assets used solely to generate cash flows in the eBet
business are also included, totalling £3.6m. Management have reflected on the pace of regulation being slower than
originally anticipated, together with the increased levels of capital expenditure required in the business for continuing
development of its products, in performing this impairment review. Those assumptions are changed from the review
performed at 31 December 2015.
The key assumptions in this value-in-use calculation were:
– compound annual growth in EBITDA of 14% from 2016 to 2021, reflecting market growth expectations;
– the terminal value is based on a growth rate of 2%; and
– cash flows have been discounted at 10.0% (2015: 10.0%), 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 business is estimated to be £3.6m which is
equivalent to the value of other assets attributable to that business. Accordingly, the goodwill of £1.8m has been
impaired in full.
12. Intangible fixed assets
Group
Cost
At 1 January 2016
Additions
Transfer
Disposals
At 31 December 2016
Accumulated amortisation
At 1 January 2016
Charged during the year
Impairment
Disposals
At 31 December 2016
Exchange differences
Net book amount at 31 December 2016
Customer
contracts and
relationships
£m
Software
£m
36.5
—
—
—
36.5
35.9
0.6
—
—
36.5
—
—
47.8
5.2
(0.3)
(0.7)
52.0
24.5
4.7
17.4
(0.7)
45.9
1.4
7.5
Other
£m
20.7
0.6
0.3
—
21.6
3.9
0.2
1.7
—
5.8
4.5
20.3
Total
£m
105.0
5.8
—
(0.7)
110.1
64.3
5.5
19.1
(0.7)
88.2
5.9
27.8
82
Sportech PLC Annual Report and Accounts 2016
Notes to the financial statements continued
for the year ended 31 December 2016
12. Intangible fixed assets continued
Company
Cost
At 1 January 2016
Additions
At 31 December 2016
Accumulated amortisation
At 1 January 2016
Charged during the year
Impairment
At 31 December 2016
Net book amount at 31 December 2016
Software
£m
Other
£m
16.9
0.7
17.6
5.3
1.3
10.0
16.6
1.0
0.9
0.2
1.1
0.5
0.1
0.5
1.1
—
Total
£m
17.8
0.9
18.7
5.8
1.4
10.5
17.7
1.0
Software
Both Sportech Racing and Digital and the Football Pools division own their in-house developed, proprietary software.
The largest component of this relates to Racing and Digital and its pari-mutuel software serving racing customers
worldwide. This software is owned by the Company, and was originally estimated to have a useful life of 15 years.
During the year the Group reviewed the carrying value of this software in response to the review of certain intangible
assets within the Racing and Digital division and the increased spend required during the year and previous year to
enhance this software and ensure it continued to meet the needs of the Group’s customers. It was found that the
software had a shorter life than was previously forecast and that the value of the software is reduced relative to that
previously estimated. As a result the asset, which had a carrying value at 31 December 2016 of £10.3m, was impaired
by £10.0m to a carrying value of £0.3m, representing the fair value of this software to the Group. The assets subject
to impairment were all brought into use four years ago or more and are considered to have been superseded by more
recent development work.
Sportech Racing and Digital carried out an impairment review of its intangible assets following reaching the end of a
six-year road map for development of its tote software, online platform and ancillary products. The division is now
committed to transferring all of its customers onto the primary platform of G4 from legacy platforms. As a result £1.5m
of early G4 development costs and £0.8m of legacy platform costs, as well as £0.2m of software in relation to contracts
which have been lost, are impaired. Other software within the division of £0.1m was also impaired.
Following the completion of the modernisation programme within the Football Pools division, which commenced five
years ago, and the closure of the Collector channel during the year, management reviewed the carrying value of the
assets of the business now that decline has been stabilised and the business has redefined its strategy. As a result,
several software intangible assets were identified as being impaired including: £1.5m of costs in relation to the
development of a bespoke customer database incurred in 2012 and 2013 which has been superseded; £1.5m of eGaming
software developed in 2014 and prior which has been superseded by more recent development; £0.7m relating to a
pools marking engine following the closure of the Collector channel; £0.6m of Betpro software acquired in 2013 which is
no longer used by the division; £0.2m of NYX wallet development given the Group’s strategy to design its own internally
generated bespoke wallet in 2017; and other software of £0.3m.
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 is not amortised and the useful economic life allocated
to the asset is indefinite.
As required by IAS 36 an impairment test has been carried out as at 31 December 2016. In testing for impairment,
other assets used solely to generate cash flows in the CGU are also included, totalling £11.5m post impairment
(see note 13) (2015: £10.4m).
Sportech PLC Annual Report and Accounts 2016
83
Strategic report
Corporate governance
Financial statements
The recoverable amount of the asset has been determined based on a value-in-use calculation. In calculating value-in-
use, management have revised their assumptions to reflect the continued underlying decline over and above that which
was expected. In addition, Jai Alai handle did not return in 2016 to the levels expected which is a further change in
assumptions from those at 31 December 2015. The key assumptions made were made as follows:
– EBITDA forecasts assume year-on-year handle decline in the land-based Venues of 5%, offset by compound annual
growth in online handle of 11% 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, in addition to expected proceeds to be realised net
of sale costs and investment required to fit out a new venue, of the sale of Sports Haven;
– 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, 2% for food and beverage and a 3% growth rate in the online business,
reflecting the relatively new food and beverage channel and 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 9.1% (2015: 8.5%) 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 £30.7m and accordingly
an impairment of £1.1m was charged to the income statement within administrative expenses (2015: £nil).
Management consider that the calculated recoverable amount is most sensitive to changes in the following reasonable
downside assumptions. 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 6% to 2021; earnings from new Venues under construction, together with surplus asset values
realised, are both 50% of expectation
WACC of 10% rather than 9.1%
Resulting
impairment
£m
10.7
3.4
Other intangibles owned by the Company are costs incurred in enabling the provision of tote software to the Group’s
joint venture, Sportshub Private Limited. Those costs have been written off in full during the year, together with the
Group’s net investment in SportsHub (see note 15).
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
Exchange differences
Net book amount at 31 December 2015
Customer
contracts and
relationships
£m
Software
£m
Other
£m
Total
£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
21.9
0.1
(1.3)
—
20.7
3.3
0.6
—
—
3.9
1.0
17.8
100.5
4.9
—
(0.4)
105.0
59.0
5.5
0.2
(0.4)
64.3
1.4
42.1
84
Sportech PLC Annual Report and Accounts 2016
Notes to the financial statements continued
for the year ended 31 December 2016
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
Amortisation has been included within administrative expenses.
13. Property, plant and equipment
Software
£m
Other
£m
Total
£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
Group
Cost
At 1 January 2016
Additions
Disposals
Transfer
At 31 December 2016
Accumulated depreciation
At 1 January 2016
Charged during the year
Impairment
Disposals
At 31 December 2016
Exchange differences
Net book amount at 31 December 2016
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
11.5
—
—
0.1
11.6
4.6
0.5
2.4
—
7.5
2.1
6.2
20.1
0.7
(6.5)
3.8
18.1
7.7
2.8
2.6
(6.5)
6.6
2.3
13.8
0.8
0.1
(0.2)
—
0.7
0.3
0.2
0.1
(0.2)
0.4
0.1
0.4
3.1
5.3
—
(3.9)
4.5
—
—
—
—
—
1.2
5.7
16.6
1.2
17.8
4.8
1.0
5.8
12.0
Total
£m
35.7
6.1
(6.7)
—
35.1
12.7
3.5
5.1
(6.7)
14.6
5.7
26.2
Sportech PLC Annual Report and Accounts 2016
85
Strategic report
Corporate governance
Financial statements
Company
Cost
At 1 January and 31 December 2016
Accumulated depreciation
At 1 January and 31 December 2016
Net book amount at 31 December 2016
Short
leasehold
land and
buildings
£m
Plant and
machinery
£m
0.1
0.1
—
0.2
0.1
0.1
Total
£m
0.3
0.2
0.1
Impairments – Sportech Venues
Management now intend to realise value from the land it owns, and which its Sports Haven site occupies, in Connecticut.
It is expected that this land will be disposed of within two to five years, at which point the building will be demolished,
having sold the land for development. The building therefore has a significantly reduced value to the Group than it
previously did, and an impairment of £1.6m has been recognised in respect of this. The sports bar at Bradley has now
been open for three years, and it is now thought the venue has reached a steady state of profitability. The recoverable
value of the venue was reassessed and indicated an impairment of £1.2m was required which has been recognised.
A further impairment of £0.1m was made following the closure of a smaller venue in Connecticut in 2016.
Impairments – Sportech Racing and Digital
The Sportech Racing and Digital division reviewed the carrying value of certain of its tangible assets following the end
of a six-year road map for the development of its tote assets and suite of supporting products in addition to exiting its
largest North American contract in late 2015. This review identified that the following impairments were required to
bring the carrying value of the assets down to a value considered supportable by the expected future cash flows to be
generated: Kiosk terminal developments of £1.0m have not generated sales of the product as expected and this has
therefore been impaired; Betjet terminals relocated from California were previously thought to have been capable of
redistribution for utilisation elsewhere at nil cost, however this has not been the case and therefore they have been
impaired by £1.0m; and a further £0.2m of tote assets have been impaired relating to those assets used for contracts
which have not been renewed.
Group
Cost
At 1 January 2015
Additions
Acquisition of interests in S&S Venues
California, LLC
Disposals
Transfer
At 31 December 2015
Accumulated depreciation
At 1 January 2015
Charged during the year
Impairment
Disposals
At 31 December 2015
Exchange differences
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
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
86
Sportech PLC Annual Report and Accounts 2016
Notes to the financial statements continued
for the year ended 31 December 2016
13. Property, plant and equipment continued
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
14. Investments in subsidiaries
At 1 January
Impairment
At 31 December
Short
leasehold
land and
buildings
£m
Plant and
machinery
£m
0.1
0.1
—
0.2
0.1
0.1
Total
£m
0.3
0.2
0.1
Group
Company
2016
£m
—
—
—
2015
£m
—
—
—
2016
£m
203.7
(9.1)
194.6
2015
£m
203.7
—
—
A full listing of the Group’s subsidiaries, and other related undertakings, is included in note 32.
For the reasons outlined in notes 11, 12 and 13, impairment charges have been recognised in the year, reducing the asset
base of the Group. With the Group’s assets having a reduced recoverable value, this has resulted in an impairment in the
Company’s investment in Sportech Holdco 2 Limited. Therefore an impairment loss of £9.1m has been recognised in the
Company financial statements.
Impairment reviews have also been performed on the Company’s other investments, namely those in Sportech Gaming
Limited and Sportech Holdco 1 Limited. The recoverable value of those investments continues to be in excess of their
book value and no impairment is therefore required.
15. Net investment in joint ventures/associates
During the year, the Group held the following investments in joint ventures and associates:
Company
S&S Venues California, LLC
(‘S&S Venues’)
Sportshub Private Limited
(‘Sportshub’)
DraftDay Gaming Group, Inc.
(‘DraftDay’)
Description
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
India
2008
Joint venture/
associate
Joint
venture
Joint
venture
US
2015 Associate
%
holding
50
50
30
(a) Capital commitments
The Group’s share of capital commitments owing by the joint ventures amounted to £nil (2015: £nil).
Sportech PLC Annual Report and Accounts 2016
87
Strategic report
Corporate governance
Financial statements
(b) 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
Disposals
Impairment
Share of loss after tax
Exchange differences
At 31 December
S&S
Venues
£m
1.2
0.2
—
—
—
(0.2)
0.2
1.4
2016
DraftDay
£m
0.4
0.3
—
—
(0.5)
(0.3)
0.1
—
Sportshub
£m
0.5
—
—
—
(0.4)
(0.1)
—
—
Total
£m
2.1
0.5
—
—
(0.9)
(0.6)
0.3
1.4
2015
Total
£m
2.2
3.1
(0.5)
(1.9)
(0.2)
(0.7)
0.1
2.1
(c) Impairments – DraftDay
The Group’s obligation to provide management services to DraftDay came to an end on 4 July 2016, subject to the
provision thereafter of transitional services for a 45-day period. In return for negotiating an early exit to the management
services agreement, the Group has surrendered an equity stake in the business, reducing its equity stake from 39% to
30%. It also surrendered its Board representation in DraftDay. From that point, the Group no longer exerts significant
influence on the business and ceased accounting for it as an associate. Prior to the surrender of this equity, the Group
reviewed the recoverable value of its investment in DraftDay and impaired the balance of £0.5m in full, owing to the
losses that DraftDay had made from 1 January 2016 to the end of this transition period and is expected to continue to
make in the future.
When the 45-day transitional period ended, the Group had a corresponding liability of £0.3m to provide future services
to DraftDay which it has been released from. This accrual originally represented the cost of investment to the business
in acquiring its original 39% stake in DraftDay. This has been released in full and credited to the income statement,
offsetting the impairment of its investment recognised within ‘share of loss after tax and impairment of joint ventures
and associates’.
(d) Impairments – Sportshub
Indicators of impairment arose during the year with respect to the Group’s investment in SportsHub. Accordingly, this
investment has been impaired in full and £0.4m has been expensed to the income statement within ‘share of loss after
tax and impairment of joint ventures and associates’.
(e) Summarised financial information of joint venture and associate investments held at reporting date
At the reporting date, DraftDay is no longer an associate of the Group, and the Group’s investment in Sportshub has
been impaired in full. Therefore summarised financial information is not provided for those entities. Summary financial
statements of S&S Venues California, LLC at the reporting date are as follows:
Non-current assets
Current assets
Total assets
Current liabilities
Net assets
Revenue
Expenses
Loss after tax
2016
£m
2.4
0.2
2.6
(0.1)
2.5
0.8
(1.2)
(0.4)
2015
£m
2.2
0.2
2.4
(0.1)
2.3
0.1
(0.1)
—
88
Sportech PLC Annual Report and Accounts 2016
Notes to the financial statements continued
for the year ended 31 December 2016
16. 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
2016
£m
2.6
2.6
9.0
(1.5)
7.5
—
4.1
0.9
2.1
14.6
17.2
2015
£m
2.0
2.0
6.4
(1.2)
5.2
—
1.2
2.4
2.1
10.9
12.9
2016
£m
—
—
—
—
—
34.3
—
—
0.2
34.5
34.5
2015
£m
—
—
—
—
—
21.6
0.1
—
0.2
21.9
21.9
Non-current trade receivables includes contingent consideration due on the disposal of Sportech-NYX Gaming, LLC
of £1.6m, and accrued income due after more than twelve months of £1.0m (2015: £1.1m and £0.9m 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 2016, £0.8m (2015: £0.4m) of trade receivables were past due
and not impaired. Management also considers that these receivables are recoverable in full.
As at 31 December 2016, trade receivables of £1.5m (2015: £1.2m) were impaired and fully provided for. The provision has
increased by £0.2m as a result of foreign exchange movements, and a £0.1m provision made for a customer in the
Racing and Digital segment.
The carrying amounts of trade and other receivables are denominated in the following currencies:
Sterling
US Dollar
Euro
Other
Total
Group
Company
2016
£m
4.6
9.0
3.1
0.5
17.2
2015
£m
4.0
6.2
1.5
1.2
12.9
2016
£m
0.4
31.7
2.4
—
34.5
2015
£m
3.1
17.5
1.3
—
21.9
Sportech PLC Annual Report and Accounts 2016
89
Strategic report
Corporate governance
Financial statements
17. Inventories
Work in progress
Spare parts
Finished goods
Total
Group
2016
£m
0.2
2.1
0.2
2.5
2015
£m
0.4
1.4
0.3
2.1
The cost of inventories recognised as an expense and included in cost of sales amounted to £4.4m (2015: £3.8m).
Provisions for obsolescence held against inventories at 31 December 2016 amounted to £0.1m (2015: £0.1m).
18. Deferred tax
The movement on the net deferred tax balance is as follows:
Net deferred tax asset at 1 January
Income statement credit/(charge)
Tax credited directly to other comprehensive income
Exchange differences
Net deferred tax asset at 31 December
Group
Company
2016
£m
0.5
2.1
—
0.5
3.1
2015
£m
0.8
(0.2)
(0.1)
—
0.5
2016
£m
0.1
—
—
—
0.1
2015
£m
0.2
(0.1)
—
—
0.1
The tax 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 as follows:
Deferred tax assets
Group
At 1 January 2015
Income statement (charge)/credit
Tax credited directly to other comprehensive income
At 31 December 2015
Income statement credit/(charge)
Currency translation differences
At 31 December 2016
Pension
£m
0.5
—
(0.1)
0.4
0.1
0.1
0.6
Capital
allowances
£m
(4.8)
(0.5)
—
(5.3)
3.5
—
(1.8)
Losses and
foreign tax
credits
£m
5.2
(0.4)
—
4.8
(0.7)
0.3
4.4
Other
temporary
differences
£m
0.5
1.0
—
1.5
(1.7)
0.1
(0.1)
Total
£m
1.4
0.1
(0.1)
1.4
1.2
0.5
3.1
Deferred tax of £nil is expected to be recovered within twelve months (2015: £nil) with £3.1m expected to be recovered
after more than twelve months (2015: £1.4m).
The deferred tax asset in the Company consists of temporary differences of £0.1m (2015: £0.1m). The losses in the
Company have been fully surrendered as Group relief.
90
Sportech PLC Annual Report and Accounts 2016
Notes to the financial statements continued
for the year ended 31 December 2016
18. Deferred tax continued
In addition to the deferred tax asset which has been recognised, the Group has not recognised further deferred tax
assets of £6.7m (2015: £2.9m) 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 profit generation in these particular business units.
Expiry of these losses is as follows:
Gross losses and foreign tax credits carried forward
In more than four years
2016
2015
Provided
£m
11.9
Unprovided
£m
25.2
Provided
£m
14.3
Unprovided
£m
12.9
Deferred tax assets are recognised on losses and foreign tax credits carried forward when it is probable that future
taxable profits will be generated against which the losses and credits can be utilised.
Furthermore, the Group has gross capital losses totalling £23.0m within the UK corporate tax group which are
unprovided. Management does not believe that the potential for future taxable capital gains to arise is sufficiently
probable to enable the recognition of deferred tax in relation to these losses. The losses have an indefinite life.
Deferred tax liabilities
Group
At 1 January 2015
Income statement charge
At 31 December 2015
Income statement credit
At 31 December 2016
19. Cash and cash equivalents
Cash and short-term deposits
Customer funds
Total
Other
temporary
differences
£m
(0.6)
(0.3)
(0.9)
0.9
—
Group
Company
2016
£m
36.5
3.1
39.6
Restated
2015
£m
5.8
1.4
7.2
2016
£m
20.2
—
20.2
2015
£m
—
—
—
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 £3.1m (2015: £1.4m) 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 lotto products. The corresponding liability is included
within trade and other payables (see note 20).
Sportech PLC Annual Report and Accounts 2016
91
Strategic report
Corporate governance
Financial statements
20. Trade and other payables
Trade payables
Amounts owed to Group companies
Other taxes and social security costs
Accruals
Deferred income
Player liability
Bank overdraft
Total
Group
Company
2016
£m
10.2
—
1.8
13.1
3.2
3.1
—
31.4
Restated
2015
£m
6.1
—
1.6
9.5
3.4
1.4
1.4
23.4
2016
£m
3.8
156.6
—
6.6
—
—
—
167.0
2015
£m
0.7
59.0
—
1.7
—
—
1.0
62.4
There is no difference between book values and fair values of trade and other payables. All amounts are due within
one year.
21. Provisions
Group
At 1 January 2015
Released during the year
At 31 December 2015
Utilised during the year
Currency differences
At 31 December 2016
Onerous
contracts
£m
0.3
(0.1)
0.2
(0.1)
0.1
0.2
Other
provisions
£m
0.3
—
0.3
—
0.1
0.4
Total
£m
0.6
(0.1)
0.5
(0.1)
0.2
0.6
Provisions have been recognised where the Group has contractual obligations to provide services where the estimated
unavoidable costs to carry out the obligation exceed the expected future economic benefits to be received. Other
provisions include provisions for obligations to reinstate property to its original condition at the start of the lease term.
Of the provisions included in the above table, £0.1m is expected to be utilised within twelve months (2015: £0.1m) and
£0.5m is expected to be utilised after twelve months (2015: £0.4m).
92
Sportech PLC Annual Report and Accounts 2016
Notes to the financial statements continued
for the year ended 31 December 2016
22. Financial liabilities
Current
Deferred and contingent consideration due within one year
Non-current
Drawn revolving credit facility due after one year
Deferred and contingent consideration due after one year
Total non-current financial liabilities
Total financial liabilities
Group
2016
£m
0.2
—
0.1
0.1
0.3
2015
£m
—
62.1
0.2
62.3
62.3
Company
2016
£m
—
—
—
—
—
2015
£m
—
62.1
—
62.1
62.1
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 2016, the Group repaid its debt facility in full (2015: repaid £8.0m). £25.0m of the
available facility was also cancelled by the Group on 22 December 2016 as it was deemed surplus to requirements.
The remaining £50.0m facility remains available to the Group if required from its existing lenders.
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 due totalling £0.3m represents management’s best estimate of the consideration
to be paid in acquiring Bump. The agreed contingent consideration was subject to amendment during the year, with the
amount payable now split between the following two elements:
– an amount equivalent to the 2016 EBITDA earned by Bump; and
– 25% of the 2017 EBITDA earned by Bump.
The maximum amount payable as contingent consideration is £5.1m. 75% of the consideration is payable in July 2017,
with the remaining balance payable in July 2018.
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 2017.
Sportech PLC Annual Report and Accounts 2016
93
Strategic report
Corporate governance
Financial statements
23. 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. 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. Due to the ongoing uncertainty with
respect to the appropriate capital structure of the Group, largely due to receipt of the exceptional income in December
2016 from the Spot the Ball VAT reclaim, no interest rate swaps have been entered into following the expiry of legacy
swaps in the year. The Board’s intention remains to hedge its interest rate risk, and this will be reviewed at the
appropriate time during 2017.
At 31 December 2016, 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 £0.2m (2015: £0.3m) 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.
94
Sportech PLC Annual Report and Accounts 2016
Notes to the financial statements continued
for the year ended 31 December 2016
23. 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 2016, there
were no outstanding commitments on foreign exchange forward contracts (2015: none).
The average rate of the US Dollar during the year was 1.36 and the Euro was 1.23, and the rates as at the reporting date
were 1.23 for the US Dollar and 1.17 for the Euro. If the average and closing rates for the US Dollar were 1.45 and for the
Euro were 1.3, profit after tax would have been £19.6m and net assets would have been £146.1m at 31 December 2016.
If the average and closing rates for the US Dollar were 1.2 and for the Euro were 1.15, profit after tax would have been
£17.9m and net assets would have been £158.2m at 31 December 2016.
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.
The Group has monitored 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 Adjusted net debt. Adjusted EBITDA is defined as EBITDA before
exceptional items, impairment of assets and share option charges, as reflected on the income statement. Adjusted
net debt is calculated as bank debt, plus deferred consideration, plus bank overdrafts, less cash and cash equivalents
(excluding customer funds). The deferred consideration excludes any consideration treated as employment costs
in accordance with IFRS 3 ‘Business Combinations’.
Following the successful outcome of the Spot the Ball claim during the year, the Group now operates in a cash surplus
position and therefore has nil leverage. The Board continue to review the most appropriate capital structure for the
Group, in light of its strategic plans.
Financial assets and liabilities
At each reporting date, the Group had the following categories of financial assets and liabilities:
Loans and receivables
Available for sale financial assets
Financial assets and liabilities measured at amortised cost
Available for sale financial assets
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
2016
£m
13.5
2.9
28.5
2015
£m
9.7
4.0
79.5
Company
2016
£m
2015
£m
—
—
—
—
Group
2016
£m
1.6
1.3
2015
£m
1.1
2.9
Sportech PLC Annual Report and Accounts 2016
95
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Corporate governance
Financial statements
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.
It continues to be 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.
During the year the Group disposed of 25% of its equity stake in NYX for total consideration of £0.6m. Losses of £0.7m
(2015: £nil) were realised in the income statement in relation to those shares disposed of.
At the reporting date, the fair value of the remaining 1.6m of NYX shares held is £1.3m. Unrealised fair value losses on
those shares of £2.5m (2015: £1.6m), representing share price and currency movements between the date the shares
were received and the reporting date, are reported in the available for sale reserve.
Fair value of non-current borrowings
The fair value of non-current borrowings reflect the present value of future cash flows to be paid in respect of
borrowings at the reporting date, including repayment of the principal amount in August 2018 and associated interest.
At 31 December 2016, there are no borrowings drawn by the Group or the Company and therefore the fair value is nil.
The future interest payments are also nil. In 2015, the fair value for both the Group and Company was £55.2m, relative
to a book value of £62.1m. At 31 December 2015, future interest payments were £2.6m payable within one year, £2.6m
payable between one and two years and £1.7m payable between two and five years, based on the borrowings drawn
at that time.
Maturity of financial liabilities
Bank borrowings are repayable as follows:
Contractual undiscounted amount
Between two and five years
The maturity analysis of non-derivative financial liabilities is as follows:
Liabilities due at the reporting date
Within one year
Between one and two years
Between two and five years
Total
Group
Company
2016
£m
—
2015
£m
62.1
2016
£m
—
2015
£m
62.1
Group
Company
2016
£m
28.4
0.1
—
28.5
2015
£m
17.2
0.2
62.1
79.5
2016
£m
167.0
—
—
167.0
2015
£m
62.4
—
62.1
124.5
96
Sportech PLC Annual Report and Accounts 2016
Notes to the financial statements continued
for the year ended 31 December 2016
23. Financial instruments continued
Group
Company
Contractual undiscounted amount
Within one year
Between one and two years
Between two and five years
Total
2016
£m
28.4
0.1
—
28.5
2015
£m
19.9
2.8
63.8
86.5
Borrowing facilities
The Group had the following undrawn committed borrowing facilities available as follows:
2016
£m
167.0
—
—
167.0
2016
£m
50.0
2015
£m
63.9
2.6
63.8
130.3
2015
£m
12.9
£m
102.6
0.5
103.1
2016
2015
’000
206,238
—
206,238
£m
103.1
—
103.1
’000
205,221
1,017
206,238
Floating rate:
– expiring beyond one year
24. Ordinary shares
Authorised, issued and fully paid
Ordinary shares of 50p each (2015: 50p)
At 1 January
New shares issued to satisfy PSP vesting
At 31 December
Potential issue of ordinary shares
Sportech share option schemes
Certain senior Executives held options to subscribe for shares in the Company at prices of £1.064 (2015: £1.064) under
Sportech share option schemes approved by the shareholders. All such options lapsed during the year. At 31 December
2016, there remain no options outstanding under the scheme, and there is no intention to issue any further shares under
this scheme.
Year of grant
2006 (March)
Exercise
price
£1.064
Exercise
period
2009-2016
Outstanding at
31 December 2016
Number
—
Outstanding at
31 December 2015
Number
202,020
The options were exercisable at any time during the seven-year period commencing three years from the date of
the grant.
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 2016, 2,328,000 shares have
been awarded (2015: 2,400,000), 1,718,000 awards lapsed due to failure to meet the performance conditions (2015:
2,231,000), and 376,000 awards lapsed due to employees ceasing to be employed by the Group (2015: 1,003,000).
6,058,000 (2015: 5,826,000) share awards remained outstanding (unvested) at 31 December 2016.
Sportech PLC Annual Report and Accounts 2016
97
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Corporate governance
Financial statements
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.
2016 grant
The vesting of all of the award will be dependant on the Company’s TSR over a fixed three-year period commencing
3 March 2016 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.
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
25%
Pro rata between 25% and 100%
100%
In addition to the primary performance condition, the award is also subject to a financial underpin condition.
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%
98
Sportech PLC Annual Report and Accounts 2016
Notes to the financial statements continued
for the year ended 31 December 2016
24. Ordinary shares continued
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
Nov
2016
£nil
19
£0.653
3 years
43.0%
0%
£0.433
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
The weighted average remaining contractual life of outstanding awards under the PSP at 31 December 2016 was one
year and six months (2015: one year and three months). The weighted average exercise price of awards granted during
the period was £nil (2015: £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 2016
99
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Corporate governance
Financial statements
25. 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 (credit)/expense
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
Increase/(decrease) in customer funds
Cash generated from operating activities, before
exceptional items
Note
2016
£m
30.7
Restated
2015
£m
9.7
2016
£m
(33.5)
2015
£m
(7.2)
2
(81.3)
(5.7)
15
13
12
12
11, 12, 13
4
4
6
1.2
3.5
0.6
4.9
63.7
1.7
(1.1)
(0.1)
—
0.9
—
(1.3)
1.7
0.9
3.3
1.2
4.3
6.1
3.2
(0.4)
0.5
—
(0.1)
(0.6)
(2.2)
(0.9)
10.2
—
—
—
1.4
21.8
5.0
(4.3)
(0.1)
—
(12.6)
—
101.2
—
1.0
—
—
—
1.0
—
4.2
(0.6)
0.5
0.5
(1.2)
—
15.0
—
25.1
19.3
89.1
13.2
100
Sportech PLC Annual Report and Accounts 2016
Notes to the financial statements continued
for the year ended 31 December 2016
26. Contingent assets and liabilities
Spot the Ball
In December 2016, the Supreme Court denied HMRC’s request to appeal the judgment in the Group’s favour on the
£96.9m VAT repayment claim. As a result the litigation came to a conclusion and the £96.9m became a Group asset
unconditionally (see note 2).
In addition to £93.9m received by the Group by July 2016, the Group is due to receive approximately £3.0m further,
which is in relation to VAT of £1.8m and approximately £1.2m in interest. The amount of interest may vary from that
estimated in the accounts.
The Group has also lodged a claim for overpaid VAT for the period 2009 to 2012 for £0.5m and will also be claiming for
overpaid VAT in the period 2013 to 2016 of £0.3m. It is uncertain as to whether these amounts will be repaid and hence
the amounts have not been accrued for in the financial statements. There could be interest applied to these amounts
also but with interest rates of between 0% and 0.5% during this period, this is likely to be immaterial.
There is likely to be an impact on the partial exemption recovery that the Group has made during the period from 2009
to 2016, and it is possible that a different tax could be applied to the Spot the Ball revenues for this time period. The
Group is unable to accurately estimate the quantum of these items and is uncertain of the potential liability.
The Group is entitled to claim costs from HMRC in relation to the litigation which was ultimately found in the Group’s
favour. No claim has yet been made and it is uncertain as to the level of costs which are recoverable.
The Group has lodged a claim for compound interest as opposed to simple interest already received. The claim is stayed
behind the lead case of Littlewoods Retail Limited and Others which is due to be heard at the Supreme Court in July
2017. A result would be expected around six months following this hearing.
Accordingly none of the above items have been recognised in the Group’s financial statements.
Other
The Group has contingent liabilities in respect of legal claims in the ordinary course of business. It is not considered
that any material liabilities will arise from these.
In respect of the acquisition of Bump on 12 June 2014, additional consideration is payable under certain circumstances.
The maximum amount payable is outlined in note 22.
27. 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 £2.8m (2015: £2.2m).
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
2016
£m
2.7
7.7
8.5
18.9
2015
£m
2.3
6.3
7.5
16.1
2016
£m
0.1
—
—
0.1
2015
£m
0.1
0.5
—
0.6
Sportech PLC Annual Report and Accounts 2016
101
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Corporate governance
Financial statements
28. Other financial commitments
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 2016, in relation to a contract to provide and maintain
pari-mutuel betting terminals to a customer in Turkey.
29. 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
2016
£m
1.3
1.9
—
0.1
3.5
2015
£m
1.3
1.6
—
0.6
1.4
The amount outstanding in relation to management charges at the balance sheet date was £0.1m (2015: £nil).
All inter-company transactions are on an arm’s-length basis.
c.
The Group also invested cash into its joint ventures during the year as outlined in note 15. There were no trading
transactions between the Group and any of its joint ventures or associates and no amounts outstanding at the
reporting date (2015: £nil and £nil).
30. 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
2016
£m
0.6
0.2
0.8
2015
£m
0.7
0.2
0.9
Defined contribution schemes
In the UK, those employees who joined the Group consequent to the acquisition of Littlewoods Gaming (formerly
Littlewoods Leisure) and who were aged under 50 on 4 September 2000 and all other UK employees of Sportech PLC
(apart from 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.
102
Sportech PLC Annual Report and Accounts 2016
Notes to the financial statements continued
for the year ended 31 December 2016
30. Pension schemes continued
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.
For employees in France and Turkey, all pensions cover is provided through employer and employee social
security contributions.
Defined benefit schemes
Pursuant to the sale agreement between Littlewoods PLC and Sportech PLC, a defined benefit scheme was set up
for those employees who joined the Group consequent to the acquisition of Littlewoods Gaming (formerly Littlewoods
Leisure) and who were aged 50 or over on 4 September 2000, the date of the acquisition. The scheme was formed on
6 April 2001 and is governed by a Definitive Trust Deed and Rules. It is a Registered Pension Scheme under Chapter 2
of Part 4 of the Finance Act 2004. The scheme is contracted out of the State Second Pension Scheme. The scheme is
currently not open to new members.
The 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 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 actuarial method for calculating the liabilities of the scheme is the projected unit method.
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
2016
£m
2.1
3.3
5.4
(7.1)
(1.7)
2015
£m
1.9
3.0
4.9
(6.3)
(1.4)
(1.7)
(1.4)
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103
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Corporate governance
Financial statements
The figures below have been determined by qualified actuaries at the balance sheet date using the
following assumptions:
Discount rate
Rate of increase in salaries
Rate of increase in pensions in payment:
– 5% LPI
– rate of inflation
– mortality table
US
2016
4.0%
N/A
UK
2016
2.6%
0%
US
2015
4.0%
N/A
UK
2015
3.6%
0%
N/A
N/A
RP -2014
Total Dataset
Mortality
with scale
MP -2016
3.5%
3.5%
S2NxA
CMI 2015
projections
1.5% per
annum
long-term
rate of
improvement
N/A
N/A
RP -2014
Total Dataset
Mortality with
scale
MP -2016
3.0%
3.0%
S1NxA
CMI 2012
projections
1.5% per
annum long
term rate of
improvement
The movement in the defined benefit obligation over the year is as follows:
At 1 January 2016
Income statement expense/(income):
– Current service cost
– Interest expense/(income)
– Administrative expenses
Remeasurements:
– Currency exchange movements
– Gain from change in actuarial assumptions
Contributions:
– Employer’s
Payments from plans:
– Benefit payments
At 31 December 2016
Present value
of obligation
£m
6.3
Fair value of
plan asset
£m
(4.9)
Total
£m
1.4
0.1
0.1
0.1
0.3
0.2
—
0.2
—
(0.2)
0.1
(0.1)
(0.7)
(0.2)
(0.9)
0.1
0.3
—
0.4
0.9
0.2
1.1
—
(0.2)
(0.2)
(0.7)
7.1
0.7
(5.4)
—
1.7
104
Sportech PLC Annual Report and Accounts 2016
Notes to the financial statements continued
for the year ended 31 December 2016
30. Pension schemes continued
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
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)
—
1.4
Effect of change of assumptions on liability values
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 £14,000.
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 £35,000.
For the UK, if the rate of inflation were to be reduced by 0.25% the liabilities would decrease by £80,000.
For the UK, if the discount rate were to be increased to 2.85% the liabilities would decrease by £80,000. For the US,
if the discount rate were to be increased to 4.50% the liabilities would decrease by £116,000.
Future commitments
The expected employer annual contributions to the schemes for the financial year ending 31 December 2016 amount
to £0.4m (year ended 31 December 2016: £0.2m).
Estimated future benefit payments for the next ten fiscal years for the US scheme are:
At 31 December 2016
Pension benefits
Less than
a year
£m
0.5
Between
1 and 2 years
£m
0.3
Between
2 and 5 years
£m
1.1
Over 5 years
£m
8.2
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 2016
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
0.5
Total
£m
10.1
Total
£m
1.0
The weighted average duration of the UK scheme obligation is approximately 13 years.
Sportech PLC Annual Report and Accounts 2016
105
Strategic report
Corporate governance
Financial statements
Pension risks
Through its defined benefit pension plans, the Group is exposed to a number of risks, the most significant of which are
detailed below:
Asset volatility
The plan liabilities are calculated using a discount rate set with reference to corporate bond yields; if plan assets
underperform this yield, this will create a deficit. Both the pension schemes hold a low proportion of equities, which
reduces volatility and risk.
As the plans mature, the Group intends to continue to reduce the level of investment risk by investing more in assets
that better match the liabilities.
Changes in bond yields
A decrease in corporate bond yields will increase plan liabilities, although this will be partially offset by an increase in
the value of the plans’ bond holdings.
Inflation risks
Some of the Group’s pension obligations are linked to salary inflation, and higher inflation will lead to higher liabilities.
The majority of the plans’ assets are either unaffected by (fixed interest bonds) or loosely correlated with (equities)
inflation, meaning that an increase in inflation will also increase the deficit.
Life expectancy
The majority of the plans’ obligations are to provide benefits for the life of the member, so increases in life expectancy
will result in an increase in the plans’ liabilities.
31. Post balance sheet events
The Board announced on 2 March 2017, the disposal of its Football Pools division to Op Capita for cash consideration
of £83.0m. The disposal is anticipated to complete by the end of May 2017, which is conditional upon the purchaser
receiving a licence from the Gambling Commission and Sportech shareholder approval. It is estimated that the disposal
will result in no material pre-tax gain or loss to the Group in the 2017 financial statements. A corporation tax charge will
also arise on disposal which is estimated to be £6.0m.
At the reporting date there was insufficient evidence to suggest that a plan was in place to sell the business that would
be unlikely to significantly change. The transaction has conditionally completed subsequent to the year end date, and
prior to the finalisation of these financial statements, due largely to work that has been performed post year end by both
the Group and the buyer. As a result the assets are not considered to be held for sale as at 31 December 2016.
The viability statement disclosed on page 15 was prepared by the Board with the view that the Football Pools division
remains a trading asset. The Board note that the pro forma net cash position of the Group, were the transaction to have
completed at the reporting date, would be £122.6m. Although EBITDA of the Group is reduced in future periods from
that forecast in the viability assessment, the Group’s cash position and ability to meet its working capital requirements
will strengthen. Accordingly the Group is still considered to be able to continue in operation and meet its liabilities as
they fall due in the period to December 2019, and the assessment of viability is unchanged subsequent to this disposal.
106
Sportech PLC Annual Report and Accounts 2016
Notes to the financial statements continued
for the year ended 31 December 2016
32. 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
Football Pools 1923 Limited
TFPL Financial Services Limited
Football Pools Games Limited
UK Lottery Management Limited
Datatote (England) Limited
Sportech Holdco 1 Limited
Sportech Holdco 2 Limited
Sportech Mauritius Limited
Sportech, Inc.
Sportech Venues, Inc.
eBet Technologies, Inc.
Sportech Venues California, LLC
Sportech Venues CA Holdco, LLC
Sportech Games Holdco, LLC
Sportech Racing, LLC
Trackplay, 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
Joint ventures and associates
Sportshub Private Limited
S&S Venues California, LLC
DraftDay Gaming Group, Inc
Registered address
4
1
1
1
1
1
1
2
5
5
5
3
3
Country of incorporation
England & Wales
England & Wales
England & Wales
England & Wales
England & Wales
England & Wales
England & Wales
England & Wales
England & Wales
Mauritius
United States
United States
United States
United States
United States
United States
United States
United States
Canada
Canada
Canada
Panama
British Virgin Islands 9
Ireland
Netherlands
Netherlands
Germany
Germany
Turkey
France
6
6
8
5
5
5
7
7
7
11
11
10
12
13
14
15
Country of incorporation
India
United States
United States
Registered Address
16
5
17
Class of shares held Shareholding
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
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%
Class of shares held Shareholding
Ordinary
Ordinary
Ordinary
50%
50%
30%
* The Group’s equity stake in DraftDay reduced from 39% to 30% in the year. See note 15.
Sportech PLC Annual Report and Accounts 2016
107
Strategic report
Corporate governance
Financial statements
Dormant companies
Sportech Trustees Limited
Footballpools.com Limited
C&P Promotions Limited
Pools Promotions 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
1
1
1
1
Country of incorporation Registered Address Class of shares held
England & Wales
England & Wales
England & Wales
England & Wales
England & Wales
England & Wales
England & Wales
England & Wales
Scotland
Scotland
The Netherlands
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
18
18
11
1
1
1
1
Other undertakings
NYX Gaming Group Limited
E-Tote Limited
Country of incorporation
United States
England & Wales
Class of shares held
Ordinary
Ordinary
Shareholding
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
Shareholding
1%
6.49%
Registered addresses
Number
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
Address
Country
Walton House, 55 Charnock Road, Liverpool, Merseyside, L67 1AA
England & Wales
Icarus House, Hawkfield Close, Hawkfield Business Park, Bristol, BS14 0BN
England & Wales
101 Wigmore Street, London, W1U 1QU
England & Wales
Intercontinental Trust Limited, Level 3, Alexander House, 35 Cybercity, Ebene, Mauritius
Mauritius
600 Long Wharf Drive, New Haven, CT 06511
United States
1095 Windward Ridge Parkway, Suite 170, Alpharetta, GA 30005
United States
CSC North America Inc., 45 O’Connor Street, Suite 1600, Otawa, Ontario K1P 1A4
Canada
Panama
Arias, Fabrega & Fabrega, Plaza 2000 Building, 50th Street, Panama
British Virgin Islands Trident Chambers, POB 146, Road Town, Tortola, British Virgin Islands
Ireland
Netherlands
Germany
Germany
Turkey
France
India
United States
Scotland
Unit 3, IDA Technology Park, Garrycastle, Athlone, Co. Westmeath, Ireland
Polakweg 23, 2288 GG Rijswijk (ZH), Netherlands
Nienhausenstrasse 42, 45883 Gelsenkirchen, Germany
Katernbergerstrasse 107, 45327 Essen, Germany
AksuKosuyolu Cad. KalayciogluSitesi No: 19/1 Bakirkoy Istanbul
8 Rue des Freres Caudron, 78140 Velizy, Villacoublay, France
Tower 2, 4th Floor, International Infotech Park, Vashi Railway Station, New Mumbai
Corporation Service Company, 2711 Centreville Road, Suite 400, Wilmington, DE 19808
Collins House, Rutland Square, Edinburgh, Midlothian, EH1 2AA
108
Sportech PLC Annual Report and Accounts 2016
Shareholder and
corporate information
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
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.
600 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
Designed and produced
by MerchantCantos
www.merchantcantos.com
101 Wigmore Street
London W1U 1QU
www.sportechplc.com
Our Iconic Brands
Sportech Racing // Digital
Bump 50:50
Winners
Runnerz
Striders
The Football Pools
Our Offices and
Operational Centres
London
Liverpool
Connecticut
Atlanta
Toronto
New Jersey
Bristol
Dublin
The Hague